Commercial Tax Officer & Anr. Vs Mohan Brewaries and Distrilleries Ltd. (Supreme Court)
Appeal filed by the revenue (Civil Appeal No. 7164 of 2013) 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. As a necessary consequence, the appeal filed by the assessee (Civil Appeal No. 7165 of 2013) is dismissed.
FULL TEXT OF THE SUPREME COURT JUDGEMENT
1. The appeals in this batch, involving similar questions between the same parties, have been considered together and are taken up for disposal by this common judgement.
2. Civil Appeal Nos. 7164 of 2013 and 7165 of 2013, filed respectively by the revenue and the assessee, are directed against the final judgement and order dated 09.2004, passed by a Division Bench of the High Court of judicature at Madras in W.P. No. 25081 of 2002, whereby the High Court has allowed the writ petition filed by the assessee while holding, inter alia, that though the purchase turnover, with respect to the purchase of empty bottles from unregistered dealers under bought note, is exigible to purchase tax under Section 7-A of the Tamil Nadu General Sales Tax, 19591 but, the assessee is entitled for the benefit of Clarifications dated 09.11.1989 and 27.12.2000 issued by the revenue till the same were withdrawn prospectively by the Clarification dated 28.01.2002 and therefore, the revenue is not entitled to levy purchase tax for the said turnover of purchase of empty bottles for the assessment year 1996-97.
2.1 The assessee has filed another set of appeals in Civil Appeal No. 4416-4419 of 2014 against the order of the High Court dated 05.12.2013, passed in Tax Case (Revision) Nos. 1667,1669, 1857 of 2008 and 13 of 2009, wherein the High Court has held that the assessee is liable to pay purchase tax under Section 7-A of the Act for the assessment years 1986-87 to 1989-90 on the turnover of purchase of empty bottles from the unregistered dealers while following its aforesaid earlier order dated 10.09.2004.
3. Put in a nutshell, these matters involve the interpretation of Section 7-A of the Tamil Nadu Act, providing for levy of purchase tax under certain circumstances, with root questions as to whether purchase tax 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 Indian Made Foreign Liquor2 and as to the operation and effect of the Clarifications dated 11.1989 issued by the Special Commissioner and Commissioner of Commercial Taxes, Chennai3 and dated 27.12.2000 issued by the Principal Commissioner and Commissioner of Commercial Taxes, Chennai4. On the sideways, a separate question is as to whether cash discount on the price offered by the assessee to the Tamil Nadu State Marketing Corporation Limited5 is taxable in view of Explanation 2(iii) to Section 2(r) of the Act?
4. As noticed, the impugned order dated 05.12.2013 in Civil Appeal Nos. 4416-4419 of 2014 is essentially based on the previous order of the High Court dated 10.09.2004 which is in challenge by the revenue as also by the assessee in Civil Appeal Nos. 7164 of 2013 and 7165 of 2013. Hence, we propose to deal with the cross-appeals against the order dated 10.09.2004 in necessary details.
Civil Appeal Nos. 7164 and 7165 of 2013: Relevant Background
5. The assessee is a company incorporated under the Companies Act, 1956 and is engaged in the business of manufacture of Beer and IMFL products on the strength of license issued under the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules, 1981 in its factory located at No. 7, Selva Street, M.M. Nagar, Valasaravakkam, Chennai – 600 087. It is an assessee on the file of the Commercial Tax Officer, Porur Assessment Circle.
5.1 The assessee, for the purpose of the said business of manufacture of Beer and IMFL, purchased empty bottles from unregistered dealers situated outside the State as well as from non-dealers for the bottling of Beer and IMFL. It has been the case of the assessee that the said bottles were recycled after use by the consumers and were re-filled with Beer and IMFL. The cost of bottles was Rs. 35.69 per case as against the manufacturing cost of Beer of Rs. 109.93 per case, taking the cost of bottles to 32% of the manufacturing cost. With respect to IMFL, the cost of bottles was Rs. 60.40 per case as against the manufacturing cost of Rs. 217.06 per case, which had been 28% of the manufacturing cost. According to the assessee, these bottles purchased against bought notes were the bottles which were already used, filled and sold for a price and continued to be available for re-use and further trading.
5.2 It had also been the case of assessee that as per Rule 29 of the Tamil Nadu Brewery Rules,1983, the manufacturer had the option of filling the Beer either in bottles or casks or even kegs; that the entire Beer and IMFL manufactured by assessee was sold only to TASMAC, who had the exclusive privilege of supplying the liquor by wholesale for the entire State of Tamil The assessee had also been offering cash discount for early settlement of bills by TASMAC.
6. For the assessment year 1996-97, the assessee was assessed on the files of the revenue on a total turnover of Rs. 2,52,33,32,932/- and Rs. 2,49,65,22,854/- respectively by the assessment order dated 21.10.1998. Thereafter, the Assessing Officer6, by a notice dated 30.04.1999, proposed to levy purchase tax under Section 7-A of the Act on the purchase of empty bottles from unregistered dealers under bought note through salesman permits, on a sum of 24,78,20,465/- at the rate of 16% with surcharge, additional surcharge as also additional tax at the rate of 2.50%.
6.1 In his notice dated 30.04.1999, the AO, inter alia, observed that addition of sub-section (7) to Section 3 with effect from 22.05.1984 specifically treats the containers or packing materials as part of the goods sold or purchased; that there was no doubt that the bottles lost their identity as bottles, which were liable to tax at 10% before filling and they became integral part of the finished goods after filling and attracted liability under the charging Section 3(7) of the Act; and when the bottles became part of the goods, liability under Section 7-A of the Act was definite because, as a part of finished goods used in manufacture, it had not suffered the tax The AO also observed that in view of decision of this Court in Raj Sheel & Ors. v. State of Andhra Pradesh & Ors.: (1989) 74 STC 379, though the empty bottles were used as packing material and merged with the consideration of the main product, there was no separate sale of these empty bottles purchased from unregistered dealers and hence, such purchase of empty bottles was liable to tax under Section 7-A of the Act, as there was no subsequent taxable event on the sale of the packaging material.
6.2 In response to the said notice dated 30.04.1999, the assessee submitted its objections on 27.09.1999 to the effect that Section 7-A of the Act for levy of purchase tax was not attracted on the purchase of empty bottles for packing Beer and IMFL and, in any event, the proposed levy of purchase tax was illegal and unjustified in view of the Clarification dated 11.1989 issued by the SCCT, that was binding on the revenue as per Section 28-A of the Act. The assessee also placed reliance on the proceedings of the Appellate Assistant Commissioner (CT), Chennai7 with respect to the assessment years 1986-87 to 1988-89 holding that imposition of purchase tax on the purchase of empty bottles was illegal and unjustified. The mainstay of the assessee had been that the empty bottles purchased by it were neither consumed nor used in the manufacture of other goods; that the manufacture of Beer or IMFL was complete much prior to its bottling; that the bottling of Beer or IMFL did not complete the process of manufacture; and that it was also a clear trade practice to sell Beer even in barrels, which itself showed that manufacture of Beer had nothing to do with its subsequent bottling.
6.3 The PCCT, before passing final orders on the aforesaid notice dated 30.04.1999 by the AO, issued his Clarification dated 27.12.2000 that purchase of empty bottles could not be made liable to be charged under Section 7-A of the Act during the assessment years 1991-92,1993-94, 1994-95 and 1995-96 as the Clarification dated 11.1989 was in force at the relevant time.
6.4 However, the PCCT later on re-examined the issue in light of the decision of Tamil Nadu Taxation Special Tribunal, Chennai8in the case of Appollo Saline Pharmaceuticals (P) Limited State of Tamil Nadu: reported in (2000) 120 STC 493, and stated by his Clarification dated 28.01.2002, in modification of the earlier Clarifications, that the assessee was liable to tax under Section 7-A of the Act for the purchase of empty bottles from unregistered dealers that were used for packing of Beer/IMFL manufactured by it.
6.5 Apart from the above, the AO, by his notice dated 05.02.2002, proposed to revise the earlier assessment for the assessment year 1996-97 by disallowing the exemption on cash discount allowed by the assessee to TASMAC and to levy tax on the said cash discount, with surcharge and additional surcharge @ 15% and 5% respectively as also the additional sales tax. In response to this notice dated 05.02.2002, the assessee, by its letter dated 18.03.2002, submitted that any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers is not to be included in the turnover. In this regard, the assessee placed reliance on Explanation 2(iii) to Section 2(r) of the Act.
6.6 After examining the objections of the assessee, the AO, by his order dated 27.03.2002, confirmed the proposal of levying purchase tax @ 16% under Section 7-A of the Act on the bottles purchased from unregistered dealers with surcharge and additional surcharge @ 15% and 5% respectively as also additional sales tax @ 2.5% and penalty, essentially on the grounds that empty bottles were purchased from unregistered dealers; that they had been used as raw materials in manufacture of Beer and IMFL products; and that they had not been sold separately. The AO, in support of his conclusion, relied upon the decision of the Division Bench of Madras High Court in Appollo Saline Pharmaceuticals (P) Limited Deputy Commercial Tax Officer and Anr.: (2002) 125 STC 500, which relied upon the decision of this Court in Premier Breweries v. State of Kerala: (1998) 108 STC 598.
6.7 Further, while overruling the objections in respect of levy of tax on cash discount, the AO confirmed the proposal for disallowing the cash discount allowed to TASMAC while observing that discount was only for early settlement of bills of the Distilleries that was akin to discounting the bills with Banks/Financial Institutions; and though the nomenclature adopted was ‘cash discount’, it was nothing but a commission availed for easy payments which did not fall within the purview of discount and was not deductible.
7. Being aggrieved by the order so passed by the AO, the assessee preferred P. No.476 of 2002 before the Tribunal seeking quashing of the order dated 27.03.2002 and directions to the AO to give effect to the Clarifications dated 09.11.1989 and 27.12 .2000.
7.1 The Tribunal, by its order dated 26.06.2002, while dismissing P. No. 476 of 2002, observed that when the latest Clarification dated 28.01.2002 was issued on the basis of view taken by the Tribunal and confirmed by the High Court, the assessee was not entitled to question the proceedings of AO on the basis of the Clarifications issued earlier. It was also observed that the rule applicable for tax on the bottles could be extended to casks and kegs too and, by exclusion of casks and kegs, the tax applicable on bottles alone cannot be set aside or withdrawn. The Tribunal further observed that the decision of the jurisdictional High Court in Associated Pharmaceutical Industries Private Ltd. v. The State of Tamil Nadu: (1986) 63 STC 316 was not applicable as the same was rendered prior to the amendment of Section 7- A(1)(a) of the Act by the Tamil Nadu Act No. 78 of 1986 effective from 01.01.1987; and with insertion of the word “use” by way of amendment, the meaning conveyed by the said section was different from the meaning conveyed earlier. Thus, while proceeding in tune with the Clarification dated 28.01.2002, the Tribunal refused to interfere with the order dated 27.03.2002.
8. Being aggrieved by the Tribunal’s order dated 26.06.2002, the assessee filed the writ petition, being P. No. 25081 of 2002, before Madras High Court, seeking a writ of certiorarified mandamus for quashing the proceedings in question while directing the AO to pass fresh orders giving effect to the Clarifications/Circulars dated 09.11.1989 and 27.12.2000. The writ petition so filed by the assessee has been considered and disposed of by the High Court by its impugned order dated 10.09.2004.
8.1 The following three questions were considered by the High Court in its impugned order dated 10.09.2004: –
“(i) 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. 24,78,20,465.00 is attracted for purchase tax under Section 7-A of the Tamil Nadu General Sales Tax Act (for brevity “the Act”)?;
(ii) Whether purchase tax is leviable on the purchase turnover of the empty bottles purchased by the petitioner Company to the extent of Rs. 24,78,20,465.00, under Section 7-A of the Act, in spite of the clarifications dated 11.1989 and 27.12.2000 issued in favour of the petitioner Company by the Special Commissioner of Commercial Taxes, Chennai, in view of Section 28A of the Act?; and
(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?”
8.2 After taking into consideration the rival contentions and exhaustively dealing with the case law on the subject, the High Court, by applying the law laid down by this Court in Premier Breweries (supra) and Assistant Commissioner (Intelligence) Nandanam Construction Co.: (1999) 115 STC 427; and with reference to the amended Section 7-A of the Act and the object of this provision as explained by this Court in the case of The State of Tamil Nadu v. M.K. Kandaswami and Ors.: (1975) 36 STC 191 i.e., to plug the leakage and prevent evasion of tax with respect to purchase of goods, rejected the contention of assessee that the turnover for the purchase of empty bottles did not attract levy of purchase tax under Section 7-A of the Act. The High Court held as follows:-
“7.6. Hence, applying the law laid down by the Apex Court in (i) PREMIER BREWERIES STATE OF KERALA, [1998] 108 STC 598; and (ii) ASSISTANT COMMISSIONER (INTELLIGENCE) v. NANDANAM CONSTRUCTION CO., [1999] 115 STC 427, which was followed by this Court in APPOLLO SALINE PHARMACEUTICALS (P) LTD., v. DEPUTY COMMERCIAL TAX OFFICER & ANOTHER, [2002] 125 STC 500, 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 & OTHERS, [1975] 36 STC 191, viz., 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 under Section 7-A of the Act.”
8.3 However, with respect to the second question, the High Court, inter alia, observed that the Clarification dated 27.12.2000 gained statutory force in view of Section 28-A of the Act, which was inserted by the amendment with effect from 06.11.1997. Further, while relying on various decisions including that of the Constitution Bench of this Court in the case of Collector of Central Excise, Vadodra v. Dhiren Chemical Industries : (2002) 126 STC 122, it was also observed that even though the Clarification dated 09.11.1989 was executive in nature, the same was binding on the authorities till the concessions given to the assessee under the Clarification were withdrawn prospectively with effect from 28.01.2002; and the revenue could not refuse the benefit of the Clarifications dated 9.11.1989 and 27.12.2000 in respect of purchase tax under Section 7-A of the Act for the assessment year 1996-97. The High Court answered this question in favour of the assessee as follows:-
“8.6.10. It is, therefore, clear that even though the clarification dated 9.11.1989 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 instance case, with effect from 28.1.2002, and the revenue could not refuse the benefit of the clarifications dated 9.11.1989 and 27.12.2000 in respect of levy of purchase tax under Section 7-A of the Act for the impugned assessment year 1996-97.
8.7. For all these reasons, 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 under Section 7-A of the Act, the petitioner is entitled for the benefit of the clarifications dated 9.11.1989 and 27.12.2000 till the same is withdrawn prospectively by the clarification dated 28.1.2002 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.”
8.4 Lastly, with respect to the third question, the High Court, while relying on various decisions including that of this Court in Neyveli Lignite Corporation v. Commercial Tax Officer, Cuddalore and Anr.: (2001) 124 STC 586, took the view that as per Explanation 2(iii) to Section 2(r) of the Act, cash or other discount on the price of goods sold cannot be included in the turnover for the levy of tax. Accordingly, this question was also answered in favour of the assessee and against the revenue as follows:-
“9.4. In NEYVELI LIGNITE CORPORATION LTD. v. C.T.O., [2001] 124 STC 586, it was held that it is that sale consideration, whether in cash or otherwise, which is receivable in respect of sales made by the dealer which can possibly form part of the turnover of a dealer.
9.5. From the law as enunciated from the decisions referred supra, 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.”
8.5 Therefore, the High Court, particularly in view of its answers to question Nos. (ii) and (iii) as above, allowed the writ petition filed by the assessee.
9. Being aggrieved by the order dated 10.09.2004 so passed by the High Court in P. 25081 of 2002, the revenue has filed the appeal by special leave, being Civil Appeal No. 7164 of 2013 questioning the grant of relief to the assessee. On the other hand, the assessee has also filed the appeal by special leave, being Civil Appeal No. 7165 of 2013, against this very order insofar as the High Court has decided the principal question relating to the applicability of Section 7-A of the Act against it.
Rival Submissions
The Assessee
10. As regards the question as to whether the purchase turnover of empty bottles purchased from unregistered dealers is exigible to purchase tax, the learned senior counsel for the assessee has submitted that the question of levy of purchase tax on this purchase turnover does not arise while making elaborate reference to the object and scheme of Section 7-A of the Tamil Nadu Act; to the process of bottling of Beer/IMLF after the same had been manufactured; and to the fact that the sale of liquor with bottles had only been to TASMAC within the State of Tamil Nadu with bottles being also taxed on such sales.
10.1 The learned senior counsel has referred to the history of insertion of Section 7-A to the Tamil Nadu Act w.e.f. 27.11.1969 and its various amendments from time to time with the submissions that the said provision was inserted with the main object to plug the leakage and to prevent evasion of tax. Further, with reference to the provisions contained in Section 7-A as applicable at the relevant time and sub-sections (1), (7) and (8) of Section 3 of the Act, the learned senior counsel has contended that the bottles were not disposed of “in any manner other than by way of sale in the State” but these were disposed of only by way of sale to TASMAC within the State of Tamil Nadu itself on payment of sales tax and hence, clause (b) of Section 7-A(1) does not apply. In support of these contentions, the learned senior counsel has relied upon the decision of this Court in the case of Hotel Balaji and Ors. State of Andhra Pradesh and Ors.: (1993) 88 STC 98, more particularly on the observations occurring in a few paragraphs of said decision in relation to the provisions contained in the Haryana General Sales Tax Act, 1973.9
10.1.1. The learned senior counsel has also contended that the revenue itself had accepted such factual and legal decision and has issued Clarifications/Circulars dated 11.1989 and 27.12.2000 realising that since the sale value of bottles is subject to tax at the time of sale of the contents, it has no liability to tax under Section 7-A of the Act.
10.2 Taking up clause (a) of sub-section (1) of Section 7-A of the Act, the learned senior counsel has submitted that the language used in the said clause (a) has been ‘consumes or uses such goods in the manufacture of other goods for sale or otherwise’. Thus, according to the learned counsel, what is to be seen is whether bottles were consumed or used in the manufacture of liquor; and as per the said language used in clause (a), it cannot apply to the present case either textually or contextually because Beer/IMFL was fully manufactured and such fully manufactured liquor was transferred to the bottling section; that bottles have got their own identity and they remained bottles at all stages, i.e., before being used for filling the liquor, after being used for this purpose, after liquor was consumed by the consumers, and even when these were cleaned and re-used by the assessee; and that the character and identity of bottles as bottles was never lost, they were capable of repeated use, and the assessee was cleaning and re-using such bottles. The learned senior counsel has referred to the Tamil Nadu Brewery Rules, 1983 and the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules, 1981 to submit that it is manufactured Beer/IMFL, which is filled in bottles in a separate bottling section and, so far as the manufacture of Beer/IMFL is concerned, the same had already taken place before bottling and hence, bottles are not ‘consumed or used in the manufacture’ of liquor for sale. The learned senior counsel has also referred to the decision of this Court in the case of State of Uttar Pradesh and Ors. v. Mohan Meakin Breweries Ltd. and Anr.: (2011) 13 SCC 588 to submit and re-emphasize that process of bottling commences only after completion of manufacturing of Beer when bulk Beer is transferred from the brewery for bottling; and manufacturing of liquor and putting manufactured commodity into bottles being two different processes, it cannot be said that the bottles have been consumed or used in manufacture of other goods.
10.2.1 The learned senior counsel has emphatically contended that in the process of manufacture, conversion of one commodity into a different commodity remains the essential element and if the identity of goods is not changed with irreversible process, manufacture would not be deemed to have taken place. In this regard, the learned counsel has referred to various decisions including those in Mafatlal Industries Ltd. Nadiad Nagar Palika and Anr.: (2000) 3 SCC 1, HMM Limited and Anr. v. Administrator, Bangalore City Corporation, Bangalore and Anr.: (1989) 4 SCC 640, Punjab Aromatics v. State of Kerala: (2008) 11 SCC 482, Collector of Central Excise, Bombay-II v. M/s. Kiran Spinning Mills: (1988) 2 SCC 348, Commissioner of Central Excise & Customs, Gujarat v. Pan Pipes Resplendents Ltd. : (2006) 1 SCC 777, Union of India v. Alembic Glass Industries Ltd.: (2010) 11 SCC 745, Ganesh Trading Co., Karnal v. State of Haryana and Anr.: (1973) 32 STC 623, Burmah Shell Oil Storage and Distributing Co. of India Ltd., Belgaum v. Belgaum Borough Municipality: AIR 1963 SC 906, and Kathiawar Industries Ltd. v. Jaffrabad Municipality: (1979) 4 SCC 56.
10.2.2 Again, with reference to the decision in Hotel Balaji (supra), the learned senior counsel would contend that the provisions as contained in the Haryana Act carried the same language i.e., ‘uses them in the State in the manufacture of goods’; and per the enunciation in the said decision, the provision for levy of purchase tax would apply only to those cases where the purchased goods ‘cease to exist as such goods for the reason that they are consumed in manufacture of different commodities’ or the purchased goods ‘are put to an end by their consumption in the manufacture of other goods’; and no such event having taken place where the goods in question (the bottles) had ceased to exist or had been put to an end by consumption in the manufacture of other goods, the question of levy of purchase tax does not arise.
10.2.3 The learned senior counsel has also submitted that during the period involved in the present case, i.e., from 01.04.1996 to 31.03.1997, the requirement for applicability of clause (a) of Section 7-A(1) was stated in the manner that dealer ‘consumes or uses such goods in the manufacture of other goods for sale or otherwise’; and the scope of clause (a) was subsequently widened w.e.f. 06.11.1997 when new clause (a) was substituted by the Tamil Nadu General Sales Tax (Sixth Amendment) Act 1997 to read as ‘consumes or uses such goods in or for the manufacture of other goods for sale or otherwise’ but, during the period relevant for the present case, the expression “or for” was not there in the statute. According to the learned counsel, when Beer/IMFL had already been manufactured before bottling, the bottles were neither consumed nor used in manufacture of the contents; and nothing turns upon the expressions “consumes” or “uses” inasmuch as in both the situations, such consumption or use was required to be ‘in the manufacture of other goods’, which is not the case here.
10.3 As regards the decisions referred to in the impugned orders, the learned senior counsel for the assessee has submitted that the said decisions do not operate against the contentions of the assessee.
10.3.1 The learned senior counsel would submit that in the case of K. Kandaswami (supra), this Court had only analysed the scheme of Section 7-A of the Act, as then existing, and had pointed out that the said provision was itself a charging provision. As regards the decision in the case of Nandanam Construction Co. (supra), the learned counsel would contend that therein, the respondent was purchasing goods such as sand and bricks which were consumed in the construction of flats and hence, this Court held that when the goods ceased to exist in the original form or ceased to be available in the State for sale or purchase, the purchasing dealer of such goods would be liable to tax, if the seller is not or cannot be taxed. The decision in Premium Breweries (supra), has been distinguished by the learned counsel with the submissions that therein, contention of the dealer was that the cardboard cartons, in which the liquor bottles were packed, may not be taxed at the higher rate applicable to the sale of liquor because cardboard cartons were sold separately but such a contention was not accepted by this Court. Thus, according to the learned counsel, for different fact situation and different question being involved, the said decision has no application to the present case.
10.3.2 As regards the decision of Madras High Court in the case of Appollo Saline Pharmaceuticals (supra), the learned senior counsel has strenuously argued that the said decision is not correct in law and is even otherwise distinguishable. The learned counsel has pointed out that the goods in question in the said decision were the bottles carrying ‘intravenous fluid’10 which had different role in the process of manufacture of V. fluid as also in the peculiar process of intravenous route of administration, where the fluid is given from a bag connected to a thin tube inserted into the veins; and it is important to keep a check on the rate of flow and delivery by continuous monitoring. The learned counsel would submit that by its very nature, where the manufacture of I.V. fluid requires its particular packing, the said packing does not retain its identity and becomes a part of the composite unit called I.V. fluid; that packing of I.V. fluid in bottle is one time packing and after I.V. fluid is taken out, the packing becomes useless and is discarded; and that in the said decision itself, the entire I.V. fluid contained in bottle was considered to be a composite unit, which is not the case in relation to the bottles used as container of Beer/IMFL. The learned senior counsel has further submitted that the phraseology considered in the matter of Appollo Saline Pharmaceuticals (supra) was ‘in or for the manufacture’, which was the position obtainable after the amendment of Section 7-A of the Act w.e.f. 06.11.1997 whereby, the expression “or for” was inserted in clause (a) thereof but, that was not the position during the period involved in the present case. The learned counsel has also submitted that in the said matter, the High Court did not even consider the relevant decisions of this Court wherein the relevant expressions have been considered and interpreted by this Court including that in the case of Hotel Balaji (supra) wherein, according to the learned counsel, this Court had considered the provisions of Haryana Act which are in pari materia with the provisions of the Tamil Nadu Act in relation to the levy of purchase tax. The learned counsel has further submitted that in Appollo Saline Pharmaceuticals (supra), reference was only made to decision of this Court in the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur and Ors.: (1965) 16 STC 563 though the issue involved in the said matter was completely different and related to categories of goods to be included in the registration certificate which has no co-relation with levy of purchase tax, particularly in view of the language used in Section 7-A(1) (a) of the Act.
11. As regards the Clarifications/Circulars, the learned senior counsel has referred to the contents of the Clarifications dated 09.11.1989 and 27.12.2000 and has made the submissions that in the assessee’s own case, after examining the relevant facts and legal position, the revenue had specifically clarified that since the sale value of bottles is subject to tax at the time of sale of the contents, it had no liability to tax under Section 7-A of the Act; and such clarifications remain binding on the revenue, as rightly held by the High Court.
11.1 Further, with reference to the decisions of this Court in the cases of Commissioner of Income Tax, Kochi Trans Asian Shipping Services (P) Ltd.: (2016) 8 SCC 604, Signode India Ltd. v. Commissioner of Central Excise & Customs-II: (2017) 4 SCC 613, State of Tamil Nadu and Anr. v. India Cements Limited and Anr.: (2011) 13 SCC 247 and Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries: (2008) 13 SCC 1, the learned senior counsel has submitted that the law remains settled that the Circular granting benefit to the assessee is binding on the department. Thus, according to the learned counsel, the High Court has rightly applied the principles of such decisions while holding that the benefit of Clarifications dated 09.11.1989 and 27.12.2000 cannot be denied to the assessee.
11.2 While making reference to the Clarification dated 28.01.2002, which was issued after the Tribunal’s decision in the case of Appollo Saline Pharmaceuticals, the learned senior counsel has contended that therein, the earlier Clarification dated 27.12.2000, clarifying that in the facts and circumstances of the present case, no purchase tax was payable under Section 7-A of the Act, was neither withdrawn nor cancelled and on the other hand, the expression used in the new Clarification, of modification, makes it clear that the new one was made effective only prospectively and hence, cannot apply for the period in question. In this regard too, the learned senior counsel has referred to and relied upon various decisions including those in H.M. Bags Manufacturer v. CCE: 1997 (94) ELT 3 and Commissioner of Customs, Mumbai v. Ashish Bajpai: 2007 (217) ELT 163.
The revenue
12. The learned Additional Advocate General appearing for the revenue has countered the submissions made on behalf of the assessee while again making elaborate reference to the object and scheme of Section 7-A of the Tamil Nadu Act as also its interpretation and application in various decisions.
12.1 It has been argued on behalf of the revenue that the amendment to Section 7-A of the Act and addition of the words “or uses” in clause (a) thereof had broaden the scope of this provision as also the jurisdiction of assessing authorities to levy purchase tax on any commodity, which had not suffered tax earlier and which has been used in the process of manufacturing any good to be sold. Therefore, the assessee is liable to pay purchase tax under Section 7- A of the Act because the bottles purchased from unregistered dealers were not taxed at the purchase point and charging of such purchase tax does not amount to double
12.2 The learned AAG has referred to the decision in K. Kandaswami (supra) to submit that therein, this Court has made it clear that Section 7-A of the Act is a charging section and has explained that Section 7-A of the Act deals with “taxable goods”, that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of seller but purchase of the same by a dealer in the course of his business may subsequently become taxable. Thus, Section 7-A of the Act creates a liability against a dealer on his purchase turnover of goods, the sale or purchase of which though generally liable to tax under the Act, have not suffered tax and which, after the purchase, have been dealt by him in any of the modes indicated in Section 7-A(1). The learned AAG has further argued, with reference to the decision in Premier Breweries (supra), that the calculation of taxable turnover cannot be accomplished without taking into consideration the purchase tax on the goods purchased; and this Court has held that the packed goods have to be seen as one whole for the purpose of calculating the turnover of the goods.
12.3 While relying on the decision of the High Court in Appollo Saline Pharmaceuticals (supra), the learned AAG has pointed out that therein, the Court has held that the turnover of bottles would be part of the turnover of the I.V. fluid because the bottles were not sold individually but as a composite unit of I.V. fluid packed in bottles. It has been contended that on similar lines and analogy, packaging of Beer/IMFL in glass bottles has to be seen as an inseparable composite unit, particularly when the containers are needed to make the goods marketable. Reference has also been made to the decision of this Court in J.K. Cotton (supra) wherein, it was held that the expression “in the manufacture of goods” in sub-section 8(3)(b) of the Central Sales Tax Act should encompass the entire process carried on by the dealer of converting raw materials into finished goods. It has also been contended that levy of sales tax on the bottles sold with liquor has no bearing on the question of levy of purchase tax because such sales tax on bottles was leviable even if the bottles were purchased from registered dealers or in any other manner after payment of tax.
12.4 Further, while placing reliance on the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules, 1981 the learned AAG has submitted that the use of bottle is imperative in the manufacture of Beer/IMFL as per the rules and guidelines because the product needs resting and proper storing before it is fit to be sold. In regard to Beer bottle, several of its unique characteristics have been recounted on behalf of revenue to submit that the same would identify it only as Beer bottle and nothing else, for example, (i) the thickness of the glass used in the Beer bottle; (ii) the colour of the glass of the bottle, which is a quality attached to specific brands; (iii) the grooves on the neck of the bottle, which are made only for an aluminium cap and not for any other covering, thereby making the bottle fit only for refilling of Beer; and (iv) the length, width, breadth, etc. of the bottle, which is specific to every Beer brand.
12.5 The learned AAG for revenue has further relied upon the interpretation of Section 6-A(ii)(a) of the Andhra Pradesh General Sales Tax Act, 195711 by the Constitution Bench of this Court in the case of Nandanam Construction Co. (supra) with the submissions that the said provision has been in pari materia with Section 7-A(1)(a) of the Tamil Nadu Act and this Court held that, when the goods cease to exist in the original form or cease to be available in the State for sale or purchase, the purchasing dealer of such goods is liable to tax if the seller is not or cannot be taxed. The learned AAG has further relied upon the interpretation and application of Section 7 of the Madhya Pradesh General Sales Tax Act, 195912 by this Court in the case of Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh: (1969) 24 STC 343 with the submissions that the said provision has also been in pari materia with Section 7-A(1)(a) of the Tamil Nadu Act and this Court held that the assessees were registered as dealers and when they had purchased taxable building materials in the course of their business for manufacturing goods for sale, purchase tax was payable by them.
13. As regards the questions relating to the Clarifications/Circulars, the learned AAG has submitted that Section 28-A of the Act empowering the Commissioner of Commercial Taxes to issue clarifications came into effect from 11.1997 and hence, during the relevant assessment year i.e. 1996-97, there was no statutory provision in the Act empowering the Commissioner to issue the clarification. Thus, according to the learned AAG, the earlier Clarification dated 09.11.1989 was reduced to a mere administrative circular which had no binding force on a Quasi-judicial Authority or a Court of Law and as a consequence, the Clarification dated 27.12.2000, which was issued in continuity with the earlier Clarification dated 09.11.1989, cannot be made applicable for the assessment year 1996-97.
13.1 The learned AAG has also relied upon the Constitution Bench decision in Ratan Melting & Wire Industries (supra) with the submission that while dealing with any matter, the Courts can declare law, fill any gaps in legislation or give an interpretation to an already existing law; and the law so declared remains binding on all. Insofar as this matter is concerned, according to the learned AAG, the law came to be declared by this Court in Premier Breweries (supra) that the packed goods have to be seen as one whole for the purpose of calculating the turnover; and on similar lines, in Appollo Saline Pharmaceuticals (supra), the High Court held that an assessee paying purchase tax will not suffer any additional burden because any other manufacturer who had bought the bottles from registered dealers would also be including their cost in the turnover of final goods.
13.2 According to the learned AAG, a natural development of the decisions by the Courts had been that the Clarifications dated 11.1989 and 27.11.2000 became contrary to the law declared; and it had been in this background that the Clarification dated 28.01.2002 came to be issued. The learned AAG would submit that the interpretation given by the High Court of Madras in Appollo Saline Pharmaceuticals (supra), which is in line with the law declared by this Court in Premier Breweries (supra), gave clarity to the application of Section 7-A of the Act and hence, to give effect to the real meaning of Section 7-A of the Act, the Clarification dated 28.01.2002 ought to be considered applicable because the law as declared would apply across the board and not only prospectively.
14. We may notice another ground taken by the revenue in the petition seeking leave to appeal that the High Court has erred in holding that the so- called ‘cash discount’ falls under the ambit of Explanation (2)(iii) of Section 2(r) of the Act and therefore, exemption is to be allowed thereupon.
The Points for Determination
15. In comprehension of what has been noticed hereinabove, the principal point calling for determination in these appeals is as to whether 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 second point, co-related with the principal one, is on the operation and effect of the Clarifications/Circulars dated 11.1989, 27.12.2000 and 28.01.2002 as issued by the department. Another point arising out of the impugned order dated 10.09.2004 is as to whether cash discount on the price offered by the assessee to the TASMAC is taxable in view of Explanation 2(iii) to Section 2(r) of the Act?
The Principal Point: Purchase Tax under S. 7-A of the Act over the Turnover in Question
16. Taking up the principal point for determination, we may usefully put in a nutshell the major aspects of the rival contentions. It is asserted on behalf of the assessee that purchase tax on the turnover in question is not leviable for two main reasons: One, that the bottles in question had not been consumed or used in the manufacture of liquor and they were only used as containers in which already manufactured liquor was bottled for carrying and sale; and secondly, the sale value of bottles has been subjected to tax at the time of sale of its contents and therefore, there could arise no question of levy of purchase tax on these very bottles, which are meant for repeated use. Per contra, it is contended on behalf of the revenue that use of bottles is imperative in the manufacture of Beer/IMFL and their packaging in glass bottles has to be seen as an inseparable composite unit; and that levy of sales tax on the bottles sold with liquor has no bearing on the question at hand because such sales tax on bottles was leviable even if the bottles were purchased after payment of tax.
Statutory Provisions
17. Having regard to the subject-matter and the questions involved, appropriate it would be to take note of the relevant statutory provisions in the Tamil Nadu Act.
17.1 Sub-sections (1), (7) and (8) of Section 3 of the Tamil Nadu Act, being the principal charging provision for levy of sales tax, read at the relevant time as under:-
“3. Levy of taxes on sales or purchases of goods
(1) Every dealer (other than a casual trader or agent of a non- resident dealer) whose total turnover for a year exceeds three lakhs of rupees and every casual trader or agent of a non- resident dealer, whatever be his turnover for the year, shall pay a tax for each year in accordance with the provisions of this Act.
*** *** ***
(7) Notwithstanding anything contained in sub-sections (2), (2A), (2B) or (3) but subject to sub-sections (1) and (8), where goods are sold or purchased together with the containers or packing materials the turnover of such goods shall include the price, cost or value of such containers or packing materials, and the packing charges, whether such price, cost or value or packing charges, are charged separately or not, and tax shall be levied thereon at the rate applicable to the goods contained or packed as if such containers or packing materials were the parts of the goods sold or purchased.
(8) Where the sale or purchase of goods contained in any container or packed in any packing material is exempt from tax at the hands of the dealer, then the price, cost or value of such container or packing material and the charges for packing forming part of the turnover of the goods under sub-section (7) shall not be liable to
Explanation: For the purposes of sub-sections (7) and (8), “containers” includes gunny bags, tins, bottles or any other containers.”
17.2 As noticed, Section 7-A was inserted in the Tamil Nadu Act with effect from 11.1969. This provision has undergone several amendments from time to time but, for the present purpose, its sub-section (1), as examined by this Court in the judgment dated 15.07.1975 in the case of M.K. Kandaswami (supra) and then, as applicable to the present case pertaining to the assessment year 1996-97, may be noticed.
17.2.1 The relevant part of the provision contained in Section 7-A (1) of the Act, as interpreted in the case of K. Kandaswami (supra), was as under (at p. 195 of STC):-
“Section 7-A. Levy of purchase tax:
(1) Every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under sections 3, 4 or 5, as the case may be, and either,—
(a) consumes such goods in the manufacture of other goods for sale or otherwise; or
(b) disposes of such goods in any manner other than by way of sale in the State; or
(c) despatches 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,
shall pay tax on the turnover relating to the purchase aforesaid at the rate mentioned in sections 3, 4 or 5 as the case may be whatever be the quantum of such turnover in a year:
Provided that a dealer (other than a casual trader or agent of a non-resident dealer) purchasing goods (the sale of which is liable to tax under sub-section (1) of section 3) shall not be liable to pay tax under this sub-section, if his total turnover for a year is less than twenty-five thousand rupees.
*** *** ***”
17.2.2 A few significant amendments were made to the provision aforesaid by Tamil Nadu Act 78 of 1986 with effect from 01.01.1987 whereby, amongst other changes, the dimensions of its applicability were modified in the principal part and then, a significant change was made in clause (a) where, after the word “consumes”, the words “or uses” were inserted. Then, some further amendments were made to this provision by Tamil Nadu Act No. 25 of 1993 with effect from 12.03.1993. With such amendments and modifications, Section 7-A (1) of the Act, as applicable to the present case, has been as under:-
“Section 7-A. Levy of purchase tax:
(1) Subject to the provisions of sub-section (1) of section 3, every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods, (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under sections 3 or 4, as the case may be, not being a circumstance in which goods liable to tax under sub-section (2) of section 3 or section 4, were purchased at a point other than the taxable point specified in the First or the Second Schedule and either,
(a) consumes or uses such goods in the manufacture of other goods for sale or otherwise; or
(b) disposes of such goods in any manner other than by way of sale in the State; or
(c) despatches or carries 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, shall pay tax on the turnover relating to the purchase as aforesaid at the rate mentioned in sections 3 or 4, as the case may be.”
17.2.3 Another aspect of amendment to the provision aforesaid by Tamil Nadu Act 60 of 1997 w.e.f. 06.11.1997 may also be taken note of with a caveat that this amendment is not directly applicable to the present case pertaining to the assessment year 1996-97 but has its relevance in relation to one limb of submissions made before us. By this amendment, in clause (a) of Section 7-A (1) of the Act, after the expression “in”, the words “or for” were inserted, resulting in further widening of the area of coverage of this provision.
17.3 For its relevance, we may extract in juxtaposition the progression of this clause (a) of Section 7-A (1) of the Act e., as originally enacted; as applicable to the present case after its amendment w.e.f. 01.01.1987; and as amended further w.e.f. 06.11.1997 as follows:-
