1996 (4) TMI 458 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Exemption of zarda from sales tax under Schedule III, item 25 of the Pondicherry General Sales Tax Act, 1967.
2. Validity of the Secretary to the Government's exercise of power under section 37 of the Act.
3. Interpretation of "tobacco and all its products" in the context of zarda.

Detailed Analysis:

Exemption of Zarda from Sales Tax:
The primary issue in this case revolves around whether zarda, a product sold by the assessee, qualifies for exemption from sales tax under entry No. 25 in Schedule III of the Pondicherry General Sales Tax Act, 1967. The assessee argued that zarda, being a tobacco product, should be exempt from sales tax as per the said entry. The assessing officer initially denied this exemption, taxing zarda at 3.5% single point under section 3(1) of the Act. However, the Appellate Assistant Commissioner accepted the assessee's contention and deleted the addition, recognizing zarda as a tobacco product and thus exempt from tax.

Validity of the Secretary to the Government's Exercise of Power:
The Secretary to the Government, exercising power under section 37 of the Act, reviewed the Appellate Assistant Commissioner's order and concluded that it was erroneous and prejudicial to the interest of Revenue. The Secretary set aside the exemption granted and directed the assessing authority to tax the sales turnover of zarda as initially done. The High Court, however, found that the Secretary's interpretation was not in line with the statutory provisions. The court emphasized that there was no specific notification withdrawing the exemption granted under the parent Act, unlike in the cited cases from other jurisdictions.

Interpretation of "Tobacco and All Its Products":
The court extensively analyzed the term "tobacco and all its products" in the context of zarda. The learned counsel for the assessee cited various judicial precedents, including decisions from the Andhra Pradesh High Court and the Supreme Court, which supported the view that zarda, being predominantly made of tobacco, should be considered a tobacco product and thus exempt from tax. The Government Pleader argued that zarda is different from tobacco in common parlance and should be taxed. However, the court found that the product sold by the assessee, containing nearly 99% tobacco, falls within the definition of "tobacco and all its products" under entry No. 25 of Schedule III to the Act.

The court also referred to the Orissa High Court's decision in Parimala Agencies v. State of Orissa, which differentiated zarda from tobacco based on specific notifications. However, such notifications were absent in the Pondicherry context. The court concluded that the Secretary to the Government's interpretation was out of context and that the statutory provisions should be followed strictly.

Conclusion:
The High Court set aside the order passed by the Secretary to the Government, restoring the Appellate Assistant Commissioner's order exempting the sales turnover of zarda. The court emphasized that the interpretation given by the Secretary was not supported by the statutory provisions and judicial precedents. The appeal was allowed, and there was no order as to costs.