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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.

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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.

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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

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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.

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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.

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