1966 (10) TMI 106 - SC - VAT and Sales Tax

Whether a dealer who pays excise duty on raw tobacco purchased by him is entitled to rebate of that duty in the computation of taxable turnover from the sale of chewing tobacco manufactured out of that raw tobacco? Held that - Appeal allowed. The Madras General Sales Tax Act deals with the levy of sales tax and section 5 provides for the rates of sales tax and the point at which tax is to be levied. The proviso could obviously not refer to tax other than the sales tax with which the whole Act, and especially the provisions of section 5, deals. It is intended to provide by the proviso that in the computation of taxable turnover of a dealer in respect of any goods included in clause (vii) the dealer is entitled to the rebate to the extent of sales tax paid by him on the raw tobacco used in the manufacture of those goods.

Summary

Issues:
1. Liability to pay sales tax on turnover from sales of chewing tobacco
2. Inclusion of cost of packing material in taxable turnover
3. Entitlement to rebate of excise duty paid on raw tobacco

Detailed Analysis:
1. The judgment pertains to a case where the respondents, a tobacco company, were assessed for sales tax on their turnover from sales of chewing tobacco. The High Court held that the turnover from sales of chewing tobacco was liable for sales tax, but the respondents were entitled to a rebate of excise duty paid on the raw tobacco used in manufacturing chewing tobacco. The State appealed this decision.

2. The main contention revolved around whether excise duty paid on raw tobacco could be deducted from the taxable turnover. The Supreme Court referred to a previous case where it was held that excise duty paid on the goods sold by the dealer is deductible. In this case, the respondents only paid excise duty on raw tobacco, not on chewing tobacco. Therefore, excise duty paid on raw tobacco could not be excluded from the taxable turnover.

3. The respondents argued that they were entitled to a rebate under section 5 of the Madras General Sales Tax Act for excise duty paid on raw tobacco. However, the Court clarified that the proviso in section 5 only referred to sales tax and not excise duty. The proviso allowed a rebate for sales tax paid on raw tobacco used in manufacturing goods like chewing tobacco. As the respondents did not pay sales tax on raw tobacco, they were not entitled to a rebate for excise duty paid on raw tobacco.

4. The Court agreed with the High Court's decision that the process of manufacturing chewing tobacco involved several steps, making it a manufactured product from raw tobacco. The Court also declined to express an opinion on the inclusion of the cost of packing material in the taxable turnover, as that issue was pending appeal certification. The appeals filed by the State were allowed, with no order as to costs.

5. The judgment highlighted the distinction between excise duty and sales tax in the context of claiming rebates on raw tobacco used in manufacturing chewing tobacco. The decision clarified the interpretation of relevant rules and provisions to determine the taxable turnover and eligibility for rebates, emphasizing the specific requirements for deductions based on the type of tax paid on the goods sold.