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PETITIONER: STATE OF MADRAS

       Vs.

RESPONDENT: M/S.  SWASTIK TOBACCO FACTORY, VEDARANYAM

DATE OF JUDGMENT: 14/12/1965

BENCH: SUBBARAO, K. BENCH: SUBBARAO, K. SHAH, J.C. SIKRI, S.M.

CITATION:  1966 AIR 1000            1966 SCR  (3)  79  CITATOR INFO :  RF         1977 SC 879  (27)  R          1980 SC 169  (12)  R          1980 SC1227  (6)  RF         1987 SC1885  (8)

ACT: Madras  General  Sales Tax (Turnover and  Assessment)  Rules 1939,  r.  5  (1) (i) Excise duty paid  on  raw  tobacco-Raw tobacco  processed and sold as chewing  tobacco-Excise  duty whether  to  be deducted from turnover  of  chewing  tobacco under r. 5(1)(i).

HEADNOTE: The  respondent  factory used to purchase  raw  tobacco  and after  processing  it, sell it as chewing  tobacco.   Excise duty  was  paid  by the factory in respect  of  raw  tobacco purchased  by  it.   In sales tax  proceedings  the  factory contended  that  the  excise duty so paid to  the  Central Government  must be deducted to arrive at the  net  turnover under  r. 5(1)i) of the Madras General Sales  Tax  (Turnover and Assessment) Rules, 1939.  The assessing officer as  well as   the  Appellate  Assistant  Commissioner  rejected   the contention  but  it  was  accepted  by  the  Tribunal.   The revision  filed  by  the.   State  in  the  High  Court  was dismissed,  whereupon  the State appealed to this  Court  by special leave. It  was  contended on behalf of the appellant that  the  raw tobacco  was  converted  by  a  manufacturing  process  into chewing tobacco, a different commodity and that,  therefore, under r. 5(1)(i) of the Rules, as excise duty was paid  only in  respect of raw tobacco and not chewing tobacco the  said duty was not deductible from the turnover of the assesses. HELD  :  ’Me  object  of the concession  in  r.  5(1)(i)  is presumably to avoid payment of tax on tax in respect of  the same goods.  This concession would have no relevance if  the goods subjected to excise duty were different from the goods sold.   Tobacco when converted by a process  of  manufacture into chewing tobacco becomes a different marketable product. Duty  on raw tobacco cannot therefore be said to be paid  in respect of the manufactured product. [82 B-D] The expression "in respect of the goods" in r. 5(1)(i) means

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only on the goods", and cannot take in the raw material  out of which the goods were made. [83 E] Inland  Revenue Commissioners v. Court & Co. [1963]  2  All. E.R.  722  and  Asher v. Seaford Court  Estates  Ltd.,  L.R. [1950] A.C. 508, considered. The  excise duty paid by the respondent was only on the  raw tobacco and not on the goods sold by it, and therefore,  the said duty could not be deducted from its turnover under  r. 5(1) (i). [83 E-F]

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos. 90  andand 91 of 1965. Appeals  by special leave from the judgment and order  dated September 4, 1963 of the Madras High Court in Tax Cases Nos. 120 and 121 of 1963. 80 A.   Ranganandhan  Chetty and A. V. Rangam, for  the  appel- lant. T.   A. Ramachandran and O. C. Mathur for the respondent. The Judgment of the Court was delivered by 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. 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(1) thus :               "Taking, however, the cumulative effect of the               various   processes  to  which  the   assessee               subjected  the  tobacco before he sold  it  is               clear  that  what was eventually sold  by  the               assessee    was   a   manufactured    product,               manufactured   from  the  tobacco   that   the               assesses  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 assesses 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  conten- tion 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

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question of deduction, raised (1)  (1961) 12 S.T.C. 126,132. 81 an  additional ground that the entire turnover of the  sales on  chewing  tobacco  was not liable to  be  assessed.   The Tribunal  set  aside 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. 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. 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 section  3               or   5   or   5A  or   the   notification   or               notifications  under  section  6(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 counsel for the State  laid emphasis  on  the  words "goods sold by  him",  the  learned counsel  for the respondent relied upon the  expression  "in respect  of" preceding the said words.  If, instead  of  the expression  "in respect of’, the word "on" were  there,  the intention  of the rule would be manifest and the  answer  to the question raised would be obvious.  The excise duty paid by the respondent was only on the raw tobacco and not on the goods’  sold  by it and, therefore, the said  duty  was  not deductible thereunder.  So far there is no dispute.  But  it was said that the 82 expression  "in  respect of" made all the  difference.   The words  "in  respect of", it was said,  meant  "attributable" and, therefore, the argument proceeded, the excise duty paid on the tobacco, though it was not paid on the goods sold  by the respondent, was attributable to the said goods sold. The object of the concession is presumably to avoid  payment of tax on tax in respect of the same goods.  If excise  duty was paid by a dealer on certain goods, it would be  deducted from the gross turnover of the dealer in regard to the  said goods,  as otherwise, in effect, sales-tax would have to  be paid   on  the  amount  paid  towards  excise  duty.    This concession could have no relevance if the goods subjected to excise  duty  were  different  from  the  goods  sold.   Raw tobacco,  when  converted by a process of  manufacture  into chewing  tobacco, be comes a different  marketable  product.

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There will be no comparison between the raw tobacco and  the chewing tobacco in the matter of demand or even price.  Duty on raw tobacco may have some effect on the cost of the manu- factured  product, but it cannot possibly be said  that  the said  duty is paid in respect of the  manufactured  product. Rule 5(1)(i) of the Rules, therefore, permits deduction from the  gross turnover of the dealer only the excise duty  paid by him in respect of the same goods sold by him. Learned counsel for the :respondent cited some English deci- sions  in support of his contention that the expression  "in respect of the goods" was very wide and that it took in  the raw-material out of which the goods were made. The House of Lords in Inland Revenue Commissioners v. Courts &  Co.(1),  in the context of payment of estate  duty,  con- strued  the words "in respect of" in S. 5(2) of the  Finance Act, 1894 (57 & 58 Vict. c. 30) and observed that the phrase denoted  some imprecise kind of nexus between  the  property and the estate duty.  The House of Lords in Asher v. Seaford Court Estates Ltd. (2)   in construing the provisions of  S. 2, sub-s. (3) of Increase of Rent  and   Mortgage   Interest (Restrictions) Act, 1920 (10 & 11 Geo. 5,    c.  17),   held that  the  expression  "in  respect  of’  must  be  read  as equivalent to "attributable".  The Privy Council in  Bicber, Ltd.  v.  Commissioners of Income-tax(1) observed  that  the said words could mean more than "consisting of" or "namely". It is not necessary to refer to other decisions.  It may  be accepted   that   the  said  expression  received   a   wide interpretation, (1)  [1963] 2 All.  E.R. 722, 732. (3) [1962] 3 All.  E.R. 294. (2) L.R. [1950] A.C. 508. 83 having  regard  to  the object of  the  provisions  and  the setting  in  which the said words appeared.   On  the  other hand, Indian tax laws use the expression "in respect of"  as synonymous  with the expression "on" : see Art. 288  of  the Constitution  of India; s. 3 of the Indian  Income-tax  Act, 1922;  ss.  3(2)  and 3(5), Second Proviso,  of  the  Madras General Sales Tax Act, 1939; s. 3(1A) of the Central  Excise and  Salt Act, 1944; and ss. 9 of the Kerala Sales Tax  Act. We  should  not  be understood to have  construed  the  said provisions,  but  only have referred to their to  state  the legislative practice.  Consistent with the said practice, r. 5(1)(i)  of  the Rules uses the same expression.   When  the said  rule says "excise duty paid in respect of the  goods", the excise duty referred to is the excise duty paid under s. 3(1),  read  with the Schedule, of the Central  Excises  and Salt  Act, 1944 (1 of 1944).  Under the, said section,  read with  the  Schedule,  excise duty is  levied  on  the  goods described  in the Schedule.  Therefore, when r.  5(1)(i)  of the Rules refers to the duty paid in respect of the goods to the  Central Government, it necessarily refers to  the  duty paid  on the goods mentioned in the Schedule.  As  the  duty exempted  from the gross turnover is the duty so paid  under the Central Act, read with the Schedule, the expression  "in respect of" in the context can only mean excise duty paid on goods.   In  our  view, the expression "in  respect  of  the goods" in r. 5(1)(i) of the Rules means only "on the goods". Even if the word "attributable" is substituted for the words "in  respect of", the result win not be different,  for  the duty  paid  shall be attributable to the goods.  If  it  was paid on the raw material it can be attributable only to  the raw material and not to the goods.  We, therefore, hold that only  excise duty paid on the goods sold by the assessee  is deductible  from the gross turnover under r. 5(1)(i) of  the

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Rules. We  cannot,  therefore, agree with the  construction  of  r. 5(1)(i) of the Rules accepted by the High Court. No  other question was raised before us.  In the result,  we modify  the  order of the High Court  accordingly.   In  the circumstances,   we  direct  the  parties  to   bear   their respective costs. Order modified. 84