1965 (12) TMI 90 - SC - VAT and Sales Tax

Supreme Court clarifies deduction of excise duty from turnover under sales tax rules

The State of Madras Versus Swasthik Tobacco Factory

The Supreme Court interpreted rule 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, ruling that excise duty paid on goods ... Construction of the provisions of rule 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, questioned - Held that:- Appeal partly allowed. The expression 'in respect of the goods' in rule 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 will not be different, for the duty paid shall be attributable to the goods. We cannot, therefore, agree with the construction of rule 5(1)(i) of the Rules accepted by the High Court. Issues:1. Interpretation of rule 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939.Detailed Analysis:The judgment by the Supreme Court of India dealt with the interpretation of rule 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. The case involved a dealer in tobacco who purchased raw tobacco, processed it into chewing tobacco, and sold it in small paper packets. The central question was whether excise duty paid on the raw tobacco could be deducted from the turnover of the sales of chewing tobacco. The respondent contended that the excise duty paid on raw tobacco should be deductible under the rule, while the State argued that as excise duty was paid only on raw tobacco and not on chewing tobacco, it was not deductible from the turnover. The Court examined the language of the rule which allowed deduction of excise duty 'paid by the dealer to the Central Government in respect of the goods sold by him.'The Court analyzed the arguments presented by both parties regarding the interpretation of the phrase 'in respect of' in the rule. The respondent's counsel argued that the excise duty paid on raw tobacco was attributable to the chewing tobacco sold, while the State's counsel emphasized that the duty was not paid on the goods sold. The Court considered various English decisions cited by the respondent's counsel to support the wide interpretation of the phrase 'in respect of.' However, the Court noted that Indian tax laws use the expression 'in respect of' as synonymous with 'on' in various provisions, including the Constitution of India and tax acts.Based on the legislative practice and the specific wording of rule 5(1)(i), the Court held that excise duty paid on the goods mentioned in the Schedule of the Central Excises and Salt Act, 1944, was deductible from the turnover. The Court clarified that the expression 'in respect of the goods' in the rule referred to excise duty paid on the goods sold by the dealer. Therefore, only excise duty paid on the goods sold by the assessee was deemed deductible from the gross turnover under the rule. The Court disagreed with the construction of the rule accepted by the High Court and modified the order accordingly, directing each party to bear their respective costs.In conclusion, the Supreme Court partially allowed the appeal by interpreting rule 5(1)(i) to mean that excise duty paid on the goods sold by the dealer could be deducted from the turnover, rejecting the broader interpretation accepted by the High Court.