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2015 (6) TMI 1016 - BOMBAY HIGH COURT

2015 (6) TMI 1016 - BOMBAY HIGH COURT - [2015] 84 VST 441 (Bom) - Whether the Tribunal was correct in holding that, instead of the entry A47 waiving tax on purchase in excess of given percentage, the dealer was liable to purchase tax at two per cent and not at reduced amount of 0.5 per cent. or 1.55 per cent, as applicable at relevant time under the entry A47 while section 41 read with section 13AA of the Bombay Sales Tax Act - Importer/exporter of diamonds and manufacturer of gold jewellery - A .....

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ach of the entries. The relevant clause of the Schedule to the notification, would also reveal that the notification refers to sale or purchase by a registered dealer of goods covered by entry 10 in Part I of Schedule C. Part I of Schedule C specifies the rate of tax at two per cent.

By applying the principles of harmonious construction, the notification will have to be construed to apply to the rate of tax as specified in entry 10 of Part I of Schedule C of the said Act. The rate is .....

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re fulfilled. The tax as provided in section 13AA, is an additional tax payable in certain circumstances as carved out in the said section, so as to compensate the loss of revenue. Therefore, there is no conflict between any of the provisions of the said Act if the principles of harmonious construction is applied thereto.

Whether the Tribunal was justified in holding that the said exemption on purchase will not cover, purchase tax levied under section 13AA, unless specific exemption e .....

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y deprive the State its revenue, which it would have earned by way of sales tax, at much higher rates, if the goods were sold in the State. Also then the purchaser who purchases raw material at concessional rate, uses them for manufacture in the State of Maharashtra and also sells them in the State will be required to pay purchase tax at the rate of 0.5 per cent. and the sales tax at the rate of four per cent. as provided in entry 98 of Part II of Schedule C and thereby required to pay total tax .....

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evied under section 13AA, is liable to be levied except in the three situations i.e., (i) sale of manufactured goods within the State, (ii) inter-State sale and (iii) export sale of manufactured goods, but dispatches it to his branch or to his agent, situated outside State, it cannot escape from the liability of tax at the rate of two per cent., as is leviable under section 13AA. - Matter disposed of - Sales Tax Reference Nos. 20, 21 of 2008, Reference Application Nos. 134, 135 of 2007 - Dated:- .....

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he entry A47 waiving tax on purchase in excess of given percentage, the dealer was liable to purchase tax at two per cent. and not at reduced amount of 0.5 per cent. or 1.55 per cent. as applicable at relevant time under the entry A47 while section 41 read with section 13AA of the Bombay Sales Tax Act ? (II) Even though the entry A47 cover exemption from tax on purchase, whether the Tribunal was justified in holding that the said exemption on purchase will not cover, purchase tax levied under se .....

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it is also having branches at Surat and Hyderabad. The assessee was assessed for the financial year 2000-01 and 2001-02 under the provisions of the said Act by assessment order dated March 26, 2004 and March 31, 2005, respectively by the Assistant Commissioner of Sales Tax. As per the said assessment orders, the assessee was held to be entitled for refund of ₹ 50,128 for the financial year 2000-01, whereas for the financial year 2001-02, the assessee was held liable to pay an additional a .....

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ax rate is reduced to 0.5 per cent. for the period May 31, 2000 and 1.55 per cent. during the period June 1, 2000 to March 31, 2002 and that the levy of surcharge and turnover tax was also fully exempted in respect of bullion for the period from June 1, 2000 onwards. Since the assessing authority had refused to grant benefit of the notification issued under section 41 and had levied purchase tax at the rate of 2 per cent. and not at the reduced rate as per the said notification and also denied t .....

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ppeal before the learned Tribunal. The learned Tribunal vide order dated April 21, 2007, dismissed the appeals. Applications were made by the assessee for referring the aforesaid questions of law for determination by this court. Vide order dated November 23, 2007, the said applications have been allowed. Hence the present reference. 3. Heard Shri Thakar, learned counsel for the assessee and Shri Sonpal, learned special counsel for the Revenue. 4. Shri Thakar learned counsel for the assessee, sub .....

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being levied under section 13AA is also a purchase tax. The learned counsel submits that when the language of the notification is plain and simple, there is no question of taking recourse to other principles of interpretation. The learned counsel submits that from plain interpretation of the notification issued under section 41, it will be abundantly clear that the purpose of the notification is to give benefit of reduced rate of tax whenever purchase tax is liable to be paid and the distinction .....

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ould not be given to the assessee. The learned counsel also relies on the judgment of the Patna High Court in the case of Tata Iron & Steel Co. Ltd. v. Union of India [1989] 42 ELT 353 (Patna) and the judgments of various High Courts, in support of the proposition that the rule of literal interpretation should be applied while interpreting the taxing statute. The learned counsel also relies on the judgment of this court in the case of Varun Polymol Organics Ltd. v. State of Maharashtra [1995 .....

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ion thereto. The learned counsel submits that the intention of the Legislature of levying tax under section 13AA is to compensate the loss of revenue which is occasioned by transfer of goods manufactured in the State, to the branch of the assessee or his agent which are situated outside the State. The learned counsel submits that the legislative intent is very clear. He submits that even perusal of the notification, would reveal that the benefit of reduced tax is referable to the rate of tax, as .....

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branch of the assessee or his agent. 7. For considering the rival submissions, it will be necessary to refer to certain provisions of the said Act. Sections 13, 13A, 13AA, 13B and section 41 read thus: "13. Purchase tax payable on certain purchases of goods.-(1) Where a dealer, who is liable to pay tax under the provisions of this Act, purchases any goods specified in Schedule B or C from a person or a Government, who or which is not a dealer or a dealer who is not registered dealer and tr .....

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ot a dealer or a dealer who is not a registered dealer then unless the goods so purchased are resold by the dealer, there shall be levied, subject to the provisions of sub-section (2) of section 7, a purchase tax on the turnover of such purchases at the rate set out against each of such goods in the Schedules aforesaid. Explanation.-For the purposes of this section, the term 'capital assets' shall have the same meaning as assigned to it in the Income tax Act, 1961. 13A. Levy of purchase .....

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le to pay tax under this Act, purchases any goods specified in Part I of the Schedule C, directly or through commission agent, from any person and uses such goods in the manufacture of taxable goods and despatches the goods, so manufactured, to his own place of business or to his agent's place of business situated outside the State within India, then such dealer shall be liable to pay, in addition to the sales tax paid or payable, if any, or, as the case may be, the purchase tax levied or le .....

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f previous publication, the State Government may, by notification in the Official Gazette, specify the goods or classes of goods (hereinafter referred to in this section as 'the specified goods') in respect of which purchase tax shall be leviable on the turnover of purchase of the specified goods effected by a dealer liable to pay tax under this Act at the rate of purchase tax leviable in respect of the specified goods under Schedule B or Schedule C, as the case may be, unless such purch .....

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ublic interest, by notification in the Official Gazette, exempt any specified class of sales or purchases from payment of the whole or any part of any tax payable under the provisions of this Act any notification issued under this section may be issued so as to be retrospective to any date not earlier than the January 1, 1960. (2) Where any dealer or person has purchased any goods under a declaration given by him under any of the notifications issued under this section and - (a) any of the condi .....

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such goods in column 4 of Schedules B and C, notwithstanding that such dealer or person was not liable to pay tax under section 3, and accordingly the dealer or the person who has become liable to pay purchase tax under this subsection shall file a return in the prescribed form to the prescribed authority within a prescribed time and shall include the purchase price of such turnover in his return, and pay the tax in the prescribed manner. The tax due from any such dealer or person shall be asse .....

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are purchased shall be exempted from payment of tax on sales of such goods to the extent such purchase tax has been paid. (3) If the Commissioner has reason to believe that any person is liable to pay tax under sub-section (2), the Commissioner shall, after giving him a reasonable opportunity of being heard, assess the amount of tax so due." 8. Perusal of the aforesaid provisions would reveal that, section 13 provides for liability of dealer, who is liable to pay tax under the provisions o .....

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13 carves out an exception, when the goods so purchased are re-sold by a dealer, from the liability of payment of tax as is provided in sub-section (1) of section 13. 9. Section 13A, deals with dealer holding a certificate of entitlement, who purchases any goods on a declaration referred to in clause (g) of section 12 and provides for a levy of purchase tax on the turnover of such purchases, at such rate not exceeding four per cent as may be prescribed and further provides that different rates .....

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tate within India. It provides that such a dealer shall be liable to pay, in addition to the sales tax paid or payable, if any, or, as the case may be, the purchase tax levied or leviable, if any, under the other provisions of the said Act in respect of purchase of such goods, a purchase tax at the rate of two per cent., on the purchase price of the goods so used in the manufacture. 11. Section 13B deals with the power of the State Government to specify goods or classes of goods as specified goo .....

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red goods, the purchase tax leviable under sub-section (1) shall be subject to the provisions of sub-section (2) of section 7. Sub-section (3) thereof provides that, on issuance of the notification under subsection (1), nothing in sections 7, 8 or 13 shall apply to the sale or purchase, as the case may be, of the specified goods. Section 14 deals with a liability to pay purchase tax in case of contravention of terms of declaration, with which we are not concerned in the present matter. 12. Secti .....

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ent of tax, to the extent specified in column 3 of the Schedule to the said notification, certain classes of sales or purchases specified in column 2 thereof, on the conditions specified against each of the said classes of sales or purchases in column 4 of the said Schedule. 14. In the preset matter, we are concerned with entry No. 47 of the said Schedule to the said notification which deals with sales or purchase by a registered dealer of goods, covered by entry No. 10 in Part I of Schedule C. .....

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tax and with effect from June 1, 2000 till May 31, 2002 the duty in excess of 1.55 per cent. and whole of surcharge was exempted. 15. It could thus be seen that insofar as the goods, i.e., the bullion is concerned, it is undisputedly entitled to benefit of the notification under section 41 of the said Act. However, the only question that is required to be considered, is as to whether by virtue of the said notification issued under section 41, the liability of the assessee to pay the purchase tax .....

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t is of 1959, section 13AA was brought on the statute book, for the first time, with effect from July 1, 1982 by Maharashtra Act 28 of 1982. The original section 13AA as enacted then, reads as under: "S. 13AA. Purchase tax payable on goods in Schedule C, Part I, when manufactured goods are transferred to branches.- Where a dealer, who is liable to pay tax under this Act, purchases any goods specified in Part I of the Schedule C, directly or through commission agent, from any person and uses .....

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se price of the goods so used in the manufacture, and accordingly the dealer shall include purchase price of such goods in the turnover of purchases in his return under section 32, which he is to furnish next thereafter." It will be relevant to refer the statement of objects and reasons for introducing section 13AA. "Clause 2. By this clause, a new section 13AA is being inserted in the principal Act. The manufacturers in the State are treated on a special footing for the purposes of le .....

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provides for an additional tax at one per cent., on inputs that go into branch transfers but it is restricted to the goods specified in Part II of Schedule C. Since certain manufacturers who transfer most of the goods by branch transfers, use all the facilities of infrastructure provided by this State, it is felt that it is no more necessary to give them concession in respect of inputs, falling in Part I of Schedule C, for manufacture. Accordingly, it is proposed to levy two per cent. purchase .....

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eals and held section 13AA to be ultra vires. After the aforesaid judgment was delivered by the apex court on October 9, 1989, by an Ordinance dated December 6, 1989, section 13AA was again brought on the statute book, with retrospective effect, with validating and saving provisions, by removing the disability pointed out by the honourable Supreme Court. The Ordinance came to be replaced by Maharashtra Act 24 of 1990. 18. Section 13AA as substituted reads thus: 13AA. Purchase tax payable on good .....

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er the other provisions of this Act in respect of purchases of such goods, a purchase tax at the rate of two paise in the rupee on the purchase price of the goods, so used in the manufacture, and accordingly the dealer shall include purchase price of such goods in his turnover of purchases in his return under section 32, which he is to furnish next thereafter. 19. It will also be relevant to refer to the Statement of Objects and Reasons of Maharashtra Act 24 of 1990, which reads thus: "Unde .....

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tan Lever Limited v. State of Maharashtra [1989] 72 STC 69 (Bom)) section 13AA was challenged on the ground that it provided for levy of consignment tax and not a purchase tax. By the judgment reported in Wipro Products Limited v. State of Maharashtra [1989] 72 STC 69 (Bom), the High Court upheld the validity of section 13AA. Civil Appeal No. 4162 of 1988 (Wipro Products Ltd. v. State of Maharashtra [1990] 76 STC 71 (SC); [1991] 188 ITR 402 (SC)) and Civil Appeal No. 4163 of 1988 (Hindustan Leve .....

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able finished goods which would be sold and the State would be able to levy and recover normal rate of sales tax on the goods so manufactured. If a purchaser availed himself of the concessional low rate of tax at the time of purchase of the raw materials and used them in the manufacture of other taxable goods but did not sell the same, it would result into loss of revenue to the State which was not intended. Therefore, with a view to protecting the revenue, it was expedient to re-enact section 1 .....

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ediate action further to amend the Bombay Sales Tax Act, 1959, for the purposes aforesaid; the Bombay Sales Tax (Amendment) Ordinance, 1989 (Mah. Ord. IX of 1989) was promulgated on the December 6, 1989. 4. The Bill is intended to replace the said Ordinance by an Act of the State Legislature." 20. The validity of the said amended section 13AA again fell for consideration before the honourable apex court. In the case of Hotel Balaji v. State of Andhra Pradesh reported in [1993] 88 STC 98 (SC .....

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, we will have to consider the question that falls for consideration before us. The Constitution Bench in the case of Bengal Immunity Company Limited v. State of Bihar [1955] 6 STC 446 (SC); AIR 1955 SC 661, has observed thus (page 467 in 6 STC): "22 It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon's case 3 Co. Rep. 7a; 76 E. R. 637 was decided that- '. . . for the sure and true interpretation of all statutes in general (b .....

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hief, and advance the remedy, and to suppress subtle inventions and evasions for continuance of the mischief, and pro privato commodo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico.' In 'In re, Mayfair Property Company.' [[1898] 2 Ch 28 at page 35 Lindley, M. R., in 1898 found the rule 'as necessary now as it was when Lord Coke reported Heydon's case 3 Co. Rep. 7a; 76 E. R. 637'. In Eastman Photog .....

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to us that this rule is equally applicable to the construction of article 286 of our Constitution. In order to properly interpret the provisions of that article it is, therefore, necessary to consider how the matter stood immediately before the Constitution came into force, what the mischief was for which the old law did not provide and the remedy which has been provided by the Constitution to cure that mischief." Taking guidance from the aforesaid observations of the apex court, we will h .....

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there was no provision to tax a purchaser if he avails of himself of the concessional rate of tax at the time of purchase of raw materials, uses the same in the manufacture of taxable goods, but does not sell the same in the State, thereby resulting in loss of revenue to the State. (2) What was the mischief and defect for which the common law did not provide ? The defect that the law did not provide was that there was no provision for levy of tax to compensate loss of revenue, where the purchas .....

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e State and as such the State could not levy and recover the sales tax on the manufactured goods. (3) What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth ? The Legislature brought section 13AA on the statute book, so as to provide for additional levy of purchase tax at the fixed rate of two per cent., which was payable in addition to the sales tax or the purchase tax payable or leviable under the other provisions of the Act, where a purchaser avails of .....

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ut did not sell the manufactured goods in the State has brought section 13AA on the statute book. The intention of the Legislature, to provide concessional rate of tax on purchase of raw material, was that the said raw material would be used in the manufacture of taxable goods in the State, which will be sold in the State and upon such sale, the State would be in a position to levy sales tax at higher rate. The remedy provided by the statute, was in order to com-pensate the loss of revenue which .....

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tion 9 of the Haryana Act is to levy the tax on purchase of raw material and not to forego it where the goods manufactured out of them are disposed of (or despatched, as the case may be) in a manner not yielding any revenue to the State nor serving the interests of nation and its economy, as explained hereinbefore. The purchased goods are put an end to by their consumption in manufacture of other goods and yet the manufactured goods are dealt with in a manner as to deprive the State of any reven .....

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ng. Section 9 of the Haryana Act and section 13AA of the Bombay Act are intended to encourage the industry and at the same time derive revenue. It is also not right to concentrate only on one situation, viz., consignment of goods to manufacturer's own depots (or to the depots of his agents) outside the State. Disposal of goods within the State without effecting a sale also stands on the same footing, an instance of which may be captive consumption of manufactured products in the manufacture .....

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ing any revenue to the State nor serving the interests of nation and its economy. The apex court further held that, where the purchased goods are put an end to by their consumption in manufacture of other goods and yet the manufactured goods are dealt with in a manner, so as to deprive the State of any revenue, in such cases, there is no reason why the State should forego its tax revenue on purchase of raw material. The apex court, has further held that, the taxing power can be utilized to encou .....

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i) sale of manufactured goods within the State, (ii) inter-State sale and (iii) export sale of manufactured goods. It has been held that in other cases, it is not. 25. Insofar as the provisions with which we are concerned, the apex court has specifically observed thus (pages 149 and 150 in 88 STC): "The same is the position under section 13AA of the Bombay Sales Tax Act. The said provision, properly analysed, yields the following ingredients: (i) where a dealer who is liable to pay tax unde .....

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may be, a purchase tax at the rate of two paise in the rupee on the purchase price of the goods so used in the manufacture. Here again it may be noticed that the tax levied is a purchase tax on the purchase of raw material and not upon the consignment of the manufactured goods. The object of this provision too is the same as of the Haryana provision. The levy is waived where the manufactured goods are sold within the State, or sold in the course of inter-State trade or commerce or sold in the c .....

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invoking the provisions of section 13AA, the following four ingredients are necessary (page 150 in 88 STC): (i) where a dealer who is liable to pay tax under this Act purchases any goods specified in Part I of Schedule C either directly or through commission agent, from a person who is or is not a registered dealer; and (ii) uses such goods in the manufacture of taxable goods; and (iii) despatches the goods so manufactured to his own place of business or to his agent's place of business sit .....

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is retained and collected, where the goods are taken out of State of Maharashtra. It has been further held that in such an event, there is no reason, as to why the State should not retain and collect the levy on purchase of raw material. 27. It could thus be seen that the apex court in clear terms has held that, the levy under section 13AA is waived only when the goods are either sold in the State or in the course of inter-State trade or commerce or sold in the course of export. It has further .....

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s of dealers, on the turnover of purchase of goods on a dealer holding a certificate of entitlement, the State is empowered to prescribe different rates for different classes of dealers, however with an outer-limit of four per cent. It is pertinent to note that insofar as section 13AA is concerned, the Legislature has itself provided for levy of additional purchase tax, at the fixed rate of two per cent. and that too covering all classes of purchasers, irrespective of the nature of the goods. 29 .....

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he fixed rate of two per cent. for all classes of purchasers, irrespective of the nature of the goods or the dealers. 30. It will be appropriate to refer to the following observations of the apex court in the case of Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 (SC); [1987] 1 SCC 424 (page 692 in 61 Comp Cas): "33 Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is t .....

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uch context, its scheme, the sections, clauses, phrases and words may take colour and appear different than when the statute is looked at without the glasses provided by the context. With those glasses we must look at the Act as a whole and discover what each section, each clause, each phrase and each word is meant and designed to say as to fit into the scheme of the entire Act. No part of a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that eve .....

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tation is best which makes the textual interpretation match the contextual. A statute is best interpreted, when we know why it was enacted. It has been held that if a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, its scheme, the sections, clauses, phrases and words may take colour and appear different, than when the statute is looked at without the glasses provided by the context. It has been further held that with these g .....

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s of revenue, that occasioned on account of the purchasers purchasing raw material at concessional rates, using the same for manufacture of goods in the State and also using the State infrastructure, but however not selling the goods in the State, thereby depriving sales tax which the State would have earned from such sales at a higher rate. 31. It will also be relevant to refer the following observations of the apex court in the case of Bengal Immunity Company Limited [1955] 6 STC 446 (SC); AIR .....

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uction. One application of this rule is that when there is a law generally dealing with a subject and another dealing particularly with one of the topics comprised therein, the general law is to be construed as yielding to the special in respect of the matters comprised therein. Now, the reason of the rule requires that it should apply whenever there is overlapping of the fields occupied by two conflicting enactments, and when that is shown, it would not be logical to exclude its application on .....

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f them cannot stand, if possible they should be so interpreted that effect can be given to both and that construction which renders either of them inoperative should not be adopted, except by last resort. It has been consistently held by the apex court that the provisions of a statute should be construed harmoniously with each other and not in isolation. It has been held that the statute should be construed, so that meaning could be given to each and every provision enacted by the Legislature. I .....

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not be applicable to the facts of the present case. The question that fell for consideration before this court in the said case, was as to whether in view of a conflict between a subordinate legislation, i.e., notification and the administrative circular, what would prevail. The court held that an administrative circular, cannot have an overriding effect over the notification issued under section 41, which is a subordinate legislation and as such, the notification issued under section 41, will h .....

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dule to the notification, would also reveal that the notification refers to sale or purchase by a registered dealer of goods covered by entry 10 in Part I of Schedule C. Part I of Schedule C specifies the rate of tax at two per cent. We find that applying the principles of harmonious construction, the notification will have to be construed to apply to the rate of tax as specified in entry 10 of Part I of Schedule C of the said Act. The rate is specifically prescribed at the rate of two per cent. .....

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as provided in section 13AA, is an additional tax payable in certain circumstances as carved out in the said section, so as to compensate the loss of revenue. We are of the considered view that there is no conflict between any of the provisions of the said Act if the principles of harmonious construction is applied thereto. 34. We further find that, on another ground also the contention raised by the assessee will have to be rejected. The apex court in the case of Ashok Service Centre v. State o .....

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rmer Act, wherever the latter intended to modify the former. It will be appropriate to refer to the following observations of the apex court in the said case (page 11 in 53 STC): ". . .We are of the view that it is necessary to read and to construe the two Acts together as if the two Acts are one, and while doing so to give effect to the provisions of the Act which is a later one in preference to the provisions of the principal Act wherever the Act has manifested an intention to modify the .....

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ear outline and amendments in later Acts should if possible be construed consistently with that scheme'." (emphasis1 supplied) 35. As discussed hereinabove, the said Act has come into effect in 1959. Section 41 is on the statute book since beginning. However, section 13AA, has been brought on the statute book, for the first time on July 1, 1982. After the same was held to be ultra vires in the case of Goodyear India Ltd. [1990] 76 STC 71 (SC); [1991] 188 ITR 402 (SC) again by an Ordinan .....

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erusal of the Statement of Objects and Reasons would reveal that the intention of the Legislature in prescribing the low rate of tax on raw material, was that the raw material would be used in the manufacture of taxable finished goods, which would be sold and the State would be able to levy and recover normal rate of sales tax, on the goods so manufactured. The intention of bringing the same on the statute book, was to protect the revenue, so as to compensate the loss of revenue, where though th .....

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State of Tamil Nadu v. M. K. Kandaswami [1975] 36 STC 191 (SC) (page 198 in 36 STC). "It may be remembered that section 7A 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 .....

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tention of the assesse is to be accepted, then the very purpose for which section 13AA is brought on the statute book would be defeated. By availing of the benefit of notification by paying the meager tax, the assessee would purchase the said goods, use them for manufacture by using State infrastructure and then take away finished goods, from the State to other State and thereby deprive the State its revenue, which it would have earned by way of sales tax, at much higher rates, if the goods were .....

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haser like the assessee, who purchases raw material from the State of Maharashtra, manufactures goods in the State of Maharashtra using the State infrastructure, would be required to pay only 0.5 per cent. of purchase tax for the said assessment year. As held by the apex court in the case of Hotel Balaji [1993] 88 STC 98 (SC), the taxing power can be utilised to encourage commerce and industry. Section 13AA is intended to encourage industry and at the same time derive revenue. If the interpretat .....

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would be in the interest of revenue. As held by the apex court in the case of Hotel Balaji [1993] 88 STC 98 (SC), while upholding the aforesaid provisions, purchase tax is leviable on the raw material purchased by a manufacturer. As held by the apex court that only in three situations, i.e., (i) sale of manufactured goods within the State, (ii) inter-State sale and (iii) export sale of manufactured goods, the said levy is waived; in other cases it is not waived. It is further to be noted that su .....

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