Major Win For Tobacco Industry as Supreme Court Grants Relief

The Supreme Court grants relief to the Tobacco Industry on the ongoing 17-year-long battle, The matter pertains to The matter pertains to 2006, when a demand notice of Rs.10 crore was issued to a tobacco company by the Central Excise Department, seeking 67% excise duty on tobacco products. The industry claimed that chewing tobacco is different from other flavoured products of the brands, and thus needs separate classification and rates.

Tobacco Industry seeking for proper computation of excise duties

The Tobacco industry, through a review petition, aimed to revise the calculation method for excise duties to reflect the total consideration from actual sales. Previously, under the old excise regime, they paid duties based on transaction value. The industry is seeking to pay duties based on sales value with specified deductions.

Flavoured products and chewing tobacco were subjected to a 67% rate of taxation, with differing valuation methods based on Maximum Retail Price (MRP) and transaction price. The Central Excise Department implements taxation based on transaction value instead of the selling price, aiming to reduce disputes commonly arising from retail pricing. The industry contested this levy at CESTAT in 2010, which was ruled in favour of them for the classification dispute. However, subsequent challenges at the apex court on classification and statute of limitations were unsuccessful. In April 2024, the industry filed a review petition, Justices Sanjeev Khanna and Aravind Kumar ordered CESTAT to determine the differential tax amount, focusing on the cum-duty principle.

ITC Stock Up Today

With this relief news regarding the Supreme Court granting relief to the tobacco industry by ordering the Customs Excise and Service Tax Tribunal to determine differential tax amount and cum-duty principle taking action, the stock of the biggest Tobacco company in India, ITC Limited is up by 1.5 % today from its previous day closing price and is currently trading at Rs.443 a piece.

Conclusion: If taxes are charged on sales value rather than the transactional value then it would be a better option as taxes based on sales value would ensure fairness and accuracy as these taxes are levied on the actual revenue generated by the tobacco company on the sale of tobacco products, rather than on potentially variable transactional values, This further ensures compliance and transparency also.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.