VS Products vs. Union of India (2022) – Karnataka HC on Validity of NCCD & BED Post-GST

VS Products vs. Union of India (2022): The introduction of the Goods and Services Tax (GST) through the Constitution (101st Amendment) Act, 2016 aimed to create a unified indirect tax regime by subsuming multiple central and state levies. However, even after GST came into force on 1 July 2017, the Central Government continued to levy Basic Excise Duty (BED) and National Calamity Contingency Duty (NCCD) on certain specified goods, particularly tobacco and tobacco products.

This led to constitutional challenges on the ground that GST, being an exhaustive tax on supply, left no scope for simultaneous levy of excise duties. The Karnataka High Court in M/S V.S. Products vs. Union of India [2022 (1) TMI 380] addressed whether NCCD and BED could constitutionally co-exist with GST.

Points of Dispute VS Products vs. Union of India

1. Whether the levy of BED and NCCD after 01.07.2017 is constitutionally valid.
2. Whether simultaneous levy of GST under Article 246A and excise duties under Article 246 on tobacco and tobacco products is permissible.
3. Whether such simultaneous taxation is consistent with the principle of harmonious construction of the Constitution.

Submissions by the Assessee

• Exclusive power under Article 246A
  • Article 246A grants Parliament and State Legislatures power to levy taxes on all aspects of supply of goods and services, including tobacco.
  • The non-obstante provision overrides Article 246 and limits the Union’s taxing power under it.
• Article 248 curtailed
  • Post-101st Amendment, Article 248 (residuary powers) is made “subject to Article 246A.”
  • No new taxes, duties, or cesses can be levied outside the GST framework.
• Repeal of Central Excise Tariff Act
  • Section 174 of the CGST Act repealed the Central Excise Act except for limited products.
  • References to the Excise Tariff Act in the Finance Act, 2001 for levying NCCD became redundant.
• Discrimination against tobacco products
  • Tobacco faces both GST and excise duties (NCCD and BED), unlike most other goods which bear only GST.
  • This creates arbitrary treatment violating Article 14 of the Constitution.

Submissions by the Revenue

• Constitutional competence intact
  • Article 246 continues even after insertion of Article 246A.
  • “Notwithstanding” in Article 246A gives additional power for GST but does not nullify Parliament’s powers under Article 246.
• Policy balancing under GST
  • Certain products like alcohol, petroleum, and tobacco were deliberately kept under dual levy regimes to balance Centre and State revenues.
  • Courts must respect this legislative compromise.
• Aspect doctrine
  • A single transaction can be taxed under different aspects.
  • Manufacture of tobacco attracts excise duty (BED/NCCD), while its supply attracts GST.
• Supporting precedents
  • Indian Oil Corporation Ltd. v. Union of India (2020) – Certain petroleum products remained excisable post-GST.
  • Union of India v. Mohit Minerals (2019) – Constitution allows cess even after GST.
  • Avinder Singh v. State of Punjab (1979) – Double taxation is not prohibited unless expressly barred.
• Legislative discretion
  • Parliament has wide latitude in taxation policy, classification, and revenue generation.
  • Courts should not interfere unless taxation is arbitrary or unconstitutional.

Legal Principles and Scope of Decision

1. Mutually exclusive powers
   • Articles 246 and 246A co-exist without overlap.
   • Parliament retains power under Entry 84, List I (Excise duty on tobacco), even after GST.
2. Preservation of excise duty on tobacco
   • The 101st Amendment retained Entry 84 in List I to allow excise duty on tobacco products.
3. Double taxation not per se invalid
   • Simultaneous levy of GST and excise duties is permissible unless explicitly prohibited.
4. NCCD and BED valid post-GST
   • These duties are backed by Article 246 and Entry 84, List I.
   • GST under Article 246A does not nullify their operation.

Conclusion and Judgment

The Karnataka High Court upheld the constitutional validity of NCCD and BED on tobacco products, ruling that:

• Levy under Article 246 and levy under Article 246A can co-exist.
• Excise duties like NCCD and BED were consciously preserved post-GST.
• Parliament’s power to levy such duties remains intact.

The writ petition was dismissed, and the levies were declared valid.

Practical Impact on Businesses

• Tobacco industry burden: Manufacturers continue facing dual taxation – excise duties (BED + NCCD) and GST.
• No relief from double taxation: Judgment affirms its constitutional validity unless expressly barred.
• Policy implications: Confirms legislative choice to retain tobacco as a high-revenue product outside the full GST umbrella.
• Precedent for other goods: Similar reasoning may apply if future legislations impose parallel levies on GST goods.