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Phelps and Co. (Private) Ltd. Vs. Member, Board of Revenue - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKolkata High Court
Decided On
Case Number Sales Tax Reference No. 178 of 1963
Judge
Reported in[1967]20STC511(Cal)
AppellantPhelps and Co. (Private) Ltd.
RespondentMember, Board of Revenue
Appellant Advocate S.R. Sen, A.N. Roy and ; G.C. Mookerjee, Advs.
Respondent Advocate K.C. Mukherjee and ; R.N. Das, Advs.
Cases Referred and J. K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer
Excerpt:
- .....that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods'...it would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. to read the expression 'in the manufacture' of cloth in that restricted sense, would raise many anomalies.... in our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in rule 13 will.....
Judgment:

Banerjee, J.

1. This is a reference under Section 21(3) of the Bengal Finance (Sales Tax) Act, 1941.

2. The assessee, Messrs Phelps & Co. (Private) Limited, carries on business, amongst other places, at No. 21, Old Court House Street, in the town of Calcutta. The assessee is registered as a dealer under the Bengal Finance (Sales Tax) Act. It carries on business as tailors, drapers, out-fitters and industrial 'gloves' manufacturers.

3. The period of assessment, with which we are concerned in this reference, is in respect of four, quarters ended on 31st March, 1956. For the period in question, the assessee-dealer claimed the following deductions from its turnover, under Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, namely :

(a) Sale of industrial gloves to IndianIron and Steel Company Limitedvalued at ... ... Rs. 31,176-3-0(b) Sale of industrial gloves to ShalimarTar Products 1935 Limited valued at Rs. 63-0-0

4. The Commercial Tax Officer rejected the claim with the observation that the two purchasing dealers did not purchase the gloves either for the purposes of manufacture or for resale. He, however, found that the said gloves appeared to have been used by the workers while engaged in work in factories.

5. Against the aforesaid order of the Commercial Tax Officer, the assessee appealed before the Assistant Commissioner of Commercial Taxes, Chowringhee Circle, who affirmed the order of the Commercial Tax Officer with the following observations :-

The 'gloves' are no doubt essentially required by the factory workers in handling shovels, rods, etc., by them to guard against heat and/or corrosion but the same cannot be said as being required or having any direct bearing in the process of manufacture of goods for sale. I am, therefore, of the opinion that the noted purchasing dealers were not entitled to purchase the gloves free of tax on the strength of their registration certificate.

6. Aggrieved by the order of the Assistant Commissioner, the assessee appealed before the Commissioner of Commercial Taxes and the appeal was heard by the Additional Commissioner. Before the

7. Additional Commissioner it was argued that the gloves, in respect of which exemption was claimed, were not ordinary gloves used as part of dress but were specially required for handling shovels and such other accessories in the factories, and as such were parts of the accessories themselves. It was argued further that at least in one of the purchasing dealer's certificate, the term 'mill-stores' was mentioned as one of the items for which the purchasing dealer could make use of his registration certificate and, it was urged, that 'gloves' should be held to be included in the above item. It was also argued that gloves were intimately required during the process of manufacturing and as such was covered by the manufacturer's registration certificate.

8. The Additional Commissioner dismissed the appeal with the following observations :-

Even assuming that the 'gloves' were essentially required in handling the accessories used ; in the process of manufacturing, I am unable to agree with the petitioner's contention. The law provides for exemption in respect of only such goods which are to be used by the purchasing dealer in the manufacture of goods, which obviously refers to raw materials and articles which are components or constituents of the finished product, consumable stores which are used in the actual process of manufacturing or are required for use in machines employed in the manufacturing process and plants, machineries and accessories used in turning out the finished product. In my opinion, the scope of exemption will be extended beyond the prescribed limit if it is held that the 'gloves' which are required for handling the accessories should be held to be required for use in the manufacture of goods, although I may concede that such goods are necessarily required in connection with the manufacture of goods.... With regard to the argument that 'mill-stores' being specially included in the registration certificate of one of the dealers, 'gloves' should be held to be covered within the same, I can only say that, undisputedly, the term 'mill-stores' was endorsed subject to the condition that the same would be required in the manufacture of goods for sale. Hence, if it is held that 'gloves' were not required in the manufacture of goods then it is immaterial whether the term 'mill-stores' was endorsed in the registration certificate or not, or whether the said term includes 'gloves' or not.

9. As a last resort, the assessee filed an application for revision before the Board of Revenue. The Additional Member of the Board of Revenue rejected that application with the following observation:-

The grounds raised on behalf of the petitioner boil down to the determination of one single point, namely, whether these gloves can be said to be intended for use by the purchasing dealers in the manufacture of goods for sale. The learned Additional Commissioner has held that they cannot be said to be used in the manufacture of goods for sale. Upon a careful consideration of the question, I come to hold the same view. The preposition 'in' justifies and, in fact, requires restricted interpretation of the relevant clause in Section 5(2)(a)(ii).

10. Thereupon the assessee-dealer tried to induce the Board to make a reference to this Court on a question of law involved in the case and therein failing moved this Court and obtained an order from this Court calling upon the Board of Revenue to make a statement of case on the following question of law :

Whether the 'gloves' put on by the purchasing companies' workmen engaged in hot jobs or in handling corrosive substances in the course of manufacture can be said to have been used in the manufacture of goods for sale as understood by the provisions of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941.

11. Mr. S. R. Sen, learned - counsel for the assessee, submitted that since the gloves were 'essentially required' or 'necessarily required' in connection with the manufacture of goods, they must be deemed to satisfy the condition that they were used, within the meaning of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 'in the manufacture of goods'. In support of this contention, he relied upon two decisions of the Supreme Court, namely, Indian Copper Corporation Ltd. v. Commissioner, Commercial Taxes, Bihar [1965] 16 S.T.C. 259 and J. K. Cotton Spinning and Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 S.T.C. 563.

12. It is necessary for us, therefore, to consider, in some detail, the two decisions of the Supreme Court, both on the Central Sales Tax Act. In the first of the two cases, namely, in the case of Indian Copper Corporation Ltd. [1965] 16 S.T.C. 259, the assessee mined copper and iron ore from its own mines, transported the ore to its factory and manufactured finished products, from the ore, for sale. The assessee had, for the purpose of its business, to purchase divers categories of goods from outside the State. Some of those goods were used in its factory in the process of manufacture and also in the mines; other goods were purchased for use in its offices, factory, mines and in hospitals set up for affording medical facilities to the employees. The question arose whether the following goods should be specified, under Section 8(3)(b) of the Central Sales Tax Act, 1956, in the certificate of registration issued to the assessee, namely: (1) locomotives and motor vehicles, (2) accessories and spare parts for motor vehicles and locomotives, (3) household, laboratory, hospital and general furnishings and fittings, (4) medical supplies, (5) stationery, (6) tyres and tubes for motor vehicles, and (7) cane baskets. The High Court held that the assessee was entitled to include only the following goods in the certificate of registration, namely, (a) locomotives and motor vehicles actually used in carrying and removing raw materials during the process of manufacture, (b) locomotives and motor vehicles used both underground and on surface during the mining operations, (c) accessories and spare parts for such locomotives and motor vehicles, (d) tyres and tubes for such motor vehicles, (e) laboratory fittings used for the sampling and analysis of the ores and other raw materials in the initial stage of mining operations and in the process of manufacture. The claim of the assessee in respect of the exclusion of other goods was rejected. Thereupon the assessee appealed before the Supreme Court. Shah, J., in delivering the judgment of the Court, observed :.It is...difficult to appreciate the ground on which the High Court sought to exclude from the 'locomotives and motor vehicles' those vehicles which were- used by the Corporation after the mining operations were concluded and before the manufacturing process commenced, and those which were used in carrying finished products. There was not even an averment that vehicles which were used for the excluded purposes were different from the vehicles used in carrying and removing raw materials during the process of manufacture and vehicles used underground and on the surface in mining operations. This by itself would be sufficient to reject the reservation made by the High Court. We are also of the opinion that in a case where a dealer is engaged both in mining operations and in the manufacturing process -the two processes being inter-dependent-it would be impossible to exclude vehicles which are used for removing from the place where the mining operations are concluded to the factory where the manufacturing process starts. It appears that the process of mining ore and manufacture with the aid of ore copper goods is an integrated process and there would be no ground for exclusion from the vehicles those which are used for removing goods to the factory after the mining operations are concluded. Nor is there any ground for excluding locomotives and motor vehicles used in carrying finished products from the factory. The expression 'goods intended for use in the manufacturing or processing of goods for sale' may ordinarily include such vehicles as are intended to be used for removal of processed goods from the factory to the place of storage. If this be the correct view, the restrictions imposed by the High Court in respect of the vehicles and also the spare parts, tyres and tubes would not be justifiable.

13. In the view expressed the Supreme Court upheld the claim for specification of items (1), (2) and (6) of the goods mentioned above. The claim of the assessee in respect of the hospital goods, equipments and furnishings as also the claim for medical supplies, household furnishings and fittings were disallowed on the ground that they did not fall under Section 8(3)(b). The claim of the assessee in respect of the stationery goods were disallowed with the observation that use of stationery undoubtedly facilitated the carrying on of the business of manufacturing goods or of processing goods or even mining operation, but the expression 'intended to be used' cannot be equated with 'likely to facilitate' the conduct of the business of manufacturing or of processing goods or of mining. With regard to the claim of the assessee for specification of cane baskets and laboratory fittings the Supreme Court observed :

Those cane baskets which are intended to be used by the sanitary department for collecting refuse to protect the health and cleanliness of the colony and the workmen employed in the manufacture of goods cannot, on the test set out earlier, be specified in the certificate of registration. But we are unable to agree with the High Court that the cane baskets which are required for carrying ore and other materials used in mining or in the manufacture of goods are not intended for use in the process of manufacturing or mining operations.

We are also unable to appreciate why the High Court specified laboratory fittings used for analysis and sampling ore and other raw materials only in the initial stages of mining operations and in the process of manufacture. There is no discussion in the judgment in support of this observation, and we see no ground to support the reservation which restricts the specification to laboratory fittings used only in the initial stages.

14. In the next case, that is to say, in the case of J. K. Cotton Spinning and Weaving Mills Co. Ltd. [1965] 16 S.T.C. 563, the Supreme Court interpreted the expression 'in the manufacture of goods' in Section 8(3)(b) of the Central Sales Tax Act in the following language :

The expression 'in the manufacture of goods' should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods'...It would be difficult to regard goods used only in the process of weaving cloth and not goods used in the anterior processes as goods used in the manufacture of cloth. To read the expression 'in the manufacture' of cloth in that restricted sense, would raise many anomalies.... In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in Rule 13 will qualify for special treatment.

15. The Supreme Court further observed :

The expression 'electricals' is somewhat vague. But in a factory manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. For instance, without electric lighting it would be very difficult to carry on the business. Again electrical humidifiers, exhaust fans and similar electrical equipment would in the modern conditions of technological development normally be regarded as equipment necessary to effectually carry on the manufacturing process. We are not prepared to agree with the High Court that in order that 'electrical equipment' should fall within the terms of Rule 13, it must be an ingredient of the finished goods to be prepared, or 'it must be a commodity which is used in the creation of goods'. If, having regard to normal conditions prevalent in the industry, production of the finished goods would be difficult without the use of electrical equipment, the equipment would be regarded as intended for use in the manufacture of goods for sale and such a test, in our judgment, is satisfied by the expression 'electricals'.

16. Now, in both the above quoted judgments, the Supreme Court was concerned with the interpretation of Section 8 of the Central Sales Tax Act, the material portion of which is couched in the following language:

8. (1) Every dealer, who in the course of inter-State trade or commerce-

(a) * * *(b) sells to a registered dealer other than the Government goods of the description referred to in Sub-section (3) ;

shall be liable to pay tax under this Act, which shall be two per cent, of his turnover.

(2) * * *(3) The goods referred to in Clause (b) of Sub-section (1)-

(a) * * *(b) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power.

17. The rule referred to in Section 8(3)(b) is Rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957, which reads as follows:-

The goods referred to in Clause (b) of Sub-section (3) of Section 8, which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel or lubricants, in the manufacture or processing of goods for sale or in mining, or in the generation or distribution of electricity or any other form of power.

18. Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act is similar to Section 8(3)(b) of the Central Sales Tax Act and is couched in the following language :-

5. (2) In this Act the expression 'taxable turnover' means in the case of a dealer who is liable to pay tax under Section 4, that part of his gross turnover during any period which remains after deducting therefrom-

(a) his turnover during that period on-

(i) * * *(ii) sales to a registered dealer of goods of the class or classes specified in the certificate of registration of such dealer, as being intended for resale by him, or for use by him in the manufacture of goods for sale or for use by him in the execution of any contract.

19. Thus, the considerations which weighed with the Supreme Court in interpreting Section 8(3)(b) of the Central Sales Tax Act will also be the considerations applicable to the interpretation of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act.

20. Mr. K. C. Mukherjee, learned counsel for the revenue, however, submitted that we should not draw any inspiration from the two Supreme Court decisions, which were cited on behalf of the assessee-dealer. He submitted that Section 8(3)(b) of the Central Sales Tax Act, which attracted Rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957, enumerated the classes of goods which the Supreme Court was pleased to exempt. In the absence of a rule framed under the Bengal Finance (Sales Tax) Act, 1941, corresponding to Rule 13, he submitted, it would be inappropriate to be guided by the two Supreme Court judgments referred to above. He further submitted that the expression 'for use by him in the manufacture of goods' in Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act meant goods consumed in the manufacture of goods and not goods used in the manufacture of goods, in the sense that used for the purpose of facilitating manufacture. It is true, as Mr. Mukherjee submits, there is no rule corresponding to Rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957, but that does not make any great difference. In the judgment of the Supreme Court in J. K. Cotton Spinning and Weaving Mills Co. Ltd. [1965] 16 S.T.C. 563, their Lordships were pleased to explain the expression 'in the manufacture of goods' and observed that the expression 'should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods'. Their Lordships further observed that 'where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods'.' Illustrating what their Lordships had said earlier, it was further observed that in a factory manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. For instance, without electric lighting it would be. very difficult to carry on the business and their Lordships allowed electrical lighting equipments also under Section 8(3)(b).

21. As we read the two judgments of the Supreme Court, we feel that goods which are consumed in the manufacture of finished products, as also goods which are used in the process of manufacturing so as to make the manufacture commercially expedient, are goods which may be treated as used in the manufacture. In the instant case, the concurrent findings of the revenue authorities are that the industrial gloves were essentially required by the workmen to operate the shovels and rods used in the manufacture, so as to guard their own persons against heat and corrosion. Thus, the finding was that unless the workmen were supplied with gloves, it would not be possible for them to handle the hot or corrosive materials. If it would not be so possible for them so to do, then the manufacture would not be carried on unless the workmen were supplied with gloves. If for the handling of the gadgets required in the manufacture of a commodity, the workmen have to be supplied with certain protective apparel, and if without being clothed with such protective apparel the workmen cannot work, then there is no reason why such protective apparel should not be treated as used in the manufacture of goods. The reasons which impelled the Supreme Court to allow vehicles and vehicular spare parts as also electrical lightings as materials used in the manufacture of goods are also applicable as reasons which should induce us to hold that the industrial gloves were used in the manufacture of finished products. We do not agree that unless an item of goods is consumed in the manufacture, the same cannot be said to be goods used in the manufacture. The test is, as the Supreme Court held, that if any goods be required in the process of manufacture, then such goods would fall within the expression 'in the manufacture of goods'. We are satisfied on the evidence that the gloves were required in the process of manufacture of goods, and as such, we hold that they are used in the manufacture of goods.

22. In the view that we take, we answer the question referred to this Court in the affirmative and in favour of the assessee.

23. The respondent shall pay costs of this reference to the assessee.

K.L. Roy, J.

24. I agree.


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