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The State of Andhra Pradesh Vs. T.G. Lakshmayya Setty and Sons - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAndhra Pradesh High Court
Decided On
Case NumberTax Revision Case No. 2 of 1965
Judge
Reported in[1969]24STC14(AP)
AppellantThe State of Andhra Pradesh
RespondentT.G. Lakshmayya Setty and Sons
Appellant AdvocatePrincipal Government Pleader
Respondent AdvocateT. Anantha Babu, Adv.
Excerpt:
- - 4. this criticism of the learned government pleader appears to us to be well founded. only when these conditions are satisfied, a deduction is permissible. (ii) in order to allow such a deduction, the following two conditions must be satisfied: (v) the burden is on the dealer to show, that he is entitled to deductions under the rule, by demonstrating to the assessing authority that all the requirements and conditions of the sub-rule are satisfied in his case......deduct from his gross turnover under rule 18 shall be subject to the conditions specified in that rule. rule 18(1) requires any dealer who manufactures groundnut oil and cake to be registered as a manufacturer. rule 18(2) which allows the deduction makes explicit reference to every such manufacturer, that is to say, a manufacturer of oil who gets himself registered under rule 18(1). rule 18(2) imposes two further conditions, viz., that the oil should have been manufactured and sold by the dealer who has registered himself as a manufacturer and that the amount for which the oil is sold should be included in his turnover. it is only when these conditions are fulfilled that deduction equal to the value of the groundnut and kernel purchased by him and converted into oil and cake is.....
Judgment:

Sambasiva Rao, J.

1. This is a revision case preferred by the State of Andhra Pradesh. Its grievance is that the Sales Tax Appellate Tribunal, Andhra Pradesh, has not correctly understood the scope and amplitude of Rule 25 of the Andhra Pradesh General Sales Tax Rules, 1957 (hereinafter referred to as the Rules) and the decision of this Court in T.R.C. No. 53 of 1961.

2. The above question arose in the following manner. The respondents are manufacturers of groundnut oil at Adoni. For the year 1958-59, the Commercial Tax Officer assessed the respondents on a turnover of Rs. 81,16,523.88 after granting them a rebate on a turnover of Rs. 18,00,600. Aggrieved by the assessment and claiming larger relief by way of rebate, the respondents preferred an appeal to the Assistant Commissioner, Anantapur, who remanded the case to the assessing authority for fresh disposal with a direction that the rebate should be worked out according to the principles enunciated by the Tribunal in T.A. No. 706 of 1959. The matter was then suo motu revised by the Deputy Commissioner, Anantapur, who held that the orders of the Assistant Commissioner were not correct in view of this Court's decision in The State of Andhra Pradesh v. Sri Krishna Rajeswara Oil & Co., Nandyal T.R.C. No. 43 of 1961 dated 22nd February, 1962 and directed the assessing authority to work out the rebate on the basis of the principles laid down by this Court in The State of Andhra Pradesh v. Sri Krishna Rajeswara Oil & Co., Nandyal T.R.C. No. 43 of 1961 dated 22nd February, 1962. The respondents preferred a second appeal before the Tribunal against the said order of the Deputy Commissioner, Anantapur. The Tribunal in its turn, followed the decision of this Court in The Government of Andhra Pradesh v. Sri Ranganatha Rice Mill Contractors, Eluru, and Ors. T.R.C. No. 53 of 1961 dated 11th November, 1963 and set aside the orders of the Deputy Commissioner and remanded the case to the assessing authority to decide the matter in the light of the observations contained in T.R.C. No. 53 of 1961. Dissatisfied with the decision, the State has come up to this Court in this tax revision case.

3. The main criticism that has been levelled by the learned Government Pleader against the decision of the Tribunal is, that this Court had not laid down any principles in regard to allowing of any rebate in The Government of Andhra Pradesh v. Sri Ranganatha Rice Mill Contractors, Eluru, and Ors. T.R.C. No. 53 of 1961 dated 11th November, 1963, but the said decision was based upon the agreement of counsel for both sides. Therefore, that decision should be confined to the circumstances of that case alone and it was wrong on the part of the Tribunal to think that it had laid down any guiding principles in regard to the awarding of any rebate.

4. This criticism of the learned Government Pleader appears to us to be well founded. The assessee in that case claimed a rebate at the rate of one percent, on 6,141 bags of paddy. Finding it difficult to predicate as to how many bags out of 6,141 bags went into the export of 4,311 bags in order to enable him to claim rebate, the learned Judges adopted a rough and ready ratio of 14,708:6,141 in order to allow rebate to the assessee. That ratio was adopted only because 'it was stated that both parties are agreeable to this course having regard to the circumstances indicated above.'

5. It was on that consent the Court allowed a rebate of one per cent, of the value of 1,833 bags of paddy. There was no consideration of the provisions of the rules made in that behalf and no attempt was made to lay down any principles either. The relief in that case was granted entirely on the basis of the agreement between the parties. It is not, therefore, correct to say that the decision laid down any guiding principles in regard to the allowing of rebate. The Tribunal was, therefore, wrong in thinking that this decision would afford any guidance to the decision in the instant case.

6. Even the decision in The State of Andhra Pradesh v. Sri Krishna Rajeswara Oil & Co., Nandyal T.R.C. No. 43 of 1961, dated 22nd February, 1962, in accordance with which the Deputy Commissioner directed that the case should be decided was also based upon an agreement between the parties.

7. It has, therefore, to be considered how the rebate has to be granted in the present case. That question depends upon the construction of Rule 25 of the Rules which was then in force and governed the case. The relevant portions of that rule may be noted here.

25. (1) Any dealer who manufactures groundnut oil and cake from groundnut and/or kernel purchased by him may on application to the assessing authority having jurisdiction over the area in which he carries on his business, be registered as a manufacurer of groundnut oil and cake.

(2) Every such manufacturer shall be entitled to a deduction under Clause (k) of Sub-rule (1) of Rule 6 equal to the value of the groundnut and/or kernel, purchased and converted by him into oil and cake:

Provided that the amount for which the oil is sold is included in his total turnover and tax has been paid to the State on such sale;

Provided further that the amount of the turnover in respect of which deduction is allowed shall be the turnover attributable to the groundnut and/or kernel used in the manufacture of the oil sold as revealed in the accounts or as worked out according to the explanation whichever is less, and on which tax has been paid to the State.

Explanation.-For the purpose of this sub-rule -

(a) 143 lbs. of groundnut shall be taken as equivalent to 100 lbs. of kernel;

(b) 143 lbs. of groundnut or 100 lbs. of kernel when converted into oil will normally be taken to yield 40 lbs. of oil; and

(c) one candy of oil shall be taken to be equivalent to 500 lbs. of oil.

8. The other portions of Rule 25 are not relevant for the present discussion.

9. According to Rule 25(1) any dealer who manufactures groundnut oil and cake from groundnut and/or kernel may be registered as such manufacturer. Rule 6 lays down that tax shall be levied on the net turnover of a dealer. However in determining the net turnover certain deductions are permitted. In so far as the manufacture of groundnut oil is concerned the deduction is provided in Clause (k) of Sub-rule (1) of Rule 6 which is in the following terms :

6. (1) The tax or taxes under Sections 5, 6, or notified under Section 9(1) shall be levied on the net turnover of a dealer. In determining the net turnover, the amounts specified in clauses (a) to (1) shall, subject to the conditions specified therein, be deducted from the total turnover of a dealer....

(k) all amounts allowed as deductions to a registered manufacturer of groundnut oil (other than refined oil) under Rule 25 subject to the conditions specified therein....

10. Accordingly Sub-rule (2) incorporates such a deduction or rebate. Such deduction shall be 'equal to the value of the groundnut and/or kernel purchased and converted by him (the dealer) into oil and cake.' Since groundnut oil and cake can be extracted only from groundnut and/or kernel, the value of such groundnut and/or kernel is deducted for the purpose of levying the sales tax from the total value of the groundnut oil and cake manufactured by the dealer. However, the dealer may sell the groundnut oil and cake manufactured by him, outside the State and therefore, may not pay, the tax in the State. Therefore, Sub-rule (2) prescribes the condition 'that the amount for which the oil is sold is included in his total turnover and tax has been paid to the State on such sale.' It is thus seen that it is riot every sale of oil in respect of which a claim for deduction can be made. It is only that sale of oil which is included in the total turnover of a dealer on which tax has been paid to the State. That means that if the sale of oil is not included in his total turnover and if he has not paid the tax on such sale, to the State of Andhra Pradesh, a dealer is not entitled to any deduction. That is the condition laid down by the first proviso to Sub-rule (2).

11. The second proviso lays down yet another condition before a deduction is allowed. It is, that the dealer must have paid tax to the State of Andhra Pradesh, on the turnover of the groundnut and/or kernel used in the manufacture of the oil sold by him. If he has not paid tax to the State of Andhra Pradesh on his purchase of the groundnut and/or kernel, it is not open to him to claim deduction of that amount. But, the proviso does not make it incumbent on the dealer to correlate and identify what exact quantity of groundnut is used in the manufacture of a given quantity of oil or cake. The use of the word 'attributable' in this proviso gives clear guidance in this behalf. It is sufficient for him if his accounts reveal, that in the course of manufacture of oil, he has purchased groundnut and/or kernel and has paid tax thereon to the State of Andhra Pradesh. The amount of purchase as revealed in the accounts is not automatically accepted as a permissible deduction. The sub-rule provides by way of an explanation a method or formula for arriving at the quantities of groundnut and/or kernel used in the manufacture of oil. The second proviso lays down that whichever is less of (1) quantities of groundnut and/or kernel as revealed in the accounts of the dealer or (2) the quantities as worked out according to the explanation is taken as the basis of deduction, provided tax on its purchase has been paid in the State of Andhra Pradesh. Only when these conditions are satisfied, a deduction is permissible. But, it is for the dealer, who claims a deduction to show that his case comes within the scope of Rule 25(2) and satisfies its requirements and conditions and that therefore he is entitled to deduction as provided for in that rule.

12. The above discussion yields the following principles in regard to permissible deductions in the assessment of sales of groundnut oil and cake:-

(i) The value of groundnut and/or kernel purchased and converted into oil and cake by the dealer is deducted from his total turnover of his groundnut oil and cake business.

(ii) In order to allow such a deduction, the following two conditions must be satisfied:

(a) the amount for which the oil and cake are sold must have been included in the dealer's turnover and the dealer must have paid tax to the State of Andhra Pradesh on such sale of oil and cake.

(b) the dealer must have paid tax to the State of Andhra Pradesh on the purchase of the groundnut and/or kernel, the value of which is sought to be deducted.

(iii) In order to claim that deduction it is not necessary for the dealer to show which quantity of groundnut and/or kernel he has used in the manufacture of a given quantity of oil or cake he has sold. Such correlation is not necessary.

(iv) It is sufficient if his accounts reveal his purchases of groundnut and/or kernel on which he has paid tax to the State of Andhra Pradesh. But there is also a method or formula laid down in the rule according to which the quantities of groundnut and/or kernel used in the manufacture of oil and cake are reckoned. The quantities that are arrived at according to that formula have to be compared with the quantities revealed in the accounts and the lesser of the two quantities are accepted for the purpose of deduction.

(v) The burden is on the dealer to show, that he is entitled to deductions under the rule, by demonstrating to the assessing authority that all the requirements and conditions of the sub-rule are satisfied in his case.

13. In The Deputy Commissioner of Commercial Taxes v. Sri Pentapaty Lakhshmana Swamy [1956] 7 S.T.C. 560 a Full Bench of the High Court of Andhra considered the scope and amplitude of Rule 18(2) and (3) of the Turnover and Assessment Rules framed under the Madras General Sales Tax Act. Rule 18(2) and other relevant rules of those Rules are to a very large extent analogous to Rules 25(2) and 6 of the Rules under consideration. Only the explanation to the present Rule 25(2) was absent in Rule 18(2) of the Rules under the Madras Act and the rest of the sub-rules are practically the same in both the sets of Rules. Though the question that arose for consideration in the Full Bench case was whether the deduction referred to in Sub-rule (2) of Rule 18 of the Turnover and Assessment Rules is conditional upon the assessee complying with the requirement contained in Sub-rule (3) of that rule, some of the observations of the Full Bench may be usefully quoted here. At page 564 Satyanarayana Raju, J., as he then was, speaking for the Full Bench observed:

Any dealer who manufactures groundnut oil and cake from groundnut or groundnut kernel purchased by him, may register himself as a manufacturer of groundnut oil and cake. Such manufacturer of groundnut oil (other than refined groundnut oil) and cake is entitled to a deduction from his gross turnover, of an amount equal to the value of the groundnut and/or kernel purchased and converted by him into oil and cake, provided that the amount for which the oil is sold is included in his turnover and subject to the conditions specified in Rule 18. Normally the manufacturer of groundnut oil and cake who sells them has to pay tax on the sales turnover. But if the gross turnover of oil is subject to tax, the manufacturer would be paying tax both on the groundnut and kernel purchased by him and also on the sale of oil manufactured therefrom. In order to obviate this hardship, a special privilege or exemption is conferred on a dealer in groundnut who registers himself as a manufacturer of groundnut oil and cake.

14. Proceeding further the learned Judge observed at page 565 :-

The right to claim this exemption is, however, subject to certain conditions specified in Rules 5(1)(k) and 18. Under Rule 5(1)(k), all amounts which a registered manufacturer of groundnut oil and cake may be entitled to deduct from his gross turnover under Rule 18 shall be subject to the conditions specified in that rule. Rule 18(1) requires any dealer who manufactures groundnut oil and cake to be registered as a manufacturer. Rule 18(2) which allows the deduction makes explicit reference to every such manufacturer, that is to say, a manufacturer of oil who gets himself registered under Rule 18(1). Rule 18(2) imposes two further conditions, viz., that the oil should have been manufactured and sold by the dealer who has registered himself as a manufacturer and that the amount for which the oil is sold should be included in his turnover. It is only when these conditions are fulfilled that deduction equal to the value of the groundnut and kernel purchased by him and converted into oil and cake is permissible.

15. In the light of the above discussion, we are of the opinion that the Sales Tax Appellate Tribunal was not right in its view, that the instant case should be decided on the basis of the decision in The Government of Andhra Pradesh v. Sri Ranganatha Rice Mill Contractors, Eluru, and Ors. T.R.C. No. 53 of 1961 dated 11th November, 1963. While affirming the remand of the case to the assessing authority, we direct that the case should be decided by that authority in the light of the observations made and the principles laid down above. To this extent the tax revision case is partly allowed and the order of the Sales Tax Appellate Tribunal is accordingly modified in part. In the circumstances of the case we make no order as to costs.


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