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2004 (9) TMI 617 - HC - VAT and Sales TaxApplicability of Section 7-A of the Tamil Nadu General Sales Tax Act on the purchase of empty bottles - Validity of purchase tax levy on empty bottles in light of clarifications issued by the Commissioner of Commercial Taxes - Taxability of cash discounts offered by the petitioner-company to TASMAC - manufacture of beer and IMFL products - Whether the purchase turnover of empty bottles purchased by the petitioner-company, who are engaged in the business of manufacturing beer and IMFL products, from unregistered dealers for bottling beer and IMFL manufactured by them, through the bought note to the extent of Rs. 24,78,20,465 is attracted for purchase tax under section 7-A of the Tamil Nadu General Sales Tax Act ( the Act )? - HELD THAT - Applying the law laid down by the apex Court in Premier Breweries v. State of Kerala 1997 (12) TMI 569 - SUPREME COURT and Assistant Commissioner (Intelligence) v. Nandanam Construction Co. 1999 (9) TMI 784 - SUPREME COURT , which was followed by this Court in Appollo Saline Pharmaceuticals (P) Ltd. v. Deputy Commercial Tax Officer 2001 (9) TMI 1101 - MADRAS HIGH COURT , and keeping in mind the object of section 7-A of the Act, as amended, as observed in State of Tamil Nadu v. M.K. Kandaswami 1975 (7) TMI 123 - SUPREME COURT , to plug the leakage and prevent evasion of tax with respect to purchase of empty bottles purchased from unregistered dealers under the bought note, we reject the contention of Mr. C. Natarjan that the purchase turnover for the purchase of empty bottles from unregistered dealers under the bought note is not attracted for levy of purchase tax u/s 7-A of the Act. Question (i) is answered in affirmative, against the assessee and in favour of the Revenue. (ii) Whether purchase tax is leviable on the purchase turnover of the empty bottles purchased by the petitioner company to the extent of Rs. 24,78,20,465, u/s 7-A of the Act, in spite of the clarifications dated November 9, 1989 and December 27, 2000 issued in favour of the petitioner-company by the Special Commissioner and Commissioner of Commercial Taxes, Chennai, in view of section 28-A of the Act? - Concededly, the Special Commissioner and Commissioner of Commercial Tax, in the clarification dated November 9, 1989 clarified that since the sale value of the bottles is subjected to tax at the time of sale of contents, there is no liability to tax under section 7-A of the Act, and the said clarification had also been reiterated by the Principal Commissioner and Commissioner of Commercial Taxes in the clarification dated December 27, 2000 with respect to the assessment years 1991-92, 1993-94, 1994-95 and 1995-96, clarifying that the value of the empty bottles since has been included in the sale price of the product, the earlier clarification dated November 9, 1989 issued in favour of the petitioner-company would apply and therefore, the purchase turnover with respect to the purchase of empty bottles for filling beer and IMFL products would not attract section 7-A of the Act. Similarly, the Appellate Assistant Commissioner (CT), Chennai with respect to the assessment years 1986-87, 1987-88 and 1988-89 also found that the imposition of purchase tax on the purchase of empty bottles was illegal and unjustified. Even though the clarification dated November 9, 1989 given by the Commissioner of Commercial Tax in favour of the petitionercompany was executive in nature, the subsequent clarification dated December 27, 2000 gains a statutory effect in view of section 28-A of the Act, which was inserted by the Tamil Nadu Act 60 of 1997 and came into force with effect from November 6, 1997. It is, clear that even though the clarification dated November 9, 1989 is executive in nature, the same is binding on the authorities till the concessions given to the petitioner under the clarification were withdrawn, which could be done only prospectively, viz., in the instant case, with effect from January 28, 2002, and the revenue could not refuse the benefit of the clarifications dated November 9, 1989 and December 27, 2000 in respect of levy of purchase tax under section 7-A of the Act for the impugned assessment year 1996-97. Thus, we are convinced that even though the purchase turnover with respect to the purchase of empty bottles from the unregistered dealers under bought note can be charged for purchase tax u/s 7-A of the Act, the petitioner is entitled for the benefit of the clarifications dated November 9, 1989 and December 27, 2000 till the same is withdrawn prospectively by the clarification dated January 28, 2002 and therefore, the impugned levy of purchase tax on the purchase turnover for the purchase of empty bottles from unregistered dealers under section 7-A of the Act is illegal. Question (ii) is answered in negative, in favour of the assessee and against the Revenue. (iii) Whether cash discount on the price offered by the petitioner-company to the TASMAC is taxable in view of explanation 2(iii) to section 2(r) of the Act? - Section 2(r) of the Act defines turnover . As per the said definition, turnover is defined as the aggregate of the sale or purchase price and accordingly, from the gross amount of such price, Here italicised. any cash or other discount on the price of the goods sold is deductible vide Deputy Commissioner of Sales Tax v. Advani Oerlikon 1979 (10) TMI 90 - SUPREME COURT , which was also followed in Deputy Commissioner of Sales Tax, Ernakulam v. Kerala Rubber Allied Products 1993 (3) TMI 311 - SC ORDER . Thus, we are convinced that in view of explanation 2(iii) to section 2(r) of the Act, the cash or other discount on the price of goods sold cannot be included in the turnover for levy of tax. Question (iii) is answered in negative, in favour of the assessee and against the revenue. The writ petition was allowed, and the impugned levy of purchase tax on the purchase turnover of empty bottles was declared illegal. The court also ruled that cash discounts offered by the petitioner-company are not taxable. No costs were awarded, and the connected W.P.M.P. was closed.
Issues Involved:
1. Purchase tax liability on empty bottles purchased from unregistered dealers u/s 7-A of the Tamil Nadu General Sales Tax Act. 2. Applicability of purchase tax despite clarifications issued in favor of the petitioner u/s 28-A of the Act. 3. Taxability of cash discounts offered to TASMAC under explanation 2(iii) to section 2(r) of the Act. Summary: Issue 1: Purchase Tax on Empty Bottles u/s 7-A The court examined whether the purchase turnover of empty bottles amounting to Rs. 24,78,20,465 purchased from unregistered dealers by the petitioner-company for bottling beer and IMFL products is liable for purchase tax u/s 7-A of the Tamil Nadu General Sales Tax Act. The court noted the amendment brought by Tamil Nadu Act 78 of 1986, which inserted the words "or uses" in section 7-A(1)(a). This amendment expanded the scope of the section to include the use of goods in the manufacture of other goods for sale. The court referenced multiple cases, including *Assistant Commissioner (Intelligence) v. Nandanam Construction Co.*, which supported the levy of purchase tax on goods used in manufacturing. Consequently, the court held that the purchase turnover for empty bottles from unregistered dealers is liable for purchase tax u/s 7-A. Issue 2: Applicability of Purchase Tax Despite Clarifications The court addressed whether the petitioner-company could be levied purchase tax despite clarifications dated November 9, 1989, and December 27, 2000, issued in their favor by the Special Commissioner and Commissioner of Commercial Taxes, Chennai. The court noted that these clarifications were binding on the authorities and could only be withdrawn prospectively. The court cited several Supreme Court decisions, including *State Bank of Travancore v. Commissioner of Income-tax* and *Paper Products Ltd. v. Commissioner Of Central Excise*, which established that such clarifications are binding on the revenue. Therefore, the court held that the petitioner is entitled to the benefit of these clarifications for the assessment year 1996-97, making the levy of purchase tax illegal for that period. Issue 3: Taxability of Cash Discounts The court examined whether cash discounts offered by the petitioner-company to TASMAC are taxable under explanation 2(iii) to section 2(r) of the Act. The court referenced the definition of "turnover" and relevant case law, including *Deputy Commissioner of Sales Tax v. Advani Oerlikon* and *Neyveli Lignite Corporation Ltd. v. Commercial Tax Officer*, which clarified that cash discounts should not be included in the turnover for tax purposes. Thus, the court held that cash discounts are not taxable under the Act. Result: The writ petition was allowed as prayed for, with no costs. The connected W.P.M.P. was also closed.
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