TMI Blog2004 (9) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner 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 respondent/asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice dated October 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,76,20,119 2. Surcharge due at 15% on the tax due of Rs. 14,91,697 on the turnover now determined up to 16-7-1996 Rs. 2,23,755 A demand notice in form "U" is issued for surcharge balance. 3. Total surcharge due Rs. 2,78,43,874 4. Total surcharge paid Rs. 2,76,20,119 Balance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through bought note from the unregistered dealers cannot be charged for the purchase tax under section 7-A of the Act. 3.1.2. According to Mr. C. Natarajan, learned Senior Counsel appearing for the petitioner/company, TASMAC is the sole purchaser of beer and IMFL products from the petitioner in cases and the consideration is also paid only per case, viz., the consideration paid by TASMAC was not only for the beer or IMFL products contained in the bottle, but also for the bottles themselves in which the beer or IMFL was packed. 3.1.3. Mr. C. Natarajan, learned 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 manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice of the containers, viz., the bottles, the main object of section 7-A of the Act has been achieved. It is also contended that if more than one construction is possible, the one which preserves its workability and efficacy is to be preferred as against the one which would render it otiose and sterile. According to Mr. C. Natarajan, since section 7-A of the Act is enacted to plug leakage and prevent evasion of tax, when the same is achieved by payment of tax for the sale of beer and IMFL products as well as the containers, namely bottles, there is no reason to give 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commercial Tax Officer [2001] 124 STC 586. IV. CONTENTIONS MADE ON BEHALF OF THE RESPONDENT/REVENUE: 4.1. Per contra, Mr. T. Ayyasamy, learned Special Government Pleader appearing for the respondents, contends that the decision in Associated Pharmaceutical Industries P. Ltd. v. State of Tamil Nadu [1986] 63 STC 316 (Mad.), is not applicable to the facts of the case in view of the amendment brought in section 7-A(1)(a) of the Act whereunder the words "or uses" were inserted by the Tamil Nadu Act 78 of 1986. 4.2. By an amendment brought under the Tamil Nadu Act 78 of 1986 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of the 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? 7.1. Question (i): Whether the purchase turnover of empty bottles purchased by the petitioner-company, who are engaged in the business of manufacturing beer and IMFL products, from unregis tered dealers for bottling beer and IMFL manufactured by them, through the bought note 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 paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r than a casual trader or agent of a non-resident dealer purchasing goods the sale of which is liable to tax under sub-section (1) of section 3 shall not be liable to pay tax under this sub-section, if his total turnover for a year is less than one lakh of rupees. (2) Notwithstanding anything contained in sub-section (1), the provisions of section 7 shall apply to a dealer referred to in subsection (1) who purchases goods (the sale of which is liable to tax under sub-section (1) of section 3) and whose total turnover for a year is not less than one lakh of rupees but not more than two 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 De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apex Court in Raj Sheel v. State of Andhra Pradesh [1989] 74 STC 379, held that to decide whether the transaction for sale of packing materials is an independent transaction would depend upon several factors, some of them being: (1) the packing material is a commodity having its own identity and is separately classified; (2) there is no change, chemical or physical, in the packing either at the time of packing or at the time of using the contents; (3) the packing is capable of being reused after the contents have been consumed; (4) the packing is used for convenience of transport 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 7-A is at once a charging as well as a remedial provision. Its main object is to plug leakage and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile." (Emphasis supplied) 7.4.10. In Appollo Saline Pharmaceuticals (P) Ltd. v. Deputy Commercial Tax Officer [2002] 125 STC 500 (Mad.), where the purchase 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances of the case in hand, as, in the instant case, the empty bottles were used to fill the beer and IMFL products manufactured by the assessee and sold along with container and the said empty bottles were purchased from unregistered dealers under bought note which did not suffer any tax; and the question of levying entry tax, viz., octroi duty, does not arise at all. 7.5. That apart, the contention of Mr. C. Natarajan, learned Senior Counsel that, as per the rules of interpretation, when two opinions are possible, the one which is in favour of the assessee should be applied as 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IMFL products would not attract section 7-A of the Act. Similarly, the Appellate Assistant Commissioner (CT), Chennai with respect to the assessment years 1986-87, 1987-88 and 1988-89 also found that the imposition of purchase tax on the purchase of empty bottles was illegal and unjustified. 8.3. Even though the clarification dated November 9, 1989 given by the Commissioner of Commercial Tax in favour of the petitionercompany was executive in nature, the subsequent clarification dated December 27, 2000 gains a statutory effect in view of section 28-A of the Act, which was inserted by the Tamil Nadu 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the argument of the learned Special Government Pleader nor any relevancy to rely on the decision in Amul Ploycure Industries Ltd. v. Tamil Nadu Taxation Special Tribunal [2004] 134 STC 526 (Mad.), for the simple reason that in Amul Ploycure Industries Ltd. v. Tamil Nadu Taxation Special Tribunal case [2004] 134 STC 526 (Mad.), the assessee challenged the order passed by the Tribunal refusing to entertain the challenge made by the assessee to the order passed by the Revenue under section 28-A of the Act regarding the rate of interest that is applicable to the products, which they were dealing in, 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far greater importance than winning or losing court proceedings. 8.6.5. In UCO Bank v. Commissioner of Income-tax [1999] 237 ITR 889, the apex Court held that the circular issued by the Revenue under section 119 of the Income-tax Act are binding on the revenue and such circulars are meant for ensuring proper administration of the statute and they are designed to mitigate the rigours of the application of a particular provision of the statute in certain situations by applying a beneficial interpretation to the provision in question. 8.6.6. In Commissioner of Sales Tax, U.P. v. Indra Industries [2001] 122 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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?. 9.2. In this regard, a reference to explanation 2(iii) to section 2(r) of the Act, which reads as under is relevant: "Section 2(r). 'turnover' means the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (n), by a dealer either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea, and rubber (natural rubber, latex and all varieties and grades of raw rubber) grown within the State by himself or on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover. Explanation (1).............. Explanation (1-A)........... Explanation (2).-Subject to such conditions and restrictions, if any, as may be prescribed in this behalf- (i) .............. (ii) .............. (iii) any cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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