TMI Blog1999 (9) TMI 916X X X X Extracts X X X X X X X X Extracts X X X X ..... o the sales turnover of harmless medicines and multi-point goods. He brought to tax the purchase turnover of empty bottles at 10 per cent under section 7-A of the Tamil Nadu General Sales Tax Act. He thus arrived at a total turnover of Rs. 17,11,408.55. There being no exempted turnover the total was also shown as Rs. 17,11,408.55. Surcharge and additional sales tax were also levied. The dealers objected to the proposals stating that there was no warrant for addition of 1 per cent for defects. Secondly, they contended that the levy of purchase tax was illegal. The assessing authority overruled the objection and passed an order of assessment, as proposed on April 29, 1988. 3.. On appeal, the Appellate Assistant Commissioner reduced the 1 per cent addition for defects to a round sum of Rs. 5,000 taxable at 8 per cent and Rs. 100 taxable at 5 per cent. The next major issue taken for consideration by the Appellate Assistant Commissioner related to a turnover of Rs.1,20,528 brought to tax under section 7-A of the Tamil Nadu General Sales Tax Act at 10 per cent. The Appellate Assistant Commissioner came to the conclusion that the empty bottles were bought from unregistered dealers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnover? (ii) Whether bottles purchased by the appellants from unregistered dealers can be said to have been consumed or used in the manufacture of medicines, drugs and syrups?" They confirm the addition of Rs. 5,100 as determined by the Appellate Assistant Commissioner. On the second question framed by them they observed as follows with reference to sub-section (7) of section 3 of the Tamil Nadu General Sales Tax Act, 1959: "Merely because sub-section (7) of section 3 provides for levy of tax on the value of packing materials where the goods are sold together with the packing materials, it cannot be said that tax under section 7-A cannot be levied." 7.. They, then referred to the judgment of the Madras High Court in Associated Pharmaceutical Industries Private Limited v. State of Tamil Nadu [1986] 63 STC 316 and refused to follow the ratio of the judgment because of an earlier judgment of the Supreme Court in J.K. Cotton Spinning Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563. These two decisions relate to the question whether the empty bottles were used or consumed in the manufacture of medicines, drugs, syrups, etc. Purporting to follow the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the scope of section 7-A of the Tamil Nadu General Sales Tax Act was rendered by the Supreme Court in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191. The Supreme Court was reversing a judgment of the Madras High Court which held that the language of section 7-A is far from clear as to its intention. According to the Madras High Court the words "goods, the sale or purchase of which is liable to tax under the Act" and the words "in circumstances in which no tax is payable under section 3, 4 or 5 as the case may be" are mutually contradictory in terms. The Supreme Court of India held that the Madras High Court had mixed up certain well-known concepts in sales tax law and proceeded to analyse section 7-A word by word. The Supreme Court observed: "On analysis, sub-section (1) breaks up into these ingredients: (1) The person who purchases the goods is a dealer; (2) The purchase is made by him in the course of his business; (3) Such purchase is either from 'a registered dealer or from any other person'; (4) The goods purchased are 'goods, the sale or purchase of which is liable to tax under this Act'; (5) Such purchase is 'in circumstances in which no tax is payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which presents itself before us. The 5th ingredient pointed out by the Supreme Court specifically begins with the words "such purchase", meaning that we have to examine the circumstances in which tax is payable or not payable at the time of purchase of the goods by the dealer. In other words, the question is whether the selling dealers are liable to tax. The fact that after the purchase the assessee is made liable to pay tax on the empty bottles along with the goods would not alter the situation. This is made clear by the said judgment of the Supreme Court itself, when they observed at the end of the judgment: "In our opinion, the Kerala High Court has correctly construed section 5A of the Kerala Act which is in pari materia with the impugned section 7-A of the Madras Act. 'Goods, the sale or purchase of which is liable to tax under this Act' in section 7-A(1) means 'taxable goods', that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of the seller but the purchase of the same by a dealer in the course of his business may subsequently become taxable. We have pointed out and it needs to be emphasised again that sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le on the goods as the duty payable on the containers also. We are therefore, of the opinion that the above interpretation can only provide a harmonious understanding of ingredient number (5) mentioned in the Supreme Court judgment in [1975] 36 STC 191 (State of Tamil Nadu v. M.K. Kandaswami) as well as section 3(7) of the Tamil Nadu General Sales Tax Act, 1959 as interpreted by [1998] 108 STC 598 (SC) (Premier Breweries v. State of Kerala). In this view of the matter the second contention of the appellant that one of the important ingredients of section 7-A is not satisfied cannot be accepted. It is not disputed before us that at the time of purchase of the empty bottles by the assessee, no tax was payable. The second point urged by Mr. N. Inbarajan, therefore, fails and is rejected. 17.. We will now take up the first contention which relates to the 6th ingredient of section 7-A as pointed out in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191 (SC). The 6th ingredient relates to the goods being made unavailable for taxation owing to the act of the dealer in doing any of the acts mentioned in sub-clauses (a), (b) or (c) of section 7-A(1) of the Tamil Nadu General Sales T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to also bear in mind whether the amendment made in Act 60 of 1997 by introducing the words "in or for" for the manufacture of other goods, would help us in understanding the issue. 20.. When the word "consumes" was alone available, there was a judgment of the Madras High Court on identical facts, namely [1986] 63 STC 316 (Associated Pharmaceutical Industries Private Limited v. State of Tamil Nadu) which judgment is strongly relied upon by Mr. N. Inbarajan, because the judgment used in more than one place the word "uses" also. In that case the assessee was manufacturing drugs and syrups. He had also purchased empty bottles and dealwood cases for packing the medicines. This was treated as consumption by the lower authorities. The Madras High Court relying on [1981] 47 STC 30 (State of Tamil Nadu v. Subbaraj and Co.) observes: "Here, the identity between the original commodity and the end-product is intact even after the bottles are filled up with drug or the syrup manufactured by the assessee and even after the consumption of the drug or the syrup the bottles continue to have their own identity. 'On the facts of this case, the bottles can never be said to have been used or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Co. Ltd. v. Sales Tax Officer, Kanpur) is a case arising under the Central Sales Tax Act, 1956, with reference to the certificate of registration granted under section 7(1) of the said Act. Section 8 of the said Act prescribes the rate of tax on sales in the course of inter-State trade or commerce. Sub-section (3) of the said section refers to a certificate of registration for purchasing goods as being intended for resale by him or for use by him "in the manufacture or processing of goods for sale or in mining, or in the generation or distribution of electricity or any other form of power". Rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957 prescribes the goods referred to in section 8(3)(b). It is with reference to the above provisions of law that the Supreme Court observes as follows: "The expression 'in the manufacture of goods' should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India). Both the said decisions were prior to the introduction of the word "uses" in subclause (a) of section 7-A(1) of the Tamil Nadu General Sales Tax Act, 1959. We have already pointed out that it is precisely to get over these decisions that the word "uses" was introduced in sub-clause (a). Reference was then made to [1988] 69 STC 320 [Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Thomas Stephen Co. Ltd.]. In that case, the dealer was dealing in tiles, terra-cotta wares and ceramics. He purchased cashew shells for using the same as fuel for manufacturing its products. They also purchased lime shells for maintaining their kiln in the factory. The Supreme Court affirmed the judgment of the High Court and held that cashew shells had been used only as fuel and did not get transformed into the end-product and were not used as raw material in the manufacture of other goods. It has to be again pointed out that the Supreme Court was only interpreting the word consumption as contemplated in section 5-A(1)(a) of the Kerala General Sales Tax Act, 1963. State of Tamil Nadu v. Sri Narayana Oil Mills [1996] 100 STC 358 (Mad.) was referred to for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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