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SUPREME COURT OF INDIA
K. SUBBA RAO, J.C. SHAH AND S.M. SIKRI, JJ.
The State of Madras, Appellant
Versus
M/s. Swastik Tobacco Factory, Vedaranyam, Respondent.
Civil Appeals Nos. 90 and 91 of 1965.
Advocates appeared
Mr. A. Ranganadham Chetty, Senior Advocate, (Mr. A. V. Rangam, Advocate, with him), for Appellant; Mr. T. A. Ramachandran, Advocate and Mr. O. C. Mathur, Advocate of M/s. J. B. Dadachanji and Co., for Respondent.
MADRAS GENERAL SALES TAX ACT - R. 5(1)(I) - EXCISE DUTY - DEDUCTION FROM GROSS TURNOVER - DUTY PAID ON RAW MATERIAL NOT DEDUCTIBLE.
Fact of the Case:
The assessee, a dealer in tobacco, purchased raw tobacco, converted it into chewing tobacco by a manufacturing process, and sold it in small paper packets. The assessee paid excise duty on the raw tobacco. The question arose whether the excise duty paid by the assessee was deductible from the turnover for the purpose of sales tax.
Finding of the Court:
The Court held that the excise duty paid by the assessee was not deductible from the turnover for the purpose of sales tax. The Court held that R. 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, only permitted the deduction of excise duty paid by the dealer in respect of the same goods sold by him.
Issues: Whether the excise duty paid by the assessee on the raw tobacco was deductible from the turnover for the purpose of sales tax.
Ratio Decidendi: The Court held that the expression "in respect of the goods" in R. 5(1)(i) of the Rules meant only "on the goods". The Court held that the excise duty paid by the assessee was not deductible from the turnover for the purpose of sales tax because it was not paid on the goods sold by the assessee.
Final Decision: The Court modified the order of the High Court and directed the parties to bear their respective costs.
Judgement
SUBBA RAO, J. : These appeals, by special leave, raise the question of the true construction of the provisions of R. 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, hereinafter referred to as the Rules.
2. The facts are not in dispute and they may be briefly stated. The respondent, Messrs Swastik Tobacco Factory, is a dealer in tobacco. It purchased raw tobacco; by processing it in a prescribed manner, converted it into chewing tobacco and sold it as such in small paper packets. The said process has been described by a Division Bench of the Madras High Court in Bell Mark Tobacco Co. v. Government of Madras, 1961-12 STC 126 at p. 132 (Mad) thus:
"Taking, however, the cumulative effect of the various processes to which the assessee subjected the tobacco before he sold it, it is clear that what was eventually sold by the assessee was a manufactured product, manufactured from the tobacco that the assessee had purchased. Soaking in jaggery water is not the only process to be considered. The addition of flavouring essences and shredding of the tobacco should establish that what the assessee sold was a product substantially different from what he had purchased."
For the purpose of these appeals, it was not disputed that the respondent purchased raw tobacco, converted it by a manufacturing process into chewing tobacco and sold it in small paper packets. The respondent paid excise duty in respect of the raw tobacco purchased by it. For the assessment years 1955-56 and 1956-57, the Assistant-cum-Deputy Commercial Tax Officer assessed the respondent to sales tax on the turnover of Rs. 10,67, 923-10-9 and Rs. 7,71,661-11-0 respectively. The respondent claimed that the excise duty paid by it to the Central Government in respect of the raw tobacco should be deducted from the turnover ascertained by the said Officer. But his contention was rejected. On appeal, the order of the said officer was confirmed by the Appellate Assistant Commissioner of Commercial Taxes. On a further appeal to the Sales Tax Appellate Tribunal, the assessee, in addition to the question of deduction, raised an additional ground that the entire turnover of the sales on chewing tobacco was not liable to be assessed. The Tribunal rejected both the contentions and confirmed the order of the Appellate Assistant Commissioner. The State carried the matter in two revisions to the High Court of Madras. A Division Bench of the said High Court agreed with the view expressed by the Tribunal and dismissed the revisions. Hence the present appeals.
3. Mr. A.V. Rangam, learned counsel for the State, argued that the raw tobacco was converted by a manufacturing process into chewing tobacco, a different commodity and that, therefore, under R. 5(1) of the Rules, as excise duty was paid only in respect of the raw tobacco and not chewing tobacco, the said duty was not deductible from the turnover of the assessee. He did not contest the correctness of the decision of the High Court on the question of the taxability of the chewing tobacco under S.5(vii) of the Act.
4. Mr. T.A. Ramachandran, learned counsel for the respondent, contended that the said rule was couched in a comprehensive language so as to take in excise duty paid on raw tobacco converted by a manufacturing process into chewing tobacco. The relevant rule reads thus:
"Rule 5. (1) The tax or taxes under S. 3 or 5 or 5A or the notification or notifications under S. 61(1) shall be levied on the net turnover of the dealers.
In determining the net turnover the amounts specified in the following clauses shall, subject to the condition specified therein, be deducted from the gross turnover of a dealer;
(i) the excise duty, if any, paid by the dealer to the Central Government in respect of the goods sold by him; "
Both the advocates argued, on the basis of the factual position, that packets of chewing tobacco were goods different from tobacco from which the said goods were manufactured. While the learned
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