JUDGMENT
Ahmad Fareed, A.M.
1. These appeals by the Department are directed against the orders of the CIT(A)-II, Pune dt. 15th Sept., 1997 and 30th Dec., 1997 for asst. yrs. 1994-95 and 1995-96 respectively.
2. The grounds raised by the Department in both the appeals are identical and are as under :
“1. On the facts and in the circumstances of the case, the CIT(A) erred in allowing the deduction under Section 80-I of the IT Act, without appreciating the fact that gutkha is a tobacco preparation and will fall within item 2 of the 11th Schedule to the IT Act.
2. On the facts and in the circumstances of the case, the CIT(A) failed to appreciate the fact that gutkha takes the colour of tobacco preparation inasmuch as 7 per cent tobacco mixed with supari in gutkha/pan masala has the injurious affect of converting it into a tobacco preparation.
3. The order of the learned CIT(A) may be vacated on the above issues and that of the AO be restored.
4. The appellant craves leave to add, amend or alter any of the above grounds of appeal.”
3. The facts of the case in brief are that the assessee was engaged in the business of manufacturing ‘pan masala’ and ‘gutkha’ at its units at Ghodnadi, Baroda, Mumbai, Hyderabad and Pune. The assessee claimed deduction under Section 80-I and under Section 80-IA in respect of its Ghodnadi, Baroda and Hyderabad units for asst. yrs. 1994-95 and 1995-96 as under :
Asst yr. Unit Claim under Section 80-I Claim under Section 80-IA
(Rs.) (Rs.)
1994-95 Ghodnadi 91,78,120 --
1995-96 Ghodnadi 1,36,59,044 --
Baroda -- 52,36,545
Hyderabad -- 36,67,369
----------- ---------
1,36,59,044 89,03,913
----------- ---------
4. The AO disallowed the above claims made by the assessee. In first appeal, the CIT(A) allowed the assessee's claims and the Department has challenged the orders of the CIT(A) in the present appeals.
5. Shri Satya Prakash, the learned Departmental Representative, placed reliance on the orders of the AO and vehemently argued saying that the CIT(A) had erred in allowing the assessee’s claims for deduction under Section 80-I and under Section 80-IA.
6. Shri S.E. Dastur, the learned Authorised Representative of the assessee reiterated the arguments which were advanced on behalf of the assessee before the AO and also before the CIT(A). The submissions made by him are summarised below :
that the main ingredient of gutkha was ‘supari’ and not tobacco. The details of comparative consumption of all the ingredients of gutkha filed at p. 16 of the paper book show that the content of supari (by weight) was 73.21 per cent;
that the articles mentioned in Item No. 2 of the Eleventh Schedule of the IT Act, viz. cigars, cigarettes, bidis, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff had tobacco as their main constituents;
that reliance was placed on the decision of Tribunal Mumbai in the case of Monginis Bakery v. Dy. CIT in ITA No. 3571/Bom/1993 for asst. yr. 1989-90, dt. 25th May, 1995 [reported at (1996) 54 TTJ (Bom) 88–Ed.].
that reference was made to Chapters 21 and 24 of the Central Excise Tariff Act, to say that pan masala containing tobacco appeared at Entry No. 2106.11 of Chapter 21 which dealt with miscellaneous edible preparations and that it did not appear in Chapter 24 which dealt with tobacco and manufactured tobacco substitutes.
that reliance was placed on the judgment of Madras High Court in the case of M.V.S. Kathirvelu Nadar v. Commr. of Agrl. IT (1968) 68 ITR 786 (Mad)
that the assessee’s case was squarely covered by the decision of Tribunal, Allahabad in the case of Kothari Products Ltd. v. Asstt. CIT (1991) 37 ITD 285 (All). In this connection, reliance was placed on the judgment of Allahabad High Court in the case of CIT v. Brigadier B.D. Khurana (1996) 217 ITR 381 (All).
that the application filed by the CIT (Central) Kanpur under Section 256(2) against the order of Tribunal Allahabad in the case of Kothari Products Ltd. (supra) was rejected by the Allahabad High Court in ITA No. 429 of 1992 vide order dt. 18th July, 1995. In this connection, reliance was also placed on the judgment of the Supreme Court in the case of Berger Paints India Ltd. v. CIT (2004) 266 ITR 99 (SC).
that the principle of ejusdem generis supported the assessee’s case, and reliance was placed on the judgment of the Hon’ble Supreme Court in the case of Siddeshwari Cotton Mills (P) Ltd. v. Union of India AIR 1989 SC 1019.
that the principle of noscitur a sociis supported the assessee’s case and reliance was placed on the judgment of Bombay High Court in the case of CIT v. Caltex (India) Ltd. (1989) 177 ITR 239 (Bom)
that attention was invited to the meanings of the words ‘bidi’, ‘cheroot’, ‘cigarette’, ‘snuff, ‘preparation’ as given in The Random House Dictionary of the English Language by Jess Stein and Laurence Urdang
7. We have considered the rival submissions in the light of material on record and the precedents cited. The only issue involved in this appeal is whether ‘gutkha’ manufactured by the assessee-company is’ a ‘tobacco preparation’ within the meaning of Item no. 2 of the Eleventh Schedule to the IT Act, 1961. The relevant part of the Eleventh Schedule is reproduced as under :
“THE ELEVENTH SCHEDULE
[See Section 32A, Section 32AB, Section 80CC(3)(a)(i), Section 80-1(2), Section 80J(4) & Section 88A(3)(a)(i)]
List of articles or things
1. Beer, wine and other alcoholic spirits.
2. Tobacco and tobacco preparations, such as, cigars and cheroots, cigarettes, bidis, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff.
3. Cosmetics and toilet preparations.
4. …….
5. ……”
8. It is seen that the CIT(A) while allowing the assessee’s appeal observed in para 9 of his order as under :
“I have carefully considered the arguments put forth on behalf of the appellant and find the same to be in order. The decision of the Tribunal, Allahabad Bench in the case of Kothari Products Ltd. v. Asstt. CIT (1991) 37 ITD 285 (All), which is squarely applicable to the appellant’s case, is clearly in the favour of the appellant. Even the decision in the case of Monginis Bakery v. Dy. CIT (1996) 54 TTJ (Bom) 88 : (1995) 55 ITD 271 (Bom) by the Bombay Tribunal supports the appellant’s case. There is considerable merit in the Authorised Representative’s argument that since gutkha contains only 6 to 7 per cent tobacco, it cannot be described as a tobacco preparation. The Authorised Representative’s argument that the illustration of tobacco preparation mentioned in item 2 of the Eleventh Schedule, i.e., cigar, cheroots, cigarettes, bidis, etc. are all preparations, which contain substantial amount of tobacco and therefore, gutkha cannot be considered to be in the same category, is also valid on the facts of the case. The fact that both under the Central Excise and ST Act, the classifications for tobacco products and pan masala/gutkha are separate also goes in favour of the appellant. The AO’s reference to the Patna High Court decision is, in my opinion, not very relevant. It can be nobody’s case that the interpretation under the IT Act has necessarily to be different from interpretations under other Acts, particularly in the absence of any definition of the word ‘tobacco preparation’ in the IT Act. I agree with the Authorised Representative that if the AO’s interpretation were to be accepted, then all pharmaceutical products containing a little percentage of alcohol would have to be classified as alcoholic products. The AO’s reference to the Supreme Court decision in the case of CIT v. Taj Mahal Hotel also does not appear to be relevant to me. In my opinion, even in the popular sense, gutkha is known to be a preparation containing tobacco, i.e., not merely as a ‘tobacco preparation’. Thus, on the face of it, it would be absurd to consider gutkha as a tobacco preparation, I, therefore, find no reason as to why the appellant should not be allowed the benefit of deduction under Section 80-I. The AO is hereby directed to modify the assessment by allowing the benefit of deduction under Section 80-I to the appellant.”
9. While the learned Departmental Representative heavily relied on the order of the AO, the first and foremost argument of Shri Dastur was that tobacco was not the main ingredient of ‘gutkha’. He drew our attention to a chart at Page No. 1 of his paper book which shows comparative consumption (in percent) of in all 16 ingredients out of which four ingredients in descending order of their share (by weight) are as under :
Particulars % consumption ------------- -------------- Supari 73.21 Kattha powder 9.68 Tobacco 6.20 Lime powder 3.00
10. Shri Dastur contended that all the ‘tobacco preparations’ illustrated in Item No. 2 of the Eleventh Schedule had tobacco as the main ingredient-about 99 per cent. He repeatedly emphasised that ‘gutkha’ had only about 6 per cent of tobacco (in terms of weight) and that its main ingredients was supari. He even suggested that ‘gutkha’ could more appropriately be called a ‘supari preparation’.
11. The argument of Shri Dastur, that ‘gutkha’ is not a ‘tobacco preparation’ because unlike cigarette, bidi, cigar, etc. it has only about 6 per cent of tobacco is, in our considered opinion, specious to say the least. There cannot be any dispute about the fact that when consumed, ‘gutkha’ gives a distinct tobacco effect and it is well-known that a person who does not take tobacco and who does not wish to start taking tobacco will not consume ‘gutkha’. In other words, ‘gutkha’ is known to be taken by those persons alone who want to get its tobacco effect. A smoker gets the desired tobacco effect from smoking a cigarette just as a person gets the desired tobacco effect from chewing a sachet-full of ‘gutkha’. We are not aware if there is a method available by which one can measure and compare the tobacco effect from smoking a cigarette and that from chewing a sachet-full of ‘gutkha’. It is difficult to say as to which of these two preparations of ‘cigarette’ and ‘gutkha’ give more tobacco effect in quantitative terms. Therefore, we have no doubt in our mind that ‘gutkha’ is a ‘tobacco preparation’ just as cigars, cheroots, cigarettes, bidis, etc. are ‘tobacco preparations’.
12. The CIT(A) in para 9 of his order says that if the AO’s interpretation was to be accepted, then all pharmaceutical products containing a little percentage of alcohol would have to be classified as alcoholic products. This observation of the CIT(A) is not only illogical but is also ludicrous, because, it is nobody’s case that ‘gutkha’ is manufactured for being consumed as a medicine. The CIT(A) has not compared like with like. In our opinion, ‘gutkha’ should be treated as a ‘tobacco preparation’ not for the only reason that it contains tobacco but because it is consumed for a desired tobacco effect, it is consumed by those who are looking for a tobacco effect and it is not consumed by those who do not want tobacco effect.
13. It may be useful to give the analogy of the products beer, wine, other alcoholic drinks mentioned in Item 1 of the Eleventh Schedule. The ‘genus’ for the products mentioned in Item No. 1 is alcohol. Beer is known to have a very small percentage of alcohol of about 3 to 5 per cent and the rest of it is water, but still beer is clubbed with wine and other alcoholic spirits which are known to have much higher percentage of alcohol. Beer, having a small percentage of alcohol is consumed for its alcohol content for getting the desired alcohol effect. And it is that small component of alcohol that makes beer and pure mineral water two distinct products. The benefit under Section 80-I is denied for manufacture of beer as well as for manufacture of wine and other alcoholic drinks.
14. In order to explain a little further the view that we are inclined to take in this case, in a little more detail, we would like to give the example of a cup of tea. The extract of tea leaves in water in a cup of tea represents a very small component and the rest of it is water, but still a cup of tea is taken for that very small component (in terms of weight) of the extract of tea leaves in water and not for its ingredient of plain water.
15. The decision of the Tribunal, Allahabad Bench in the case of Kothari Products Ltd. (supra) relied upon by Shri Dastur, needs some amount of discussion. It is seen that the Tribunal had decided a question of fact and that the Allahabad High Court while rejecting the application filed by the CIT, (Central) Kanpur, under Section 256(2) of the IT Act on the ground that no question of law arose out of the order of the Tribunal, Allahabad Bench (supra) had observed as under :
“This is an application under Section 256(2) of the IT Act. Having heard learned counsel Shri Rakesh Ranjan Agarwal and perusing the application, we are of the opinion that no question of law arises out of the order passed by the Tribunal.
The application is therefore, rejected.”
16. It was held by the Tribunal Allahabad in the above case, that ‘zarda yukta pan masala’ having tobacco content of 4 to 5 per cent was not a ‘tobacco preparation’. The relevant extracts from paras 9 and 10 of the Tribunal’s order are reproduced below
“9. In absence of any specific definition provided of the words ‘tobacco preparations’ it has to be interpreted by the taxing authorities. The alterations in the list given no doubt is not exhaustive but it does give an idea and the intention of the legislature behind the provisions. The words ‘cigars, cheroots, cigarettes, bidis, smoking mixtures for pipers and cigarettes, chewing tobacco and snuffs’ suggest that in all these items, the basic content is tobacco, whether it is prepared with the help of a leaf or with the help of a paper or with some other help. But still the basic ingredients are tobacco.–The words ‘tobacco preparation’ as understood by a common man, is that it must be basically a produce prepared out of tobacco and the basic content should be tobacco and not otherwise. In the present case, zarda yukta pan masala, as pointed out by the learned counsel for the assessee in his argument, is that the tobacco content is hardly 4 per cent to 5 per cent while the basic content is pan masala which is 95 per cent. It also could not be denied that the man does not purchase this zarda yukta pan masala for the purposes of zarda only. In fact, he purchases pan masala to use pan masala as such but in addition to it, he also uses a little tobacco to make it still tastier.
10. The entire circumstances and the evidence on record, in our opinion, suggest that by no stretch of imagination zarda yukta pan masala can be said to be a tobacco preparation which hardly contains 4 per cent to 5 per cent of zarda and the major content is pan masala.–It is only like making pan masala a little tastier and to be liked by more number of people that small quantity of zarda is mixed but that mixing, in our opinion, itself does not turn the alleged preparation to be a preparation of sufficiently small quantity of item mixed in it. Likewise, a medicine prepared of alcohol base cannot be said to be an alcoholic preparation but a medicine of which alcohol is a base but that too in a very small negligible quantity. Alcoholic preparations are only beer, wine and other alcoholic spirits but no medicine prepared with a base as alcohol is ever treated either in the common parlance or by any law as alcoholic preparations. With all these facts in the background, we hold that zarda yukta pan masala is not a tobacco preparation and thus it cannot be taken out of the items for which deductions under Section 32AB and Section 80-I are allowable.”
17. With due respect, we find it difficult to agree with the view held by the Tribunal, Allahabad that about 4 to 5 per cent tobacco content in ‘zarda yukta pan masala’ was of a ‘very small’ and ‘negligible’ quantity and that it made plain pan masala just a little ‘more tastier’. In our opinion, 4 to 5 per cent of tobacco does not merely make plain pan masala a little ‘tastier’, but it is the required quantity of tobacco which converts the plain pan masala into an entirely different product which is consumed by an entirely different group of people. A person who does not take tobacco and who does not wish to start taking tobacco will not consume pan masala having 4 to 5 per cent of tobacco content.
18. Shri Dastur relied upon the decision of Tribunal, Mumbai Bench, in the case of Monginis Bakery v. Dy. CIT in ITA No. 3571/Bom/1993 for asst. yr. 1989-90, dt. 25th May, 1995 (supra). In this case, the Tribunal defined the word ‘confectionery’ and held that items like cakes and savouries did not come within the ambit of the connotation of the word ‘confectionery’. Manifestly, the facts of the case before us are entirely different and, are not in any manner covered either fully or partly by the decision of the Tribunal in the case of Monginis Bakery (supra).
19. Shri Dastur wanted to draw support from the doctrine of ‘Noscitur a sociis’ and also from the principle of ejusdem generis.
19.1 The doctrine of ‘Noscitur a sociis’ says that the meaning of a word is known from the accompanying words. This doctrine was explained and applied by the Bombay High Court in the case of CIT v. Caltex (I) Ltd. (supra) and Shri Dastur, the learned Authorised Representative of the assessee placed reliance on this case. In the instant case before us, the tobacco preparations illustrated in Item 2 of Eleventh Schedule are consumed for a desired tobacco effect just as gutkha is consumed because of its tobacco content and for the desired tobacco effect. Therefore, in our opinion, the doctrine of noscitur a sociis does not support the assessee’s case.
19.2 The principle of ‘ejusdem generis’ was explained by the Supreme Court in the case of Siddheshwari Cotton Mitts (P) Ltd. v. Union of India and Anr. AIR 1989 SC 1019 as under :
“The expression ejusdem generis–‘of the same kind or nature’–signifies a principle of construction whereby words in a statute which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation and are limited to matters of the same class or genus as preceding them. If a list or string or family of genus describing terms are followed by wider or residuary or sweeping up words, then the verbal context and the linguistic implications of the preceding words limit the scope of such words. The principle underlying this approach to statutory construction is that the subsequent general words were only intended to guard against some accidental omission in the objects of the kind mentioned earlier and were not intended to extend to objects of a wholly different kind. This is a presumption and operates unless there is some contrary indication. But the preceding words or expressions of restricted meaning must be susceptible of the import that they represent a class. If no class can be found, ejusdem generis rule is not attracted and such broad construction as the subsequent words may admit will be favoured. The preceding words in the statutory provision which, under this particular rule of construction, control and limit the meaning of the subsequent words must represent a genus or a family which admits of a number of species or members. If there is only one species it cannot supply the idea of genus.”
19.3 In the instant case, in Item 2 of the Eleventh Schedule, the expression ‘tobacco preparation’ is preceded by the word tobacco which represents the ‘genus’ for all the terms which are mentioned in Item 2. gutkha is a preparation which has tobacco content of about 6 per cent by weight and it is consumed for the desired tobacco effect just as a smoker gets the desired tobacco effect from a cigaretee. Therefore, in our opinion, gutkha comes within the ambit of the genus–describing term of tobacco preparation and the principle of ejusdem generis also does not support the assessee’s case.
20. Shri Dastur, the learned Authorised Representative of the assessee referred to Chapter 21 and 24 of the Central Excise Tariff Act and placed reliance on the decision of the Madras High Court in the case of M.V.S. Kathirvelu Nadar v. Commr. of Agrl. IT (supra). The Central Excise Tariff Act is part of indirect taxes and the provisions of law under the indirect taxes and direct taxes are not known to be always finetuned with each other. In the case of M.V.S. Kathirvelu Nadar (supra), it was held by the Madras High Court that if one wing of the Government takes a particular view on a certain transaction, then it is not proper that the same wing, while dealing with another branch of its business, should contradict itself and come to a different conclusion. In our considered opinion, the facts of the instant case are entirely different and the decision of the Madras High Court in the case of M.V.S. Kathirvelu Nadar (supra) does not lend any support to the assessee’s case. On the contrary, the judgment of the Patna High Court in the case of Ram Ballabh Pd. Singh & Etc. v. State of Bihar & Ors. AIR 1986 Pat 218 which has been cited by the AO in para 7 of her order goes against the above argument of the learned Authorised Representative of the assessee. The relevant observations of their Lordships of Patna High Court are reproduced below :
“In matters of construction similarity is not identity, and no presumptions with regard to the purported policy of different statutes can be safely inferred or raised.”
21. In view of the facts and circumstances of the case as discussed in the above paragraphs, we are of the considered opinion that ‘gutkha’ manufactured by the assessee-company is a ‘tobacco preparation’ within the meaning of Item No. 2 of Eleventh Schedule of the IT Act. We, accordingly, reverse the orders of the CIT(A) and allow the Department’s appeals for asst. yr. 1994-95 and asst. yr. 1995-96.
22. In the result, both the appeals of the Department are allowed.
