The Commercial Tax Officer & Anr. vs Mohan Breweries and Distilleries Limited

*as corrected to the extent as per order dated 11/04/2022 in Miscellaneous Application No. 608/2022 in Civil Appeal No. 7164/2013 by a two Judge Bench comprising of Hon’ble Mr. Justice A.M. Khanwilkar and Hon’ble Mr. Abhay S. Oka. were used by the assessee in such a manner that they were no longer available for sale in the form they were purchased from unregistered dealers – That being the position, the bottles have indeed been ‘used otherwise’ by the assessee – Therefore, the activity of assessee in relation to the bottles in question is clearly covered by element (iv) of Clause (a) of sub-s. (1) of s.7-A of the Act and making it exigible to purchase tax – As far as benefit of Clarifications dated 09.11.1989 and 27.12.2000 are concerned, the Constitution Bench in Ratan Melting & Wire Industries held that no direction can be issued to enforce a Clarification or Circular contrary to the declaration of law by the Courts – Thus, the High Court after having found that purchase tax was leviable on the turnover in question u/s. 7-A of the Act, could not have issued directions for benefit with reference to the Clarifications/ Circulars dated 09.11.1989 and 27.12.2000, particularly when such Clarifications/ circulars do not stand in conformity with the statutory provisions and its interpretation by the Courts – Hence, the order of the High Court as regards the operation and effect of Clarifications/Circulars dated 09.11.1989 and 27.12.2000, cannot be approved.

Tamil Nadu General Sales Tax Act, 1959 – Taxability of Cash discount on price – The assessee is engaged in the business of manufacture of Beer and IMFL and for the said purpose purchased empty bottles from unregistered dealers – The Assessing Officer disallowed the exemption on cash discount allowed by the assessee to Tamil Nadu State Marketing Corporation Limited and levied tax on the said cash discount – The assessee submitted that any cash or other discount on the price of goods sold cannot be included in the turnover for the levy of tax – The High Court relying on the decision in Neyveli Lignite Corporation Ltd. took the view that as per Explanation 2(iii) to s.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 and accordingly allowed in favour of the assessee and against the revenue – Held: The issue has rightly been decided by the High Court in favour of the assessee.

Words and Phrases – ‘Consume’, ‘use’, ‘manufacture’, ‘in’ and ‘otherwise’ – discussed.

Doctrines/Principles – Doctrine of pari materia – discussed. Partly allowing C.A. No.7164 of 2013 and dismissing C.A. No. 7165 of 2013 and C.A. No. 4416-4419 of 2014, the Court

HELD: 1. When the principles laid down by the Constitution Bench in Nandanam Construction Co. coupled with the approved interpretation in Ganesh Prasad Dixit are read with the analysis in M.K. Kandaswami and are applied to the amended Section 7-A of the Tamil Nadu General Sales Tax Act, 1959 with which this Court is concerned in present case, the end-product of synthesis is that the expression “or otherwise” qualifies, and provides alternative to, the action of “manufacture”; and therefore, consumption of the goods in question for manufacture or otherwise as also use of the goods in question for manufacture or otherwise are the acts/actions covered under clause (a) of subsection (1) of Section 7-A of the Tamil Nadu Act. [Para 34] [921-F-G]

2. In other words, when the principles laid down by the Constitution Bench in Nandanam Construction Co. are applied to the phraseology of clause (a) of sub-section (1) of Section 7-A of the Tamil Nadu Act, four eventualities are covered thereunder, with reference to the treatment of the goods in question (which had been purchased by the dealer in the circumstances where sales tax had not been paid at the time of their purchase), viz., (i) when they are consumed in manufacture of other goods for sale; or (ii) when they are consumed otherwise; or (iii) when they are used in manufacture of other goods for sale; or (iv) when they are used otherwise. [Para 34.1][922-A-C]

3. It remains hardly a matter of doubt that so far the empty bottles are concerned, even after being filled with liquor, they remain bottles only, retaining their original elements including shape, size and character. They are not “consumed” at all; and there arise no question of they being “consumed in the manufacture”. Therefore, this Court has no hesitation in accepting the submissions of assessee that the bottles in question have not been consumed in manufacture of other goods for sale. [Para 44][932-D-E]

4. In continuity with the above, this Court is also inclined to accept the submission of the assessee that the empty bottles have not even been “used” in manufacture. This is for the reason that for operation and application of the phrase “uses in manufacture”, it has to be shown that the bottles in question have been deployed as a means of achieving the purpose of manufacture. As noticed, the phrase “manufacture of other goods for sale”, in the present case, refers to the goods manufactured by the assessee, i.e., Beer/IMFL; and, in fact, use of the bottles in question comes up in the activity of the assessee only after manufacture of liquor (Beer/IMFL) has already been accomplished by brewing or distillation. Needless to reiterate that in relation to the activity of assessee, the action of bottling is a separate process and is undertaken only after the process of manufacture by way of brewing or distillation is complete. Thus understood, it is clear that the goods in question (empty bottles) cannot be said to have been “used” in manufacture. [Para 44.1][932-F-H]

5. For what has been discussed hereinabove, this Court has 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. [Para 45][933-A]

6. As already noticed, consumption requires the thing in question being exhausted or ceasing to exist for being used up. The bottles in question, even when used as containers of the liquor manufactured by the assessee, had neither been exhausted nor had ceased to exist; they have rather continued to exist while retaining their basic identity and character as bottles. Of course, they (empty bottles) had been filled up with liquor but such filling up has not resulted in the bottles themselves being used up. Hence, the activity in question does not fall within the ambit of element (ii). However, the very same logic does not apply to element (iv) because it cannot be said that the bottles in question have not been “used otherwise”. [Para 49.1][936-E-F]

7. As noticed, the expression “use” is of wide amplitude and it refers to the usage or engagement of an article for the accomplishment of a purpose irrespective of whether the article itself undergoes a visible change or not. The fact that the bottles in question have indeed been used by the assessee in its overall activity of manufacture and sale of liquor is clear from the fact that the manufacture of liquor by the process of brewing or distillation did not conclude the activity of the assessee. Undoubtedly, for the sale of such manufactured liquor to TASMAC, the assessee was required to put the same into the bottles; and the sale by assessee could have taken place only after such bottling of the liquor. The assessee has, indisputably, undertaken this process of bottling by the use of the goods in question, i.e., the empty bottles purchased from unregistered dealers. Hence, it is but apparent that the goods in question (empty bottles) have been used by the assessee, and for that matter, have been used for an activity closely connected and co-related with the main activity of manufacture of liquor as also as necessary ingredient of the end-purpose of sale of liquor. Significantly, after such use for bottling, the goods in question (empty bottles) did not remain available for sale in the form in which they were purchased by the assessee. [Para 49.2][936-G-H; 937-A-B]

8. In other words, the process of bottling with the use of bottles in question has been an unalienable part of the complete chain of processes that the assessee was obliged to undertake for its business, i.e., manufacturing and selling the liquor. By this process, the bottles in question were used by the assessee in such a manner that they were no longer available for sale in the form they were purchased from unregistered dealers. That being the position, the bottles in question have indeed been “used otherwise” by the assessee. The assessee cannot avoid operation of the words “or otherwise” so far use of the bottles is concerned by merely establishing that they have not been consumed in manufacture or otherwise and further that they have not been used in manufacture. Even when these three elements viz., “consumed in manufacture”; “consumed otherwise”; and “used in manufacture” do not exist as regards the bottles in question in the business activity of the assessee, it is but apparent the activity of the assessee clearly entails the use of bottles for the purpose of bottling and sale of liquor manufactured by it. This activity clearly takes the bottles in question within the fourth element i.e., “used otherwise”. [Para 49.3][937-C-F]

9. Hence, though the bottles in question have not been “consumed otherwise”, they have indeed been “used otherwise”; and therefore, the activity of assessee in relation to the bottles in question is clearly covered by element (iv) of clause (a) of subsection (1) of Section 7-A of the Act. [Para 49.4][937-G]

10. To summarise the discussion aforesaid and to put views of this Court in a nutshell, the goods in question (empty bottles) have not been consumed in the manufacture of other goods for sale nor they have been consumed otherwise because of having retained their identity. They have also not been used in the manufacture of other goods for sale because manufacture of Beer/IMFL was complete without their use. However, they have been used for bottling and when bottling remains an integral part of the business activity of the assessee, i.e., of manufacturing the liquor by the process of brewing/distillation and then, selling the manufactured liquor by putting the same in bottles, they have been “used otherwise”. That being the position, use of the goods in question for bottling takes the turnover of their purchase within the net of Section 7-A of the Act. [Para 50][937-H; 938-A-B]

11. To put it more simply, if we read clause (a) of subsection (1) of Section 7-A of the Act sliced down to the elements “uses in manufacture or otherwise”, it is clear that the goods in question (empty bottles) have been used for bottling, which use, even if not for manufacture, had been a use otherwise which has been closely connected with the business of the assessee and whereby the bottles in question did not remain available for sale in the form in which they were purchased. This is the plain and clear operation of the dictum of Constitution Bench in the case of Nandanam Construction Co.. Hence, applicability of Section 7A of the Act is complete and remains beyond the realm of doubt. [Para 50.1][938-C-D]

12. As noticed, the High Court in its impugned order dated 10.09.2004 did reach to the conclusion that purchase tax was leviable on the purchase turnover of the empty bottles but found the assessee entitled to the benefit of Clarifications/Circulars issued by the revenue on 09.11.1989 and 27.12.2000. The revenue has questioned this part of the order of the High Court. In order to examine the rival contentions in this regard and the correctness of proposition adopted by the High Court, this Court may take note of the statutory provision in the Tamil Nadu Act on the power of the Commissioner of Commercial Taxes to issue clarification as also the particular Clarifications/Circulars relevant to the present case. [Para 54][942-C-E]

13. In view of the pronouncement by the Constitution Bench of this Court in Ratan Melting & Wire Industries, there remains hardly any doubt on the principles that Clarifications/Circulars/Instructions issued by the competent authority are binding on the authorities under the respective statutes but so far as declaration of law in regard to any particular statutory provision is concerned, the view expressed in the binding decision of this Court or the High Court is to be given effect to; and no direction can be issued to enforce a clarification or circular contrary to the declaration of law by the Courts. [Para 58][948-H; 949-A-B]

14. In the aforesaid view of matter, the High Court, after having found that purchase tax was leviable on the turnover in question under Section 7-A of the Act, could not have issued directions for any benefit to the assessee with reference to the Clarifications/Circulars dated 09.11.1989 and 27.12.2000, particularly when such Clarifications/Circulars do not stand in conformity with the statutory provision and its interpretation by the Courts. [Para 62][951-D-E]

Assistant Commissioner (Intelligence) v. Nandanam Construction Co. (1999) 115 STC 427; Burmah Shell Oil Storage and Distributing Co. of India Ltd., Belgaum v. Belgaum Borough Municipality AIR 1963 SC 906 : [1963] Suppl. SCR 216; Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries (2008) 13 SCC 1 : [2008] 14 SCR 653 – followed. Ahmedabad (P) Primary Teachers’ Assn. v.

Administrative Officer: (2004) 1 SCC 755 : [2004] 1 SCR 470; The State of Tamil Nadu v. M.K. Kandaswami and Ors. (1975) 36 STC 191; Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh (1969)

24 STC 343; Collector of Central Excise, Bombay-II v. M/s. Kiran Spinning Mills (1988) 2 SCC 348 : [1988]

2 SCR 1006; Commissioner of Central Excise &

Customs, Gujarat v. Pan Pipes Resplendents Ltd. (2006)

1 SCC 777; Smt. Lila Vati Bai v. State of Bombay AIR 1957 SC 521 : [1957] SCR 721– relied on.

Raj Sheel & Ors. v. State of Andhra Pradesh & Ors. (1989) 74 STC 379; Appollo Saline Pharmaceuticals (P) Limited v. State of Tamil Nadu (2000) 120 STC 493; Appollo Saline Pharmaceuticals (P) Limited v. Deputy Commercial Tax Officer and Anr. (2002) 125 STC 500; Premier Breweries v. State of Kerala (1998) 108 STC 598; Associated Pharmaceutical Industries Private Ltd. v. The State of Tamil Nadu (1986) 63 STC 316; Collector of Central Excise, Vadodra v. Dhiren Chemical Industries (2002) 126 STC 122; Neyveli Lignite Corporation Ltd. v. Commercial Tax Officer, Cuddalore and Anr. (2001) 124 STC 586; Hotel Balaji and Ors. v. State of Andhra Pradesh and Ors. (1993) 88 STC 98; State of Uttar Pradesh and Ors. v. Mohan Meakin Breweries Ltd and Anr. (2011) 13 SCC 588 : [2011] 14 SCR 98; Mafatlal Industries Ltd. v. Nadiad Nagar Palika and Anr. (2000) 3 SCC 1 : [2000] 2 SCR 52; HMM Limited and Anr. v. Administrator, Bangalore City Corporation, Bangalore and Anr. (1989) 4 SCC 640 : [1989] 1 Suppl. SCR 353; Punjab Aromatics v. State of Kerala (2008) 11 SCC 482 : [2008] 7 SCR 235; 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; Kathiawar Industries Ltd. v. Jaffrabad Municipality (1979) 4 SCC 56 : [1980] 1 SCR 243; J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur and Ors. (1965) 16 STC 563; Commissioner of Income Tax, Kochi v. Trans Asian Shipping Services (P) Ltd. (2016) 8 SCC 604 : [2016] 3 SCR 337; Signode India Ltd. v. Commissioner of Central Excise & Customs-II (2017) 4 SCC 613 : [2017] 6 SCR 997; State of Tamil Nadu and Anr. v. India Cements Limited and Anr. (2011) 13 SCC 247 : [2011]

7 SCR 395; H.M. Bags Manufacturer v. CCE 1997 (94) ELT 3; Commissioner of Customs, Mumbai v. Ashish Bajpai 2007 (217) ELT 163; CST v. Pio Food Packers (1980) Suppl. SCC 174 : [1980] 3 SCR 1271; CST v. Thomas Stephen & Co. Ltd. (1988) 2 SCC 264 : [1988]

3 SCR 248; S. Prakash Rao and Anr. v. Commissioner of Commercial Taxes and Ors. (1990) 2 SCC 259; George Da Costa v. Controller of Estate Duty Mysore AIR 1967 SC 849; Western India Plywood Ltd. v. P. Ashokan (1997) 7 SCC 638 : [1997] 4 Suppl. SCR 180; Appollo Saline Pharmaceuticals (P) Limited v. State of Tamil Nadu (2000) 120 STC 493; Kalyani Packaging Industries v. Union of India (2004) 6 SCC 719 – referred to.