High Court upholds pan masala manufacturers claim for excise exemption

GANGTOK, 21 May: The Sikkim High Court has granted exemption of excise duty to Unicorn Industries, a mouth freshener manufacturer located at Majhigaon, Jorethang, South Sikkim for the period of ten years, from the date of commencement of its commercial production, in line with the special incentives which had attracted the investment to Sikkim.
Unicorn Industries came into existence and began its production of Pan Masala on 27 June, 2006 in Sikkim. At the time, under a notification dated 09 September 2003 issued under sub-section (1) of Section 5A of the Central Excise Act, 1944, “Special package of incentives for development of Industries in the State of Sikkim, 2002” granted new industries here exemption from excise duty for a period of ten years.
However, a state government, on 25 April 2007 termed ‘pan masala’ as falling under the list of ‘demerit good’ [hazardous to health] and hence not entitled to the exemption. Unicorn Industries had challenged this notification and demanded exemption of Central Excise duty under sub-section (1) of Section 5A of the Central Excise Act, 1944.
The Single Bench of the Sikkim High Court in its recent judgment allowed Unicorn Industries to get the economic incentives of “Special package of incentives for development of Industries in the State of Sikkim, 2002” and as per the Government of India policy for Northeastern states.
In the judgment, Chief Justice Permod Kohli points out that demerit goods have not been defined anywhere in the Notifications published either by the state or the central governments. The High Court observed that ‘Pan Masala’ has not been declared as health hazardous by any notification or order of the Government of India or the State Government. “No material or scientific reports have been placed on record to demonstrate that the Pan Masala containing no tobacco is health hazardous,” the judgement reads.
The Single Bench, further stating that the notification dated 09.09.2003 later amended vide notification of 25.04.2007 “has not been applied retrospectively” observed that “any industry established after the amendment of notification dated 09.09.2003 in the State of Sikkim manufacturing any of the excluded items including the Pan Masala will not be entitled to exemption w.e.f the date of the impugned notification.”
The Sikkim High Court further observed that the State has failed to disclose any material to indicate the public interest that Pan Masala falls under the category of demerit goods and health hazardous and is not supported by any ‘scientific analysis or material’ to justify the plea.