1960 (7) TMI 60 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability of petitioners-assessees to be taxed on the turnover of the sales of packets of chewing tobacco prepared by them.
2. Exclusion of the cost of packing materials in computing the taxable turnover.
3. Entitlement of the assessees to a rebate of the excise duty paid on the tobacco used to prepare and sell the packets of chewing tobacco.

Issue-wise Detailed Analysis:

1. Liability to Tax on Sales of Packets of Chewing Tobacco:
The primary issue was whether the petitioners were liable to be taxed on the turnover of sales of packets of chewing tobacco they prepared. The statutory provisions in question were clauses (vii) and (viii) of section 5 of the Madras General Sales Tax Act, IX of 1939. Clause (vii) levies tax on the sale of manufactured products of tobacco, including chewing tobacco, while clause (viii) applies to raw tobacco, whether cured or uncured, at the point of first purchase.

The Tribunal found that the tobacco purchased by the assessees was not a manufactured product, and the tobacco sold by them was a manufactured product. The processes involved, such as soaking in jaggery water, adding flavoring essences, and shredding, constituted manufacturing. Consequently, the sales of these manufactured products fell under clause (vii), making the assessees liable for sales tax. The court upheld the Tribunal's findings, rejecting the petitioners' contention that chewing tobacco, whether manufactured or not, should fall under clause (vii).

2. Exclusion of Cost of Packing Materials:
The next issue was whether the cost of packing materials should be excluded from the taxable turnover. The requirements of rule 5(1)(g)(ii) of the Turnover and Assessment Rules were not met, as the assessees did not specify and charge separately for packing. The court referred to previous decisions, including United Bleachers Ltd. v. State of Madras, which concluded that the cost of packing materials should be included in the taxable turnover if not charged separately. The Tribunal's decision to include the cost of packing materials in the taxable turnover was upheld.

3. Entitlement to Rebate on Excise Duty:
The final issue was whether the assessees were entitled to a rebate for the excise duty paid. Rule 5(1)(i) of the Turnover Rules allows deduction of excise duty paid to the Central Government. The Tribunal erroneously concluded that the liability to pay excise duty lay only on the grower. However, under section 3 of the Central Excise and Salt Act and rule 7 of the Central Excise Rules, the assessee, as a person storing goods in a warehouse, was liable to pay excise duty when removing the tobacco for manufacturing. Since the assessees paid excise duty upon removing the tobacco from their licensed warehouses, they satisfied the requirements of rule 5(1)(i). The court reversed the Tribunal's finding and directed that the excise duty paid be excluded from the computed taxable turnover, granting the assessees the rebate.

Conclusion:
- The court upheld the Tribunal's decision that the assessees were liable for sales tax on the manufactured chewing tobacco under clause (vii).
- The cost of packing materials was correctly included in the taxable turnover as the requirements for exclusion were not met.
- The assessees were entitled to a rebate for the excise duty paid, and the Tribunal's decision on this point was reversed.

Orders:
T.C. Nos. 62 to 65 of 1959 and T.C. Nos. 32 to 34 of 1960 were allowed to the extent of granting the rebate for excise duty paid. T.C. Nos. 49 and 50 of 1960 and T.C. Nos. 79 and 80 of 1960 were dismissed. T.C. Nos. 51 to 53 of 1960 and T.C. Nos. 66 and 67 of 1960 were posted separately for orders as to admission. No order as to costs in any of these petitions.