1965 (2) TMI 89 - HC - VAT and Sales Tax

Issues Involved:

1. Whether snuff is included in the definition of tobacco as per item 9 of the First Schedule to the Central Excises and Salt Act, 1944.
2. Whether the assessment of sales tax on snuff under the Bengal Finance (Sales Tax) Act, 1941, and the Central Sales Tax Act, 1956, is valid.

Issue-wise Detailed Analysis:

1. Definition of Tobacco:

The primary issue is whether "snuff" falls under the definition of "tobacco" as given in item 9 of the First Schedule to the Central Excises and Salt Act, 1944. The petitioner argued that snuff, being a form of manufactured tobacco, is covered under item 9, which defines tobacco as "any form of tobacco, whether cured or uncured, and whether manufactured or not, and includes the leaf, stalks and stems of the tobacco plant but does not include any part of a tobacco plant while still attached to the earth."

The court referred to section 2(f) of the Central Excises and Salt Act, 1944, which includes the preparation of snuff within the definition of "manufacture." Thus, the court concluded that snuff is specifically included within the meaning of tobacco as given in item 9 of the Act of 1944. Consequently, snuff would come within the ambit of rule 3(28) of the Bengal Sales Tax Rules, allowing the petitioner to deduct it from her gross turnover, and therefore, the sale of snuff cannot be taxed under the Bengal Finance (Sales Tax) Act, 1941.

2. Validity of Sales Tax Assessment:

A. Under the Bengal Finance (Sales Tax) Act, 1941:

The court examined rule 3(28)(a) of the Bengal Sales Tax Rules, which allows the deduction of sales of tobacco on which duty has been paid under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. The legislative history and the explanation to rule 3(28) refer to the meaning of tobacco as given in the Act of 1957, which in turn refers to the First Schedule of the Central Excises and Salt Act, 1944. The court concluded that the meaning of "tobacco" includes snuff, and therefore, the sale of snuff is exempt from sales tax under the Bengal Finance (Sales Tax) Act, 1941.

The court rejected the respondents' argument that only cigars, cheroots, and cigarettes are included within the class of "manufactured tobacco" under item 9. The court clarified that the first part of item 9 gives the meaning of tobacco, and the second part prescribes the rates of excise duty. The explanation to rule 3(28) and section 2(c) of the Act of 1957 are instances of legislation by reference or incorporation, and only the first part of item 9, which gives the meaning of tobacco, is relevant for the interpretation of rule 3(28).

The court also dismissed the argument that the rules made under the Act cannot enlarge the meaning of "tobacco" beyond what is contained in item 18 of the Schedule to the Bengal Act, which exempts "tobacco for hookah." The court explained that the scope of rule 3 and the Schedule to the Bengal Act are different, and the rule-making authority is not restricted by the items listed in the Schedule.

Finally, the court addressed the argument that only pure snuff, without any extraneous ingredients, might be included within the meaning of "tobacco." The court found this argument to be without merit, as the Commercial Tax Officer had taxed the petitioner on the sale of "snuff" but disallowed the exemption on the wrong assumption that snuff does not come within the purview of rule 3(28).

B. Under the Central Sales Tax Act, 1956:

In the second petition, the court examined the application of section 9 of the Central Sales Tax Act, 1956, read with section 11(2) of the Bengal Act. Section 7 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957, declared that tobacco is of special importance in inter-State trade or commerce, and every sales tax law of a State imposing a tax on the sale or purchase of tobacco is subject to the restrictions and conditions specified in section 15 of the Central Sales Tax Act, 1956.

The court reiterated its reasoning that "snuff" is included in the word "tobacco" and addressed the issue of the rate of sales tax. The court held that the levy of sales tax at 5% under section 5(1) of the Bengal Act became ultra vires as soon as the Act of 1957 came into force, because it exceeded the 2% limit specified in section 15(a) of the Central Sales Tax Act. The court had previously dealt with this issue in Mahendra Pratap v. Commercial Tax Officer and found that the respondents had no power to tax snuff at 5% during the relevant period.

Conclusion:

The court concluded that the Commercial Tax Officer's interpretation of the taxing statute and the rules made thereunder was incorrect, rendering the demand ultra vires, without jurisdiction, and unconstitutional. The impugned notices in both petitions were quashed, and the opposite parties were restrained from enforcing them against the petitioner. The petitioner was awarded costs and allowed to withdraw the security deposited.

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