TaxTMI 
TaxTMI 
TaxTMI 
2004 (9) TMI 617
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....e petitioner-company by the Special Commissioner and Commissioner of Commercial Taxes, Chennai, in view of section 28-A of the Act?; and (iii) Whether cash discount on the price offered by the petitioner-company to the TASMAC is taxable in view of explanation 2(iii) to section 2(r) of the Act? II. RELEVANT FACTS: 2.1. The brief facts of the case, so far as they are relevant for the disposal of this petition are: The petitioner is a company incorporated under the Companies Act. They are engaged in the business of manufacture of beer and IMFL products in their factory located at No. 7, Selva Street, M.M. Nagar, Valasaravakkam, Chennai-600 087. 2.2. The petitioner-company was finally assessed on a total and taxable turnover of Rs. 2,52,33,32,932 and Rs. 2,49,65,22,854 respectively by an assessment order dated October 21, 1998 for the assessment year 1996-97 under the Act. 2.3. The petitioner effected the purchase of empty bottles as shown below: Transfer of bottles from Pondicherry Captive Consumption - Against form "F" 8,23,96,234.00 Purchase of bottles from other StateAgainst form 'C' 85,93,510.00 Purchases of bottles - Bought note through salesmen permits 2.4. The first r....
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....ober 29, 1998 for the assessment year 1996-97 by disallowing the exemption on cash discount allowed by the petitioner to TASMAC; to levy tax on the said cash discount; to levy surcharge and additional surcharge at the rate of 15 per cent and five per cent respectively; and additional sales tax. 2.9. In response to the notice dated February 5, 2002, the petitioner-company, by their letter dated March 18, 2002, placing reliance on explanation 2(iii) to section 2(r) of the Act submitted that any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover. 2.10. On receipt of the objection dated September 27, 1999 submitted to the notice dated April 30, 1999 and the further objection dated March 18, 2002 to the notice dated February 5, 2002, the assessing authority passed a revised order on March 27, 2002 levying purchase tax on the purchase turnover for the purchase of empty bottles from unregistered dealers under section 7-A of the Act at the rate of 16 per cent, and also levying surcharge and additional surcharge, as well as additional sales tax, as follows: ".......T....
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....lance Rs. 2,23,755 1. Additional surcharge due @ 5% on the tax due of Rs. 18,41,34,126 except tax due on the sale of M.S. scrap already levied in the assessment Page No: 485 order in TNGST No. 1380110/96-97, dated 29-10-1998 Rs. 92,04,717 2. ASC due at 5% on the tax due of Rs. 14,91,697 on the turnover now determined up to 16-7-1996 Rs. 74,585 3. Total ASC due Rs. 92,79,302 4. Total ASC paid Rs. 92,04,717 Balance A demand notice in form "U" is issued for ASC balance. Rs. 74,585 1. Additional sales tax due at 2.5% on the taxable turnover of Rs. 2,49,57,18,413 which excluded the sales of M.S. scrap for Rs. 8,04,441 already levied in the assessment order in TNGST No. 1380110/96-97, dated 29-10-1998 Rs. 6,23,92,960 2. Additional sales tax due at 2.5% on the taxable turnover of Rs. 27,06,09,933 now assessed Rs. 67,65,248 3. Total additional sales tax due Rs. 6,91,58,208 4. Less sales tax paid Rs. 6,23,92,960 Balance A demand notice in form 'N3' is issued." (emphasis supplied) Rs. 67,65,248 2.11. Aggrieved by the said proceedings of the first respondent, the petitioner-company preferred O.P. No. 476 of 2002 before the Tamil Na....
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....ed Senior Counsel, contends that the bottles which contained beer and IMFL product are themselves sold. There are two sales involved in the transaction between the petitioner and TASMAC, viz., (i) sale of beer and IMFL products; and (ii) sale of the bottles in which the beer or IMFL products are packed. 3.1.4. Mr. C. Natarajan, learned Senior Counsel, points out that the manufacturing cost of the beer per case was worked out to Rs. 109.93 per case including the cost of the bottle for packing beer that was worked out to a sum of Rs. 35.69 per case. Thus, the cost of the beer bottle alone constituted 32 per cent of the manufacturing cost. Similarly, the cost of manufacture of IMFL product per case was worked out to Rs. 217.06 per case including the cost of the bottle to pack IMFL product that was worked out to Rs. 60.46 per case and thus, the cost of IMFL bottle alone constituted 28 per cent of the manufacturing cost. 3.1.5. It is, therefore, argued that even though the transaction of sale of beer or IMFL products by the petitioner to TASMAC includes two sales, viz., (i) sale of beer and IMFL products; and (ii) sale of the bottles in which the beer or IMFL products are packe....
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....ve a different interpretation which would otherwise prejudice the interest of the assessee. 3.2.3. Mr. C. Natarjan, learned Senior Counsel, placing reliance on the decision in (i) HMM Limited v. Administrator, Bangalore City Coprn. [1990] 77 STC 17 (SC); (1989) 4 SCC 640; and (ii) Mafatlal Industries Ltd. v. Nadiad Nagar Palika [2000] 118 STC 494 (SC); (2000) 3 SCC 1, contends that bottling of the beer and IMFL products in the bottles, for marketing them, would not, by itself, render the assessee chargeable for purchase tax under section 7-A of the Act, inasmuch as the bottles were not used for a separate and independent purpose other than for the sale of beer and IMFL products for which the petitioner was already assessed to sales tax. According to Mr. C. Natarajan, the insertion of the words "or uses" by way of the Tamil Nadu Act 78 of 1986 would not in any way be a good and sufficient reason to distinguish the decision in Associated Pharmaceutical Industries Private Limited v. State of Tamil Nadu [1986] 63 STC 316 (Mad.). 3.3. Thirdly, Mr. C. Natarajan, learned Senior Counsel, contends that even assuming the purchase turnover towards the purchase of empty bottles attracts sect....
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....6 inserting the words "or uses" in section 7-A(1)(a) of the Act, the Legislature has expressly and unambiguously made it clear that the purchase turnover towards purchase of goods in the manufacture of other goods for sale or otherwise are chargeable for purchase tax, giving no room for two opinions one for levy of tax and the other for the benefit of the assessee. In this regard, Mr. T. Ayyasamy, learned Special Government Pleader relies on the decision in Assistant Commissioner (Intelligence) v. Nandanam Construction Co. [1999] 115 STC 427, whereunder the apex Court dealt with section 6-A(ii)(a) of the Andhra Pradesh General Sales Tax Act, which is pari materia to section 7-A(1)(a) of the Tamil Nadu General Sales Tax Act. 4.3. Placing reliance on the decision in Jayam Traders v. Tamil Nadu Taxation Special Tribunal [2004] 136 STC 302 (Mad.), it is contended that though the clarifications dated November 9, 1989 and December 27, 2000 may be binding on the Revenue, they would not be binding on the assessee in cases where it is adverse to him and in which case, it is for the court to decide whether the stand of the assessee is right and in accordance with the provisions of the Act. ....
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....ote to the extent of Rs. 24,78,20,465 is attracted for purchase tax under section 7-A of the Tamil Nadu General Sales Tax Act (for brevity "the Act")? 7.2. In this regard it is apt to refer section 7-A(1)(a) of the Act before and after the amendment brought vide Tamil Nadu Act 78 of 1986, which came into effect from January 1, 1987. Before amendment: "Section 7-A. Levy of purchase tax.-(1) Every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods the sale or purchase of which is liable to tax under this Act in circumstances in which no tax is payable under sections 3, 4, or 5, as the case may be, either,- (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State; or (c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to the purchase aforesaid at the rate mentioned in section 3, 4 or 5, as the case may be, whatever be the quantum of such turnover in a year: Provided that a dealer other....
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....o lakhs of rupees and such a dealer may, at his option, instead of paying the tax in accordance with the provisions of sub-section (1), pay tax at the rates mentioned in sub-section (1) of section 7: Provided that this sub-section shall not apply to the purchase made on or after the first day of April, 1990. (3) Every dealer liable to pay purchase tax under sub-section (1), shall, for the purposes of this Act, be deemed to be a registered dealer." 7.3. Accordingly, the expression "or uses" was inserted by the Tamil Nadu Act 78 of 1986 which came into effect from January 1, 1987. 7.4.1. In Deputy Commissioner (C.T.), Coimbatore v. Vijaya Trading Co. [1980] 46 STC 400 (Mad.), whereunder the dealer purchased empty tins which are used as container for oil in which he deals and the price he charges when selling the tinned oil includes the price for tin also, it was held that there was a sale of the tin as part of the tinned oil and therefore, section 7-A would not be attracted. 7.4.2. In State of Tamil Nadu v. Associated Sales of India [1980] 46 STC 401 (Mad.), where folded clips purchased from unregistered persons and used in the manufacture of office files were charged for....
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....ansport and the quantity of the goods as such is not dependent on packing; and (5) the mere fact that the consideration for the packing is merged with the consideration for the product would not make the sale of packing an integrated part of the sale of the product. 7.4.6. This Court in Shaw Wallace & Co. Ltd. v. State of Tamil Nadu [1993] 90 STC 468, where the petitioner claimed that the packing charges could not be included in the taxable turnover and in any case, the packing materials could not be taxed at the same rate as the contents, namely, the liquor, of course after referring the decision of the apex Court in Raj Sheel v. State of Andhra Pradesh [1989] 74 STC 379 (SC) referred supra, and finding that from the invoices the description of the goods is always in terms of the number of cases, that is in the form of crates, rejected the contention that the sale of packing materials forms part of an independent commodity. 7.4.7. The apex Court in Premier Breweries v. State of Kerala [1998] 108 STC 598 held that in calculating the turnover of the goods, packing materials would have to be taken into account. The packing material would be taxed at the same rate and at the same p....
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....ase of empty bottles from unregistered dealers were charged for purchase tax under section 7-A of the Act, this Court applying the ratio laid down in Assistant Commissioner (Intelligence) v. Nandanam Construction Co. [1999] 115 STC 427 (SC), and also referring to the decision in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 (SC), held that in view of the amendment to section 7-A of the Act inserting the words "or uses" under section 7-A(1)(a) of the Act, the scope and jurisdiction of the assessing authorities to levy purchase tax is enlarged to achieve the object of the Legislature and thus held as follows: "After the amendment to section 7-A(1)(a) recovery of purchase tax is permissible even in cases where the goods which had not suffered tax, at the time of purchase are used by the dealer and are subsequently disposed of by the dealer in circumstances where the value of the turnover relating to those goods is also subject to tax by deeming the same as forming part of the turnover of other taxable goods. Therefore, inclusion of turnover of bottles in the turnover of the petitioner relating to I.V. fluids did not enable the petitioner to get out of net of section 7-A as....
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.... the object of section 7-A of the Act, viz., to plug leakage and prevent evasion of tax, had already been achieved for having levied tax for beer and IMFL products along with bottles could not be appreciated in view of the amendment brought to section 7-A(1)(a) of the Act by the Tamil Nadu Act 78 of 1986, by inserting the words "or uses", as it is a trite law that where there is no ambiguity in the provisions of the statute, it is not possible to apply any consideration based on two views of construction and to apply the construction which is more advantageous to the assessee or to give the assessee a kind of choice in the matter of adjustment, vide Commissioner of Income-tax, Tamil Nadu v. Coromandel Steels Ltd. [1981] 130 ITR 856 (Mad.). 7.6. Hence, applying the law laid down by the apex Court in (i) Premier Breweries v. State of Kerala [1998] 108 STC 598; and (ii) Assistant Commissioner (Intelligence) v. Nandanam Construction Co. [1999] 115 STC 427, which was followed by this Court in Appollo Saline Pharmaceuticals (P) Ltd. v. Deputy Commercial Tax Officer [2002] 125 STC 500 (Mad.), and keeping in mind the object of section 7-A of the Act, as amended, as observed in State of Ta....
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....adu Act 60 of 1997 and came into force with effect from November 6, 1997, which reads as follows: "Section 28-A. Power to issue clarification by Commissioner of Commercial Taxes.-(1) The Commissioner of Commercial Taxes on an application by a registered dealer, may clarify any point concerning the rate of tax under the Act. Such clarification shall be applicable to the goods specified in the application: Provided that no such application shall be entertained unless it is accompanied by proof of payment of such fee, paid in such manner, as may be prescribed. (2) The Commissioner of Commercial Taxes may, if he considers it necessary or expedient so to do, for the purpose of uniformity in the work of assessment and collection of tax, clarify any point concerning the rate of tax under this Act or the procedure relating to assessment and collection of tax as provided for under this Act. (3) All persons working under the control of Commissioner of Commercial Taxes shall observe and follow the clarification issued under sub-section (1) and sub-section (2)." 8.4. Of course, relying on the decision in Jayam Traders v. Tamil Nadu Taxation Special Tribunal [2004] 136 STC 302 (Mad.....
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.... and it is under such context, this Court held that it is not necessary for the court to go into the correctness of the clarification issued under section 28-A of the Act. 8.6.1. On the other hand, the law is well-settled on the point in the light of the following decisions, which are discussed hereunder: 8.6.2. The apex Court in State Bank of Travancore v. Commissioner of Income-tax [1986] 158 ITR 102 held that even though the clarifications issued by the Revenue being executive in character cannot alter the provisions of the Act, since they are in the nature of concessions, they can always be prospectively withdrawn. In the instant case, even though the clarification dated November 9, 1989 is executive in nature, the concessions given to the assessee could be withdrawn only prospectively, but not retrospectively because, such executive circulars are binding on the authorities, as held by the apex Court in Keshavji Ravji & Co. v. Commissioner of Income-tax [1990] 183 ITR 1. In Keshavji Ravji & Co. v. Commissioner of Incometax [1990] 183 ITR 1, referred supra, while dealing with section 119 of the Income-tax Act, which is pari materia to section 28-A of the Tamil Nadu General Sal....
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....22 STC 100, the apex Court held that a circular issued by the sales tax authorities is binding on the taxing authorities and the taxing authority cannot be heard to advance an argument that is contrary to that interpretation. 8.6.7. In Commissioner of Income-tax v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi), it was held that the Board has power to issue circulars under section 119 of the Income-tax Act and it is trite that circulars which are issued by the Central Board of Direct Taxes are legally binding on the Revenue. 8.6.8. The Constitution Bench of the apex Court in Collector of Central Excise, Vadodara v. Dhiren Chemical Industries [2002] 126 STC 122, held that if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue. Similar view was taken by the apex Court in Collector of Central Excise, Vadodara v. Dhiren Chemical Industries [2002] 143 ELT 19. 8.6.9. In Commissioner of Customs, Calcutta v. Indian Oil Corporation Ltd. [2004] 165 ELT 257, the apex Court held that the circulars issued by the Revenue under section 37-B of t....