1986 (2) TMI 72 - HC - VAT and Sales Tax

Issues Involved:
1. Inclusion of rubber cess in the purchase turnover for tax assessment under the Kerala General Sales Tax Act, 1963.
2. Nature and incidence of rubber cess as a duty of excise.
3. Interpretation of "turnover" under the Kerala General Sales Tax Act.
4. Relevance of previous Supreme Court judgments on excise duty and turnover.
5. Application of Rule 33D of the Rubber Act in the context of demand notices.

Detailed Analysis:

1. Inclusion of Rubber Cess in Purchase Turnover:
The primary issue addressed is whether the rubber cess collected from manufacturers of rubber products should be included in their purchase turnover for the purpose of tax assessment under the Kerala General Sales Tax Act, 1963. The assessing authorities initially included the rubber cess in the purchase turnover, but this was overturned by the appellate authority and the Sales Tax Appellate Tribunal. The State sought revision under Section 41 of the Kerala General Sales Tax Act.

2. Nature and Incidence of Rubber Cess:
Rubber cess is imposed under Section 12 of the Rubber Act, 1947, which was amended in 1960. The cess is a duty of excise on all rubber produced in India. The taxable event is the production of rubber, and the duty can be collected either from the owner of the estate where the rubber is produced or from the manufacturer who uses the rubber. The amendment aimed to facilitate easier collection of the cess due to evasion issues by small estate owners.

3. Interpretation of "Turnover":
The term "turnover" is defined in Section 2(xxvii) of the Kerala General Sales Tax Act as the aggregate amount for which goods are bought or sold. The Supreme Court in McDowell & Co. Ltd.'s case (1985) clarified that the total amount charged as consideration for the sale, including excise duty, should be included in the turnover. The court emphasized that the excise duty forms part of the sale consideration and should be included in the purchase turnover.

4. Relevance of Previous Supreme Court Judgments:
The assessees relied on the Supreme Court's decision in McDowell & Co. Ltd. v. Commercial Tax Officer (1977), which held that excise duty paid by purchasers does not form part of the turnover of the owners of distilleries. However, this view was not upheld in the later McDowell & Co. Ltd.'s case (1985), which stated that the excise duty forms part of the consideration for the sale and should be included in the turnover. The court also referred to the decision in Jullundur Rubber Goods Manufacturers' Association v. Union of India, which upheld the validity of Section 12 of the Rubber Act and emphasized that the amendment was for easier collection of the cess.

5. Application of Rule 33D:
Rule 33D of the Rules framed under the Rubber Act mandates that a notice of demand for rubber cess be issued to the manufacturer of rubber goods. The assessees argued that this implies the liability for rubber cess is solely on the manufacturers. However, the court noted that Section 12(3) of the Rubber Act makes both the owner and the manufacturer liable for the duty. The rule is seen as a procedural mechanism for collection rather than altering the nature of the levy.

Conclusion:
The court concluded that the rubber cess paid by the assessees forms part of their purchase turnover and is exigible to sales tax under Entry 38 of Schedule I to the Kerala General Sales Tax Act, 1963. The orders of the appellate authority and the Tribunal were set aside, and the orders of the assessing authority were restored. The court rejected the prayer for leave to appeal to the Supreme Court, stating that the cases did not involve any substantial question of general importance needing Supreme Court adjudication.

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