Gutkha Makers not entitled to Section 80I/80IA Deduction Gutkha Makers not entitled to Section 80I/80IA Deduction

Dhariwal Industries Ltd.

(Formerly Known as Dhariwal Tobacco Products Pvt. Ltd.) D. Kennedy Road, Behind Hotel Le Meridien, Pune 411 001 (PAN: AAACD5896L)

Vs.

ACIT (Inv.) Circle 2( 1) Addl. CIT, Range-l Pune

APPELLANT-ASSESSEE

RESPONDENT

ACIT, Circle 2(3) DCIT, Circle 1 (1) Pune

Vs.

Dhariwal Industries Ltd.

(Formerly Known as Dharivval Tobacco Products Pvt. Ltd.) D. Kennedy Road, Behind Hotel Le Meridien, Pune 411001 (PAN: AAACD5896L)

APPELLANT

RESPONDENT-ASSESSEE

Gutkha and pan masala containing tobacco are "tobacco preparation" and "chewing tobacco" within the meaning of Item no. 2 of the Eleventh Schedule to the I-T Act. Since the assessee is manufacturing or producing Gutkha, which is one of the items covered by the Eleventh Schedule, the assessee is not entitled to claim deduction u/s. 80I/80IA. (Para 46)

D.K. Srivastava: Facts giving rise to the constitution of this Special Bench are that an application was submitted by the assessee for constitution of a Special Bench to resolve the controversy involved in the present bunch of appeals as to whether Gutkha manufactured by the assessee falls under the expression "tobacco preparations" within the meaning of Item no. 2 of the Eleventh Schedule to the I-T Act so as to deprive the assessee of the special relief u/s. 80-I and 80-IA of the I-T Act. In the said application, the assessee pointed out that a Division Bench of this Tribunal at Allahabad has taken the view in Kothari Products Ltd. v. ACIT, 38 ITD 285 that "Zarda Yukta Pan Masala" (pan masala containing tobacco) is not a "tobacco preparation" under Item no. 2 of the Eleventh Schedule and that the deduction u/s. 32AB and 80-I of the I-T Act could not therefore be denied to the assessee on the ground that the said pan masala was a tobacco preparation within the meaning of Item No.2 in the Eleventh Schedule in the Income-tax Act. In its application seeking the constitution of a Special Bench, the assessee further pointed out that a Division Bench of this Tribunal at Pune has however taken a contrary view in the assessee's own case for the Assessment Years 1994-95 and 1995-96 and has held that Gutkha manufactured by the assessee is a tobacco preparation within the meaning of Item No.2 in the Eleventh Schedule and thus not eligible for deduction u/s. 80-I/80-IA. Since two Division Benches of this Tribunal have taken divergent views, the matter was referred by the Division Bench at Pune to the Hon'ble President of this Tribunal for constitution of a special Bench to resolve the controversy. Accepting the reference made by the Division Bench, the Hon'ble President has constituted this Special Bench for disposal of all the

2. Perusal of the Order passed by the Hon'ble Bombay High Court on 24^th July 2006 in Dhariwal Industries Ltd. v. ACIT (Income tax Appeal No. 118 and 119 of 2005 with appellate side writ petition no. 3837 of 2006) shows that the ld. counsel for the assessee had made a prayer before the Hon'ble High Court that it would be desirable that the appeals arising out of the order passed by a Division Bench of this Tribunal at Pune for AY 1994-95 and 1995-96 which were pending before the Hon'ble High Court should be set aside and the said appeals be restored to this Tribunal with the direction to hear them along with ITA Nos. 203/96, 864/02, 865/02, 960/03 & 961/03 referred to this Special Bench. The Hon'ble High Court has accepted the submission made by the assessee and accordingly set aside the order of the Division Bench of this Tribunal at Pune for A Y 1994-95 and 1995-96 with the direction that the aforesaid two appeals be disposed off along with the other appeals referred to the Special Bench. The Hon'ble President has consequently transferred the aforesaid two appeals also to this Bench for hearing and disposal so as to ensure compliance with the directions of the Hon'ble High Court.

3. In all the appeals under consideration, the major issue involved is whether Gutkha manufactured by the assessee is a tobacco preparation within the meaning of Item No.2 in the Eleventh Schedule to the I-T Act and therefore not entitled to deduction u/s. 80-I/80-IA of the I-T Act. Both the parties have argued the present bunch of appeals with reference to the assessment year 1997 -98 and hence we shall take up that appeal first.

"1. On the facts and in the circumstances of the case and in law} the ld. CIT(A) has erred in allowing deduction u/ s.80I and 80IA of the I-T Act} to the assessee company} without appreciating the fact that Gutkha is a tobacco preparation and will fall within item-2 of the Eleventh Schedule to the Income Tax Act.

2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) failed to appreciate the fact· that Gutkha takes the colour of tobacco preparation in as much as 7% tobacco mixed with Supari in Gutkha/pan masala has the injurious effect to converting it into a tobacco preparation.”)

5. For better appreciation of the facts of the case and the issues involved in the light of the relevant provisions of law, it may be useful at the outset itself to reproduce the relevant portions of section 80IA and the Eleventh Schedule to the Income-tax Act as they stood on 1.4. 1997. They read as under:

80-IA. Deduction in respect of profits and gains from industrial undertakings, etc., in certain cases. (1) Where the gross total income of an assessee includes any profits and gains derived from any business of an industrial undertaking or a hotel or operation of a ship or developing, maintaining and operating any infrastructure facility or scientific and industrial research and development or providing telecommunication services whether basic or cellular (such business being hereinafter referred to as the eligible business), to which this section applies, there shall, in accordance with and' subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to the percentage specified in sub-section (5) and for such number of ' assessment years as is specified in sub-section (6).

(2) This section applies to any industrial undertaking which fulfils all the following conditions, namely: -

(iii) it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule, or operates one or more cold storage plant or plants, in any part of

India

Provided that the condition in this clause shall, m relation to a small scale industrial undertaking or an industrial undertaking referred to in sub-clause (b) of clause (iv) which begins to manufacture or produce an article or thing during the period beginning on the 1^st day of April, 1993, and ending on the 31^st day of March, 1995, apply as if the words "not being any article or thing specified in the list in the Eleventh Schedule" had been omitted;

[See section 32A, section 32AB,section SOCC(3)(a)(i), section SO-I(2), section SOJ(4) and section SSA(3)(a)(i)] List of articles or things

2. Tobacco and tobacco preparations, such as, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff.

5. Aerated waters in the manufacture of which blended flavouring concentrates in any form are used.

Explanation- "Blended flavouring concentrates" shall include, and shall be deemed always to have included, synthetic essences in any form.

6. Briefly stated, the facts of the case are that the assessee-company, namely, M/s. Dhariwal Tobacco Products Ltd. (now changed to Dhariwal Industries Ltd.) was engaged in the business of manufacture and sale, inter-alia, of Gutkha during the previous years relevant to the assessment years under appeal. Its manufacturing activities were located at Ghodnadi, Baroda and Hyderabad. The assessee claimed deduction amounting to Rs.3, 18,54,241/- u/s. 80-I in respect of Ghodnadi unit while it claimed deduction amounting to Rs.3,14,89,948/- and Rs.2,91,60,476/- u/s. 80-IA in respect of Baroda unit and Hyderabad unit respectively. The Assessing Officer examined the case of the assessee. Following the order passed by the ld. Commissioner of Income-tax u/s. 263 on 4.1.96 for A Y 1993-94 and his assessment order for AY 1995-96, the Assessing Officer denied deduction claimed by the assessee u/s. 80-I & 80-IA of the I-T Act. He held that Gutkha manufactured by the assessee was a tobacco preparation within the meaning of Item No.2 in the List of Articles or Things appearing in the Eleventh Schedule to the Income-tax Act and hence the assessee was not entitled to claim deduction u/s. 80-I & 80-IA.

7. It is evident on perusal of the assessment order that the Assessing Officer has followed the order passed by the ld. CIT u/s. 263 on 4:1.96 for AY 1993-94. The said order passed by the ld. Commissioner u/s. 263 is the subject matter of appeal by the assessee (ITA No. 203/PN/1996) before this Tribunal and is also under consideration in this bunch of appeals. It may therefore be useful to briefly refer to the order passed by the ld. Commissioner u/s. 263. Relevant portion of the said order reads as under:

"...... On behalf of the assessee Shri P. C. Parmar, F.

C.A.

has appeared and argued the case. His contention is that in Gutkha preparation there is a mixture of tobacco ranging from 6.57% to 7%. For the FY 1990-91 it is 6.980%, for the FY 91-92 it is 7% and for the FY 92-93 it is 6.571 %. It has been argued that the predominant ingredient for the preparation of Gutkha is betel nut and not tobacco. The mixture of tobacco is only 7% maximum and therefore it cannot be said to be tobacco preparation. He has cited example that if a certain percentage of alcohol is mixed in a medicine it does not become an alcoholic preparation. He has further stated that if one or two spoon sugar is mixed in tea it does not become sugar preparation and therefore he has argued that it is still a betel nut preparation and not a tobacco preparation as laid down in Eleventh Schedule of the I-T Act, 1961. Apart from that he has stated that there is a different classification in Central Excise Tariff and Pan Masala has been taxed @50% and manufacturing tobacco and tobacco manufacture products substitutes have been taxed separately and "<therefore even the Central Excise makes the distinction between Gutkha and tobacco preparation. He has further placed reliance on' the decision of Income-tax Tribunal decision Vol. 37(1991) page 285 to 292, 37 ITD 285 in the case of Kothari Products Ltd.

2. I have gone through the facts of the case. Eleventh Schedule talks about Tobacco preparation and it gives certain example but the examples are not exhaustive. What is tobacco preparation is to be understood in a common parlance. It has not been defined in the act exhaustibly. I am of the opinion that once 7% tobacco is mixed in Pan Masala it changes the texture and the use of the Pan Masala and anybody who is not addicted to Zarda or tobacco will not take it.

Therefore, the Govt. has in this wisdom prescribed that in such preparation i.t should be written that it is injurious to health while in the case of Plain Pan Masala it is nowhere been mentioned. Suppose food is prepared and arsenic is mixed in a small quantity it no loner remains a food preparation and it becomes a poisonous preparation and its effect is that of a poison and not that of a food. Similarly once 7% tobacco is mixed in plain pan masala or Gutkha it changes the effect of the product and it can no longer be taken by an ordinary person who is not addicted to tobacco and therefore I am of the opinion that it takes the colour of a tobacco preparation. The example which the assessee has cited is altogether different than the mixing tobacco with Pan Masala or with Gutkha, e.g., if tobacco is mixed in betal leaves it becomes a different preparation and only one who is addicted to tobacco can eat it and not other persons. In view of above, I am of the opinion .that once 7% tobacco is mixed in Gutkha or pan nwsala it changes its and it becomes tobacco preparation. I have gone through the decision of the Kothari: product as cited by the assessee and I am of Opinion that above points have not been considered by ITAT while deciding this issue. A part from that the classification. with reference to Central Excise Act is not relevant to Income-tax. Under: these circumstances, I am of the opinion that the order of Assessing Officer is. erroneous in the eyes of law and prejudicial to the interest of revenue and therefore I direct the Assessing Officer to withdraw the deduction of Rs. 8,01,315/- already allowed to the assessee u/s. 80-I."

8. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the CIT(A). Ld. CIT(A) accepted the assessee's claim and directed the Assessing Officer to allow deduction u/s. 80-I and 80-IA of the Income-tax. The ld. CIT(A) has held that Gutkha manufactured by the assessee is not a tobacco preparation within the meaning of Item No.2 in the "List of Articles or Things" appearing in the Eleventh Schedule to the Income-tax Act, 1961. Ld. CIT(A) has given, in brief, the following reasons for his decision that Gutkha is a not a "tobacco preparation" within the meaning of Item No.2 in the Eleventh Schedule:

i) The words "tobacco" and "tobacco preparations" in Item No.2 in the Eleventh Schedule are joined by the conjunction "and" which indicates that, a product in order to constitute a "tobacco preparation" under Item No.2 in the Eleventh Schedule, must have close affinity with "tobacco" and therefore such a product must have "tobacco" as its main ingredient. He has also noted that the words "tobacco preparation" in Item no. 2 in the Eleventh Schedule are followed by specific products, such as, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff. The aforesaid particular products have tobacco as their main ingredient and therefore "tobacco preparations" should be such which have a close resemblance with those specific products following tobacco products in Item No.2 of the Eleventh Schedule. According to him, the use of the words "such as" in Item No.2 m the Eleventh Schedule immediately after the words "tobacco preparations" makes it very clear that tobacco preparations should have a close: resemblance with the individual products specified therein. He has further noted that though the "tobacco preparations" in Item no. 2 in the Eleventh Schedule do not end with the particular products following thereafter as the definition of "tobacco preparations" is inclusive but the intention of the legislature is quite clear that only those tobacco preparations should fall in the mischief of Eleventh Schedule which have got close resemblance with the particular products listed in Item No.2. Gutkha manufactured by the assessee does not, according to the ld. CIT(A), have close resemblance with the specific products listed in Item No.2. He has also considered the consumption chart of the raw materials in preparation of Gutkha and noted that consumption of tobacco in the preparation of Gutkha was only 6 to 7% while the percentage of consumption of betel nut was 78 to 80%. He has therefore held that Gutkha can, at the best, be considered as a betel nut preparation and not as a tobacco preparation. According to the ld. CIT(A), tobacco, cardamom, perfumes etc. are used in the preparation of Gutkha to enhance its taste. He has thus concluded that tobacco in Gutkha acts only as a taste enhancer.

ii) The ld. CIT(A) has applied the rule of ejusdem generis for coming to the conclusion that the words "tobacco preparations" in Item No. 2 should take colour from the particular words/products following them.

iii) Referring to the Maxwell on the Interpretation of Statutes and the judgment of the Hon'ble Supreme Court in CIT v. Taj Mahal Hotel, 82 ITR 44(SC), the ld. CIT(A) has held that while interpreting items in a taxing statute, resort should not be had to the scientific or technical meaning assigned to the items but to the meaning attached to them by those dealing in them in their commercial sense. Having said so, the ld. CIT(A) has held that Gutkha or pan masala containing tobacco is considered 'different from "tobacco preparations" such as, cigars and cheroots, cigaretes, biris, smoking mixtures for pipes and cigarettes, chewing tobaccd and snuff. According to him, Gutkha in common parlance is not known as a tobacco product and that a consumer buys Gutkha for the composite taste of betel nut, kattha, perfumes together with a kick provided by the tobacco. If the consumer is interested in the tobacco, he will prefer chewing tobacco or Zarda, which is much cheaper than Gutkha instead of buying Gutkha. According to the learned CIT(A), Gutkha has its own independent identity as against common tobacco preparations like Zarda or other form of chewing tobacco. He has also taken note of the marketing strategy of the assessee and concluded that Gutkha is marketed as a Gutkha and not as a tobacco product. He has supported his conclusion by referring to the different categories of tariffs specified under the Central Excise Act which gives a different treatment to pan masala containing tobacco as compared to "tobacco preparations" such as cigars, cigarettes, cheroots, Zarda, etc. In this connection, he has also referred to and taken support from· the decision of a Division Bench (Allah.) of this Tribunal in Kothari Products Ltd. v. ACIT, 37 ITD 285.

iv) The ld. CIT(A) has held that the contents of Gutkha like supari, kattha, tobacco and unknown trade secret perfumes may be hazardous to health and may have been banned by law but Gutkha has not been included in the list of tobacco preparations as given in Item no. 2 in the Eleventh Schedule and therefore manufacture or production of Gutkha is not hit by Item no. 2 of the Eleventh Schedule.

9. Aggrieved by the order of the learned CIT(A), the Department is now in appeal before this Tribunal. In support of the appeal, the ld. Departmental Representative invited our attention to the legislative history of section 80-I of I. T. Act. He submitted that the predecessor of section 80-I was section 80-E, which was operative in AYs 1966-67 and 1967-68 and dealt with deduction in respect of the profits and gains from specified priority industries in the case of certain companies. He emphasized that the focus of deduction under the said section 80-I was on the profits and gains derived from specified priority industries and not on non-priority industries. He submitted that section 80-E was replaced, for and from assessment year 1968-69, by section 80-I. The focus of section 80-I as it existed then, according to him, was again on making the deduction available in respect of the profits and gains from priority industries in the case of certain companies. He re-emphasized that the focus of section 80-I, like section 80-E, was on giving the deduction in respect of profits and gains from priority industries alone. Section 80-I was on the statute book in that form till assessment year 1972-73. He pointed out that the said Section 80-I was omitted for and from AY 1973-74. He submitted that the present Section 80-I was inserted by the Finance (No.2) Act 1980 w. e. f. 1.4.1981, i.e., for and from AY 1981-82, and sub-section (2) thereof specifically provided that section 80-I would apply to an industrial undertaking on the fulfillment of certain conditions enumerated therein. One of the conditions laid down in Clause (iii) of sub-section (2) of section 80-I was that the industrial undertaking should be engaged in the manufacture or production of any article or thing, not being any article or thing specified in the Eleventh Schedule. He submitted that the focus of section 80- E and 80I till A Y 1971-72 was on giving deduction in respect of the profits and gains of specified priority industries. Section 80-IA in its present form does not make any reference to the priority industries because the subject matter of priority industry has been dealt with by including certain items in the List of Articles or Things specified in the Eleventh Schedule, which an industrial undertaking must not manufacture or produce. He submitted that the purpose of the Eleventh Schedule was to specify priority industries by enumerating the articles or things, which must not be manufactured or produced by an industrial undertaking claiming deduction u/s 80IA. According to him the concept of priority industry existed not only in section 80-E and 80-I till AY,1971-72 but also continues to exist in the present 80-I/80lA in the form of Eleventh Schedule regarding which a reference has been made in sub-section (2) of Section 80-I. He contended that the benefit of section 80-I could not be granted to any industrial undertaking if it was found engaged in the manufacture or production of any article or a thing specified in the Eleventh Schedule.

10. Referring to Item no. 2 in the "List of Articles or Things" appearing in the Eleventh Schedule, the ld. Departmental Representative submitted that an industrial undertaking manufacturing or producing "Tobacco and tobacco preparations, such as, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff' was not eligible for deduction u/s. 80-IA. He further submitted that the present section 80-I was inserted in the I-T Act w.e.f. AY 1981-82 while the Eleventh Schedule was inserted in 1977 when Gutkha was not in use. It was therefore, according to him, not possible to include Gutkha as a separate item in Item No.2 of the Eleventh Schedule. He argued that Gutkha was not only a "tobacco preparation" but also "chewing tobacco" within the meaning of item no. 2 of the Eleventh Schedule. He pointed out that Gutkha was nothing but pan masala with tobacco, which was prepared before hand and put in pouches in ready to use form and further that tobacco was added to the pan masala to create intoxicating effect. According to him, it was well-known that tobacco caused intoxicating effect and therefore the inclusion of tobacco as a constituent of Gutkha was intended to product intoxicating effect. He contended that it was not the quantum or percentage of tobacco, which was relevant but its potency causing intoxicating effect tat was relevant in judging whether Gutkha was a tobacco preparation. He submitted that these facts were so widely known that no scientific evidence was needed to prove that the quality of tobacco added in pan masala or gutkha was sufficient to cause the same intoxicating effect as would be caused by consumtion of tobacco and that the consumers understood it very well and therefore preferred Gutkha or pan masalas without tobacco as they preferred to consume tobacco which was the most potent ingredient in Gutkha or pan masala without tobacco. According to him, the aforesaid distinction between two preparations, namely, gutkha and pan masala containing tobacco on pan hand, and other forms of pan masala not containing tobacco on the other hand established quite well that while gutkha and pan masala containing tobacco were “tobacco preparations”, the other forms of pan masala not the quantum of tobacco added to the pan masala but the retention of the potency of the tobacco in pan masala and gutkha, which was relevant to decide the issue under appeal. In this connection, he pointed out that the quantum of tea added for preparing a cup of tea was quite small and yet it was known as tea or tea preparation and not as water or water preparation notwithstanding the fact that the water constituted a major proportion of tea preparation. He also referred to the example that a alcohol usually consumed would have significant smaller quantity of alcohol than soda/water but still it was known as alcoholic preparation and not as soda/water or as soda/water preparation in spite of the fact that the quantum of soda/water was more than the quantum of alcoho1. In support of his aforesaid submissions, he relied upon the judgment in Indian Steel & Wire Products Ltd. v. CIT, 108 ITR 802 (Ca1.).

11. Referring to the order of the ld. CIT(A), the ld. Departmental Representative submitted that the learned CIT(A) was not justified in holding that Gutkha did not fall under any of the specific words following "tobacco preparations" in Item No.2 of the Eleventh Schedule and therefore was not in the nature of tobacco preparation. He submitted that the ld. CIT (A) fell in grave error in applying the rule of ejusdem generis in interpreting the meaning of the expression “tobacco preparation”. He contended that the words “such as” after tobacco preparation” in Item No. 2 of the Eleventh Schedule were merely illustrative and not exhaustive and therefore not restrictive of the meaning of “tobacco preparation” and therefore the rule of ejusdem generic was not applicable for interpreting the words "tobacco preparations". His next argument against, the applicability of the rule of ejusdem generis was that the said rule was applicable to construe the general words following particular words. He submitted that Item no.2 contained a list of specific words following general words and not general words following particular words. He pointed out that the words "tobacco preparations" were general words while the words following "tobacco preparations" were particular/specific words. His next argument was that the word "tobacco" in "tobacco preparations" was an adjective and would include any preparation in which tobacco was used. Without prejudice to the aforesaid submission, he further submitted that Gutkha was "chewing tobacco" in item no. 2 of the Eleventh Schedule and therefore was very much covered by the aforesaid specific denomination also.

12. Referring to the specific words following the words "tobacco preparations" in Item no. 2 in Eleventh Schedule, the ld. Departmental Representative submitted that the Eleventh Schedule was appended to the I-T Act in 1977 when Gutkha was not known and it was for this reason that it could not be included in the list of specific preparations m Item No.2 as the Legislature could not have foreseen various other forms of tobacco preparations which would come to use after the Eleventh Schedule was appended in 1978. He contended that the law has to keep pace with the latest changes and this is what should guide the interpretation of the term "tobacco preparations". He argued that if a product having tobacco in its composition retained the potency of tobacco, such a product would qualify to be called as a tobacco preparation. He argued that it was qualitative aspect of the product, which was decisive and if the product had undergone metamorphosis as a result of addition of tobacco, the product would be a tobacco preparation. He further contended that it was not the name of the product but the quality of the product that was important. According to him, pan masala without tobacco is available in the market and so is the pan masala containing tobacco and gutkha and therefore a consumer does not buy Gutkha or pan masala with tobacco unless he is interested to consume tobacco.

13. Referring to the reliance placed by the ld. CIT(A) on the treatment of pan masala and, related products under the Central Excise Act and other legislations, the ld. Departmental Representative submitted that the definition given in one legislation could not be automatically applied to another legislation. He relied upon the judgment of Hon'ble Madras High Court in CIT v. South India Viscose Ltd., 229 ITR 198 (Mad.) for the proposition that "The definition of an expression in one statute cannot be automatically applied to another statute whose object and purpose are entirely different."

14. The ld. Departmental Representative further submitted that the provisions of section 80-I/80IA should be strictly construed and the deduction admissible there-under should not be extended unless the assessee satisfied the relevant conditions in that behalf. According to him, an assessee producing pan masala with tobacco or Gutkha would be covered by "tobacco preparations" as also by "chewing tobacco" and therefore would not be entitled to claim deduction u/s. 80I/80IA.

15. Replying to the submissions made by the ld. Departmental Representative, the ld. Sr. counsel for the assessee supported and defended the order of the CIT(A). His line of argument was broadly similar to the reasoning given by the ld. CIT(A) for holding that Gutkha was not a tobacco preparation. He submitted that the provisions of Section 80-I and 80-IA were incentive provisions enacted to enhance industrial production and therefore ld. Departmental Representative was not right in his submissions that the deductions available there-under were intended in respect of the profits and gains of the priority industries. He contended that the provisions of section 80-I and 80-IA being incentive provisions should be interpreted liberally so as to promote industrial production. He argued that the purpose of section 80-I and 80-IA was not to ban or discourage the production of tobacco and tobacco preparations Gutkha, etc., as the second proviso to clause (iii) of sub-section (2) of section. 80-I itself extended the deduction to small scale industries C manufacturing or producing the articles or things including tobacco and tobacco preparations specified in Item No.2 Of the Eleventh Schedule. He submitted in the same breath that the Income-tax Act was not a social welfare scheme and therefore the admissibility of deduction or otherwise needed to be examined with reference to the relevant provisions of law and not with reference to the social objectives.

16. Inviting our attention to Item no. 2 in the Eleventh Schedule to the I-T Act, the ld. counsel submitted that the emphasis in Item No.2 was on tobacco in both the expressions, namely, "Tobacco" and "Tobacco preparations" and therefore the expression "tobacco preparations" would cover only those preparations in which substantial, main and dominant ingredient was tobacco. He contended that his submission, as aforesaid, was clearly' in conformity with the specific products enumerated in item no. 2 in the Eleventh Schedule. Explaining the significance of the words "such as" appearing in Item No.2 in the Eleventh Schedule, the ld. counsel made two-fold submissions. His first submission was that the words "such as" in Item No.2 of Eleventh Schedule were words of limitation and therefore the specific words/products following the words "tobacco preparations" would limit the meaning of the words "tobacco preparations" to those specific words. For this proposition, he relied upon the judgment in Bombay Municipal Corporation v. Daily Taj Pvt. Ltd., AIR 2001 Born. 263 in which it has been held that "the words "that is to say", "such as" are the words generally understood as words of limitation." He further submitted that the scope of "tobacco preparations" could not therefore be extended beyond the specific products enumerated in Item no. 2 of the Eleventh Schedule. According to him, the listing of products in Item No.2 was quite exhaustive and hence did not permit inclusion of Gutkha in itself. His second submission, in the alternative, in this behalf was that Gutkha was not a tobacco preparation, as it did not have tobacco as its main, substantial and dominant ingredient.

17. Elaborating his arguments, the learned senior counsel submitted that tobacco was substantial, main and dominant ingredient in all the specific products enumerated in Item no. 2, namely, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff. In this connection, he took us through the Dictionary meaning of the words "bidi", “cheroot”, "cigar", "cigarette", "snuff' and "preparation" as given in "The Random House Dictionary" and submitted that all the aforesaid specific products enumerated in Item No.2 had tobacco as substantial and dominant ingredient. He pointed out that tobacco constituted 6-7% in Gutkha and hence it could not be said that tobacco was substantial, main and dominant ingredient in Gutkha so as to call it a "tobacco preparation". He contended that an ingredient would constitute a dominant ingredient in any product if it constituted a substantial portion in the overall composition of the preparation either in terms of quantity or value or base. According to him, tobacco elaborating his arguments, the learned senior counsel submitted that constituted about 6 to 7% of Gutkha in terms of quantity and 1% in terms of value and that the base of the Gutkha was also not tobacco. He submitted that the aforesaid facts clearly established that tobacco was neither a dominant nor substantial ingredient in Gutkha and hence Gutkha manufactured by the assessee could not be said to be a tobacco preparation. He contended that a "tobacco preparation" was not something which simply contained tobacco but a preparation, which had tobacco as its main, substantial or dominant ingredient similar to the seven specific products enumerated in Item No.2. He reiterated that mere presence of small quantity of tobacco in Gutkha would not convert Gutkha into a tobacco preparation. In this connection, he took us through the Explanation to item no. 5 in the Eleventh Schedule to the I-T Act (supra), which defines "Blended flavouring concentrates". According to the said Explanation, "Blended flavouring concentrates" shall include, and shall be deemed always to have included, synthetic essences in any form." On the basis of the aforesaid, the ld senior counsel contended that where the intention of the legislature was to cover any product having tobacco as one of its ingredients, the legislature has said it specifically as it has said in the aforesaid Explanation. He contended that, in the absence of similar words as in Explanation to Item No.5 in that Eleventh Schedule, mere inclusion of small quantity of tobacco as an ingredient in Gutkha would not be sufficient to treat it as falling under "tobacco preparations". He emphasized that the presence of tobacco should be pre-dominant in the composition of a preparation in order to call it as a tobacco preparation. Applying the aforesaid test, the ld. counsel submitted that Gutkha having tobacco content of 6-7% did not fall in the category of tobacco preparations. According to him, champagne does not become poison because some body has added poison to it.

18. Referring to Item No.2 in the Eleventh Schedule, the ld. Sr. counsel submitted that there was no clear word or phrase in the said Schedule that Gutkha or pan masala would be included or treated as a "tobacco preparation" and hence it was not possible to include Gutkha within the list of items enumerated in Item No.2 in the Eleventh Schedule. In this connection, he referred to the judgment in CIT v. Naga Hills Tea Co. Ltd., 89 ITR 236 (SC) and also to the judgment of the Hon'ble Gujarat High Court in CWT v. Shri Sadiqali Samsuddin, 152 ITR 190 (Guj.).

19. The ld. Sr. counsel invited our attention to Sr. no. 1 in Part "A" of the Thirteenth Schedule (inserted by the Finance Act, 2003, w.e.f. 1.4.2004 for the State of Sikkim) and submitted that "tobacco and tobacco products" specifically included "cigarettes, cigars and Gutka, etc." According to him, the legislature was well aware of Gutkha, as Zarda Yukta Pan Masala was being manufactured by M/s Kothari Products Pvt. Ltd. since 1970, when the Eleventh Schedule was inserted in 1970 in the I-T Act and therefore the exclusion of Gutkha from the list under the Eleventh Schedule was deliberate and clear expression of the legislative will that Gutkha was not to be treated as a tobacco preparation. On the basis of the aforesaid, the ld. Sr. counsel contended that where the intention of the legislature was to cover any product having tobacco as one of its ingredients, the legislature has said so in specific terms. According to him, the legislature has neither included pan masala nor Gutkha in Item No.2 in the Eleventh Schedule nor said that pan masala or any chewing material having tobacco as one of its ingredients would be called tobacco preparation and hence it was not possible to import such a meaning to the expression ·"'~'tob.?cco preparations" in Item no. 2 in the Eleventh Schedule.

20. He submitted that tobacco and pan masala have been dealt with differently in the legislations dealing with the levy of Central Excise and Sales Tax and therefore they were perceived even by the Government to be different from each other and that Gutkha was not treated as a tobacco preparation even under those legislations. In this connection, he took us through the orders passed by the Sales Tax Authorities. Referring to The Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003, the ld. Sr. counsel submitted that the term "tobacco products" has been defined in Section 2(p) of the said Act as meaning the products specified in the Schedule. Inviting our attention to the Schedule to the said Act, the ld. Sr. counsel submitted that first seven items in the said Schedule, namely, cigarettes; cigars; cheroots; beedis; cigarette tobacco, pipe tobacco and hookah tobacco; chewing tobacco and snuff were exactly the same as in Item No.2 of the Eleventh Schedule in the I-T Act. It was Sr. no. 8 in the Schedule to the Act of 2003 that "Pan masala or any chewing material having tobacco as one of its ingredients (by whatever name called)" and sr. no. 9 in the said schedule that "Gutkha" have been included as "tobacco products" as defined in section 2(p) of the Act of 2003. He submitted that the focus of sr. no. 8 in the said Schedule was on any chewing material having tobacco as one of its ingredients, which converts any chewing material into a tobacco product. According to him, similar words as in Sr. No.8 of the Act of 2003 are missing in Item No.2 in the Eleventh Schedule to the I-T Act. The ld. counsel thereafter took us through the Explanation to item no. 5 in the Eleventh Schedule to the I-T Act to which a reference has already been made earlier· in this Order.

21. Supporting his submission that Gutkha was not a tobacco preparation as it did not contain tobacco in substantial portion either in terms of quantity or value, the learned senior counsel took us through the provisions of section 80I(2)(iii) and submitted that the deduction u/s 80I was available to an industrial undertaking if "it manufactures or produces any article or thing, not being any article or thing specified in the list in the Eleventh Schedule." The ld. counsel submitted that the use of the words "not being" m the aforesaid provision clearly showed that the deduction was available to all industrial undertakings unless they manufactured an article or thing not being the one specified in the Eleventh Schedule. He submitted that the words "not being" in the said provision should be liberally construed. For this proposition, he placed reliance on the judgment in Bajaj Tempo Ltd. v. CIT, 196 ITR 188 in which it has been held that "A Provision in a taxing statute granting incentives for promoting growth and development should be construed liberally....." He however submitted that the exclusion clause or the restrictive clause contained in Item No.2 of the Eleventh Schedule should be construed strictly so as to deny the incentive only to those industrial undertakings, which, in terms of strict construction, manufactured or produced those very articles or things, which are specified in the Eleventh Schedule. In other words, the submission of the ld. counsel was that while incentive provisions should be construed liberally, the exclusion clause should be construed strictly. Relying on the aforesaid provisions, the ld. counsel submitted that all the seven specific products following "tobacco preparations" should be construed strictly and not liberally so as to include a product what is not strictly includible in the said seven products within the meaning of "tobacco preparations". For this proposition, he relied on the decision of Hon'ble Andhra Pradesh High Court in CIT v. Progressive Engineering Co., 230 ITR 729 (AP).

22. The Id. counsel for the assessee submitted that identical issue has been considered and decided by a Division Bench of this Tribunal at Allahabad in Kothari Products Ltd. v. ACIT, 37 ITD 285 in which it has been held that Zarda Yukta Pan Masala (i.e., pan mas ala containing tobacco) was not a tobacco preparation within the meaning of Item No.2 of the Eleventh Schedule- so as to disentitle the assessee from claiming deduction u/s. 32AB and 80-I of the I-T Act. He further submitted that the Reference Application filed by the Department u/s. 256(1) and section 256(2) against the said order of the Tribunal was dismissed by both the Tribunal as also by the Hon'ble Allahabad High Court on the ground that no question of law arose out of the order passed by the Tribunal. The Id. Sr. counsel has also filed a copy of the order passed by the Hon'ble Supreme Court on 12.07.1996 dismissing the Special Leave Applications filed by the Department against the order of Hon'ble Allahabad High Court rejecting the RAs of the Department u/s 256(2). He contended that the order passed by the Allahabad Bench of this Tribunal has become final and therefore the same should be followed by us as the reasoning given by the Division Bench of this Tribunal in the said case stood endorsed and confirmed both by the Hon'ble Allahabad High Court as also by the Hon'ble Supreme Court. Rejoinder submissions

23. In his rejoinder submissions, the ld. Departmental Representative submitted that Gutkha was a recent phenomenon which was hardly known at the time when Eleventh Schedule was inserted in the Income-tax Act in 1977. According to him, Gutkha would not cease to be a tobacco preparation on the sole ground that Gutkha was not included as a specific product in Item no. 2 of the Eleventh Schedule. He contended that the name of a product was immaterial as it was the quality of the product that would decide the true nature of the product. He reiterated that Gutkha, in qualitative terms, was a tobacco preparation. In this connection, he referred to the judgment In Collector of Central Excise v. Parle Exports Pvt. Ltd., 183 ITR 624 (sq.)

24. Replying to the submission of the ld. Sr. counsel that the words "such as" in Item No.2 of the Eleventh Schedule were in the nature of limitation as held in Bombay Municipal Corporation (supra), the ld. Departmental Representative submitted that the said judgment was given in a particular context and that the observations made by the Hon'ble High Court in the said case would not universally apply and more particularly in interpreting the words "tobacco preparations" used in Item no. 2.

25. Refuting the submission of the ld. Sr. counsel that reasoning given by the Allahabad Bench of this Tribunal in Kothari Products Ltd. stood approved by the Hon'ble Allahabad High Court and Hon'ble Supreme Court,· the ld. Departmental Representative submitted that the superior courts declined to interfere with the order passed by the Tribunal in the said matter on the sole ground that no question of law was involved in the matter and therefore the orders passed by them should not be taken as endorsement or confirmation of the reasoning given by the Allahabad Bench of this Tribunal on merits. He further submitted that mere dismissal of SLP would not mean declaration of law: Nawab Sir Mir Usmal Ali Khan v. CWT, 162 ITR 888 (SC). In this connection, he invited our attention to the judgment dated 24th July 2006 of the Hon'ble Bombay High Court in the assessee's own matter (Income tax Appeal No. 118 & 119 of 2005) by which the Hon'ble High Court has set aside the orders passed by the Division Bench of this Tribunal at Pune for AYs 1994-95 and 1995-96 and restored the appeals relating to the af6resaid assessment years for disposal afresh by this Tribunal. He submitted that the issue therefore needed consideration de novo in the light of the materials available on record.

26. We have heard the parties and considered their submissions including the authorities referred to by them. The simple issue in the present bunch of appeals is whether "Gutkha" manufactured by the assessee falls under the expressions "tobacco preparations" and "chewing tobacco" in Item No.2 of the Eleventh Schedule. The answer to the aforesaid issue turns essentially on facts. In Kothari Products Ltd. (supra), the Allahabad Bench of this Tribunal has held that Zarda Yukta Pan Masala docs not fall under the expression "tobacco preparations" while Pune Bench of this Tribunal has held otherwise. The Hon'ble Allahabad High Court has dismissed the Reference Application filed by the Department against the said order of the Allahabad Bench on the ground that no referable question of law was involved. Thus, the Hon'ble High Court considered the aforesaid issue as one involving questions of fact and not of law. Hon'ble Supreme Court has also declined to interfere with the aforesaid order of the Hon'ble High Court. Thus, both the Hon’ble High Court and the Hon'ble Supreme Court have held in identical case that the issue whether Gutkha falls under the expression "tobacco preparations" is a question of fact and not a question of law. Keeping this in view, we shall now proceed to first examine in detail the factual aspects surrounding the issue.

27. Tobacco is an agricultural product processed from the fresh leaves of plants in genus Nicotiana Tobacum. Thus "tobacco" connotes the processed narcotic leaves derived from the said plants. Dried tobacco leaves are often smoked in cigars, cigarettes and pipes, and arc also chewed in the mouth or sniffed in the nose. Tobacco contains nicotine which is absorbed from the respiratory tract, and through mouth tissue and skin. As little dose of "nicotine" as contained in one half of a cigar or three cigarettes can prove to be lethal; however, only a very small fraction of the nicotine contained in the smoking tobacco products is actually released into the smoke and therefore is not lethal. Tobacco users risk many very serious and often fatal illnesses, such as cancer, strokes, heart disease, and .It's a matter of common knowledge that tobacco use is considered by the health agencies all over the world as the single most important preventable risk to human health and an important cause of premature (early) death worldwide.

28. As stated earlier, use of tobacco can be either in the form of smoking tobacco or in the form of smokeless tobacco. Smokeless tobacco (ST) can either be chewed in the mouth or sniffed in the nose. After tobacco was introduced in

India

in or around the 17th century, it became an ingredient of the betel quid. Through its association with a socially accepted practice, namely, betel chewing, smokeless use of tobacco as an ingredient in betel preparation found its way and became widespread due to its intoxicating effect and the 'buzz' that it created on its use. Currently almost all habitual users of betel quid use it with tobacco. The most recent variant of betel quid is pan masala, a manufactured item containing areca nut and other ingredients common in betel quid; some brands contain dehydrated and powdered betel leaves also. Four types of pan masalas are available in the domestic market, namely, plain pan masala; sweet pan masala; pan masala containing tobacco and gutka. Pan masalas of all variants arc generally sold under t he same brand name and so is Gutkha. "Gutkha" is also spelled gutkha, guthka or Gutka.

29. Gutkha is a preparation of crushed betel nut, tobacco, and sweet or savory flavorings. Sold across

India

in small, individual-size attractive packets that cost between 1 and 4 rupees a piece. it is consumed much like chewing tobacco. The gutkha, a powdery, granular while substance, is placed between the bottom lip and the gum, or under the tongue. Within moments, the gutkha begins to dissolve and turn deep red in color. It imparts upon its user a "buzz" somewhat more intense than that of tobacco. Highly addictive and a known carcinogen, gutkha is currently the subject of much controversy in the country. Many States have sought to curb its immense popularity by taxing sales of gutkha heavily or by banning it outright. Due to its often sweet taste, easy availability and cheapness, it is popular with poor children, school boys and girls, who can exhibit precancerous lesions at a very early age as a result of its use. Gutkha also has effects on the environment. After it is consumed, it is generally spat onto a wall or the ground or inside the bus/train and other public services including public toilets, causing an unsightly red stain that is quite resistant to the elements. Some building owners have taken to combating this unpleasantness by painting murals of Gods on t heir walls, with the idea that gutkha-chewers would not spit on a God,

30. There are four major reasons for the popularity of pan masala containing tobacco and gutkha. As stated earlier, pan masala of all variants is generally sold under the same brand name. The single name for all variants of pan masala affords a significant marketing advantage to the manufacturer. Since there arc no restrictions on advertising a consumer product that contains no tobacco, pan masala without tobacco is vigorously advertised and promoted. Pan masala of all variants including gutkha carry the same brand name and therefore get considerable benefit from the unrestricted advertisement and promotion of the its non-tobacco counterpart and thereby through surrogate advertising, i.e., duplicating the brand image of one product extensively to promote another product of the same brand, As a result of such high-profile advertising and surrogate advertising, smokeless tobacco use is increasing rapidly in the stratum of society from which it had almost disappeared-among individuals with college education who are in business and in middle and high level management positions. Pouches and sachets of smokeless tobacco are becoming more common in public places including schools and 'colleges as also places of worship. It is visible even to the naked eyes. Driven by massive advertisement, another factor responsible for the popularity of pan masala is the perish-ability of the betel leaf, a fresh green leaf from the betel vine, in which various ingredients of the quid arc smeared and wrapped. The tenderness and freshness of the leaf are highly prized, and therefore betel leaf does not last for more than a few days. Betel vine is said to be a delicate plant, requiring much care and attention, and cannot be grown everywhere. The leaf is thus difficult to obtain in places distant from betel-growing areas. Third reason for the popularity of pan masala containing tobacco or gutkha is the difficulty in detecting its use. It is easy to spot and detect the user of betel leaves, cigarettes, snuff, etc. but it is not so easy to spot the user of pan masala containing Gutkha or Gutkha. In other words, it is far easy and convenient to use pan masala containing tobacco or gutkha without the fear of detection by the parents, guardians, teachers, etc., as in the use of other tobacco products. Ease of concealing it, better taste, low price, etc., make pan masala containing tobacco and gutkha extremely popular even with school children and also with those who would have otherwise found it difficult to consume them openly for fear of being detected or identified. Fourth reason is the pleasant taste of gutkha and pan masala containing tobacco which is achieved by adding various flavouring agents to the tobacco. This is what makes gutkha and pan masala containing tobacco extremely popular even amongst those who would have otherwise found it difficult to use smoking tobacco or other forms of smokeless tobacco for its bad odour or taste.

31. It is well acknowledged that the growth of pan masala industry was very slow in the 1970s when only plain and sweet pan masala were introduced. Those who have seen those days would distinctly recall that the pouches or sachets containing pan masala with tobacco or gutkha were nowhere visible in any part of the country. However, this industry saw rapid growth from 1980s onwards, after the introduction of pan masala containing tobacco and gutka, especially in small sachets, which increased their transportability and cost of purchase. Synopsis of Debates (Proceedings other than Questions and Answers) held on 1^st August 2005 in the Rajya Sabha in this behalf shows, as an example, the reality of the situation as to whether gutkha is perceived to be a tobacco preparation and also as to how this industry has witnessed phenomenal growth over last thirty years or so. Let us have a glimpse of the relevant portion of the debate. It reads as under:

DR. GYAN PRAKASH PILANIA: Gutkha is the most popular brand in various forms of consumption of tobacco. The trade in regard to Gutkha was merely Rs. Six Lakh in the year 1974-75 and now a days, it has risen as high as ten thousand crore of rupees. A number of tobacco shops are opened nearby educational institutions. Continuous use of Gutkha, causes cancer because it contains several harmful things in it. Therefore, I urge upon the Government to ban the production of Gutkha immediately

(Shri Kripal Parmar, Prof. R. B.S. Varma. Shri Lalithai Mehta and Shri Lekhraj Bachani associated.) "

32. It is evident from the aforesaid that the masses in this country perceive "Gutkha" as the most popular brand in the various forms of tobacco use. The purpose of the aforesaid discussion is twofold: one, to highlight various well known forms' and aspects of tobacco use for proper understanding of the expressions "tobacco", "tobacco preparations" and "chewing tobacco" used in Item No.2 of the Eleventh Schedule; and, two, to highlight as to how the par masala containing tobacco and gutkha arc treated by the cross-sections of the society and also by all those who arc actively involved in dealing with par masala containing tobacco and gutkha, as tobacco preparations. Only those individuals who are addicted to or wan t to taste the tobacco would use gutkha or pan masala containing tobacco. Those who do not want to consume tobacco do not use gutkha. Gutkha and pan masala containing tobacco arc thus consumed for the reason that it has tobacco. Other ingredients arc added to tobacco in Gutkha and pen masala containing tobacco to provide better flavour, taste, etc. It is for this reason that consumers prefer gutkha to other forms of tobacco use. By its very nature, tobacco has a very unpleasant taste and hence other ingredients are added to provide taste to the tobacco. Tobacco being unpleasant in taste cannot provide taste to other ingredients in gutkha or pan masala containing tobacco.

33. Let us now turn to the meaning of the expressions "tobacco" and "tobacco preparations" used in Item No.2 of the Eleventh Schedule. "Tobacco" connotes the processed narcotic leaves obtained from t he plants in genus Nicotiana. In addition to "tobacco", Item No.2 in the Eleventh Schedule also uses another expression, namely, "tobacco preparations". The clement of tobacco is common in both "tobacco" and "tobacco preparations". Does it then mean that both the expressions, namely, "tobacco" and "tobacco preparations" carry the same meaning and import? In our view, the answer is in negative. If the meaning of both of them had been the same, there would then have been no occasion to use both of them in Item No.2. When the legislature enacts a particular phrase in a statute the presumption is that it is saying something which has not been said immediately before. The rule that el meaning should, if possible, be given to every word in the statute implies the it the words add something which has not been said before. Leaves of plants in genus Nicotiana are first processed before being put to use. There can be two forms in which the said processed leaves can be put to use. First form of use is where the said leaves arc used directly after being processed. The phrase "tobacco" in Item NO.:2 would therefore cover a product in which processed tobacco leaves are used directly in substantial quantity, like, cigarette, cheroot, hookah, etc. Then, what arc "tobacco preparations"? Should "tobacco preparations" be also interpreted in the same sense in which "tobacco" is understood? The answer again is in the negative for the reasons already stated earlier. In our view, "tobacco preparations" would cover all those preparations and products which arc prepared using tobacco if the properties of tobacco arc retained in the preparation without undergoing any metamorphosis as a result of addition or other ingredients. In such a case, the preparation would qualify to be called a "tobacco preparation". Notwithstanding the fact that gutkha contains tobacco to the extent of 6-7%, the tobacco in Gutkha retains all the qualities of tobacco including the pharmacology of nicotine and the physiological and psychological of nicotine and to the same extent as in other forms of tobacco use. It has also to be kept in view that the quantity and rate of absorption of nicotine present in chewing tobacco is much higher, faster and fur more effective than in the use of smoking tobacco as the chewing tobacco is absorbed directly and immediately in the body in full quantity through extremely sensitive mouth tissues.

34. As stated earlier, tobacco has a very unpleasant taste and therefore it is orally consumed better when it is mixed with other ingredients. That is why the Legislature has taken care to include "tobacco preparations" together with "tobacco" in Item No.2. Tobacco, in the form of processed leaves, is never the only constituent in spit or chewing tobacco. It is neither possible nor practicable to orally consume tobacco, i.e., processed leaves for several reasons. First is the lethal effect of the nicotine. A very small quantity of nicotine can prove to be lethal if it is orally consumed. Besides, it is not possible for anyone to orally consume purest form of tobacco, i.e., processed leaves or nicotine, without mixing it with other agents. As stated earlier, tobacco contains nicotine, which is absorbed from the respiratory tract, and through mouth tissue and skin. However a small fraction of the tobacco containing nicotine is needed when it is orally consumed for the reason that the nicotine so consumed is directly released in the body while larger quantity of tobacco is needed in smoking tobacco. It is for this reason that the quantity of tobacco cannot be as substantial in chewing tobacco as it is in smoking tobacco Second is that only a small quantity of tobacco is necessary for use as a neuro-stimulant and for getting the kick and the kick and the buzz. The quantity of, tobacco which is included in gutkha is sufficient to reflect its potency and produce its effect on its consumer. The small quantity of tobacco in gutkha carries as much nicotine as it is in smoking tobacco or other tobacco preparations. Third is that tobacco per se has a very unpleasant taste. It. is therefore simply not possible to orally consume tobacco in the form of processed leaves. A person orally consuming the tobacco in the form of processed leaves will, in all likelihood, immediately vomit it out. If he somehow happens to absorb it., he will, in all likelihood, suffer from serious intoxication and other health complications. That is why several ingredients arc added so as to make the "chewing tobacco" taste pleasant, palatable and attractive for human consumption. All these are matters of common knowledge. Gutkha or pan masala containing tobacco will not become tobacco-less preparations on the sole ground that the content. of tobacco is 67% ignoring the fact that. the said composition of tobacco in gutkha or pan masala containing tobacco carries the same pharmacology of nicotine and physiological or psychological effects of nicotine as other tobacco products, like cigarettes, cheroots, etc.

35. Learned senior counsel vehemently contended that a preparation would not be a tobacco preparation unless tobacco was its main or dominant ingredient. According to him, an ingredient would be a dominant ingredient in any preparation if it constituted a substantial portion in the overall composition of the preparation either in terms of quantity or value or base. We have given serious thought to the submissions made by the learned senior counsel. In our view, an ingredient in a preparation would be a dominant one if its properties dominate or prevail over other ingredients present in the preparation regardless of the fact that smaller quantity of such an ingredient is used in the preparation than the quantities of other ingredients. The success of pan masala industry lies in the fact that the pan masala containing tobacco and gutkha produced by it arc extremely palatable, tasty and carry the same strength or potency of tobacco as in other forms of toba