2020 (6) TMI 685 - SC - VAT and Sales Tax

Interpretation of Statute - Section 7-A of the Tamil Nadu General Sales Tax Act, 1959 - Levy of Purchase Tax - purchase turnover, with respect to the purchase of empty bottles from unregistered dealers under bought note - Clarifications dated 09.11.1989 and 27.12.2000 - HELD THAT - For applicability of Section 7-A (1) of the Act, all the six ingredients need to be cumulatively satisfied. The ingredient (6) has three alternatives viz., the dealer has either (a) consumed or used the goods in question in the manufacture of other goods for sale or otherwise, or (b) has disposed of such goods in any manner other than by way of sale in the State, or (c) has despatched or carried them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. It is not in dispute that clauses (b) or (c) of this ingredient are not attracted in this case, for the entire manufactured Beer/IMFL, after bottling, having been sold by the assessee only to the Tamil Nadu State Marketing Corporation Limited (TASMAC) within the State of Tamil Nadu. There are no hesitation in concluding that the bottles in question have neither been consumed in manufacture of Beer/IMFL nor they could be said to have been used in such manufacture of Beer/IMFL. Hence, elements (i) and (iii) pertaining to clause (a) of sub-section (1) of Section 7-A of the Act do not exist in this case. The purchase tax under Section 7-A of the Act is leviable on the purchase turnover of empty bottles purchased by the assessee in the course of its business of manufacture and sale of Beer and IMFL - the purchase turnover of the empty bottles purchased by the assessee from the unregistered dealers under bought note is exigible to purchase tax under Section 7-A of the Tamil Nadu Act; and the assessee cannot escape such liability on the strength of the Clarifications/Circulars dated 09.11.1989 and 27.12.2000 which do not stand in conformity with the statutory provision as also declaration of law by the Courts. The appeal is partly allowed by holding that the purchase turnover of the empty bottles purchased by the assessee from the unregistered dealers under bought note is exigible to purchase tax under Section 7-A of the Tamil Nadu Act; and the assessee cannot escape such liability on the strength of the Clarifications/Circulars dated 09.11.1989 and 27.12.2000.

Summary

Issues Involved:
1. Applicability of Section 7-A of the Tamil Nadu General Sales Tax Act, 1959 for the levy of purchase tax on the turnover of empty bottles purchased by the assessee.
2. Operation and effect of the Clarifications/Circulars dated 09.11.1989, 27.12.2000, and 28.01.2002 issued by the revenue.
3. Taxability of cash discount on the price offered by the assessee to the Tamil Nadu State Marketing Corporation Limited.

Issue-wise Detailed Analysis:

1. Applicability of Section 7-A of the Tamil Nadu General Sales Tax Act, 1959:
- The court examined whether the purchase tax is leviable on the purchase turnover of empty bottles purchased by the assessee for bottling Beer and IMFL.
- The court analyzed the relevant statutory provisions and concluded that Section 7-A (1) of the Act applies if certain ingredients are cumulatively satisfied, including the dealer consuming or using the goods in the manufacture of other goods for sale or otherwise.
- The court held that the empty bottles were neither consumed in the manufacture of Beer/IMFL nor used in such manufacture. However, they were used for bottling, an integral part of the business activity of manufacturing and selling liquor.
- The court concluded that the bottles were "used otherwise," thereby bringing the purchase turnover within the net of Section 7-A of the Act.
- The court rejected the contention that since the sale value of bottles was subjected to tax at the time of sale of the contents, there could be no levy of purchase tax, citing the decision in Premier Breweries.

2. Operation and Effect of the Clarifications/Circulars:
- The court examined the Clarifications/Circulars issued by the revenue on 09.11.1989, 27.12.2000, and 28.01.2002.
- The court referred to the Constitution Bench decisions in Dhiren Chemical Industries and Ratan Melting & Wire Industries, stating that circulars and instructions issued by the Board are binding on the authorities but not on the courts.
- The court held that the Clarifications/Circulars in question, which were contrary to the statutory provisions and the law declared by the courts, could not be given effect to.
- The court concluded that the High Court erred in directing the benefit of the Clarifications/Circulars to the assessee when they did not conform to the statutory provision and its interpretation by the courts.

3. Taxability of Cash Discount:
- The court upheld the High Court's ruling that cash discount on the price offered by the assessee to TASMAC is not taxable, referring to Explanation 2(iii) to Section 2(r) of the Act.
- The court observed that the clear phraseology of the Explanation excludes any cash or other discount on the price allowed in respect of any sale from being included in the turnover for the levy of tax.

Conclusion:
- The court partly allowed the appeal filed by the revenue, holding that the purchase turnover of the empty bottles purchased by the assessee from unregistered dealers is exigible to purchase tax under Section 7-A of the Tamil Nadu Act.
- The court dismissed the appeal filed by the assessee, confirming the liability towards purchase tax.
- The court upheld the High Court's decision regarding the non-taxability of cash discount.