Deductibility of excise duty on raw tobacco denied where chewing tobacco was treated as a distinct manufactured product.

Chewing tobacco was treated as a manufactured product distinct from raw tobacco because the material underwent processing, including soaking, shredding, drying, flavouring and packing. On that basis, only excise duty paid in respect of the goods actually sold could be deducted under rule 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, so duty paid on raw tobacco was not deductible in computing taxable turnover of chewing tobacco. The proviso to section 5 was read as relating to sales tax and as allowing rebate only in the limited circumstances stated for raw tobacco used in manufacturing goods under clause (vii), not excise duty. The rebate claim therefore failed.

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Issues: Whether excise duty paid on raw tobacco used in manufacturing chewing tobacco was deductible in computing the taxable turnover of the goods sold, and whether the proviso to section 5 of the Madras General Sales Tax Act, 1939, entitled the dealer to rebate of that duty.

Analysis: Chewing tobacco was held to be a manufactured product distinct from raw tobacco because the material underwent a series of processing steps, including soaking, shredding, drying, addition of flavouring essences, and packing. Under rule 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, only excise duty paid in respect of the goods actually sold by the dealer could be deducted in computing net turnover. Since excise duty had been paid only on raw tobacco and not on chewing tobacco, the duty was not deductible. The proviso to section 5 was construed as dealing with sales tax under the Act and as granting rebate only in respect of tax paid on raw tobacco used in manufacturing goods covered by clause (vii), not excise duty.

Conclusion: The dealer was not entitled to deduct excise duty paid on raw tobacco in computing taxable turnover of chewing tobacco, and the rebate claim failed.

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