Skip to content


The Commissioner of Sales Tax Vs. Cadbury Fry (India) Pvt. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberS.T. Ref. No. 3 of 1974
Judge
Reported in(1976)5CTR(Bom)441
ActsCentral Sales Tax Act, 1956; Bombay Sales Tax Rules, 1959 - Rule 41
AppellantThe Commissioner of Sales Tax
RespondentCadbury Fry (India) Pvt. Ltd.
Appellant AdvocateK.S. Cooper, Adv.
Respondent AdvocateH. Patil, Adv.
Excerpt:
.....business or to his agent outside state - explanation does not justify that sale price to be divided into various components for purpose of deduction under clause (iii) - question answered in negative. -..........rule 41 of the bombay sales tax rules, 1959, one per cent. should be calculated not on the entire sale price of the goods dispatched by the appellants to their branches, but only on that part of the sale price of the goods sold out-side the state which is attributable to the locally purchased raw material on which the appellants were claiming set-off 2. whether on the facts and in the circumstances of the case, the tribunal was correct in law in holding that for the purpose of reducing set-off under clause (iii) of the proviso to explanation to rule 41 and clause (y) of the proviso to the explanation to rule 41a of the bombay sales tax rules, 1959, one per cent. should be calculated not on the entire sale price of the goods dispatched by the appellants to his branches, but only on the.....
Judgment:

Madon, J.

1. Two question shave been referred to us for our determination in this reference under section 61(2) of the Bombay Sales Tax Act, 1958 (hereinafter referred to as 'the said Act'), made at the instance of the Commissioner of Sales Tax These two question are :-

1. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that for the purpose of reducing set-off under clause (iii) of the Proviso to Explanation to Rule 41 of the Bombay Sales Tax Rules, 1959, one per cent. Should be calculated not on the entire sale price of the goods dispatched by the appellants to their branches, but only on that part of the sale price of the goods sold out-side the State which is attributable to the locally purchased raw material on which the appellants were claiming set-off

2. Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that for the purpose of reducing set-off under clause (iii) of the Proviso to Explanation to Rule 41 and clause (y) of the proviso to the Explanation to Rule 41A of the Bombay Sales Tax Rules, 1959, one per cent. should be calculated not on the entire sale price of the goods dispatched by the appellants to his branches, but only on the part of the sale price of the goods sold outside the State which is attributable to the locally purchased raw material on which the appellants were claiming set-off

2. The brief facts necessary to be set out in order to know how this Reference came to be made are that the respondents are registered as a dealer under the said Act. The respondents manufacture various products such as chocolates, drinking chocolate, cocoa and other similar products. For the purpose of manufacturing these goods the respondents purchased within the State raw materials as also packing materials and containers for marketing the finished goods. These raw materials, packing materials and containers were purchased by the respondents not only from registered dealer but also from unregistered dealers. In respect of the goods so sold by the registered dealers to the respondents, such registered dealers collected from the respondents the amounts which they would have to pay to the Government by way of tax on the sales of these goods to the respondents. In respect of such goods purchased by the respondents from unregistered dealers, the respondents became liable to pay purchase tax to the Government. Section 74 of the Bombay Sales Tax Act, 1959, confers powers upon the State Government to make rules for carrying out the purposes of the said Act and amongst other matters specifically set out are 'any of the matters specified in section 42'. In pursuance of this rule-making power the State Government made Rule 41 of the Bombay Sales Tax Rules, 1959 (hereinafter referred to as 'the said Rules)' providing for grant of drawback, set-off or refund of tax paid by a manufacturer. By Government Notification in the Finance Department No. STR. 1062/A-1142-XIII dated the 13th October 1962, the State Government inserted Rule 41A in the said Rules providing for grant of drawback, set-off or refund of tax paid by a manufacturer in respect of purchases made on or after the 15th July 1962. By the same Notification Rule 41 was amended so as to provide that the said Rule should apply in respect of purchases made by a manufacturing dealer only upon 15th July, 1962.

3. In respect of their assessment for the period from January 1, 1960 to December 31, 1960 the respondents claimed a set-off under the said Rule 41 in respect of tax collected and payable by them, and in respect of their assessment for the period from January 1, 1962 to December 31, 1962 the respondents claimed a set-off under Rule 41A in respect of taxes collected by their vendors and purchase tax payable by them under the said Act in respect of purchase made by them on or after July 15, 1962. Both Rules 41 and 41A provide for a deduction of certain percentage to be made in cases where goods manufactured by a registered dealer are dispatched by him to his branches and agents outside the State but within India and sold at such places. According to the respondents, the percentage which was to be so deducted was one percent, of the sale price of the raw materials which had gone into the manufacture of the finished goods and of the containers and packing materials used in marketing the finish goods and such sale price was to be arrived at by a proportionate allocation of the percentage which such, raw materials, packing materials and containers bore to the sale price of she finished goods. According to the Department, one per cent. of the sale price that was to be deducted from the amount allowed to the respondents by way of set-off was one per cent. of the sale price of the finished goods so dispatched outside the State but within India and sold there.

4. The Sales Tax Officer allowed the set-off to the respondents in accordance with the contention of the Department adumberated above. In appeal, the Assistant Commissioner of Sales Tax upheld the view taken by the Sales Tax Officer. In second appeal, the Tribunal took a contrary view and held that what ought to have been deducted from the amount of set-off due to the respondents was an amount equal to one per cent. of that part of the sale price which was attributable to locally purchased raw materials on which the respondents were claiming such set-off. In arriving at this decision, the Tribunal relied upon an earlier decision of a Special Bench of the Tribunal in Bharat Pulverising Mills Pvt. Ltd.& others vs. State of Maharashtra in which the Tribunal had placed a similar interpretation upon Rule 11(1A) of the Bombay Sales Tax (Exemptions, set-off and Composition) Rules, 1954, which also provided for a set-off, refund etc. to be grates to a manufacturing dealer. According to the Tribunal, the scheme of old Rule 11(1A) and of the Rule 41 and 41A of the said Rules mentioned different transactions of purchase and different types of goods purchased by a manufacturing dealer in respect of which he becomes entitled to claim a set-off etc. where he has either paid to his vendors amounts which the vendors would be liable to pay to the Government by way of tax or where he has become liable to pay purchase tax to the Government. We are not really concerned with the cases in which a set-off becomes available to a manufacturing dealer but only with the provisions of both these Rules which have a bearing on the question as to what is to be deducted from the total amount of tax collected from a manufacturing dealer and tax paid or payable by him.

5. The relevant provisions of Rule 41 of the said Rules are as follows :-

'41. Drawback, set-off etc. of tax paid by a manufacturer :-

In assessing the amount of tax payable in respect of any period by a Registered dealer who manufactures taxable goods for sale (hereinafter in this rule referred to as the 'Manufacturing dealer'), the Commissioner shall grant him a drawback, set-off or as the case may be a refund of the aggregate of the following sums, that is to say :-

xx xx xx Explanation :- For the purposes of this rule the word 'sale' with all its grammatical variations, shall include the sale of manufactured goods dispatched by the dealer to his own place of business or to his agent outside the State and actually resold there :-

Provided that where such dispatch has been made to his own place of business or agent outside the State but within India :-

(i) such dispatch shall have taken place within nine months of the date of purchase of the goods so used;

(ii) the dealer, or his manager or agent as the case may be, is registered under the Central Sales Tax Act, 1956, in respect of the place of business to which the goods are so dispatched; and

(iii) the amount of drawback, set-off or refund as the case may be, shall be reduced by 1 per cent., of the sale price of the goods so dispatched;

Provided further that if the dealer shows to the satisfaction of the Commissioner that not more than 1 per cent. of the total value of the finished goods so dispatched was comprised of goods in respect of which the drawback, set-off or refund is claimed, the Commissioner shall not so reduce the amount of drawback, set-off or refund.'

It may be mentioned that upto 21st February 1961, the concluding words of the Explanation were, 'dispatched by the dealer to his place of business outside the State and sold there'. Those words were substituted by the present words : 'dispatched by the dealer to his own place of business or to his agent outside the Sate and actually resold there'. Those words were substituted by the present words : 'dispatched by the dealer to his own place of business or to his agent outside the Sate and actually 1960-XIII, dated February 21, 1961. Similarly, the opening words of the first proviso until February 21, 1961 were 'Provided that' and these were substituted by the present words, 'Provided that where such dispatch has been made to his own place of business or to his agent outside the State but within India' by the aforesaid Notification. So far as we are concerned, these amendment make no difference to the question to be determined by us in this Reference.

6. The relevant provisions of Rule 41 of the said Rule are as follows :-

'41A. Drawback, set-off etc. of tax paid by a manufacturer in respect of purchases made on or after the 15th July, 1962.

In assessing the amount of tax payable in respect of any period by a registered dealer who manufactures taxable goods for sale (hereinafter in this rule referred to as the 'manufacturing dealer'), the Commissioner shall, in respect of the purchases made by such dealer on or after the 15th July, 1962 of any goods specified in Schedule B, C, D or E and used by him within the State in the manufacture of taxable goods for sale or in the packing of goods so manufactured for sale grant him a drawback, set-off or, as the case may be, a refund of the aggregate of the following sums, that is to say :-

xx xx xxxx xx xx Explanation :- For the purposes of this rule, the word 'sale' with all its grammatical variations, shall include dispatches made by the Manufacturing dealer to his own place of business or to his agent outside the State and actually sold there :-

Provided that, where such dispatch has been made to his own place of business or to his agent, outside the State but within India :-

(x) the Manufacturing dealer produces a certificate a Form 31-C issued by his manager or, as the case may be, his agent declaring inter alia that the goods are intended for sale there, and where the Manufacturing dealer's aforesaid place of business is not in Goa, Diu or Daman, he, his manager or, as the case may be, his agent is registered under the Central Sales Tax, Act, 1956, in respect of that place of business, and

(y) the amount of drawback, set-off or, as the case may be, refund shall be reduced by 1 per cent of the sale price of the goods so dispatched :-

Provided further that, if the Manufacturing dealer shows to the satisfaction of the Commissioner that not more than 1 per cent. of the total value of the finished goods so dispatched was comprised of goods in respect of which the drawback, set-off or refund is claimed, the Commissioner shall not so reduce the amount of drawback, set-off or refund.'

7. Turning first to Rule 41 of the said Rules, clause (iii) of the first Proviso to the Explanation to the said Rule provides for the reduction of the amount of drawback, set-off or refund, as the case may be, by one per cent. of the sale price of the goods so dispatched. The answer to the first question submitted to us which relates to the period January 1, 1960 to July 14, 1962, thus turns upon the construction to be placed on the words 'the sale price of the goods so dispatched in the said clause (iii). We must first try to understand what the Explanation sought to achieve. In Commissioner of Sales Tax us. M/s. Jai Hind Oil Mills Co. (S.T. Ref. No. 20 of 1972), decided on February 11/12, we have considered this Explanation and the effect of the first Proviso thereto. We have there held that one per cent. of the sale price of the goods so dispatched meant of the finished goods dispatched to the manufacturing dealer to his branches and agents outside but within India and sold by such branches and agents. Learned counsel on both sides have, however, informed us that the case of M/s. Jai Hind Oil Mills Co. vs. State of Maharashtra, which has been referred to and relied upon by the Tribunal in its judgment in this case, proceeded upon a common basis and a concession made by the assessees that it clause (iii) of the said Proviso one per cent. of the sale price, which was to be deducted, was of the finished goods. Learned counsel have further informed us that this fact was mentioned to us at the time of hearing of the said S.T. Ref. No. 20 of 1972. Had it been so mentioned, we would have certainly made a mention of it in the course of our judgment in that case. But, our judgment makes no mention of this fact, nor do we have any recollection of any such fact having been at all mentioned to us. Nevertheless, in view of this statement made by learned counsel on both sides, we propose to re-examine clause (iii) of the first Proviso to the said Explanation afresh from the point of view of the questions submitted to us for our determination in this Reference. As pointed out by us in our judgment in M/s. Jai Hind Oil Mills Co.'s case, the object of the Explanation on Rule 41 of the said Rules was to widen the meaning of word 'sale' so as enable a manufacturing dealer to get relief when goods manufactured by him were dispatched by him to his own place of business or to his agent outside the State and sold by such branches and agents. In such an event, however, while extending the definition of the word 'sale' in this manner, the State Government provided that full amount of the set-off etc., should not be allowed to the dealer but the set-off etc. should be reduced in the manner provided in clause (iii) of the first proviso, This object is apparent when we look at he Explanation which states that for the purposes of the said Rule 41 the word 'sale' with all its grammatical variations 'shall include the sale of manufactured goods dispatched by the dealer to his own place of business or to his agent outside the State and actually resold there'. The opening words of the first Proviso also speak of a case where 'such dispatch' has been made by the dealer 'to his own place of business or to his agent outside the State but within India'. The words 'such dispatch', therefore, refer to the manufactured goods dispatched by the dealer to his branches and agents in India but outside the State for the purpose of sale by such branches and agents. Clause (i) of the said Proviso fixes a time limit with which such dispatch of manufactured goods is to be made. The language used in clause (i) is very significant. That clause states :-

'such dispatch shall have taken place within nine months of the date of purchase of the goods so used.'

8. The words in clause (i) are 'the goods so used'. These words are used in contradistinction to the words 'manufactured goods' dispatched by the manufacturing dealer for the purpose of sale to his branches and outside the State but within India. Clause (ii) to the First Proviso prescribes a condition that before any set-off can be allowed the dealer or his manager or agent, as the case may be, must be registered under the Central Sales Tax Act, 1956, in respect of the place of business to which the goods are so dispatched. We have seen that so far, the words 'dispatched' or 'such dispatch' have been used only with reference to the manufactured goods and the registration under the Central Sales Tax Act, 1956 which clause (ii) requires can only be for the purpose of sale of such manufactured goods by the manufacturing dealer's branches and agents outside the State. Clause (iii) to the said first Proviso uses the words '1 per cent. of the sale price of the goods so dispatched'. Were the contention advanced before us by the respondents, which has found favour with the Tribunal, correct, the words used in clause (iii) would have been 'sale price of the goods so used' repeating the phraseology or part phraseology of the concluding portion of clause (1) of the first Proviso. Thus, on a plain reading of the Explanation and the first Proviso thereto, it is not possible to accept the contention advanced before us by the assessee. Even viewed from the angle of ordinary legal notions it is obvious that what are in fact dispatched by the manufacturing dealer are the finished goods. The raw materials which have gone into the manufacture of the said goods are not dispatched, some of them can no more be in existence having been consumed in the process of manufacture and others have completely altered in their composition, nature and form and are no more raw materials preserving their individuality in the form which they bore when they were purchased. Similarly in the case of packing materials and containers, what the manufacturing dealer dispatches are the finished goods ready for being marketed. He is not dispatching the containers and packing materials. What is being sold by such branches and agents are also the finished goods. What the dealer, his manager or agent is required to be registered under the Central Sales Tax Act, 1956, in respect of such outside-State place of business is in respect of his business of selling the finished goods. The sale price charged by such branches and agents is in respect of the finished goods. We now here find the least indication in the Explanation, taken as a whole or in any part thereof to justify a construction that the sale price of the finished goods is to be divided into as many components as have gone into the manufacture and marketing of the finished goods and a proportionate part allocated to each and that proportionate part taken as 'the sale price of the goods so dispatched' for the purposes of deduction under clause (iii) of the first proviso.

9. Mr. Patil learned counsel for the respondents, placed reliance upon the second Proviso to the Explanation and submitted that Proviso showed that what was to be taken was the sale price so notionally allocated as held by the Tribunal, because under that Proviso something had to be given to the manufacturing dealer. Mr. Patil was unable to elucidate before us why this should be so and why under the second Proviso something had to be given to the manufacturing dealer. But, the construction we have placed upon the Explanation does not lead to the result that nothing will ever be given to a dealer by way of a set-off. The respondents are entitled to receive back the amounts by way of set-off in respect of goods sent to their outside-State branches and agents and sold by them. The only question is, what is the exact amount which should be refunded to them or should be set-off against the tax payable by them. It is not as if the entire amount of set-off available to them is being wiped out. We are, therefore, unable to accept the submission of Mr. Patil based on the second Proviso to the Explanation.

10. Both learned counsel are agreed that so far as the Explanation to Rule 41A of the said Rules is concerned, there is, for the purpose of the present Reference, no such material difference or variation as would necessitate a separate examination of the scheme of the Explanation to that Rule and that the construction which we have placed upon the Explanation to Rule 41A would also govern the Explanation to Rule 41A of the said Rules.

11. For the reasons set out above, we answer both the questions submitted to us by the Tribunal in the case stated by in the negative. In computing the actual amount of drawback, set-off or refund, as the case may be, to be, granted to the respondents, the Tribunal will do so applying the principles laid down by us in this judgment and in our judgment in Sales Tax Reference No. 21. of 1972, Commissioner of Sales Tax us. M/s. Jai Hind Oil Mills Co., decided on February 11/12, 1976. The respondents will pay to the applicants the costs of this Reference fixed at Rs. 250/-.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //