2020 (6) TMI 685 - SC - VAT and Sales Tax

Court rules on purchase tax for empty bottles, upholds cash discount exemption

The court partly allowed the revenue's appeal, ruling that the purchase turnover of empty bottles bought by the assessee is subject to purchase tax under ... Levy of purchase tax - Interpretation of purchase-tax provision in clause (a) of Section 7-A - Meaning of 'consumes' and 'uses' in taxing statutes - Inclusion of container value in turnover by deeming provision - Effect of administrative clarifications and circulars on statutory interpretation - Taxability of cash or other discount under Explanation 2(iii) to Section 2(r)Levy of purchase tax - Interpretation of purchase-tax provision in clause (a) of Section 7-A - Meaning of 'consumes' and 'uses' in taxing statutes - Purchase tax under Section 7-A is leviable on the turnover relating to purchase of empty bottles bought from unregistered dealers by the assessee. - HELD THAT: - Applying the ingredient analysis in M.K. Kandaswami, read with the Constitution Bench ruling in Nandanam Construction Co., clause (a) of Section 7-A covers goods which are consumed or used 'in' the manufacture or consumed or used 'otherwise'. All statutory ingredients (dealer, purchase in course of business, goods liable to tax, purchase without tax at point of purchase) were satisfied. Although the bottles did not lose identity and were not 'consumed in manufacture' nor 'used in manufacture' (manufacture of Beer/IMFL was complete before bottling), the bottles were nevertheless employed in the dealer's integrated process (bottling) and thereby 'used otherwise' such that they ceased to be available in the form purchased. That use falls within the scope of clause (a) and attracts purchase tax. The fact that the value of bottles forms part of turnover on sale (Section 3(7)) does not preclude levy of purchase tax under Section 7-A; Premier Breweries and Appollo Saline are applied to reject double counting arguments. Conclusion: purchase tax exigible on the purchases in question. [Paras 35, 49, 50, 51, 52]Turnover relating to empty bottles purchased from unregistered dealers is exigible to purchase tax under Section 7-A.Effect of administrative clarifications and circulars on statutory interpretation - The Clarifications dated 09.11.1989 and 27.12.2000 do not defeat the statutory construction of Section 7-A as declared by the Courts and cannot exempt the assessee from liability for the assessment years in question. - HELD THAT: - Section 28-A authorises the Commissioner to issue clarifications binding on departmental officers, but executive circulars cannot override or displace the court's declaration of law. The Court relied on the Constitution Bench precedents (Dhiren Chemical and Ratan Melting & Wire Industries) to hold that where a judicial interpretation of the statute differs from departmental clarifications, the latter cannot be used to obtain relief contrary to the judicially declared meaning. Accordingly, even if the earlier circulars were administrative instructions, they cannot be allowed to negate the levy of purchase tax where Section 7-A, correctly interpreted, applies to the facts. The High Court erred in upholding the assessee's entitlement to the clarifications for the relevant assessments. [Paras 58, 61, 62, 63, 64]Clarifications dated 09.11.1989 and 27.12.2000 cannot be relied upon to avoid the liability under Section 7-A; the High Court's direction granting benefit of those clarifications is set aside.Taxability of cash or other discount under Explanation 2(iii) to Section 2(r) - Cash or other discounts allowed by the assessee are not includible in turnover and are not taxable under the relevant provision. - HELD THAT: - Explanation 2(iii) to Section 2(r) expressly excludes 'any cash or other discount on the price allowed in respect of any sale' from turnover. Applying settled precedents (including Neyveli Lignite), the Court upheld the High Court's conclusion that the cash discount given to TASMAC is not includible in turnover for levy of tax. Revenue advanced no convincing ground to depart from that clear statutory explanation and doctrinal authority. [Paras 6, 8, 65]Cash discount offered to TASMAC is not includible in turnover and is not taxable.Final Conclusion: The appeals result in part: the revenue's appeal is allowed insofar as the Supreme Court holds that purchase tax under Section 7-A is leviable on the purchase turnover of empty bottles bought from unregistered dealers for the assessment years before the Court; the High Court's grant of relief to the assessee based on departmental Clarifications dated 09.11.1989 and 27.12.2000 is reversed; the assessee's appeal is dismissed on the principal point but sustained on the separate question that cash discounts are not includible in turnover. Issues Involved:1. Applicability of Section 7-A of the Tamil Nadu General Sales Tax Act, 1959 for the levy of purchase tax on the turnover of empty bottles purchased by the assessee.2. Operation and effect of the Clarifications/Circulars dated 09.11.1989, 27.12.2000, and 28.01.2002 issued by the revenue.3. Taxability of cash discount on the price offered by the assessee to the Tamil Nadu State Marketing Corporation Limited.Issue-wise Detailed Analysis:1. Applicability of Section 7-A of the Tamil Nadu General Sales Tax Act, 1959:- The court examined whether the purchase tax is leviable on the purchase turnover of empty bottles purchased by the assessee for bottling Beer and IMFL.- The court analyzed the relevant statutory provisions and concluded that Section 7-A (1) of the Act applies if certain ingredients are cumulatively satisfied, including the dealer consuming or using the goods in the manufacture of other goods for sale or otherwise.- The court held that the empty bottles were neither consumed in the manufacture of Beer/IMFL nor used in such manufacture. However, they were used for bottling, an integral part of the business activity of manufacturing and selling liquor.- The court concluded that the bottles were 'used otherwise,' thereby bringing the purchase turnover within the net of Section 7-A of the Act.- The court rejected the contention that since the sale value of bottles was subjected to tax at the time of sale of the contents, there could be no levy of purchase tax, citing the decision in Premier Breweries.2. Operation and Effect of the Clarifications/Circulars:- The court examined the Clarifications/Circulars issued by the revenue on 09.11.1989, 27.12.2000, and 28.01.2002.- The court referred to the Constitution Bench decisions in Dhiren Chemical Industries and Ratan Melting & Wire Industries, stating that circulars and instructions issued by the Board are binding on the authorities but not on the courts.- The court held that the Clarifications/Circulars in question, which were contrary to the statutory provisions and the law declared by the courts, could not be given effect to.- The court concluded that the High Court erred in directing the benefit of the Clarifications/Circulars to the assessee when they did not conform to the statutory provision and its interpretation by the courts.3. Taxability of Cash Discount:- The court upheld the High Court's ruling that cash discount on the price offered by the assessee to TASMAC is not taxable, referring to Explanation 2(iii) to Section 2(r) of the Act.- The court observed that the clear phraseology of the Explanation excludes any cash or other discount on the price allowed in respect of any sale from being included in the turnover for the levy of tax.Conclusion:- The court partly allowed the appeal filed by the revenue, holding that the purchase turnover of the empty bottles purchased by the assessee from unregistered dealers is exigible to purchase tax under Section 7-A of the Tamil Nadu Act.- The court dismissed the appeal filed by the assessee, confirming the liability towards purchase tax.- The court upheld the High Court's decision regarding the non-taxability of cash discount.