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TMI Blog1976 (2) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred to as the Act) deleted the item of "world postage stamps" from the recognition certificate w.e.f. 4th Dec., 1963. The said order was passed on 12th Dec., 1972. 3. Being aggrieved by that order, the dealer filed an appeal before the Assistant Commissioner. It was contended before the Assistant Commissioner by Mr. M.M. Patel, the learned Advocate, who appeared before him for the appellant, that "old world postage stamps" are used by the appellant as raw materials in the manufacture of goods—Frutex with stamps. It was also pointed out, that in the import licence granted to the appellant, the "old world postage stamps" are shown as raw materials. It was, therefore, contended that the recognition certificate in respect of the goods was rightly granted to the appellant, the goods having been used in the manufacture or in the packing of taxable goods for sale, by the appellant. The said contention of the learned Advocate of the appellant, did not find favour with the Assistant Commissioner, who came to the conclusion, that the "old world postage stamps" were neither used as raw materials in the manufacture of Frutex nor were they used as packing materials. In tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Commissioner, the assessee filed appeals before the Deputy Commissioner of Sales Tax. It was contended before the Deputy Commissioner that what was sold by the assessee was "Frutex with Stamps" and the stamps should be considered as raw material used in the manufacture of goods sold. It was further contended, that the stamps should at least be considered as having been used in the packing of goods manufactured. Hence, it was submitted, that the orders passed by the Assistant Commissioner levying purchase-tax were wrong and they should be set aside. The learned Deputy Commissioner did not agree with the submissions and dismissed the appeals. Against the orders of the Deputy Commissioner, the assessee filed Revision Applications Nos. 34, 35, 36 37 of 1974. Mr. Joshi, the learned Advocate, who appeared before the Tribunal in those Revision Applications, for the Applicant, also submitted that, what was sold by the assessee, was not "Frutex" but "Frutex with Stamps" and for that finished product the "old world postage stamps" were used, as raw materials. That submission did not find favour with the Tribunal. The Tribunal, therefore, dismissed the revision applications and confirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely "Frutex", but are "Frutex with Stamps". 7. The second contention developed by Mr. Joshi was, that s. 25, which governs the grant of a recognition certificate, provides for such grant in respect or goods required in the manufacture of taxable goods for sale, the emphasis being on the entire phrase viz. "used in the manufacture of taxable goods for sale" and it was urged, that in the previous judgment, the reasoning adopted had resulted in the placing of a narrow interpretation on the above said term. It was explained, that this was because the emphasis had been laid only on the word "manufacture" and not on the term "used in the manufacture of taxable goods for sale". In support of his arguments Mr. Joshi cited the following rulings. (i) 16 STC page 563 (J.K. Cotton Spinning Weaving Mills Co. Ltd. vs. The Sales tax Officer, Kanpur, Anr.) (ii) 29 STC page 101 (Member, Board of Revenue, West Bengal vs. Phelps and Co. (P) Ltd.) (iii) 16 STC page 259 (Indian Copper Corporation Ltd. vs. Commissioner of Commercial Taxes, Bihar Anr.) 8. In 16 STC page 563 (J.K. Cotton Spinning Weaving Mills Co. Ltd. vs. The Sales tax Officer, Kanpur Anr.), the Supreme Court ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 1st Bench, therefore, though, that there may be a need for reconsideration of the earlier judgment of the Tribunal, which was relied upon by Mr. Ghanekar, the learned Assistant Commissioner (Legal), and accordingly, referred the following two questions, to a Larger Bench, for its decision:— "(i) Whether the world postage stamps in question constitute goods required by the dealer for use in the manufacture of taxable goods for sale by him or in the packing of goods so manufactured, within the meaning of s. 25 of Bombay Sales Act, 1959. (ii) If so, whether the judgment in Revision Applications, Nos. 34, 35, 36 37 of 1974, decided on 17th Jan., 1975 in the matter of Calcutta Confectionery Works, is not goods law." 9. The appeal has thus come before us, for our decision, on the two points. It may be mentioned before we proceed to consider the two question to which we have to address ourselves, that in the appeal before the 1st Bench, it was also contended on behalf of the appellant, that the lower authorities were in error in upholding the action of the Sales Tax Officer, in deleting the item of "old world postage stamps" from the recognition certificate, w.e.f. 4th Dec., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivity of the appellant it must be held, that the stamps are used in the manufacture of the final product sold, particularly since his client was paying tax on the final product. He also produced before us, a chart of the index of sales of the product, which shows, that the sales have risen from 1960-61 to 1963-64, the sales of the product, having been only to the tune of Rs. 4,958.00 in 1960-61 whereas they were of Rs. 72,515.00 in 1963-64. He emphasised that what his client was selling was not a naked bar of the sweet or toffee but what he sells is Frutex as packed, and the sales of his client had gone up because of the attraction for the stamps that were enclosed in the packing while manufacturing the final product. He also submitted, that what had to be taken into consideration was the final product, that was sold by his client, and if that is done, after duly taking into consideration the literature of the appellant on the product and his circular letter to he dealer, stockists etc, the irresistible conclusion would be, that the stamps were used in he manufacture of the product. He added that, the expression "used in the manufacture" must not be read in a narrow sense but must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sales Tax Officer deleting the time of "word postage stamps" from the recognition certificate granted to the appellant and the decision of the IVth Bench of this Tribunal in Revision Applications Nos. 34, 35, 36 37 of 1974 decided on 27th Jan., 1975 on which reliance has been placed on behalf of the Department to support the orders of the lower authorities in the present appeal deserves reconsideration. 12. We may add at this stage, that thought it appears that the contention of the appellant before the lower authorities was that the goods were also used in packing of the goods for sale, that contention was not reiterated by Mr. Joshi, at the time of hearing of the appeal by us the Larger Bench. We may also add, that in the course of his reply, Mr. Joshi cited the following judgments :— (i) 26 ITR 265 (N.M. Rayaloo Iyer and Sons vs. Commissioner of Income Tax Excess Profits Tax) (ii) 28 ITR page 928 (CIT vs. Sir Homi Mehta's Executors) and (iii) 47 ITR page 565 (CIT vs. Mugneeram Bangur and Compnay). 13. Mr. Mokashi, the learned Assistant Commissioner (Legal), appearing for the State before us, submitted that, it being the case of the appellant, that the goods " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch examples, is the charm included in a carton of Binaca toothpaste, which serves as an attraction to children and others, in boosting up the sales of the toothpaste in question. In these circumstances he, for his part, maintained that not only the orders passed by the lower authorities, which are challenged in the present appeal are just and proper orders, but also that the judgment of the IVth Bench of the Tribunal, which was relied upon before the 1st Bench, does not require reconsideration, as that judgment was passed after duly considering all the relevant provisions of the Act and the legal position, in the light of the authorities which were cited before it, on behalf of the appellant assessee. 14. Now, s. 25 of the Act reads as under:— "Whether during the previous or current year, the value of all taxable goods manufactured by a Registered dealer for sale by him exceeds Rs. 2,500 he may apply for Recognition to the Commissioner. (Subject to the provisions of s. 27, the Commissioner shall, in respect of any goods required by the dealer for use within the State in the manufacture of taxable goods for sale by him or in the packing of the goods so manufactured), if the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possible to reasonably infer either that the stamps are used as raw materials or that they are in any way connected with the activity of manufacture of the sweet. It may be, that the "old world postage stamps" are purchased by the appellant as raw materials for the manufacture of sweets by obtaining a licence for import of the same, from the Government of India, as is evident from the import licence, which was produced before us. But that circumstances cannot in our opinion, as was rightly argued by Mr. Mokashi, be of any help in coming to a conclusion that, that is the use to which they are put. Even it was not the case of the appellant himself before us, that the "old world postage stamps" were used as raw materials in the manufacturing activity. Hence, for coming to a proper conclusion in the connection, what we have to do, is to minutely consider the activities of the appellant as a whole, in relation to the sweet and the "old world postage stamps" and if that it done, it is patent, that the "old world postage stamps" are merely enclosed in the packing of the sweet which is, after the packing, sold, as "Frutex with Stamps". By no stretch of imagination, it seems to us, after c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracting to person interested in collecting the stamps. Hence, the above judgment, to our mind, is of little avail to the appellant. 16. In 29 STC page 101 (Member, Board of Revenue, West Bengal vs. Phelps And Co. (P) Ltd.) the Supreme Court dealt with hand gloves sold by the assessee to dealers for the purpose of being used by their workers engaged in hot jobs or in handling corrosive substances in the course of manufacture of goods for sale. It claimed exemption of those sales under s. 5(2)(a)(ii) of the Bengal Sales Tax Act, on the ground that the sales to dealers were of goods intended for use by them in the manufacture of goods for sale. The Supreme Court held that the gloves could be said to have been used in the manufacture of goods for sale within the meaning of the above provision and the assessee was entitled to the exemption claimed. It is clear that the gloves were used by the workers of the vendee engaged in jobs, in the course of manufacture of the goods for sale. Such is not the case here. Hence, the above judgment does not appear to us to be in point. 17. Next, in 16 STC page 259 (Indian Copper Corporation Ltd. vs. Commissioner of Commercial Taxes, Bihar And O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court considered the scope of s. 10(2)(x) of the IT Act and r. 12 of Sch. I, and held that the test of commercial expediency is not germane to an enquiry into a claim under s. 10(2)(x); but it is a very relevant consideration in the application of r. 12 of Sch. I. In that case, the General Manager of the assessee-firm which was dealing in dyes was paid, under an agreement, a fixed salary and a commission of a certain percentage on the net profits calculated by deducting from the gross profits of the business, the salaries, wages and other out-goings. It was held therein that in calculating the net profits for the purpose of arriving at the commission payable to the General Manager, excess profit tax should not be deducted. An observation of Chief Justice Chagla was also referred to therein at page 292, which says that if expenditure helps or assists the assessee in making or increasing the profits, then undoubtedly that expenditure would be expended wholly and exclusively for the purposes of business. We fail to understand how this judgment can help the appellant. 20. In 28 ITR page 928 (CIT vs. Sir Homi Mehta's Executors), the Bombay High Court, while considering the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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