THE COMMERCIAL TAX OFFICER & ANR. versus MOHAN BREWERIES AND DISTILLERIES LIMITED on 29 June 2020

[2020] 6 S.C.R. 865

THE COMMERCIAL TAX OFFICER & ANR.

v.

MOHAN BREWERIES AND DISTILLERIES LIMITED

(Civil Appeal No. 7164 of 2013)

JUNE 29, 2020*

[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]

Tamil Nadu General Sales Tax Act, 1959 – s.7-A – The assesseeis engaged in the business of manufacture of Beer and IMFLproducts – For the purpose of the said business of manufacture ofBeer and IMFL, the assessee purchased empty bottles fromunregistered dealers situated outside the State as well as from non-dealers – The High Court held that the purchase of empty bottlesfrom unregistered dealers is exigible to purchase tax u/s.7-A of the1959 Act but, the assessee is entitled for the benefit of Clarificationsdated 09.11.1989 and 27.12.2000 issued by the revenue till thesame were withdrawn prospectively by the Clarification dated28.01.2002 – Held: When the principles laid down by theConstitutional Bench in Nandanam Construction Co. are appliedto the phraseology of Clause (a) of sub-s. (1) of s.7-A of the 1959Act, four eventualities are covered thereunder, with reference to thetreatment of goods in question viz., (i) when they are consumed inmanufacture of other goods for sale; or (ii) when they are consumedotherwise; or (iii) when they are used in manufacture of other goodsfor sale; or (iv) when they are used otherwise – The bottles inquestion have neither been consumed in manufacture of Beer/IMFLnor they could be said to have been used in such manufacture ofBeer/IMFL, hence elements (i) and (iii) does not exist – The emptybottles are filled up with liquor but such filling up has not resultedin the bottles themselves being used up and bottles have retainedtheir basic identity, hence the activity in question does not fall withinthe ambit of element (ii) – Insofar as (iv) element ‘when they areused otherwise’ is concerned, the process of bottling with the use ofbottles was the unalienable part of the complete chain of processesthat the assessee was obliged to undertake for its business i.e.manufacturing and selling the liquor – By this process, the bottles *as corrected to the extent as per order dated 11/04/2022 in Miscellaneous ApplicationNo. 608/2022 in Civil Appeal No. 7164/2013 by a two Judge Bench comprising ofHon’ble Mr. Justice A.M. Khanwilkar and Hon’ble Mr. Abhay S. Oka.

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Awere used by the assessee in such a manner that they were no longeravailable for sale in the form they were purchased from unregistereddealers – That being the position, the bottles have indeed been ‘usedotherwise’ by the assessee – Therefore, the activity of assessee inrelation 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 exigibleBto purchase tax – As far as benefit of Clarifications dated 09.11.1989and 27.12.2000 are concerned, the Constitution Bench in RatanMelting & Wire Industries held that no direction can be issued toenforce a Clarification or Circular contrary to the declaration oflaw by the Courts – Thus, the High Court after having found thatCpurchase tax was leviable on the turnover in question u/s. 7-A ofthe Act, could not have issued directions for benefit with referenceto the Clarifications/ Circulars dated 09.11.1989 and 27.12.2000,particularly when such Clarifications/ circulars do not stand inconformity with the statutory provisions and its interpretation bythe Courts – Hence, the order of the High Court as regards theDoperation and effect of Clarifications/Circulars dated 09.11.1989and 27.12.2000, cannot be approved.

Conclusion

Tamil Nadu General Sales Tax Act, 1959 – Taxability of Cashdiscount on price – The assessee is engaged in the business ofmanufacture of Beer and IMFL and for the said purpose purchasedEempty bottles from unregistered dealers – The Assessing Officerdisallowed the exemption on cash discount allowed by the assesseeto Tamil Nadu State Marketing Corporation Limited and levied taxon the said cash discount – The assessee submitted that any cash orother discount on the price of goods sold cannot be included in theFturnover for the levy of tax – The High Court relying on the decisionin Neyveli Lignite Corporation Ltd. took the view that as perExplanation 2(iii) to s.2(r) of the Act, cash or other discount on theprice of goods sold cannot be included in the turnover for the levyof tax and accordingly allowed in favour of the assessee and againstthe revenue – Held: The issue has rightly been decided by the HighGCourt in favour of the assessee.

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

Doctrines/Principles – Doctrine of pari materia – discussed.

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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 ConstitutionBench in Nandanam Construction Co. coupled with the approvedinterpretation in Ganesh Prasad Dixit are read with the analysisin M.K. Kandaswami and are applied to the amended Section 7-Aof the Tamil Nadu General Sales Tax Act, 1959 with which thisCourt is concerned in present case, the end-product of synthesisis that the expression “or otherwise” qualifies, and providesalternative to, the action of “manufacture”; and therefore,consumption of the goods in question for manufacture orotherwise as also use of the goods in question for manufacture orotherwise are the acts/actions covered under clause (a) of sub-section (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 theConstitution Bench in Nandanam Construction Co. are applied tothe phraseology of clause (a) of sub-section (1) of Section 7-A ofthe Tamil Nadu Act, four eventualities are covered thereunder,with reference to the treatment of the goods in question (whichhad been purchased by the dealer in the circumstances wheresales 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 areused in manufacture of other goods for sale; or (iv) when theyare used otherwise. [Para 34.1][922-A-C]

3. It remains hardly a matter of doubt that so far the emptybottles are concerned, even after being filled with liquor, theyremain bottles only, retaining their original elements includingshape, size and character. They are not “consumed” at all; andthere arise no question of they being “consumed in themanufacture”. Therefore, this Court has no hesitation in acceptingthe submissions of assessee that the bottles in question havenot been consumed in manufacture of other goods for sale. [Para44][932-D-E]

4. In continuity with the above, this Court is also inclinedto accept the submission of the assessee that the empty bottles

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Ahave not even been “used” in manufacture. This is for the reasonthat for operation and application of the phrase “uses inmanufacture”, it has to be shown that the bottles in question havebeen deployed as a means of achieving the purpose ofmanufacture. As noticed, the phrase “manufacture of other goodsfor sale”, in the present case, refers to the goods manufacturedBby the assessee, i.e., Beer/IMFL; and, in fact, use of the bottlesin question comes up in the activity of the assessee only aftermanufacture of liquor (Beer/IMFL) has already beenaccomplished by brewing or distillation. Needless to reiteratethat in relation to the activity of assessee, the action of bottling isCa separate process and is undertaken only after the process ofmanufacture by way of brewing or distillation is complete. Thusunderstood, 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]

D5. For what has been discussed hereinabove, this Courthas no hesitation in concluding that the bottles in question haveneither been consumed in manufacture of Beer/IMFL nor theycould be said to have been used in such manufacture of Beer/IMFL. Hence, elements (i) and (iii) pertaining to clause (a) ofsub-section (1) of Section 7-A of the Act do not exist in this case.E[Para 45][933-A]

6. As already noticed, consumption requires the thing inquestion being exhausted or ceasing to exist for being used up.The bottles in question, even when used as containers of theliquor manufactured by the assessee, had neither been exhaustedFnor had ceased to exist; they have rather continued to exist whileretaining their basic identity and character as bottles. Of course,they (empty bottles) had been filled up with liquor but such fillingup has not resulted in the bottles themselves being used up.Hence, the activity in question does not fall within the ambit ofGelement (ii). However, the very same logic does not apply toelement (iv) because it cannot be said that the bottles in questionhave not been “used otherwise”. [Para 49.1][936-E-F]

7. As noticed, the expression “use” is of wide amplitudeand it refers to the usage or engagement of an article for the H

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES

accomplishment of a purpose irrespective of whether the articleitself undergoes a visible change or not. The fact that the bottlesin question have indeed been used by the assessee in its overallactivity of manufacture and sale of liquor is clear from the factthat the manufacture of liquor by the process of brewing ordistillation did not conclude the activity of the assessee.Undoubtedly, for the sale of such manufactured liquor toTASMAC, the assessee was required to put the same into thebottles; and the sale by assessee could have taken place onlyafter such bottling of the liquor. The assessee has, indisputably,undertaken this process of bottling by the use of the goods inquestion, i.e., the empty bottles purchased from unregistereddealers. Hence, it is but apparent that the goods in question (emptybottles) have been used by the assessee, and for that matter,have been used for an activity closely connected and co-relatedwith the main activity of manufacture of liquor as also as necessaryingredient of the end-purpose of sale of liquor. Significantly, aftersuch use for bottling, the goods in question (empty bottles) didnot remain available for sale in the form in which they werepurchased by the assessee. [Para 49.2][936-G-H; 937-A-B]

8. In other words, the process of bottling with the use ofbottles in question has been an unalienable part of the completechain of processes that the assessee was obliged to undertakefor its business, i.e., manufacturing and selling the liquor. By thisprocess, the bottles in question were used by the assessee insuch a manner that they were no longer available for sale in theform they were purchased from unregistered dealers. That beingthe position, the bottles in question have indeed been “usedotherwise” by the assessee. The assessee cannot avoid operationof the words “or otherwise” so far use of the bottles is concernedby merely establishing that they have not been consumed inmanufacture or otherwise and further that they have not beenused in manufacture. Even when these three elements viz.,“consumed in manufacture”; “consumed otherwise”; and “usedin manufacture” do not exist as regards the bottles in question inthe business activity of the assessee, it is but apparent the activityof the assessee clearly entails the use of bottles for the purposeof bottling and sale of liquor manufactured by it. This activity

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Aclearly takes the bottles in question within the fourth elementi.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 bottlesBin question is clearly covered by element (iv) of clause (a) of sub-section (1) of Section 7-A of the Act. [Para 49.4][937-G]

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

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

12. As noticed, the High Court in its impugned order dated10.09.2004 did reach to the conclusion that purchase tax was THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES871AND DISTILLERIES LIMITED

leviable on the purchase turnover of the empty bottles but foundthe assessee entitled to the benefit of Clarifications/Circularsissued by the revenue on 09.11.1989 and 27.12.2000. The revenuehas questioned this part of the order of the High Court. In orderto examine the rival contentions in this regard and thecorrectness of proposition adopted by the High Court, this Courtmay take note of the statutory provision in the Tamil Nadu Acton the power of the Commissioner of Commercial Taxes to issueclarification as also the particular Clarifications/Circulars relevantto the present case. [Para 54][942-C-E]

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

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

Assistant Commissioner (Intelligence) v. NandanamConstruction Co. (1999) 115 STC 427; Burmah ShellOil Storage and Distributing Co. of India Ltd., Belgaumv. Belgaum Borough Municipality AIR 1963 SC 906 :[1963] Suppl. SCR 216; Commissioner of CentralExcise, Bolpur v. Ratan Melting & Wire Industries(2008) 13 SCC 1 : [2008] 14 SCR 653 – followed.

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[2020] 6 S.C.R.

Ahmedabad (P) Primary Teachers’ Assn. v.Administrative Officer: (2004) 1 SCC 755 : [2004] 1SCR 470; The State of Tamil Nadu v. M.K. Kandaswamiand 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 AIR1957 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. DeputyCommercial Tax Officer and Anr. (2002) 125 STC 500;Premier Breweries v. State of Kerala (1998) 108 STC598; Associated Pharmaceutical Industries Private Ltd.v. The State of Tamil Nadu (1986) 63 STC 316;Collector of Central Excise, Vadodra v. Dhiren ChemicalIndustries (2002) 126 STC 122; Neyveli LigniteCorporation Ltd. v. Commercial Tax Officer, Cuddaloreand 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 MeakinBreweries Ltd and Anr. (2011) 13 SCC 588 : [2011] 14SCR 98; Mafatlal Industries Ltd. v. Nadiad NagarPalika and Anr. (2000) 3 SCC 1 : [2000] 2 SCR 52;HMM Limited and Anr. v. Administrator, Bangalore CityCorporation, Bangalore and Anr. (1989) 4 SCC 640 :[1989] 1 Suppl. SCR 353; Punjab Aromatics v. State ofKerala (2008) 11 SCC 482 : [2008] 7 SCR 235; Unionof India v. Alembic Glass Industries Ltd. (2010) 11 SCC745; Ganesh Trading Co., Karnal v. State of Haryanaand Anr. (1973) 32 STC 623; Kathiawar Industries Ltd.v. Jaffrabad Municipality (1979) 4 SCC 56 : [1980] 1SCR 243; J.K. Cotton Spinning & Weaving Mills Co.Ltd. v. Sales Tax Officer, Kanpur and Ors. (1965) 16STC 563; Commissioner of Income Tax, Kochi v. Trans THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIESAND DISTILLERIES LIMITED

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIESAND DISTILLERIES LIMITED

Asian Shipping Services (P) Ltd. (2016) 8 SCC 604 :[2016] 3 SCR 337; Signode India Ltd. v. Commissionerof Central Excise & Customs-II (2017) 4 SCC 613 :[2017] 6 SCR 997; State of Tamil Nadu and Anr. v. IndiaCements 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. AshishBajpai 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. Commissionerof Commercial Taxes and Ors. (1990) 2 SCC 259;George Da Costa v. Controller of Estate Duty MysoreAIR 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 ofTamil Nadu (2000) 120 STC 493; Kalyani PackagingIndustries v. Union of India (2004) 6 SCC 719 –referred to.

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Case Law Reference

[2020] 6 S.C.R.

A[1957] SCR 721relied onPara 48

[1997] 4 Suppl. SCR 180referred to

Para 48.1

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7164of 2013.

From the Judgment and Order dated 10.09.2004 of the High Courtof Judicature at Madras in W.P. No. 25081 of 2002.B

With

Civil Appeal Nos. 7165 of 2013, 4416-4419 of 2014.

Balaji Srinivasan, AAG, S.K. Bagaria, Sr. Adv., K. K. Mani,Ms. T. Archana, Kumar Ajit Singh, Ms. A. Jaswanthi, Ms. PurbitaaMitra, K. V. Vijayakumar, Advs. for the appearing parties on 26-6-2020.CV. Krishnamurthy, AAG, Dr. Joseph Aristotle S., AOR, NupurSharma, Shobhit Dwivedi, Sanjeev Kumar Mahara, Jessica Bhardwaj,K.K. Mani, Advs. for the appearing parties on 11-4-2022.

The Judgment of the Court was delivered by DINESH MAHESHWARI, J.DPreliminary and Brief Outline

1. The appeals in this batch, involving similar questions betweenthe same parties, have been considered together and are taken up fordisposal by this common judgment.

2. Civil Appeal Nos. 7164 of 2013 and 7165 of 2013, filedErespectively by the revenue and the assessee, are directed against thefinal judgement and order dated 10.09.2004, passed by a Division Benchof 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 assesseewhile holding, inter alia, that though the purchase turnover, with respectto the purchase of empty bottles from unregistered dealers under boughtFnote, is exigible to purchase tax under Section 7-A of the Tamil NaduGeneral Sales Tax Act, 1959[1] but, the assessee is entitled for the benefitof Clarifications dated 09.11.1989 and 27.12.2000 issued by the revenuetill the same were withdrawn prospectively by the Clarification dated28.01.2002 and therefore, the revenue is not entitled to levy purchaseGtax for the said turnover of purchase of empty bottles for the assessmentyear 1996-97.

2.1. The assessee has filed another set of appeals in Civil AppealNos. 4416-4419 of 2014 against the order of the High Court dated05.12.2013, passed in Tax Case (Revision) Nos. 1667,1669, 1857 of H1 Hereinafter also referred to as ‘the Tamil Nadu Act’ or simply ‘the Act’.

2008 and 13 of 2009, wherein the High Court has held that the assesseeis liable to pay purchase tax under Section 7-A of the Act for theassessment years 1986-87 to 1989-90 on the turnover of purchase ofempty bottles from the unregistered dealers while following its aforesaidearlier order dated 10.09.2004.

3. Put in a nutshell, these matters involve the interpretation ofSection 7-A of the Tamil Nadu Act, providing for levy of purchase taxunder certain circumstances, with root questions as to whether purchasetax is leviable on the purchase turnover of empty bottles purchased bythe assessee in the course of its business of manufacture and sale ofBeer and Indian Made Foreign Liquor[2] and as to the operation and effectof the Clarifications dated 09.11.1989 issued by the Special Commissionerand Commissioner of Commercial Taxes, Chennai[3] and dated 27.12.2000issued by the Principal Commissioner and Commissioner of CommercialTaxes, Chennai[4]. On the sideways, a separate question is as to whethercash discount on the price offered by the assessee to the Tamil NaduState Marketing Corporation Limited[5] is taxable in view of Explanation2(iii) to Section 2(r) of the Act?

4. As noticed, the impugned order dated 05.12.2013 in Civil AppealNos. 4416-4419 of 2014 is essentially based on the previous order of theHigh Court dated 10.09.2004 which is in challenge by the revenue asalso by the assessee in Civil Appeal Nos. 7164 of 2013 and 7165 of2013. Hence, we propose to deal with the cross-appeals against theorder dated 10.09.2004 in necessary details.

Civil Appeal Nos. 7164 and 7165 of 2013: RelevantBackground

5. The assessee is a company incorporated under the CompaniesAct, 1956 and is engaged in the business of manufacture of Beer andIMFL products on the strength of license issued under the Tamil NaduIndian Made Foreign Spirits (Manufacture) Rules, 1981 in its factorylocated 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.

2 ‘IMFL’ for short.

3 ‘SCCT’ for short

4 ‘PCCT’ for short

5 ‘TASMAC’ for short

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A5.1. The assessee, for the purpose of the said business ofmanufacture of Beer and IMFL, purchased empty bottles fromunregistered dealers situated outside the State as well as from non-dealersfor the bottling of Beer and IMFL. It has been the case of the assesseethat the said bottles were recycled after use by the consumers and werere-filled with Beer and IMFL. The cost of bottles was Rs. 35.69 perBcase 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 respectto IMFL, the cost of bottles was Rs. 60.40 per case as against themanufacturing cost of Rs. 217.06 per case, which had been 28% of themanufacturing cost. According to the assessee, these bottles purchasedCagainst bought notes were the bottles which were already used, filledand sold for a price and continued to be available for re-use and furthertrading.

5.2. It had also been the case of assessee that as per Rule 29 ofthe Tamil Nadu Brewery Rules,1983, the manufacturer had the optionDof filling the Beer either in bottles or casks or even kegs; that the entireBeer and IMFL manufactured by assessee was sold only to TASMAC,who had the exclusive privilege of supplying the liquor by wholesale forthe entire State of Tamil Nadu. The assessee had also been offeringcash discount for early settlement of bills by TASMAC.E6. For the assessment year 1996-97, the assessee was assessedon the files of the revenue on a total turnover of Rs. 2,52,33,32,932/- andRs. 2,49,65,22,854/- respectively by the assessment order dated21.10.1998. Thereafter, the Assessing Officer[6], by a notice dated30.04.1999, proposed to levy purchase tax under Section 7-A of the Acton the purchase of empty bottles from unregistered dealers under boughtFnote through salesman permits, on a sum of Rs. 24,78,20,465/- at therate of 16% with surcharge, additional surcharge as also additional taxat the rate of 2.50%.

6.1. In his notice dated 30.04.1999, the AO, inter alia, observedthat addition of sub-section (7) to Section 3 with effect from 22.05.1984Gspecifically treats the containers or packing materials as part of the goodssold or purchased; that there was no doubt that the bottles lost theiridentity as bottles, which were liable to tax at 10% before filling and theybecame integral part of the finished goods after filling and attractedliability under the charging Section 3(7) of the Act; and when the bottlesH6 Hereinafter also referred to as ‘the AO’

became part of the goods, liability under Section 7-A of the Act wasdefinite because, as a part of finished goods used in manufacture, it hadnot suffered the tax earlier. The AO also observed that in view of decisionof this Court in Raj Sheel & Ors. v. State of Andhra Pradesh & Ors.:(1989) 74 STC 379, though the empty bottles were used as packingmaterial and merged with the consideration of the main product, therewas no separate sale of these empty bottles purchased from unregistereddealers and hence, such purchase of empty bottles was liable to taxunder Section 7-A of the Act, as there was no subsequent taxable eventon the sale of the packaging material.

6.2. In response to the said notice dated 30.04.1999, the assesseesubmitted its objections on 27.09.1999 to the effect that Section 7-A ofthe Act for levy of purchase tax was not attracted on the purchase ofempty bottles for packing Beer and IMFL and, in any event, the proposedlevy of purchase tax was illegal and unjustified in view of the Clarificationdated 09.11.1989 issued by the SCCT, that was binding on the revenueas per Section 28-A of the Act. The assessee also placed reliance on theproceedings of the Appellate Assistant Commissioner (CT), Chennai[7]with respect to the assessment years 1986-87 to 1988-89 holding thatimposition of purchase tax on the purchase of empty bottles was illegaland unjustified. The mainstay of the assessee had been that the emptybottles purchased by it were neither consumed nor used in themanufacture of other goods; that the manufacture of Beer or IMFL wascomplete much prior to its bottling; that the bottling of Beer or IMFL didnot complete the process of manufacture; and that it was also a cleartrade practice to sell Beer even in barrels, which itself showed thatmanufacture of Beer had nothing to do with its subsequent bottling.

6.3. The PCCT, before passing final orders on the aforesaid noticedated 30.04.1999 by the AO, issued his Clarification dated 27.12.2000that purchase of empty bottles could not be made liable to be chargedunder Section 7-A of the Act during the assessment years 1991-92,1993-94, 1994-95 and 1995-96 as the Clarification dated 09.11.1989 was inforce at the relevant time.

6.4. However, the PCCT later on re-examined the issue in light ofthe decision of Tamil Nadu Taxation Special Tribunal, Chennai[8] in thecase of Appollo Saline Pharmaceuticals (P) Limited v. State of Tamil 7 Hereinafter also referred to as ‘the Appellate Authority’

8 Hereinafter also referred to as ‘the Tribunal’

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ANadu: reported in (2000) 120 STC 493, and stated by his Clarificationdated 28.01.2002, in modification of the earlier Clarifications, that theassessee was liable to tax under Section 7-A of the Act for the purchaseof empty bottles from unregistered dealers that were used for packingof Beer/IMFL manufactured by it.

B6.5. Apart from the above, the AO, by his notice dated 05.02.2002,proposed to revise the earlier assessment for the assessment year1996-97 by disallowing the exemption on cash discount allowed by theassessee to TASMAC and to levy tax on the said cash discount, withsurcharge and additional surcharge @ 15% and 5% respectively as alsothe additional sales tax. In response to this notice dated 05.02.2002, theCassessee, by its letter dated 18.03.2002, submitted that any cash or otherdiscount on the price allowed in respect of any sale and any amountrefunded in respect of articles returned by customers is not to be includedin the turnover. In this regard, the assessee placed reliance onExplanation 2(iii) to Section 2(r) of the Act.D

6.6. After examining the objections of the assessee, the AO, byhis order dated 27.03.2002, confirmed the proposal of levying purchasetax @ 16% under Section 7-A of the Act on the bottles purchased fromunregistered dealers with surcharge and additional surcharge @ 15%and 5% respectively as also additional sales tax @ 2.5% and penalty,Eessentially on the grounds that empty bottles were purchased fromunregistered dealers; that they had been used as raw materials inmanufacture of Beer and IMFL products; and that they had not beensold separately. The AO, in support of his conclusion, relied upon thedecision of the Division Bench of Madras High Court in Appollo SalinePharmaceuticals (P) Limited v. Deputy Commercial Tax OfficerFand Anr.: (2002) 125 STC 500, which relied upon the decision of thisCourt in Premier Breweries v. State of Kerala: (1998) 108 STC 598.

6.7. Further, while overruling the objections in respect of levy oftax on cash discount, the AO confirmed the proposal for disallowing thecash discount allowed to TASMAC while observing that discount wasGonly for early settlement of bills of the Distilleries that was akin todiscounting the bills with Banks/Financial Institutions; and though thenomenclature adopted was ‘cash discount’, it was nothing but acommission availed for easy payments which did not fall within thepurview of discount and was not deductible.

H

7. Being aggrieved by the order so passed by the AO, the assesseepreferred O.P. No.476 of 2002 before the Tribunal seeking quashing ofthe order dated 27.03.2002 and directions to the AO to give effect to theClarifications dated 09.11.1989 and 27.12 .2000.

7.1. The Tribunal, by its order dated 26.06.2002, while dismissingO.P. No. 476 of 2002, observed that when the latest Clarification dated28.01.2002 was issued on the basis of view taken by the Tribunal andconfirmed by the High Court, the assessee was not entitled to questionthe proceedings of AO on the basis of the Clarifications issued earlier. Itwas also observed that the rule applicable for tax on the bottles could beextended to casks and kegs too and, by exclusion of casks and kegs, thetax applicable on bottles alone cannot be set aside or withdrawn. TheTribunal further observed that the decision of the jurisdictional High Courtin Associated Pharmaceutical Industries Private Ltd. v. The State ofTamil Nadu: (1986) 63 STC 316 was not applicable as the same wasrendered prior to the amendment of Section 7-A(1)(a) of the Act by theTamil Nadu Act No. 78 of 1986 effective from 01.01.1987; and withinsertion of the word “use” by way of amendment, the meaning conveyedby 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, theassessee filed the writ petition, being W.P. No. 25081 of 2002, beforeMadras High Court, seeking a writ of certiorarified mandamus forquashing the proceedings in question while directing the AO to passfresh orders giving effect to the Clarifications/Circulars dated 09.11.1989and 27.12.2000. The writ petition so filed by the assessee has beenconsidered and disposed of by the High Court by its impugned orderdated 10.09.2004.

8.1. The following three questions were considered by the HighCourt in its impugned order dated 10.09.2004: - “(i) Whether the purchase turnover of empty bottles purchasedby the petitioner Company, who are engaged in the business ofmanufacturing Beer and IMFL products, from unregistered dealersfor bottling Beer and IMFL manufactured by them, through thebought note to the extent of Rs. 24,78,20,465.00 is attracted forpurchase tax under Section 7-A of the Tamil Nadu General SalesTax Act (for brevity “the Act”)?; A

BC

D

E

F

GH

A

A(ii) Whether purchase tax is leviable on the purchase turnover ofthe empty bottles purchased by the petitioner Company to theextent of Rs. 24,78,20,465.00, under Section 7-A of the Act, inspite of the clarifications dated 9.11.1989 and 27.12.2000 issuedin favour of the petitioner Company by the Special Commissionerof Commercial Taxes, Chennai, in view of Section 28A of theBAct?; and

(iii) Whether cash discount on the price offered by the petitionerCompany to the TASMAC is taxable in view of explanation 2(iii)to Section 2(r) of the Act?”

C8.2. After taking into consideration the rival contentions andexhaustively dealing with the case law on the subject, the High Court, byapplying the law laid down by this Court in Premier Breweries (supra)and Assistant Commissioner (Intelligence) v. NandanamConstruction Co.: (1999) 115 STC 427; and with reference to theamended Section 7-A of the Act and the object of this provision asDexplained 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 leakageand prevent evasion of tax with respect to purchase of goods, rejectedthe contention of assessee that the turnover for the purchase of emptybottles did not attract levy of purchase tax under Section 7-A of the Act.EThe High Court held as follows:-

“7.6. Hence, applying the law laid down by the Apex Court in (i)PREMIER BREWERIES v. STATE OF KERALA, [1998] 108STC 598; and (ii) ASSISTANT COMMISSIONER(INTELLIGENCE) v. NANDANAM CONSTRUCTION CO.,F[1999] 115 STC 427, which was followed by this Court inAPPOLLO 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 TAMILNADU v. M.K. KANDASWAMI & OTHERS, [1975] 36 STCG191, viz., to plug the leakage and prevent evasion of tax withrespect to purchase of empty bottles purchased from unregistereddealers under the bought note, we reject the contention of Mr.C.Natarjan that the purchase turnover for the purchase of emptybottles from unregistered dealers under the bought note is notHattracted 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 gainedstatutory force in view of Section 28-A of the Act, which was insertedby the amendment with effect from 06.11.1997. Further, while relyingon various decisions including that of the Constitution Bench of this Courtin the case of Collector of Central Excise, Vadodra v. DhirenChemical Industries : (2002) 126 STC 122, it was also observedthat even though the Clarification dated 09.11.1989 was executive innature, the same was binding on the authorities till the concessions givento the assessee under the Clarification were withdrawn prospectivelywith effect from 28.01.2002; and the revenue could not refuse the benefitof the Clarifications dated 9.11.1989 and 27.12.2000 in respect ofpurchase tax under Section 7-A of the Act for the assessment year1996-97.

The High Court answered this question in favour of the assesseeas follows:- “8.6.10. It is, therefore, clear that even though the clarificationdated 9.11.1989 is executive in nature, the same is binding on theauthorities till the concessions given to the petitioner under theclarification were withdrawn, which could be done onlyprospectively, viz., in the instance case, with effect from 28.1.2002,and the revenue could not refuse the benefit of the clarificationsdated 9.11.1989 and 27.12.2000 in respect of levy of purchasetax under Section 7-A of the Act for the impugned assessmentyear 1996-97. 8.7. For all these reasons, we are convinced thateven though the purchase turnover with respect to the purchaseof empty bottles from the unregistered dealers under bought notecan be charged for purchase tax under Section 7-A of the Act,the petitioner is entitled for the benefit of the clarifications dated9.11.1989 and 27.12.2000 till the same is withdrawn prospectivelyby the clarification dated 28.1.2002 and therefore, the impugnedlevy of purchase tax on the purchase turnover for the purchase ofempty bottles from unregistered dealers under Section 7-A of theAct 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 NeyveliLignite Corporation Ltd. v. Commercial Tax Officer, Cuddalore andAnr.: (2001) 124 STC 586, took the view that as per Explanation A

B

C

DE

F

G

H

A2(iii) to Section 2(r) of the Act, cash or other discount on the price ofgoods sold cannot be included in the turnover for the levy of tax.Accordingly, this question was also answered in favour of the assesseeand against the revenue as follows:- “9.4. In NEYVELI LIGNITE CORPORATION LTD. v. C.T.O.,B[2001] 124 STC 586, it was held that it is that sale consideration,whether in cash or otherwise, which is receivable in respect ofsales made by the dealer which can possibly form part of theturnover of a dealer.

9.5. From the law as enunciated from the decisions referred supra,Cwe 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 soldcannot be included in the turnover for levy of tax.”

8.5. Therefore, the High Court, particularly in view of its answersto question Nos. (ii) and (iii) as above, allowed the writ petition filed bythe assessee.D

9. Being aggrieved by the order dated 10.09.2004 so passed bythe High Court in W.P. 25081 of 2002, the revenue has filed the appealby special leave, being Civil Appeal No. 7164 of 2013 questioning thegrant of relief to the assessee. On the other hand, the assessee has alsoEfiled the appeal by special leave, being Civil Appeal No. 7165 of 2013,against this very order insofar as the High Court has decided the principalquestion relating to the applicability of Section 7-A of the Act against it.

Rival Submissions

The Assessee

F

10. As regards the question as to whether the purchase turnoverof empty bottles purchased from unregistered dealers is exigible topurchase tax, the learned senior counsel for the assessee has submittedthat the question of levy of purchase tax on this purchase turnover doesnot arise while making elaborate reference to the object and scheme ofGSection 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 thesale of liquor with bottles had only been to TASMAC within the State ofTamil Nadu with bottles being also taxed on such sales.

10.1 The learned senior counsel has referred to the history ofHinsertion 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 thesaid provision was inserted with the main object to plug the leakage andto prevent evasion of tax. Further, with reference to the provisionscontained 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 counselhas contended that the bottles were not disposed of “in any mannerother than by way of sale in the State” but these were disposed of onlyby way of sale to TASMAC within the State of Tamil Nadu itself onpayment of sales tax and hence, clause (b) of Section 7-A(1) does notapply. In support of these contentions, the learned senior counsel hasrelied upon the decision of this Court in the case of Hotel Balaji andOrs. v. State of Andhra Pradesh and Ors.: (1993) 88 STC 98, moreparticularly on the observations occurring in a few paragraphs of saiddecision in relation to the provisions contained in the Haryana GeneralSales Tax Act, 1973.[9]

10.1.1. The learned senior counsel has also contended that therevenue itself had accepted such factual and legal decision and has issuedClarifications/Circulars dated 09.11.1989 and 27.12.2000 realising thatsince the sale value of bottles is subject to tax at the time of sale of thecontents, 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 ofthe Act, the learned senior counsel has submitted that the language usedin the said clause (a) has been ‘consumes or uses such goods in themanufacture of other goods for sale or otherwise’. Thus, accordingto the learned counsel, what is to be seen is whether bottles wereconsumed or used in the manufacture of liquor; and as per the saidlanguage used in clause (a), it cannot apply to the present case eithertextually or contextually because Beer/IMFL was fully manufacturedand such fully manufactured liquor was transferred to the bottling section;that bottles have got their own identity and they remained bottles at allstages, i.e., before being used for filling the liquor, after being used forthis purpose, after liquor was consumed by the consumers, and evenwhen these were cleaned and re-used by the assessee; and that thecharacter and identity of bottles as bottles was never lost, they werecapable of repeated use, and the assessee was cleaning and re-usingsuch bottles. The learned senior counsel has referred to the Tamil NaduBrewery Rules, 1983 and the Tamil Nadu Indian Made Foreign Spirits 9 Hereinafter also referred to as ‘the Haryana Act’.

A

B

C

D

E

F

G

H

A(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 themanufacture of Beer/IMFL is concerned, the same had already takenplace before bottling and hence, bottles are not ‘consumed or used inthe manufacture’ of liquor for sale. The learned senior counsel has alsoreferred to the decision of this Court in the case of State of Uttar PradeshBand Ors. v. Mohan Meakin Breweries Ltd. and Anr.: (2011) 13SCC 588 to submit and re-emphasize that process of bottling commencesonly after completion of manufacturing of Beer when bulk Beer istransferred from the brewery for bottling; and manufacturing of liquorand putting manufactured commodity into bottles being two differentCprocesses, it cannot be said that the bottles have been consumed or usedin manufacture of other goods.10.2.1. The learned senior counsel has emphatically contendedthat in the process of manufacture, conversion of one commodity into adifferent commodity remains the essential element and if the identity ofDgoods is not changed with irreversible process, manufacture would notbe deemed to have taken place. In this regard, the learned counsel hasreferred to various decisions including those in Mafatlal Industries Ltd.v. Nadiad Nagar Palika and Anr.: (2000) 3 SCC 1, HMM Limitedand Anr. v. Administrator, Bangalore City Corporation, Bangaloreand Anr.: (1989) 4 SCC 640, Punjab Aromatics v. State of Kerala:E(2008) 11 SCC 482, Collector of Central Excise, Bombay-II v. M/s.Kiran Spinning Mills: (1988) 2 SCC 348, Commissioner of CentralExcise & 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 FAnr.: (1973) 32 STC 623, Burmah Shell Oil Storage and DistributingCo. of India Ltd., Belgaum v. Belgaum Borough Municipality: AIR1963 SC 906, and Kathiawar Industries Ltd. v. JaffrabadMunicipality: (1979) 4 SCC 56.

10.2.2. Again, with reference to the decision in Hotel BalajiG(supra), the learned senior counsel would contend that the provisions ascontained in the Haryana Act carried the same language i.e., ‘uses themin the State in the manufacture of goods’; and per the enunciation inthe said decision, the provision for levy of purchase tax would apply onlyto those cases where the purchased goods ‘cease to exist as suchgoods for the reason that they are consumed in manufacture ofH

different commodities’ or the purchased goods ‘are put to an end bytheir consumption in the manufacture of other goods’; and no suchevent having taken place where the goods in question (the bottles) hadceased to exist or had been put to an end by consumption in themanufacture of other goods, the question of levy of purchase tax doesnot arise.

10.2.3. The learned senior counsel has also submitted that duringthe period involved in the present case, i.e., from 01.04.1996 to31.03.1997, the requirement for applicability of clause (a) of Section 7-A(1) was stated in the manner that dealer ‘consumes or uses suchgoods in the manufacture of other goods for sale or otherwise’; andthe scope of clause (a) was subsequently widened w.e.f. 06.11.1997when new clause (a) was substituted by the Tamil Nadu General SalesTax (Sixth Amendment) Act 1997 to read as ‘consumes or uses suchgoods in or for the manufacture of other goods for sale or otherwise’but, during the period relevant for the present case, the expression “orfor” was not there in the statute. According to the learned counsel, whenBeer/IMFL had already been manufactured before bottling, the bottleswere neither consumed nor used in manufacture of the contents; andnothing turns upon the expressions “consumes” or “uses” inasmuch asin both the situations, such consumption or use was required to be ‘inthe 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 saiddecisions do not operate against the contentions of the assessee.

10.3.1. The learned senior counsel would submit that in the caseof M. K. Kandaswami (supra), this Court had only analysed the schemeof Section 7-A of the Act, as then existing, and had pointed out that thesaid provision was itself a charging provision. As regards the decision inthe case of Nandanam Construction Co. (supra), the learned counselwould contend that therein, the respondent was purchasing goods suchas sand and bricks which were consumed in the construction of flatsand hence, this Court held that when the goods ceased to exist in theoriginal 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 isnot or cannot be taxed. The decision in Premium Breweries (supra),has been distinguished by the learned counsel with the submissions thattherein, contention of the dealer was that the cardboard cartons, in which A

B

C

DE

F

G

H

Athe liquor bottles were packed, may not be taxed at the higher rateapplicable to the sale of liquor because cardboard cartons were soldseparately but such a contention was not accepted by this Court. Thus,according to the learned counsel, for different fact situation and differentquestion being involved, the said decision has no application to the presentcase.B

10.3.2. As regards the decision of Madras High Court in the caseof Appollo Saline Pharmaceuticals (supra), the learned senior counselhas strenuously argued that the said decision is not correct in law and iseven otherwise distinguishable. The learned counsel has pointed out thatthe goods in question in the said decision were the bottles carryingC‘intravenous fluid’[10] which had different role in the process ofmanufacture of I.V. fluid as also in the peculiar process of intravenousroute of administration, where the fluid is given from a bag connected toa thin tube inserted into the veins; and it is important to keep a check onthe rate of flow and delivery by continuous monitoring. The learnedDcounsel would submit that by its very nature, where the manufacture ofI.V. fluid requires its particular packing, the said packing does not retainits 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. fluidis taken out, the packing becomes useless and is discarded; and that inthe said decision itself, the entire I.V. fluid contained in bottle wasEconsidered to be a composite unit, which is not the case in relation to thebottles used as container of Beer/IMFL.

The learned senior counsel has further submitted that thephraseology considered in the matter of Appollo SalinePharmaceuticals (supra) was ‘in or for the manufacture’, which wasFthe position obtainable after the amendment of Section 7-A of the Actw.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 thepresent case. The learned counsel has also submitted that in the saidmatter, the High Court did not even consider the relevant decisions ofGthis Court wherein the relevant expressions have been considered andinterpreted by this Court including that in the case of Hotel Balaji (supra)wherein, according to the learned counsel, this Court had considered theprovisions of Haryana Act which are in pari materia with the provisionsof 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 ofJ.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer,Kanpur and Ors.: (1965) 16 STC 563 though the issue involved in thesaid matter was completely different and related to categories of goodsto be included in the registration certificate which has no co-relationwith levy of purchase tax, particularly in view of the language used inSection 7-A(1) (a) of the Act.

11. As regards the Clarifications/Circulars, the learned seniorcounsel has referred to the contents of the Clarifications dated 09.11.1989and 27.12.2000 and has made the submissions that in the assessee’sown case, after examining the relevant facts and legal position, the revenuehad specifically clarified that since the sale value of bottles is subject totax at the time of sale of the contents, it had no liability to tax underSection 7-A of the Act; and such clarifications remain binding on therevenue, as rightly held by the High Court.

11.1. Further, with reference to the decisions of this Court in thecases of Commissioner of Income Tax, Kochi v. Trans Asian ShippingServices (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 learnedsenior counsel has submitted that the law remains settled that the Circulargranting benefit to the assessee is binding on the department. Thus,according to the learned counsel, the High Court has rightly applied theprinciples of such decisions while holding that the benefit of Clarificationsdated 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 AppolloSaline Pharmaceuticals, the learned senior counsel has contended thattherein, the earlier Clarification dated 27.12.2000, clarifying that in thefacts and circumstances of the present case, no purchase tax was payableunder Section 7-A of the Act, was neither withdrawn nor cancelled andon the other hand, the expression used in the new Clarification, ofmodification, makes it clear that the new one was made effective onlyprospectively and hence, cannot apply for the period in question. In thisregard too, the learned senior counsel has referred to and relied upon A

B

C

D

E

F

G

H

Avarious decisions including those in H.M. Bags Manufacturer v. CCE:1997 (94) ELT 3 and Commissioner of Customs, Mumbai v. AshishBajpai: 2007 (217) ELT 163.

The revenue

12. The learned Additional Advocate General appearing for theBrevenue has countered the submissions made on behalf of the assesseewhile again making elaborate reference to the object and scheme ofSection 7-A of the Tamil Nadu Act as also its interpretation and applicationin various decisions.

12.1. It has been argued on behalf of the revenue that theCamendment to Section 7-A of the Act and addition of the words “oruses” in clause (a) thereof had broaden the scope of this provision asalso the jurisdiction of assessing authorities to levy purchase tax on anycommodity, which had not suffered tax earlier and which has been usedin the process of manufacturing any good to be sold. Therefore, theDassessee is liable to pay purchase tax under Section 7-A of the Actbecause the bottles purchased from unregistered dealers were not taxedat the purchase point and charging of such purchase tax does not amountto double taxation.

12.2. The learned AAG has referred to the decision in M.K.EKandaswami (supra) to submit that therein, this Court has made it clearthat Section 7-A of the Act is a charging section and has explained thatSection 7-A of the Act deals with “taxable goods”, that is, the kind ofgoods, the sale of which by a particular person or dealer may not betaxable in the hands of seller but purchase of the same by a dealer in thecourse of his business may subsequently become taxable. Thus, SectionF7-A of the Act creates a liability against a dealer on his purchase turnoverof goods, the sale or purchase of which though generally liable to taxunder 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 inGPremier Breweries (supra), that the calculation of taxable turnovercannot be accomplished without taking into consideration the purchasetax on the goods purchased; and this Court has held that the packedgoods have to be seen as one whole for the purpose of calculating theturnover of the goods.

H

H

12.3. While relying on the decision of the High Court in AppolloSaline Pharmaceuticals (supra), the learned AAG has pointed out thattherein, the Court has held that the turnover of bottles would be part ofthe turnover of the I.V. fluid because the bottles were not sold individuallybut as a composite unit of I.V. fluid packed in bottles. It has been contendedthat on similar lines and analogy, packaging of Beer/IMFL in glass bottleshas to be seen as an inseparable composite unit, particularly when thecontainers are needed to make the goods marketable. Reference hasalso 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 encompassthe entire process carried on by the dealer of converting raw materialsinto finished goods. It has also been contended that levy of sales tax onthe bottles sold with liquor has no bearing on the question of levy ofpurchase tax because such sales tax on bottles was leviable even if thebottles were purchased from registered dealers or in any other mannerafter payment of tax.

12.4. Further, while placing reliance on the Tamil Nadu IndianMade Foreign Spirits (Manufacture) Rules, 1981 the learned AAG hassubmitted that the use of bottle is imperative in the manufacture of Beer/IMFL as per the rules and guidelines because the product needs restingand proper storing before it is fit to be sold. In regard to Beer bottle,several of its unique characteristics have been recounted on behalf ofrevenue to submit that the same would identify it only as Beer bottle andnothing else, for example, (i) the thickness of the glass used in the Beerbottle; (ii) the colour of the glass of the bottle, which is a quality attachedto specific brands; (iii) the grooves on the neck of the bottle, which aremade only for an aluminium cap and not for any other covering, therebymaking 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 theinterpretation of Section 6-A(ii)(a) of the Andhra Pradesh General SalesTax Act, 1957[11] by the Constitution Bench of this Court in the case ofNandanam Construction Co. (supra) with the submissions that thesaid provision has been in pari materia with Section 7-A(1)(a) of theTamil Nadu Act and this Court held that, when the goods cease to existin the original form or cease to be available in the State for sale or 11 Hereinafter also referred to as ‘the Andhra Pradesh Act’.

AB

C

D

E

F

G

H

Apurchase, the purchasing dealer of such goods is liable to tax if the selleris not or cannot be taxed. The learned AAG has further relied upon theinterpretation and application of Section 7 of the Madhya Pradesh GeneralSales Tax Act, 1959[12] by this Court in the case of Ganesh Prasad Dixitv. Commissioner of Sales Tax, Madhya Pradesh: (1969) 24 STC343 with the submissions that the said provision has also been in pariBmateria with Section 7-A(1)(a) of the Tamil Nadu Act and this Courtheld that the assessees were registered as dealers and when they hadpurchased taxable building materials in the course of their business formanufacturing goods for sale, purchase tax was payable by them.

13. As regards the questions relating to the Clarifications/Circulars,Cthe learned AAG has submitted that Section 28-A of the Act empoweringthe Commissioner of Commercial Taxes to issue clarifications cameinto effect from 06.11.1997 and hence, during the relevant assessmentyear i.e. 1996-97, there was no statutory provision in the Act empoweringthe Commissioner to issue the clarification. Thus, according to the learnedDAAG, the earlier Clarification dated 09.11.1989 was reduced to a mereadministrative circular which had no binding force on a Quasi-judicialAuthority or a Court of Law and as a consequence, the Clarificationdated 27.12.2000, which was issued in continuity with the earlierClarification dated 09.11.1989, cannot be made applicable for theassessment year 1996-97.E

13.1. The learned AAG has also relied upon the Constitution Benchdecision in Ratan Melting & Wire Industries (supra) with the submissionthat while dealing with any matter, the Courts can declare law, fill anygaps in legislation or give an interpretation to an already existing law;and the law so declared remains binding on all. Insofar as this matter isFconcerned, according to the learned AAG, the law came to be declaredby this Court in Premier Breweries (supra) that the packed goods haveto be seen as one whole for the purpose of calculating the turnover; andon similar lines, in Appollo Saline Pharmaceuticals (supra), the HighCourt held that an assessee paying purchase tax will not suffer anyGadditional burden because any other manufacturer who had bought thebottles from registered dealers would also be including their cost in theturnover of final goods.

13.2. According to the learned AAG, a natural development of thedecisions by the Courts had been that the Clarifications dated 09.11.1989H12 Hereinafter also referred to as the ‘Madhya Pradesh Act’.

and 27.11.2000 became contrary to the law declared; and it had been inthis background that the Clarification dated 28.01.2002 came to be issued.The learned AAG would submit that the interpretation given by the HighCourt of Madras in Appollo Saline Pharmaceuticals (supra), which isin 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, togive effect to the real meaning of Section 7-A of the Act, the Clarificationdated 28.01.2002 ought to be considered applicable because the law asdeclared would apply across the board and not only prospectively.

14. We may notice another ground taken by the revenue in thepetition seeking leave to appeal that the High Court has erred in holdingthat 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 allowedthereupon.

The Points for Determination

15. In comprehension of what has been noticed hereinabove, theprincipal point calling for determination in these appeals is as to whetherpurchase tax under Section 7-A of the Act is leviable on the purchaseturnover of empty bottles purchased by the assessee in the course of itsbusiness of manufacture and sale of Beer and IMFL. The second point,co-related with the principal one, is on the operation and effect of theClarifications/Circulars dated 09.11.1989, 27.12.2000 and 28.01.2002 asissued by the department. Another point arising out of the impugnedorder dated 10.09.2004 is as to whether cash discount on the price offeredby 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 Actover the Turnover in Question

16. Taking up the principal point for determination, we may usefullyput in a nutshell the major aspects of the rival contentions. It is assertedon behalf of the assessee that purchase tax on the turnover in question isnot leviable for two main reasons: One, that the bottles in question hadnot been consumed or used in the manufacture of liquor and they wereonly used as containers in which already manufactured liquor was bottledfor carrying and sale; and secondly, the sale value of bottles has beensubjected to tax at the time of sale of its contents and therefore, therecould arise no question of levy of purchase tax on these very bottles, AB

C

DE

F

G

H

Awhich are meant for repeated use. Per contra, it is contended on behalfof the revenue that use of bottles is imperative in the manufacture ofBeer/IMFL and their packaging in glass bottles has to be seen as aninseparable composite unit; and that levy of sales tax on the bottles soldwith liquor has no bearing on the question at hand because such salestax on bottles was leviable even if the bottles were purchased afterBpayment 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 provisionsCin the Tamil Nadu Act.

17.1. Sub-sections (1), (7) and (8) of Section 3 of the Tamil NaduAct, being the principal charging provision for levy of sales tax, read atthe relevant time as under:- “3. Levy of taxes on sales or purchases of goodsD

(1) Every dealer (other than a casual trader or agent of a non-resident dealer) whose total turnover for a year exceeds threelakhs of rupees and every casual trader or agent of a non-residentdealer, whatever be his turnover for the year, shall pay a tax foreach year in accordance with the provisions of this Act.

E***

******

(7) Notwithstanding anything contained in sub-sections (2), (2A),(2B) or (3) but subject to sub-sections (1) and (8), where goodsare sold or purchased together with the containers or packingmaterials the turnover of such goods shall include the price, costFor value of such containers or packing materials, and the packingcharges, whether such price, cost or value or packing charges,are charged separately or not, and tax shall be levied thereon atthe rate applicable to the goods contained or packed as if suchcontainers or packing materials were the parts of the goods soldGor purchased.

(8) Where the sale or purchase of goods contained in any containeror packed in any packing material is exempt from tax at the handsof the dealer, then the price, cost or value of such container orpacking material and the charges for packing forming part of the H

turnover of the goods under sub-section (7) shall not be liable totax.

Explanation: For the purposes of sub-sections (7) and (8),“containers” includes gunny bags, tins, bottles or any othercontainers.”

17.2. As noticed, Section 7-A was inserted in the Tamil NaduAct with effect from 27.11.1969. This provision has undergone severalamendments from time to time but, for the present purpose, its sub-section (1), as examined by this Court in the judgment dated 15.07.1975in the case of M.K. Kandaswami (supra) and then, as applicable to thepresent 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 M.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 purchasesfrom a registered dealer or from any other person, any goods (thesale or purchase of which is liable to tax under this Act) incircumstances 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 goodsfor sale or otherwise; or (b) disposes of such goods in any manner other than by wayof sale in the State; or

(c) despatches them to a place outside the State except as adirect result of sale or purchase in the course of inter-State tradeor commerce, shall pay tax on the turnover relating to the purchaseaforesaid at the rate mentioned in sections 3, 4 or 5 as the casemay be whatever be the quantum of such turnover in a year:

Provided that a dealer (other than a casual trader or agent of anon-resident dealer) purchasing goods (the sale of which is liableto tax under sub-section (1) of section 3) shall not be liable to paytax under this sub-section, if his total turnover for a year is lessthan twenty-five thousand rupees.*********”

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A17.2.2. A few significant amendments were made to the provisionaforesaid by Tamil Nadu Act No. 78 of 1986 with effect from 01.01.1987whereby, amongst other changes, the dimensions of its applicability weremodified in the principal part and then, a significant change was made inclause (a) where, after the word “consumes”, the words “or uses” wereinserted. Then, some further amendments were made to this provisionBby Tamil Nadu Act No. 25 of 1993 with effect from 12.03.1993. Withsuch amendments and modifications, Section 7-A (1) of the Act, asapplicable to the present case, has been as under:- “Section 7-A. Levy of purchase tax:

C(1) Subject to the provisions of sub-section (1) of section 3, everydealer who in the course of his business purchases from aregistered dealer or from any other person, any goods, (the saleor purchase of which is liable to tax under this Act) in circumstancesin which no tax is payable under sections 3 or 4, as the case maybe, not being a circumstance in which goods liable to tax underDsub-section (2) of section 3 or section 4, were purchased at apoint other than the taxable point specified in the First or the SecondSchedule and either, (a) consumes or uses such goods in the manufacture ofother goods for sale or otherwise; or E

(b) disposes of such goods in any manner other than byway of sale in the State; or

(c) despatches or carries them to a place outside the Stateexcept as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating toFthe 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 aforesaidby Tamil Nadu Act No. 60 of 1997 w.e.f. 06.11.1997 may also be takennote of with a caveat that this amendment is not directly applicable toGthe present case pertaining to the assessment year 1996-97 but has itsrelevance in relation to one limb of submissions made before us. By thisamendment, in clause (a) of Section 7-A (1) of the Act, after theexpression “in”, the words “or for” were inserted, resulting in furtherwidening of the area of coverage of this provision.H

17.3. For its relevance, we may extract in juxtaposition theprogression of this clause (a) of Section 7-A (1) of the Act i.e., asoriginally enacted; as applicable to the present case after its amendmentw.e.f. 01.01.1987; and as amended further w.e.f. 06.11.1997 as follows:- A

(emphasis in bold supplied)

Judicial Interpretations in the cited decisions EF

18. For dealing with the rival contentions, we may also take noteof various facets of interpretation of Section 7-A (1) of the Act in therelevant cited decisions. It may, however, be observed that so far as thetext of Section 7-A (1) applicable to the case at hand is concerned, therehas not been any direct interpretation by this Court or the jurisdictionalHigh Court (except the order impugned). In two of the cited decisions,one by this Court in the case of M.K. Kandaswami (supra)[13] and anotherby the High Court in the case of Associated Pharmaceutical Industries(supra)[14], Section 7-A (1) of the Tamil Nadu Act, as existing before itsamendment by Tamil Nadu Act No. 78 of 1986 w.e.f. 01.01.1987, cameup for consideration. The other cited decision in relation to Section 7-A(1) of the Tamil Nadu Act had been by the jurisdictional High Court inthe case of Appollo Saline Pharmaceuticals (supra)[15] but that wasrendered after further amendments to Section 7-A including that by Tamil 13 Decided on 15.07.1975

14 Decided on 18.01.1984

15 Decided on 14.09.2001

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ANadu Act No. 60 of 1997 w.e.f. 06.11.1997. Thus, the specific phraseologyof Section 7-A (1) of the Tamil Nadu Act as applicable to the presentcase has not been dealt with by any of these decisions. Nevertheless,each of these decisions had come under reference in this case at everystage and, having regard to the questions involved, appropriate it wouldbe to take note of the relevant ratio decidendi from these decisions.B

19. As regards the decisions of jurisdictional High Court dealingwith Section 7-A (1) of the Act, in the case of AssociatedPharmaceutical Industries (supra), the assessee had purchased andused the bottles for manufacture and sale of medicines, drugs or syrups.It was held by the High Court that though without bottling, the drugs andCsyrups manufactured could not be sold but, that could not be a reasonfor holding that the process of manufacture of drugs and syrups was notcomplete unless they were bottled or put in suitable containers and hence,it cannot be said that the bottles had been used up in the process ofmanufacture; and consequently, the purchase turnover of empty bottlesDcould not be brought to charge under Section 7-A (1) (a) of the Act.[16]

20. The other decision concerning the provision contained inSection 7-A (1) of the Act but after yet another amendment to clause(a) had been by the Madras High Court in the case of Appollo SalinePharmaceuticals (supra). Therein, the assessee was engaged inEmanufacturing and marketing of I.V. fluid and the turnover of the bottlescontaining I.V. fluid was included in the turnover relating to the fluid byreason of Section 3 (7) of the Act. The assessee was confronted with ademand for payment of purchase tax for the reason that the bottles inwhich I.V. fluid was packed and sold were those bottles which theassessee had purchased from unregistered dealers and therefore, thoseFbottles had not been subjected to tax at the time of purchase. It wasessentially contended before the Madras High Court on behalf of theassessee that if the goods in respect of which purchase tax was sought

16 Another decision of the jurisdictional High Court, rendered prior to the amendmentof Section 7-A of the Act w.e.f. 01.01.1987 and even before the decision in AssociatedGPharmaceutical Industries had been in the case of The State of Tamil Nadu v. Subbaraj& Co.: (1981) 47 STC 30 (decided on 23.09.1980). In that case, the assessees hadpurchased raw bones and converted them into different derivatives like crushed bones,bone grist, bone-meal, fluff or horn hoof. As regards such process and the end-products,the High Court held that the purchased goods cannot be said to have been consumed inthe process of manufacture of some other goods and, therefore, Section 7-A (1) was notHattracted.

to be levied continued to be available for sale or purchase and were infact sold, such goods cannot be brought to tax under Section 7-A of theAct.

20.1. The High Court referred to the expansion of ambit andcoverage of Section 7-A (1) of the Act and observed that after theamendments, recovery of purchase tax was permissible even in caseswhere goods which had not suffered tax at the time of purchase and aresubsequently disposed of by the dealer in circumstances where value ofturnover relating to those goods is also subject to tax by deeming thesame as forming part of turnover of other taxable goods. The High Courtobserved that the inclusion of turnover relating to bottles in the totalturnover of dealer and thereby, such turnover relating to bottles beingalso subjected to tax, did not enable the assessee to get out of the net ofSection 7-A because the bottles were not sold as bottles but were soldas part of a composite unit namely, I.V. fluid packed in bottles. The HighCourt also observed that the amended Section 7-A of the Act referredto the consumption or use of goods in or for the manufacture of othergoods; and having regard to the nature of goods and the need for acontainer to make those goods marketable, it was required to be heldthat the bottles were used in or for the manufacture of I.V. fluid. TheHigh Court observed and held as under (at pp. 503-504 of STC):

“7. The submissions made by counsel proceeded on theassumption that the sole object of section 7-A is to ensure recoveryof tax on the sale or purchase of goods which tax is required to bepaid but had not been paid to the State by reason of thecircumstances in which the purchase was made and one of theparties to the transaction is a registered dealer. Though thatapparently was the original purpose of the provision, the subsequentamendment to that section in the year 1987 by addition of thewords used in section 7-A(1) (a) and enlarging it further by afurther amendment with effect from November 6, 1997 wouldindicate that the object of the Legislature is not confined to mererecovery of tax, which was not recovered by reason of thecircumstances in which the purchase was made. After theamendment to section 7-A(1) (a) recovery of purchase tax ispermissible even in cases where the goods which had not sufferedtax, at the time of purchase are used by the dealer and aresubsequently disposed of by the dealer in circumstances where AB

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the value of the turnover relating to those goods is also subject totax by deeming the same as forming part of the turnover of othertaxable goods.

8. It is no doubt true that the turnover of the bottles is, by reasonof section 3(7), deemed to be part of the turnover of the assesseeBrelating to the I.V. fluids and by reason of the inclusion of suchturnover of the bottles in that turnover, the turnover relating tothese bottles is also subjected to tax. Such inclusion of the turnoverrelating to bottles, however, does not enable the assessee to getout of the net of section 7-A as the bottles were not sold as bottlesbut as part of a composite unit, viz., I.V. fluids packed in bottles.

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9. Section 7-A(1)(a) refers to the consumption or use of goods inor for the manufacture of other goods. Having regard to the natureof the goods and the need for a container in order to make thosegoods marketable, it must necessarily be held that the bottles usedhere were bottles used in or for the manufacture of the I.V. fluids,Dhaving regard to the law laid down by the apex Court in the caseof J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales TaxOfficer, Kanpur [1965] 16 STC 563. As set out in the head noteto that decision it was held therein that the expression “in themanufacture of goods” in sub-section 8(3)(b) of the Central SalesETax Act, should normally encompass the entire process carriedon by the dealer of converting raw materials into finished goods.Where any particular process is so integrally connected with theultimate production of goods that, but for that process, manufactureor processing of goods would not be commercially expedient, goodsrequired in the process would fall within the expression “in theFmanufacture of goods”.”

20.2. The High Court also found that it was not the case ofassessee that the fluids manufactured by it could be sold in the marketwithout the aid of bottles. Thus, while reiterating that the bottling of I.V.fluid was necessary to make it marketable, the High Court held that theGbottles were clearly the goods which were used in or for the manufactureof fluid. The projection on the part of assessee that it would be subjectedto additional burden of tax was also rejected while observing as under(at pp. 504-505 of STC) :

“11. The assessee by reason of this demand for purchase tax hasHnot suffered any additional burden as any other manufacturer of I.V. fluids who sells the fluids in bottles by purchasingbottles from another registered dealer on which sales taxwas paid, would also still be required to include the turnoverof those bottles in the turnover of the I.V. fluids. Section 7-A, as submitted by the learned counsel, was intended to plug lossof revenue. We were initially troubled when the facts of the casewere presented before us as though the assessee was beingburdened with tax twice over. A closure (sic) examination of thecase, however, demonstrated that no such additional burden iscast on the assessee. On the other hand, not levying the tax wouldonly amount to the assessee gaining an advantage, which the lawdid not intend to provide.”

21. Turning over to the cited decisions of this Court, it may beobserved that the 3-Judge Bench decision of this Court in the case ofM.K. Kandaswami (supra) has a material bearing and is of utmostsignificance because the root purpose as also the sweep of this provisionfor levy of purchase tax have been succinctly explained by this Courtwhile illuminating several of its basic and essential ingredients.

21.1. In the case of M. K. Kandaswami (supra), the respondentdealers had purchased a variety of goods, namely, arecanuts, gingellyseeds, turmeric, grams, castor seeds and butter in such circumstanceswhere their sales were not liable to tax in the hands of the respectivesellers although the goods were such, whose sale or purchase wasgenerally liable to tax under the Act.

Against the respondent dealers, either pre-assessment proceedingshad been initiated or assessments had been made under Section 7-A ofthe Act on the purchase turnover of these goods on the assertions byrevenue that the gingelly seeds and castor seeds were crushed into oiland the butter was converted into ghee by the respective dealers and bysuch action, the goods in question were consumed in the manufacture ofother goods for sale; and hence, this action was covered under clause(a) of Section 7-A (1). It was also asserted that the other goods namely,arecanuts, turmeric and gram, were transported by the respective dealersoutside the State for sale on consignment basis and thereby, those caseswere covered by clause (b) or clause (c) of Section 7-A (1). In thebackdrop of these facts, when Section 7-A came up for interpretation in

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Athe writ petitions under Article 226 of the Constitution of India, the HighCourt found the phraseology of Section 7-A to be rather carryingcontradiction in terms and the language being far from clear as to itsintention.

21.2. However, this Court did not approve the perspective of HighBCourt and explained the true meaning as also the sweep of the respectiveexpressions in sub-section (1) of Section 7-A of the Act by breaking itup into different ingredients as follows (at pp. 195-196 of STC):

“On analysis, sub-section (1) breaks up into these ingredients:

(1) The person who purchases the goods is a dealer; C(2) The purchase is made by him in the course of his business;(3) Such purchase is either from “a registered dealer or from anyother person”;

(4) The goods purchased are “goods, the sale or purchase of whichis liable to tax under this Act”;D(5) Such purchase is “in circumstances in which no tax is payableunder section 3, 4 or 5, as the case may be”; and

(6) The dealer either-

(a) consumes such goods in the manufacture of other goods forEsale or otherwise or(b) despatches all such goods in any manner other than by way ofsale in the State or

(c) despatches them to a place outside the State except as a directresult of sale or purchase in the course of inter-State trade orFcommerce.

Section 7-A(1) can be invoked if the above ingredients are cumulatively satisfied…..

*********”

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21.3. This Court, while applying Section 7-A to the given factsituations, pointed out that this section was at once a charging as also aremedial provision in the following words (at p. 198 of STC):

“It may be remembered that section 7-A is at once a charging asHwell as a remedial provision. Its main object is to plug leakage and

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIESAND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

prevent evasion of tax. In interpreting such a provision, aconstruction which would defeat its purpose and, in effect, obliterateit from the statute book, should be eschewed. If more than oneconstruction is possible, that which preserves its workability andefficacy is to be preferred to the one which would render it otioseor sterile. The view taken by the High Court is repugnant to thiscardinal canon of interpretation.”

21.4. This Court further referred to the decision in the case ofGanesh Prasad Dixit (supra) and observed that Section 7 of the MadhyaPradesh Act, as considered therein, though not carrying exact languageas that of Section 7-A of the Tamil Nadu Act but their substance andobject were the same. This Court also noticed that in Ganesh PrasadDixit, it was held that the appellants (building contractors), who werepurchasing building materials which were taxable under the Act and hadbeen using them in the course of their business, had consumed thematerials otherwise than in the manufacture of goods for sale and for aprofit motive and hence, purchase price was taxable on the plain readingof words of Section 7 of the Madhya Pradesh Act. Taking note of suchexposition, this Court observed in M. K. Kandaswami that the ratiodecidendi of Ganesh Prasad Dixit was apposite guide for construingSection 7-A of the Tamil Nadu Act in the following (at p. 199 of STC) :

“The impugned section 7-A is based on section 7 of theMadhya Pradesh Act. Although the language of these twoprovisions is not completely identical, yet their substance and objectare the same. Instead of the longish phrase, “the goods, the saleor purchase of which is liable to tax under this Act” employed insection 7-A of the Madras Act, section 7 of the Madhya PradeshAct conveys the very connotation by using the convenient, terseexpression “taxable goods”. The ratio decidendi of GaneshPrasad is, therefore, an apposite guide for construing section7- A. Unfortunately, that decision, it seems, was not brought tothe notice of the learned Judges of the High Court.”[17]

21.5. A similar provision like Section 7-A of Tamil Nadu Act wasalso contained in Section 5-A of the Kerala General Sales Tax Act, 17 We shall be referring to the decision in Ganesh Prasad Dixit in necessary detailshereafter a little later.

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A1963[18] and validity thereof was challenged before the High Court. TheHigh Court upheld the validity of Section 5-A while explaining the schemethereof and, in M. K. Kandaswami, this Court noted with approval thedecision of Kerala High Court and further said that the said Section 5-Aof the Kerala Act was in pari materia with the Section 7-A of the Act.

B22. Moving on to the other cited decisions, as noticed, the HighCourt has followed the Constitution Bench decision of this Court in thecase of Nandanam Construction Co. (supra) and the same decisionhas been strongly relied upon by the learned Additional Advocate Generalfor revenue before us. On the other hand, learned counsel for the assesseehas emphatically relied upon the decision of this Court in Hotel BalajiC(supra) and particularly on the interpretation put by this Court on theprovisions contained in the Haryana Act with the submissions that thesaid provisions had been in pari materia with Section 7-A of the TamilNadu Act. We may, therefore, delve into these two decisions in necessarydetails.D

23. The matter involved in the case of Nandanam ConstructionCo. (supra) was laid before the Constitution Bench in view of the conflictin two 3-Judge Bench decisions of this Court, in Ganesh Prasad Dixit(supra) on one hand and CST v. Pio Food Packers: 1980 (Supp) SCC174 on the other.ENandanam 23.1. For proper comprehension of the ratio of NandanamConstruction Co. (supra), pertinent it shall be to first take note of thedecisions in Ganesh Prasad Dixit and Pio Food Packers (supra) andthe area of conflict therein.

23.1.1. As noticed hereinbefore, in the case of Ganesh PrasadFDixit, the appellant, a firm of building contractors and registered as dealerunder the Madhya Pradesh Act, was assessed to tax with respect ofgoods purchased by it for use in its construction business. As regardsthe issue relating to the imposition of purchase tax under Section 7 of theMadhya Pradesh Act, a 3-Judge Bench of this Court examined theGrelevant part of Section 7 of the Madhya Pradesh Act that read as under(at pp. 346-347 of STC):- “Every dealer who in the course of his business purchases anytaxable goods, in circumstances in which no tax under section 6 is 18 Hereinafter also referred to as ‘the Kerala Act’H

payable on the sale price of such goods and either consumes suchgoods in the manufacture of other goods for sale or otherwise ordisposes of such goods in any manner other than by way of salein the State or despatches them to a place outside the State exceptas a direct result of sale or purchase in the course of inter-Statetrade or commerce, shall be liable to pay tax on the purchaseprice of such goods at the same rate at which it would have beenleviable on the sale price of such goods under section 6……”

This Court observed that even though the phraseology used inSection 7 of the Act was a bit intricate, the meaning was fairly simple,giving out the eventualities where purchase tax would be payable i.e.,when a dealer buys taxable goods in the course of his business and (1)either consumes such goods in the manufacture of other goods for sale;or (2) consumes such goods otherwise; or (3) disposes of such goods inany manner other than by way of sale in the State; or (4) despatchesthem to a place outside the State except as a direct result of sale orpurchase in the course of inter-State trade or commerce. This Courtheld the said appellant liable to pay the purchase tax as it was registeredas dealer and had purchased building materials, which were taxable underthe Act, in the course of its business; and had consumed the materials-otherwise than in the manufacture of goods for sale and for a profitmotive.This Court also examined another contention on behalf of theappellant that the expression “or otherwise” was intended to denotealternative to the expression “sale” immediately preceding and, therefore,the price paid for buying goods consumed in the manufacture of othergoods intended to be sold or otherwise disposed of was taxable. ThisCourt did not accept this contention while deducing the intention ofLegislature that the consumption of goods renders the price paid fortheir purchase taxable, if the goods are used in the manufacture of othergoods for sale or if the goods are consumed otherwise. The relevantobservations and interpretation by this Court in Ganesh Prasad Dixitcould be usefully noticed as under (at pp. 348-349 of STC) :- “Counsel for the appellants urged that in the cases of H.Abdul Bakshi and Bros. and L.M.S. Sadak Thamby & Co., theassessees were carrying on the business of selling goodsmanufactured by them and for the purpose of manufacturing thosegoods certain other goods were purchased and consumed in theprocess of manufacture, but here the goods are not consumed in AB

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producing another commodity for sale, and on that account thetwo cases are distinguishable. The answer to that argument mustbe sought in the terms of section 7. The phraseology used inthat section is somewhat involved, but the meaning of thesection is fairly plain. Where no sales tax is payable undersection 6 on the sale price of the goods, purchase tax ispayable by a dealer who buys taxable goods in the courseof his business, and ( 1) either consumes such goods in themanufacture of other goods for sale, or (2) consumes suchgoods otherwise, or (3) disposes of such goods in anymanner other than by way of sale in the State, or ( 4)despatches them to a place outside the State except as adirect result of sale or purchase in the course of inter-Statetrade or commerce. The assessees are registered as dealersand they have purchased building materials in the course of theirbusiness; the building materials are taxable under the Act, and theappellants have consumed the materials otherwise than in themanufacture of goods for sale and for a profit-motive. On theplain words of section 7 the purchase price is taxable.

Mr Chagla for the appellants urged that the expression “orotherwise” is intended to denote a conjunctive introducing specificalternative to the words “for sale” immediately preceding. Theclause in which it occurs means, says Mr Chagla, that by section7 the price paid for buying goods consumed in the manufacture ofother goods, intended to be sold or otherwise disposed of, alone istaxable. We do not think that that is a reasonable interpretation ofthe expression “either consumes such goods in the manufactureof other goods for sale or otherwise”. It is intended by theLegislature that consumption of goods renders the pricepaid for their purchase taxable, if the goods are used in themanufacture of other goods for sale or if the goods areconsumed otherwise.”

23.1.2. However, in Pio Food Packers (supra), a note discordantto the above extracted enunciation came to be stated by another 3-Judge Bench of this Court. In that case, the respondent was carrying onthe business of manufacturing and selling canned fruit apart from otherproducts. In its return for the year 1973-74, the respondent claimed that

the turnover representing the purchase of pineapple fruit was not liableto purchase tax under Section 5-A of the Kerala Act for the reason thatthe pineapple fruit was converted into pineapple slices, pineapple jam,pineapple squash and pineapple juice but by way of such conversion ofpineapple fruit into its products, no new commodity was created andtherefore, it was erroneous to say that there was a consumption ofpineapple fruit “in the manufacture” of those goods. This Court observedas regards the connotations of “manufacture” that ‘it is only when thechange, or a series of changes, take the commodity to the pointwhere commercially it can no longer be regarded as the originalcommodity but instead is recognised as a new and distinct articlethat a manufacture can be said to take place’. As regards the process/es involved in the said matter, the Court accepted the submissions ofassessee that the pineapple slices continued to possess the same identityas the original pineapple fruit and there was no consumption of the originalpineapple fruit for the purpose of manufacture. It was also contendedon behalf of the revenue that even if no manufacturing process wasinvolved, the case fell within Section 5-A(1)(a) of Kerala Act, as thesame was speaking not only of goods consumed in the manufacture ofother goods for sale but also of goods consumed otherwise. The Courtdid not accept this contention of revenue while observing that on trueconstruction, the clause in question was only speaking of goodsconsumed in the manufacture of other goods for sale or of goodsconsumed in the manufacture of other goods for purposes other thansale. The Court, inter alia, observed, held and concluded as follows (atpp. 66-67 of STC):- “…..Although a degree of processing is involved in preparingpineapple slices from the original fruit, the commodity continuesto possess its original identity, notwithstanding the removal ofinedible portions, the slicing and thereafter canning it on addingsugar to preserve it. It is contended for the revenue that pineappleslices have a higher price in the market than the original fruit andthat implies that the slices constitute a different commercialcommodity. The higher price, it seems to us, is occasioned onlybecause of the labour put into making the fruit more readilyconsumable and because of the can employed to contain it. It isnot as if the higher price is claimed because it is a differentcommercial commodity. It is said that pineapple slices appeal to adifferent sector of the trade and that when a customer asks for a A

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can of pineapple slices he has in mind something very differentfrom fresh pineapple fruit. Here again, the distinction in the mindof the consumer arises not from any difference in the essentialidentity of the two, but is derived from the mere form in which thefruit is desired.

The learned counsel for the revenue contends that even ifno manufacturing process is involved, the case still falls withinsection 5A(1)(a) of the Kerala General Sales Tax Act, becausethe statutory provision speaks not only of goods consumed in themanufacture of other goods for sale but also goods consumedotherwise. There is a fallacy in the submission. The clause, trulyread, speaks of goods consumed in the manufacture of othergoods for sale or goods consumed in the manufacture ofother goods for purposes other than sale.

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In the result, we hold that when pineapple fruit is processedinto pineapple slices for the purpose of being sold in sealed cansthere is no consumption of the original pineapple fruit for the purposeof manufacture. The case does not fall within section 5A(1)(a) ofthe Kerala General Sales Tax Act. The High Court is right in theview taken by it.”

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23.2. Thus, there had been a subtle but significant divergence inthe aforesaid two decisions inasmuch as in Ganesh Prasad Dixit, a 3-Judge Bench of this Court construed the operation of expression “orotherwise” in the manner that consumption/use of goods in questionwould render price paid for their purchase taxable, (i) if the goods wereFconsumed in the manufacture of other goods for sale; or (ii) if the goodswere consumed otherwise. However, in Pio Food Packers, another 3-Judge Bench of this Court construed the similar provision carrying theexpression “or otherwise” to mean that the same was speaking, (i) ofgoods consumed in the manufacture of other goods for sale; or (ii) ofGgoods consumed in the manufacture of other goods for purposes otherthan sale. In other words, while Ganesh Prasad Dixit gave out theinterpretation that the expression “or otherwise” was providing alternativeto the action of “manufacture” whereas Pio Food Packers held, inrelation to similar provision in other statute, that this expression “orotherwise” provided alternative to the action of “sale”. This divergence G

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of the views in Ganesh Prasad Dixit and Pio Food Packers led to thematter being placed before the Constitution Bench.

23.3. Keeping the aforesaid background in mind, we may nowrevert to the decision in Nandanam Construction Co. wherein, theConstitution Bench of this Court resolved the divergence while approvingthe view in Ganesh Prasad Dixit.

23.3.1. In Nandanam Construction Co. (supra), the backgroundfactual aspects had been that the respondents, who were engaged inbuilding of flats and houses, had bought the material such as sand, bricksand granite from unregistered dealers and without payment of sales tax.The Assistant Commissioner of Commercial Taxes called upon therespondents to produce their books of accounts while proposing to holdthem liable for purchase tax under Section 6-A of Andhra Pradesh Act.On the proposed action being challenged, the High Court held that inorder to attract Section 6-A of the Andhra Pradesh Act, there ought tobe consumption of the original goods for the purpose of manufacture ofother goods for sale or for purposes other than sale; and in the absenceof such consumption, the respondents were not liable to purchase tax.For this proposition, the High Court relied on the decision in Pio FoodPackers (supra). In the appeal before this Court, the contention ofrevenue was that the said Section 6-A of the Andhra Pradesh Act wasapplicable to ‘consumption of original goods in the manufacture of theother goods for sale or consumption of original goods otherwise’. On theother hand, it was contended on behalf of the respondents that the viewtaken in Pio Food Packers, as followed in CST v. Thomas Stephen &Co. Ltd.: (1988) 2 SCC 264 must be accepted and at any rate, if twoviews were possible, the assessee should be given the benefit of doubt.

23.3.2. The Constitution Bench of this Court took note of Section6-A of the Andhra Pradesh Act that read as under (in para 3 at p. 429 ofSTC):

“6-A. Levy of tax on turnover relating to purchase of certaingoods. —Every dealer, who in the course of business—

(i) purchases any goods (the sale or purchase of which is liableto tax under this Act) from a registered dealer in circumstancesin which no tax is payable under section 5 or under section 6,as the case may be, or A

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A(ii) purchases any goods (the sale or purchase of which is liable totax under this Act) from a person other than a registered dealer,and (a) either consumes such goods in the manufacture of othergoods for sale or otherwise, or B

(b) disposes of such goods in any manner other than by wayof sale in the State, or

(c) despatches them to a place outside the State except as adirect result of sale or purchase in the course of inter-Statetrade or commerce,C

shall pay tax on the turnover relating to purchase aforesaid at thesame rate at which but for the existence of the aforementionedcircumstances, the tax would have been leviable on such goodsunder section 5 or section 6.”

D23.3.3. While dealing with the contentions of the parties and findingthat sub-clause (a) of clause (ii) of Section 6-A was applicable, theConstitution Bench pointed out that the object of the said provision wasto levy purchase tax on goods consumed either for the purpose ofmanufacture of other goods for sale or consumed otherwise. TheConstitution Bench did not approve the view expressed in Pio FoodEPackers to that extent while pointing out that the intention of theLegislature was to bring to purchase tax in either event of consumptionof goods in the manufacture of goods for sale or consumption of goodsin any other manner.The Constitution Bench also indicated the logicthat once the goods were utilized in construction of buildings, they ceasedto exist or ceased to be available in the original form for sale or purchaseFso as to attract the tax. The Constitution Bench observed and held asunder (at p. 431 of STC):

“10. We are concerned in this case only with clause (a) of sub-section (ii) of section 6-A, that is, either consumption of suchgoods in the manufacture of other goods for sale or otherwise.GClause (ii) of section 6-A of the Act postulates levy of tax onpurchase of goods from a person other than a registered dealerfor consumption or disposal or despatch of goods outside the State.So the scheme of clause (ii) of section 6-A of the Act is thatwhen the goods cease to exist in the original form or cease to beHavailable 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.To our mind, it appears that the object of section 6-A(ii)(a)of the Act is to levy purchase tax on goods consumed eitherfor the purpose of manufacture of other goods for sale orconsumed otherwise. If the view in Pio Food Packers [1980]46 STC 63 (SC) ; [1980] 3 SCR 1271, is accepted the resultwould be that the expression “otherwise” will qualify theexpression “sale” and not the expression “manufacture”,which appears to us to be erroneous on a plain constructionof the provision. The intention of the legislature, it appearsto us, is to bring to purchase tax in either event ofconsumption of goods in the manufacture of goods for saleor consumption of goods in any other manner. Once the goodsare utilised in the construction of buildings the goods cease toexist or cease to be available in that form for sale or purchase soas to attract the tax and, therefore, the correct meaning to beattributed to the said provision would be that tax will be attractedwhen such goods are consumed in the manufacture of other goodsor are consumed otherwise. Therefore, while agreeing with theview in Ganesh Prasad Dixit [1969] 24 STC 343 (SC) ; [1969] 3SCR 490, on this aspect, we overrule to this extent the viewexpressed in Pio Food Packers [1980] 46 STC 63 (SC) ; [1980]3 SCR 1271.”

24. Having taken note of the enunciation by the Constitution Benchof this Court which has been strongly relied upon by the revenue, wemay also take note of the counter reliance placed by the learned seniorcounsel for the assessee on the decision of this Court in Hotel Balaji(supra).

24.1 The discussion in the lead judgment in Hotel Balaji makes itclear that different provisions for levy of purchase tax in various StateSales Tax enactments, like those contained in Gujarat Sales Tax Act,1969, Uttar Pradesh Sales Tax Act, Andhra Pradesh General Sales TaxAct, 1957 and Haryana Sales Tax Act[19] amongst others, came up forconsideration before this Court in the wake of challenge to theconstitutional validity thereof. In the referred paragraphs, this Court took 19 For brevity and continuity, such State enactments have been referred herein withreference to the names of respective States.

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Anote of the original and amended provisions relating to purchase tax, ascontained in Section 9 of the Haryana Act as follows (at pp. 137-139 ofSTC):

“… Section 9 of the Haryana Act, before it was amended byHaryana General Sales Tax (Amendment and Validation) Act,1983, read as follows:

B

“9. Where a dealer liable to pay tax under this Act purchasesgoods other than those specified in Schedule B from any sourcein the State and—

(a) uses them in the State in the manufacture of, —

C

(i) goods specified in Schedule B or

(ii) any other goods and disposes of the manufactured goods in anymanner otherwise than by way of sale whether within theState or in the course of inter-State trade or commerce orwithin the meaning of sub-section (1) of section 5 of theCentral Sales Tax Act, 1956, in the course of export out ofthe territory of India, D

(b) exports them,

E

in the circumstances in which no tax is payable underany other provision of this Act, there shall be levied,subject to the provisions of section 17, a tax on thepurchase of such goods at such rate as may be notifiedunder section 15.”

F

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After it was amended by the aforesaid amendment Act,sub-sections (1) and (2) of section 9 read as follows:

“9. Liability to pay purchase tax.— (1) Where a dealerliable to pay tax under this Act,—

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(a) purchases goods, other than those specified inSchedule B, from any source in the State and uses themin the State in the manufacture of goods specified inSchedule B; or H

(b) purchases goods, other than those specified inSchedule B, from any source in the State and uses themin the State in the manufacture of any other goods andeither disposes of the manufactured goods in any mannerotherwise than by way of sale in the State or despatchesthe manufactured goods to a place outside the state inany manner otherwise than by way of sale in the courseof inter-State trade or commerce or in the course ofexport outside the territory of India within the meaningof sub-section (1) of section 5 of the Central Sales TaxAct, 1956; or

(c) purchases goods, other than those specified inSchedule B, from any source in the State and exportsthem, in the circumstances in which no tax is payable underany other provision of the Act, there shall be levied, subjectto the provisions of section 17 a tax on the purchases ofsuch goods at such rate as may be notified under section15.

(2) Notwithstanding anything contained in this Act or theRules made thereunder, if the goods leviable to tax underthis section are exported in the same condition in whichthey were purchased, the tax shall be levied, charged andpaid at the station of despatch or at any other station beforethe goods leave the State and the tax so levied, chargedand paid shall be provisional and the same shall be adjustabletowards the tax due from the dealer on such purchase as aresult of assessment or reassessment made in accordancewith the provisions of this Act and the rules made thereunderon the production of proof regarding the payment thereofin the State.”

24.2. While interpreting the said provision in Section 9 of theHaryana Act, this Court said as follows (at pp. 141-142 and 145-146 ofSTC):- “The crucial question, therefore, is what is the basis of taxation ineither of the above provisions? …… Let us first deal with section9 of the Haryana Act (as amended in 1983). Properly analysed, AB

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the following are the ingredients of the section : (i) a dealer liableto pay tax under the Act purchases goods (other than thosespecified in Schedule B) from any source in the State and (ii)uses them in the State in the manufacture of any other goods and(iii) either disposes of the manufactured goods in any mannerotherwise than by way of sale in the State or despatches themanufactured goods to a place outside the State in any mannerotherwise than by way of sale in the course of a inter -State tradeor commerce or in the course of export outside the territory ofIndia within the meaning of sub-section (1) of section 5 of theCentral Sales Tax Act, 1956. If all the above three ingredients aresatisfied, the dealer becomes liable to pay tax on the purchase ofsuch goods at such rate, as may be notified under section 15.

Now, what does the above analysis signify? The section appliesonly in those cases where (a) the goods are purchased (forconvenience sake, I may refer to them as raw material) bya dealer liable to pay tax under the Act in the State, (b) thegoods so purchased cease to exist as such goods for thereason they are consumed in the manufacture of differentcommodities and (c) such manufactured commodities areeither disposed of within the State otherwise than by way ofsale or despatched to a place outside the State otherwisethan by way of an inter-State sale or export sale. It is evidentthat if such manufactured goods are not sold within the State ofHaryana, but yet disposed of within the State, no tax is payable onsuch disposition; similarly, where manufactured goods aredespatched out of State as a result of an inter- State sale (sic) orexport sale, no tax is payable on such sale. Similarly again wheresuch manufactured goods are taken out of State to manufacturers’own depots or to the depots of his agents, no tax is payable onsuch removal.….

***

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…… To repeat, the scheme of section 9 of Haryana Act is tolevy the tax on purchase of raw material and not to forego itwhere the goods manufactured out of them are disposed of (ordespatched, as the case may be) in a manner not yielding anyrevenue to the State nor serving the interests of nation and itseconomy, as explained hereinbefore. The purchased goods areput an end to by their consumption in manufacture of other goods and yet the manufactured goods are dealt with in amanner as to deprive the State of any revenue; in suchcases, there is no reason why the State should forego itstax revenue on purchase of raw material.”

(emphasis in bold supplied)

Deducing the applicable principles

25. Having taken note of the relevant statutory provisions as alsoenunciations in the cited decisions, necessary now it is to cull out theprinciples to be applied to the present case.

26. Before proceeding further, we may usefully refer to the well-recognised doctrine of “pari materia” whereby and whereunder,reference to the decisions dealing with other statutes on the same subjectis regarded as a permissible aid to the construction of provisions in astatute. Suffice would be, in this regard, to refer to the decision inAhmedabad (P) Primary Teachers’ Assn. v. Administrative Officer:(2004) 1 SCC 755 wherein this Court applied the doctrine of “parimateria” with reference to the relevant observations in Principles ofStatutory Interpretation by Justice G.P. Singh as follows (at page 760of SCC):- “12….On the doctrine of “pari materia”, reference to otherstatutes dealing with the same subject or forming part of the samesystem is a permissible aid to the construction of provisions in astatute. See the following observations contained in Principlesof Statutory Interpretation by G.P. Singh (8th Edn.), Syn. 4, atpp. 235 to 239:

“Statutes in pari materia

It has already been seen that a statute must be read as awhole as words are to be understood in their context.Extension of this rule of context permits reference to otherstatutes in pari materia i.e. statutes dealing with the samesubject-matter or forming part of the same system. ViscountSimonds in a passage already noticed conceived it to be aright and duty to construe every word of a statute in itscontext and he used the word context in its widest senseincluding ‘other statutes in pari materia’. As stated by LordMansfield ‘where there are different statutes in pari materiathough made at different times, or even expired, and not A

B

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Areferring to each other, they shall be taken and construedtogether, as one system and as explanatory of each other’.

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The application of this rule of construction has the merit ofavoiding any apparent contradiction between a series ofBstatutes dealing with the same subject; it allows the use ofan earlier statute to throw light on the meaning of a phraseused in a later statute in the same context; it permits theraising of a presumption, in the absence of any contextindicating a contrary intention, that the same meaningCattaches to the same words in a later statute as in an earlierstatute if the words are used in similar connection in thetwo statutes; and it enables the use of a later statute asparliamentary exposition of the meaning of ambiguousexpressions in an earlier statute.”

D26.1. We may, however, usefully add a caveat in regard to theapplication of the doctrine of pari materia, as entered in the same classicPrinciples of Statutory Interpretation by Justice G.P. Singh[20] as follows:

“It is settled law that words used in a particular statute cannot beused to interpret the same word in a different statute especiallyEwhen the two statutes are not pari materia …..”

27. Keeping the aforementioned principles in view and havingregard to the questions of construction involved in the present case, itappears appropriate to recapitulate the texts of the relevant provisionsconcerning purchase tax as occurring in different State enactments whichhave come in reference in the present case; and for proper appreciation,Fit would be useful to put the relevant texts in juxtaposition to notice theirsimilarities and akin features as also the dissimilarities and distinctivefeatures. The material parts of the relevant provisions read as under:-

Tamil Nadu ActSection 7-A. Levy of purchase tax:(1) Subject to the provisions of sub-section (1) ofsection 3, every dealer who in the course ofhis business purchases from a registereddealer or from any other person, any goods,(the sale or purchase of which is liable to tax G

H20 14th Edition- at p. 330

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES915AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]Aunder this Act) in circumstances in whichno tax is payable under sections 3 or 4,as the case may be, not being acircumstance in which goods liable to taxunder sub-section (2) of section 3 orsection 4, were purchased at a point otherBthan the taxable point specified in theFirst or the Second Schedule and either,(a) consumes or uses such goods in themanufacture of other for sale orotherwise;orCin any manner other than by way of sale inthe State; or(c) despatches or carries them to a placeoutside the State except as a direct resultof sale or purchase in the course of inter-DState trade or commerce, shall pay tax onthe turnover relating to the purchase asaforesaid at the rate mentioned in sections3 or 4, as the case may be.EAndhra Pradesh Act6-A. Levy of tax on turnover relating topurchase of certain goods.— Everydealer, who in the course of business—(i) purchases any goods (the sale orpurchase of which is liable to tax underthis Act) from a registered dealer inFcircumstances in which no tax ispayable under section 5 or undersection 6, as the case may be, or(ii) purchases any goods (the sale orpurchase of which is liable to tax underGthis Act) from a person other than aregistered dealer, and(a) either consumes such goods in themanufacture of other goods for saleor otherwise,orH

A(b) disposes of such goods in any mannerother than by way of sale in the State, or(c) despatches them to a place outside theState except as a direct result of sale orpurchase in the course of inter-State trade orcommerce, shall pay tax on the turnover relatingBto purchase aforesaid at the same rate at whichbut for the existence of the aforementionedcircumstances, the tax would have been leviableon such goods under section 5 or section 6CMadhya PradeshSection 7ActEvery dealer who in the course of his businesspurchases any taxable goods, in circumstancesin which no tax under section 6 is payable onthe sale price of such goods and eitherDconsumes such goods in the sale or otherwiseordisposes of such goods in any manner other thanby way of sale in the State or despatches themto a place outside the State except as a directEresult of sale or purchase in the course of inter-State trade or commerce, shall be liable to paytax on the purchase price of such goods at thesame rate at which it would have been leviableon the sale price of such goods under section6……FHaryana Act9. Liability to pay purchase tax.— (1) Wherea dealer liable to pay tax under this Act,—(a) purchases goods, other than thosespecified in Schedule B, from any sourceGin the State and uses them in theState in the manufacture of goodsspecified in Schedule B; orin Schedule B, from any sourceH

in the State and uses them in the Statein the manufacture of any other goodsand either disposes of themanufactured goods in any mannerotherwise than by way of sale in the Stateor despatches the manufactured goodsto a place outside the state in any mannerotherwise than by way of sale in thecourse of inter-State trade or commerceor in the course of export outside theterritory of India within the meaning of sub-section (1) of section 5 of the Central SalesTax Act, 1956; or

(c) purchases goods, other than thosespecified in Schedule B, from any source inthe State and exports them, in thecircumstances in which no tax is payableunder any other provision of the Act, thereshall be levied, subject to the provisions ofsection 17 a tax on the purchases of suchgoods at such rate as may be notified undersection 15.

(emphasis in bold and underlines supplied)

28. As noticed, so far as the text of Section 7-A (1) applicable tothe case at hand is concerned, there has not been any direct interpretationby this Court or the jurisdictional High Court (except the order impugned).We may also usefully reiterate that so far decision of Madras High Courtin the case of Associated Pharmaceuticals Industries (supra) isconcerned, the same was rendered before the relevant amendments toSection 7-A of the Act and particularly when the expression “or uses”was not there in clause (a) of Section 7-A (1). Only the expression“consumes” was considered therein and the High Court held that thebottles were not consumed in manufacture of drugs or syrups. So farthe decision of Madras High Court in the case of Appollo SalinePharmaceuticals (supra) is concerned, as noticed, the same wasrendered after further amendment to Section 7-A whereby, the expression“or for” was added to clause (a), which expression was not there in the

A

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Aprovision applicable to the present case. This apart, the activity examinedin the case of Appollo Saline Pharmaceuticals had been of the sale ofI.V. fluid packed in bottles. We shall refer to this decision a little laterwhile dealing with the second limb of contentions on the part of theassessee about the effect of charging sales tax on bottles at the time ofsale by the assessee, at the rate applicable to its contents but cannotBtake any assistance from the same for the purpose of deducing the basicingredients of Section 7-A of the Tamil Nadu Act, as in force during theassessment year in question. Having said so, we may look at the principlesavailable in the decisions of this Court dealing with either Section 7-A ofthe Tamil Nadu Act as earlier existing or the provisions in other enactmentsCdealing with the same subject of the levy of purchase tax.

29. Now reverting to the cited decisions of this Court, we may atonce observe that so far the decision in Hotel Balaji (supra) is concerned,reliance on the above extracted paragraphs on behalf of assessee hasbeen entirely misplaced because the provision of purchase tax in theDHaryana Act, as interpreted in Hotel Balaji, cannot be said to be inpari materia with Section 7-A of the Tamil Nadu Act inasmuch as, inthe phraseology of Section 9 of the Haryana Act, the expression “orotherwise”, qualifying the action of “manufacture” (as available in TamilNadu Act) had not been there. To be more specific, the referredobservations in Hotel Balaji cannot apply to the Tamil Nadu Act for theEsimple reason that in Section 9 of the Haryana Act, levy of purchase taxwas envisaged in the event either of use of goods in question inmanufacture of the goods specified in Schedule B; or use of goods inquestions in the manufacture of any other goods and their disposal/despatch in the manner specified; or export of the goods in question.

FSignificantly, neither in clause (a) nor in clause (b) of the said Section 9of the Haryana Act, the Legislature had provided for any alternative to,or expansion of, the activity of “manufacture” by using any expressionlike “otherwise”, as seen in other enactments on the same subject. Ofcourse, the expression “otherwise” has occurred in clause (b) of Section9 of the Haryana Act at two places, but only in relation to the mode ofGdisposal and despatch respectively. For want of the expression “orotherwise” at the relevant place, so as to cover the activity not only ofmanufacture but of its consumption or use in any other manner, theprovision in Haryana Act stands at fundamentally different footing andthis decision in Hotel Balaji is of no assistance in interpretation of SectionH7-A of the Tamil Nadu Act.

29.1. It needs hardly any re-emphasis that the scope and ambit ofthe provisions of purchase tax in different State enactments had beendifferent on material particulars; and it is apparent that for difference inphraseology, interpretation of one particular State Sales Tax Act cannotbe ipso facto imported for interpreting another enactment. Learned seniorcounsel for the assessee has endeavoured to persuade us that theobservations made in Hotel Balaji (supra) in relation to Haryana Actmay apply to the present case too but, we are afraid, the submissionscannot be accepted because of a fundamental difference in the ambitand scope of the Haryana Act compared to the ambit and scope ofTamil Nadu Act with which we are concerned in these appeals. Wemay, therefore move on to the other decisions of this Court for the purposeof interpretation of Section 7-A of the Act and for finding out the principlesto be applied to the present case.

30. As noticed, the 3-Judge Bench decision of this Court in thecase of M. K. Kandaswami (supra) was rendered in relation to theprovision of Section 7-A of the Tamil Nadu Act, as existing at the relevanttime. The later amendment of this provision (w.e.f. 01.01.1987), withwhich we are concerned in this case, has only enlarged its width byinsertion of the expression “or uses” after the expression “consumes”and thereby, not only consumption but even use in the manner envisagedby the provision would provide coverage thereunder. Therefore, whenthe later amendment has not altered the basics of Section 7-A of the Actand had only enlarged its scope, the principles applicable to the presentcase could be culled out from the enunciation in M. K. Kandaswami,with necessary variation, rather enlargement.

31. As held in M. K. Kandaswami (supra), Section 7-A of theAct is a charging as well as a remedial provision, its main object being toplug leakage and prevent evasion of tax; and in interpreting such aprovision, a construction which would defeat its purpose or render itotiose should be eschewed. As regards workability of Section 7-A of theAct, this Court catalogued its ingredients in a point-wise break up andpointed out that it would apply only if all such ingredients are cumulativelysatisfied. We have extracted the analysis so made by this Courthereinbefore[21]. The same analysis shall apply to the provision of Section7-A with which we are concerned in the present case with necessaryvariation and with major difference that in point No. 6(a), the expression 21 Vide paragraph 19.2. ibid.

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A“or uses” shall also get added because of the amendment above-noted.Therefore, applying the analysis in M.K. Kandaswami with necessarymodification, Section 7-A (1), as existing in the statute during the periodrelevant for the present case, would become applicable if the followingbasic ingredients are cumulatively satisfied: - B(1) The person who purchases the goods is a dealer and is coveredunder Section 3(1) of the Act;

(2) the purchase is made by him in the course of his business;

(3) such purchase is either from a registered dealer or from anyother person;C(4) the goods purchased are those goods whose sale or purchaseis liable to tax under the Act;

(5) such purchase is in circumstances in which no tax is payableunder Section 3 or 4, as the case may be (but not being the exceptedDcircumstance with reference to the point of purchase); and

(6) the dealer either-

(a) consumes or uses such goods in the manufacture of othergoods for sale or otherwise, or (b) disposes of such goods in any manner other than by wayEof sale in the State, or

(c) despatches or carries them to a place outside the Stateexcept as a direct result of sale or purchase in the course ofinter-State trade or commerce.

F32. The analysis as above fairly gives insight as to the ambit andscope of Section 7-A (1) of the Act but it is the expression “or otherwise”,as occurring in clause (a) of this provision [point No. 6(a) ibid.] that,perforce, calls for yet deeper exploration to understand the range ofcoverage of this provision. However, this exploration does not requireany lengthy discussion for the directly applicable dictum of the ConstitutionGBench in the case of Nandanam Construction Co. (supra).

33. As noticed, the relevant clauses in Section 6-A of the AndhraPradesh Act had been more or less similar to those contained in Section7-A of the Tamil Nadu Act and while construing the same in NandanamConstruction Co. (supra), the Constitution Bench specifically held thatHthe object of the said provision was to levy purchase tax on goods consumed either for the purpose of manufacture of other goods for saleor consumed otherwise.[22] Be it noted that the additional expression “oruses” was not there in the said Section 6-A of the Andhra Pradesh Acteither. In other words, the phraseology examined by the ConstitutionBench in Nandanam Construction Co. was akin to that of Section 7-Aof the Tamil Nadu Act as existing earlier and as examined in M.K.Kandaswami. Further, noticeably, in M.K. Kandaswami, the 3-JudgeBench held that the decision in Ganesh Prasad Dixit, wherein theprovision contained in Section 7 of the Madhya Pradesh Act had beeninterpreted by this Court, was apposite guide for construing Section 7-Aof the Tamil Nadu Act; and then, in Nandanam Construction Co., theConstitution Bench approved the enunciation in Ganesh Prasad Dixitas regards the interpretation of the expression “or otherwise” whilemaking it absolutely clear that this expression “or otherwise” providedalternative to the expression “manufacture” and not to the expression“sale”; and the converse interpretation as regards this expression “orotherwise” in Pio Food Packers was overruled. The provision in Section7 of the Madhya Pradesh Act had also been similar to the original Section7-A of the Tamil Nadu Act.

33.1. As noticed, by the amendment with effect from 01.01.1987,the scope of Section 7-A (1) has only been enlarged with addition of theexpression “or uses”. Looking to the expressions of Section 7-A (1) ofthe Tamil Nadu Act, as existing earlier and as existing after theamendment, we are clearly of the view that the enunciation by theConstitution Bench in Nandanam Construction Co., read with theapproved interpretation in Ganesh Prasad Dixit, would equally applyto the amended provision with necessary modulation after its expansion.

34. When the principles laid down by the Constitution Benchin Nandanam Construction Co. coupled with the approved interpretationin Ganesh Prasad Dixit are read with the analysis in M.K. Kandaswamiand are applied to the amended Section 7-A of the Tamil Nadu Act withwhich we are concerned in this case, the end-product of synthesis isthat the expression “or otherwise” qualifies, and provides alternative to,the action of “manufacture”; and therefore, consumption of the goods inquestion for manufacture or otherwise as also use of the goods in questionfor manufacture or otherwise are the acts/actions covered under clause( a) of sub-section (1) of Section 7-A of the Tamil Nadu Act.

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A34.1. In other words, when we apply the principles laid down bythe Constitution Bench in Nandanam Construction Co. to thephraseology of clause (a) of sub-section (1) of Section 7-A of the TamilNadu Act, four eventualities are covered thereunder, with reference tothe treatment of the goods in question (which had been purchased bythe dealer in the circumstances where sales tax had not been paid at theBtime of their purchase), viz.,

(i) when they are consumed in manufacture of other goods forsale; or

(ii) when they are consumed otherwise; or C

(iii) when they are used in manufacture of other goods for sale; or

(iv) when they are used otherwise.

Application of the relevant principles to the case at hand

35. Put in a nutshell, with the discussion foregoing, we have foundDthat for applicability of Section 7-A (1) of the Act, as existing in thestatute during the period relevant for the present case, basic ingredients(compiled in paragraph 31 hereinbefore) ought to be cumulativelysatisfied; and for coverage of any case under clause (a) of sub-section(1) of Section 7-A of the Act, one or more of the eventualities envisagedtherein (catalogued in paragraph 34.1. hereinabove) ought to exist.EHaving thus deduced the necessary ingredients/elements and relevantprinciples, we may now embark upon the enquiry as to whether purchasetax under Section 7-A of the Act is leviable over the turnover in question.

36. As noticed, for the purpose of its business of manufacture andsale of Beer and IMFL, the assessee had purchased empty bottles fromFunregistered dealers situated outside the State as well as from non-dealersfor the bottling of Beer and IMFL. The assessee would assert thatpurchase tax on the turnover in question is not leviable for the reason thesaid empty bottles were recycled after use by the consumers and werere-filled with Beer/IMFL; and that the said bottles had not been consumedGor used in the manufacture of liquor and they were only used as containersin which already manufactured liquor was bottled for carrying and sale.The counter stand of revenue is that use of the said bottles is imperativein the manufacture of Beer/IMFL and packaging of Beer/IMFL in glassbottles has to be seen as an inseparable composite unit; and therefore,purchase tax on the turnover of purchase of such empty bottles is leviable,Hfor being covered by Section 7-A (1) (a) of the Act.

36.1. The assessee has urged another contention that the salevalue of bottles has been subjected to tax at the time of sale of its contentsand therefore, there could arise no question of levy of purchase tax onthese very bottles, which are meant for repeated use. To this, the standof revenue is that levy of sales tax on the bottles sold with liquor is of nobearing because such sales tax on bottles is leviable when they are soldas containers of liquor, even if the empty bottles were purchased afterpayment of tax.

37. Taking up the first limb of submissions with reference to theactivity in question, when we examine the ingredients for applicability ofSection 7-A (1) of the Act, it is not in dispute that: (1) the assessee, whohas purchased the goods in question (the empty bottles), is a dealer andis covered under Section 3 (1) of the Act; (2) the said purchase has beenmade by the assessee in the course of its business; (3) such purchasehas been from unregistered dealers situated outside the State as well asfrom non-dealers; (4) sale or purchase of the goods purchased (the emptybottles) is liable to tax under the Act; and (5) such purchase has been incircumstances in which no tax is payable under Section 3 or 4 and hasnot been in any excepted circumstance with reference to the point ofpurchase. These indisputable features unfailingly lead to the positionthat ingredients (1) to (5) of Section 7-A (1) of the Act, as mentioned inparagraph 31 hereinbefore, are satisfied.

37.1. However, as noticed, for applicability of Section 7-A (1) ofthe Act, all the six ingredients need to be cumulatively satisfied. Theingredient (6) has three alternatives viz., the dealer has either (a)consumed or used the goods in question in the manufacture of othergoods for sale or otherwise, or (b) has disposed of such goods in anymanner other than by way of sale in the State, or (c) has despatched orcarried them to a place outside the State except as a direct result of saleor purchase in the course of inter-State trade or commerce. It is not indispute that clauses (b) or (c) of this ingredient are not attracted in thiscase, for the entire manufactured Beer/IMFL, after bottling, having beensold by the assessee only to the Tamil Nadu State Marketing CorporationLimited (TASMAC) within the State of Tamil Nadu.

38. With the filtration foregoing, we have reached to the core ofthis matter i.e., as to whether the activity in question falls within theambit of clause (a) of Section 7-A (1) of the Act? As already noticed, asper the language used, this provision comes in operation when the dealer AB

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A‘consumes or uses such goods in the manufacture of other goodsfor sale or otherwise’. Hence, the activity in question would be socovered if any one of the four elements of clause (a) exists, i.e., (i) if thegoods in question are consumed in manufacture of other goods for sale;or (ii) if they are consumed otherwise; or (iii) if they are used inmanufacture of other goods for sale; or (iv) if they are used otherwise.B

39. In view of their intrinsic connectivity, we may first examinethe elements (i) and (iii) and shall examine the other elements a littlelater. Now, in order to examine as to whether any of these elements (i)or (iii) exists or not, we may look at the meaning and connotation of theexpressions “consume”, “use” and “manufacture” employed in clauseC(a) of sub-section (1) of Section 7-A of the Act with a little reference tothe etymology related with these expressions as also to the semanticsrelated with the preposition “in”.

39.1. As per Concise Oxford English Dictionary[23], one of themeaning assigned to the verb “consume”[24] is ‘eat, drink or ingest. –Duse up.-(especially of a fire) completely destroy’. The noun derivedfrom this verb is “consumption”, which has been assigned one of themeanings in the same dictionary[25] as ‘the action or process ofconsuming. – an amount consumed’.

39.1.1. Similarly, as per Black’s Law Dictionary[26], the wordE“consume” signifies, amongst others, ‘to destroy the substance of esp.by fire; to use up or wear out gradually, as by burning or eating’;‘to use up (time, resources, etc.), whether fruitfully or fruitlessly’;and ‘to eat or drink; to devour’. The word “consumption” has beendefined therein[27] being ‘the act of destroying a thing by using it; theFuse of a thing in a way that exhaust it’.

39.2. The expression “use”, which is used as verb as also asnoun, has been assigned variegated meanings in Concise Oxford EnglishDictionary[28], which include, as regards its verb form to mean, ‘take,hold or deploy as a means of achieving something’; and in its nounGform to mean ‘the action of using or state of being used’.

23 Twelfth South Asian Edition, p. 307

24 Derived from latin consumere (con – ‘altogether’ + sumere – ‘take out’)

25 ibid., p. 307

26 Tenth Edition., p. 382

27 ibid., p. 384H28 ibid., p. 1593

39.2.1. Similarly, in Black’s Law Dictionary[29], the expression “use”is defined, inter alia, to mean in its noun form as being ‘the applicationor employment of something’; and in its verb form ‘to employ for theaccomplishment of a purpose’.

39.3. Both the expressions “consumes” and “uses”, denotingparticular form of action, have been employed in clause (a) of Section7-A (1) of the Act as verbs, which do form the main part of the predicateof the sentence. These verbs co-relate with the word “manufacture”.Now, so far the word “manufacture”[30] is concerned, which too is usedin the language as verb as also as noun, is defined in Concise OxfordEnglish Dictionary[31] in its verb form to carry the meaning, amongst others,as to ‘make (something) on a large scale using machinery’ and itsnoun form to mean ‘the process of manufacturing’.

39.3.1. In Black’s Law Dictionary[32], the word “manufacture” isdefined, inter alia, to mean ‘a thing that is made or built by a humanbeing (or by a machine), as distinguished from something that is aproduct of nature; esp., any material form produced by a machinefrom an unshaped composition of matter’.

39.3.2. In P. Ramanatha Aiyar’s Advanced Law Lexicon[33], a vastvariety of usages of this expression “manufacture” have been specified,the relevant parts whereof may be extracted as under:- “‘MANUFACTURE’ implies a change, but every change is notmanufacture and yet every change of an article is the result oftreatment labour and manipulation. But something more isnecessary and there must be transformation; a new and differentarticle must emerge having a distinctive name, character or use….

Conversion of raw materials into a finished product, e.g. convertingiron ore into steel plate.

Manufacture is : (1) The application, to material, of labour or skill,whereby the original article is changed to a new, different, anduseful article, provided the process is of a kind popularly regardedas manufacture, or (2) the product of such process.

29 ibid., pp. 1775 and 1776

30 Derived from latin manufactum – ‘made by hand’

31 ibid., p. 871

32 ibid., p. 1109

33 Fifth Edition, Volume 3. P. 3144.

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A“Whatever is made by human labour, either directly or throughthe instrumentality of machinery.” (Abott L. Dict.)*********

Every alteration in an article does not confer on it a new characteras a manufacture. To constitute a new and different article and aBmanufactured article, it must be so changed as to have a positiveand specific use in its new state.

*********”

39.4. As noticed, the co-relation of verbs “consumes” and “uses”Cwith “manufacture” is framed in clause (a) of sub-section (1) of Section7-A of the Act with the use of “in”. The word “in” is used in the languagemostly as preposition and adverb[34]. As regards the aspects relevant onthe phraseology of Section 7-A of the Act, out of the several meaningsassigned to this word “in” in the same Concise Oxford EnglishDictionary[35], the relevant could be usefully noticed as being ofD‘expressing the situation of being enclosed or surrounded bysomething; expressing motion that results in being within orsurrounded by something; and expressing inclusion or involvement’.Thus, one of the relevant usage of the preposition “in” is to indicatesomething to be an integral part of an activity. Understood this way, itEis clear that the two phrases, i.e., “consumes in manufacture” or“uses in manufacture” denote that the goods in question have been eitherconsumed or used as an integral part of the activity of manufacture.

39.4.1. For yet further and finer comprehension of the languageemployed in the provision in question, we may usefully refer to its lateramendment w.e.f. 06.11.1997 whereby, even the prepositions wereFwidened to read “in or for”. The word “for” is essentially used aspreposition but in various phraseologies, it is also used as conjunctionand, amongst several meanings, it has also been assigned the meaning‘having as a purpose or function’ in the same Concise Oxford EnglishDictionary.[36] Thus, employing the preposition “for”, inter alia, signifiesGthe use of something towards a particular purpose, even without becomingan integral part of the activity leading to the purpose.

34 The word “in” is also used as suffix and prefix in various expressions with which weare not concerned in the present case35 ibid., p. 717H36 ibid., p. 555.

39.4.2. We need not enter deeply into the nitty-gritty of semanticsbut this much is clear that with the said later amendment and modificationof prepositions to “in or for”, coverage is provided in the provision notonly to the activity of use of the particular goods in the manufacture butalso to the activity when the particular goods are merely used for themanufacture. However, as noticed, this amendment with insertion of theexpressions “or for” is not applicable to the present case. Therefore, forthe present purpose, it shall have to be examined if the goods in question(empty bottles) have either been consumed or been used as an integralpart of the activity of manufacture of other goods for sale.

40. As noticed, several of the meanings of the expressions“consume” and “consumption” denote using up a particular thing in away that results in complete exhaustion of that thing. On the other hand,the expression “use” denotes the application or deployment of a particularthing as a means of achieving something or for accomplishment of apurpose. Undoubtedly, the word “use” is of wider import than“consumption”[37].

40.1. In regard to the expressions in question, we may usefullyrecount that the earlier existing Entry 52 of List II of the Seventh Scheduleto the Constitution of India[38] provided for “Taxes on the entry of goodsinto a local area for consumption, use or sale therein”. While takingup interpretation of the State enactment made under the said Entry 52,this Court dealt with the matter in the case of Mafatlal Industries Ltd.(supra), where cloth pieces of particular length were brought within theoctroi limits of the Municipality concerned and were cut into smallerpieces of different sizes. This action was held by this Court not amountingto use or consumption of the cloth within the octroi limits. In that context,this Court took note of the relevant entry as also the relevant provisionof the State enactment and said,- “14…..we hold that mere physical entry of goods into the octroilimits would not attract levy of octroi unless goods are brought infor use or consumption or sale. Use and consumption would involveconversion of the commodity into a different commercialcommodity by subjecting it to some processing.

37 vide Kathiawar Industries Ltd. (supra)

38 Entry 52 of List II has since been deleted by the Constitution (101st Amendment)Act, 2016.

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A15. In this appeal, cloth pieces of 100 metres’ length were broughtwithin the octroi limits and those cloth pieces were cut into smallerpieces of different sizes. By doing so, no different commercialcommodity is shown to have been produced, so it cannot be saidthat there was use or consumption of the cloth within the octroilimits……..”B

40.2. Similarly, in the case of HMM Limited (supra), the appellantdealer had brought the milkfood powder into the limits of respondentmunicipality in bulk containers (large steel drums) for being packed inBangalore in unit containers (glass bottles) and thereafter exportedoutside the municipal limits. In the given fact situation, this CourtCheld that there was no ‘sale, consumption, or use’ within the municipallimits and hence, octroi was not leviable.

40.3. The co-relation as also delicate distinction of theseexpressions “use” and “consumption” has been explained by theConstitution Bench of this Court in the case of Burmah Shell Oil StorageDand Distributing Co. (supra) as follows :- “23. It is not the immediate person who brings the goods into alocal area who must consume them himself, the act of consumptionmay be postponed or may be performed by someone else but solong as the goods have been brought into the local area forEconsumption in that sense, no matter by whom, they satisfy therequirements of the Boroughs Act and octroi is payable. Added tothe word “consumption” is the word “use” also. There may becertain commodities which though put to use are not ‘usedup’ in the process. A motor-car brought into an area for use isFnot used up in the same sense as food- stuffs. The two expressionsuse and consumption together therefore, connote the bringing inof goods and animals not with a view to taking them out again butwith a view to their retention either for use without using them upor for consumption in a manner which destroys, wastes or usesthem up.”

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40.4. Tersely put, the meaning and connotation is clear that whilein “consumption”, a thing shall be used up but in “use”, it may not beused up as such. To put it in different words, in “use”, a thing shall beemployed for the accomplishment of a purpose but in “consume”, theH

thing shall not only be employed but shall also get absorbed or devouredin accomplishment of the purpose.

41. As noticed, clause (a) of sub-section (1) of Section 7-A of theAct covers both the eventualities i.e., of consumption and of use butwhen they take place “in the manufacture of other goods for sale”.Therefore, now it is necessary to delve into the salient features relatedwith the expression “manufacture”.

41.1. As noticed, the relevant dictionary meanings fairly give outthat by “manufacture” what is basically meant is the process by which athing is made or built by human or by machine in contradistinction towhat is produced by nature. Ordinarily, it denotes the application of labouror skill to material so as to bring out a new, different and useful article inplace of the original one. In regard to this expression “manufacture”, itshall also be profitable to make a brief reference to the relevant decisions.

41.2. In the case of Kiran Spinning Mills (supra), this Courtdealt with the issue in relation to the Excise Law where the assesseewas cutting tow fibre into staple fibre i.e., of cutting long fibre into ashort one which resulted in a new and different article of commerce.However, on the question as to whether a process of “manufacture”has been undertaken, this Court observed that although the process hadbrought about “a change in the substance” but did not “bring into existencea new substance” and therefore it was held that such cutting involvedno manufacture. This Court observed and held as follows :

“4. In other words, tow is fibre in running length and staple fibreis obtained by cutting it into required short length. On anexamination of the material and the contention, the Tribunal cameto the conclusion that the material which the respondents hadpurchased was already man-made fibre but in running length. Allthat the respondents did in relation to it, was to cut it into staplelength after some manual sorting and straightening. The question,therefore, is whether cutting the long fibre into short fibre resultedinto a new and different article of commerce. Now it is well settledhow to determine whether there was manufacture or not. ThisCourt held in the case of Union of India v. Delhi Cloth & GeneralMills: AIR 1963 SC 791 that “manufacture” means to bring intoexistence a new substance and does not mean merely to producesome change in a substance (emphasis supplied). It is true thatetymological word “manufacture” properly construed would ABC

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Adoubtless cover the transformation but the question is whetherthat transformation brings about fundamental change, a newsubstance is brought into existence or a new different article havingdistinctive name, character or use results from a particular processor a particular activity. The taxable event under the excise law is“manufacture”..….In the instant case it is not disputed that whatBthe respondent did, was to cut the running length fibre (tow) intoshort length fibre (staple fibre). It indubitably brought a changein the substance but did not bring into existence a newsubstance. The character and use of the substance (man-madefibre) remained the same….Even by cutting, the respondentsCobtained man-made fibre. Such cutting, therefore, involved nomanufacture and, hence, no duty liability can be imposed uponthem.”

41.3. In the case of Pan Pipes Resplendents Ltd. (supra), thequestion was as to whether printing/decorating of duty-paid plain glazedDceramic tiles amounted to manufacture in terms of Section 2(f) of Central Excise Act, 1944. In that context, the Court said that manufacture impliesa change but, every change is not a manufacture; and, for “manufacture”,there must be transformation and a new article, having distinct name,character or use, ought to come into existence. Such requirements of“manufacture” were held not satisfied in the given case. This CourtEsaid:

“5. The point which falls for consideration in this case is whetherprinting/decorating of duty-paid plain glazed ceramic tiles amountsto manufacture or not in terms of Section 2(f) of the Central ExciseAct, 1944. The process for amounting to manufacture must beFone which brings into being a new substance known to the market.Manufacture implies a change but every change is not amanufacture and yet every change in an article is the result ofsome treatment, labour and manipulation. For manufacture,something more is necessary. There must be transformation andGa new article must result, having a distinct name, character oruse. These conditions are not satisfied in the instant case becauseceramic glazed tiles remain ceramic glazed wall tiles even afterthe process of printing and decorating. Persons dealing in thiscommodity recognise the same as wall tiles before and after printingand decorating. Transformation of a product must be such that it H

becomes a commercially different commodity to attract Centralexcise duty and unless a new and distinct article knowncommercially to the market emerges, the process will not amountto manufacture. In the present case no distinct commodity comesinto being as a result of process carried out by the respondent. Itis not the case of the Department that ceramic glazed tiles whichare subjected to printing and decoration would be commerciallyuseless but for the process carried out by the respondent.”

41.4. In the case of Alembic Glass Industries Ltd., this Courtagain noted the requirement that in order to decide whether or not aprocess amounts to manufacture, the twofold test were as to whetherby the process a different commodity came into existence or the identityof the original ceased to exist; and whether the commodity which wasalready in existence will serve no purpose but for the said process. Inthe given case, by the process of printing names or logos on the bottles,it was held that the basic character of the commodity did not change andthey continued to be bottles. In the case of Punjab Aromatic (supra),this Court indicated that the test of irreversibility is an important criterionto ascertain as to whether a given process amounts to manufacture.

42. We need not multiply on the citations as the fundamentalprinciples remain clear that, on the question as to whether manufacturehas taken place or not, the relevant enquiry would be to find if a newsubstance has come into existence which is a different commercialcommodity or whereby identity of the original commodity has ceased toexist. Tersely put, it is the test of irreversibility that remains fundamentalto a query as to whether manufacture has taken place or not.

43. It has been argued on behalf of the assessee, and rightly so,that in the context of the commodities dealt with by it i.e., Beer/IMFL,the process of bottling is in fact a separate and distinct process than themanufacture of Beer/IMFL. The decision of this Court in the case ofMohan Meakin Breweries Ltd. (supra) is sufficient to be noticed inthis regard wherein it was clearly held that bottling takes place afterbrewing of Beer is complete. This Court said as under :- “62. It is not in dispute that the process of brewing beer and theprocess of bottling beer are considered to be distinct and separateprocesses governed respectively by the Brewery Rules and theBottling Rules. The operations connected with bottling are required A

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Ato be conducted in a separate premises under a different licence.The process of bottling begins with the transfer of bulk beer fromthe brewery for bottling. Sub-section (2) of Section 28-A refersto an allowance to an extent of 10% not only in regard to losseswithin the brewery but also to cover losses in bottling and storage.As noticed above, Rule 53 of the Brewery Rules and Rule 7(11)Bof the Bottling Rules when read conjointly show that the saidRules are supplementary to each other and together implementSection 28-A of the Act. At all events, the validity of neither Rule53 of the Brewery Rules nor Rule 7(11) of the Bottling Rules isunder challenge. Be that as it may.”

C43.1. What has been observed in relation to brewing and bottlingof Beer would equally apply to distillation and bottling of IMFL.

44. Applying the relevant tests concerning the expressions“consumes”, “uses” and “in the manufacture” to the present case, itremains hardly a matter of doubt that so far the empty bottles areDconcerned, even after being filled with liquor, they remain bottles only,retaining their original elements including shape, size and character. Theyare not “consumed” at all; and there arise no question of they being“consumed in the manufacture”. Therefore, we have no hesitation inaccepting the submissions of assessee that the bottles in question haveEnot been consumed in manufacture of other goods for sale.

44.1. In continuity with the above, we are also inclined to acceptthe submission of the assessee that the empty bottles have not evenbeen “used” in manufacture. This is for the reason that for operationand application of the phrase “uses in manufacture”, it has to be shownFthat the bottles in question have been deployed as a means of achievingthe purpose of manufacture. As noticed, the phrase “manufacture ofother goods for sale”, in the present case, refers to the goodsmanufactured by the assessee, i.e., Beer/IMFL; and, in fact, use of thebottles in question comes up in the activity of the assessee only aftermanufacture of liquor (Beer/IMFL) has already been accomplished byGbrewing or distillation. Needless to reiterate that in relation to the activityof assessee, the action of bottling is a separate process and is undertakenonly after the process of manufacture by way of brewing or distillationis complete. Thus understood, we are clearly of the view that the goodsin question (empty bottles) cannot be said to have been “used” inmanufacture.H

45. For what has been discussed hereinabove, we have nohesitation in concluding that the bottles in question have neither beenconsumed in manufacture of Beer/IMFL nor they could be said to havebeen 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 Actdo not exist in this case.

46. Taking up elements (ii) and (iv) of clause (a) of sub-section(1) of Section 7-A of the Act, we need to enquire as to whether thegoods in question (empty bottles) have been “consumed otherwise” orthey have been “used otherwise”. This area of examination takes us tothe words “or otherwise” used in clause (a) of sub-section (1) of Section7-A of the Act. In this regard, we need again to look at etymology relatedwith the expression in question.

46.1. The expression “otherwise” is essentially used in the textsas an adverb or as an adjective. Out of the numerous meanings assignedto this expression in the Concise Oxford English Dictionary[39], some ofthe relevant meanings are: ‘in other respects; in a different way,alternatively.’

46.2. Similarly, in Black’s Law Dictionary[40], the expression“otherwise” is assigned several meanings including ‘in a different way;in another manner; except for what has just been mentioned; to thecontrary; differently’.

47. The variety of meanings assigned to the expression “otherwise”makes one aspect absolutely clear that this expression is intended todenote something different than the thing/s to which it is employed; andthat this expression is essentially general in nature. In the phraseology ofclause (a) of sub-section (1) of Section 7-A of the Act, the words “orotherwise” have been placed after the particular words “consumes”,“uses” and “manufacture”. Obviously, these words “or otherwise” areintended to convey that not only the activities envisaged by the particularwords preceding but, even the other activities would also be coveredthereunder. A question, perforce, arises as to what is intended by theLegislature to be the sphere and amplitude of the words “or otherwise”in clause (a) of sub-section (1) of Section 7-A of the Act. This querytakes us to the principles for construction of general words in the statute.

39 Ibid., p.101440 Ibid., p.1276

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AThe fundamentals of these principles have been succinctly summarisedin Principles of Statutory Interpretation by Justice G.P. Singh[41] asfollows :-

“The normal rule is that general words in a statute must receive ageneral construction unless there is something in the Act itselfBsuch as the subject-matter with which the Act is dealing or thecontext in which the said words are used to show the intention ofthe Legislature that they must be given a restrictive meaning.Their import to have wider effect cannot be cut down by arbitraryaddition or retrenchment in language. Since general words haveordinarily a general meaning, the first task in construing such words,Cas in construing any word, is to give the words their plain andordinary meaning and then to see whether the context or someprinciple of construction requires that some qualified meaningshould be placed on those words.”

48. The aforesaid general principles are also not decisive of theDmatter because when an expression generally of wide amplitude like“otherwise” is used, the question still arises about its construction,particularly when it is placed after particular/specific words. In thisprocess of construction, one may feel inclined to rely upon and apply therule of ejusdem generis whereby and whereunder when a particularEword pertaining to a class, category or genus are followed by generalwords, the general words are construed as limited to the things of thesame kind as those specified. Even as regards the words “or otherwise”,in some of the interpretations, they have been treated as limited in theirscope with reference to the context[42] but the Constitution Bench of thisCourt in the case of Smt. Lila Vati Bai v. State of Bombay: AIR 1957FSC 521, while construing the words “or otherwise” occurring inExplanation (a) to Section 6 of the Bombay Land Requisition Act, heldthat these words were intended to cover all possible cases of vacancyoccurring due to any reason whatsoever. The Constitution Benchobserved that far from using these words ejusdem generis with theGpreceding clauses, the Legislature had used them in an all-inclusive sense;and, in the given context and looking to the object and the mischief sought 41 ibid., pp.534-535

42 Like in the cases of S. Prakasha Rao and Anr v. Commissioner of Commercial Taxesand Ors.: (1990) 2 SCC 259 and George Da Costa v. Controller of Estate DutyHMysore : AIR 1967 SC 849

to be dealt with by the enactment, there was no room for application ofthe rule of ejusdem generis. The Court, inter alia, said as under :

“11….The legislature has been cautious and thorough-going enoughto bar all avenues of escape by using the words “or otherwise”.Those words are not words of limitation but of extension so as tocover all possible ways in which a vacancy may occur. Generallyspeaking, a tenant’s occupation of his premises ceases when histenancy is terminated by acts of parties or by operation of law orby eviction by the landlord or by assignment or transfer of thetenant’s interest. But the legislature, when it used the words “orotherwise”, apparently intended to cover other cases which maynot come within the meaning of the preceding clauses, for example,a case where the tenant’s occupation has ceased as a result oftrespass by a third party. The Legislature, in our opinion, intendedto cover all possible cases of vacancy occurring due to any reasonswhatsoever….”

48.1. Likewise, in the case of Western India Plywood Ltd. v. P.Ashokan: (1997) 7 SCC 638, where the question was that ofconstruction of bar over receiving compensation or damages under anyother law in terms of Section 53 of the Employee’s State Insurance Act,1948, this Court held that the words “or otherwise” indicated that thesection was not limited to ousting the relief claimed only under any statutebut such wordings disentitled the insured person to make a claim in tortstoo, which has the force of law.

48.2. The principles enunciated in the aforesaid cases make itclear that even the rule of ejusdem generis cannot be picked up andapplied as an abstract proposition whenever general words are usedafter particular words and expressions. As regards the words “orotherwise”, though, ordinarily, the class or category to be covered therebymay have to be kindred to the particular class or category precedingthem but, such kinship could be even of general relatedness to theparticular words and need not be that of cognates or agnates or analogues.

48.3. In our view, looking to the context as also the object of theprovision in question, as regards the words “or otherwise”, the rule ofejusdem generis would apply in a very limited sense and only to theextent that the class or category to be covered thereunder may not bedissimilar or incongruent to the particular class or category of the

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Aexpressions preceding it. As already noticed, in the case of NandanamConstruction Co. (supra), the Constitution Bench has construed thesewords “or otherwise” in relation to the pari materia provisions of theAndhra Pradesh Act and held that the expression “otherwise” qualifiesthe word “manufacture” and, therefore, consumption of the goods inquestion, even if not in manufacture, would lead to coverage for levy ofBpurchase tax. We may usefully reiterate that in Nandanam ConstructionCo. (supra), the assessee was engaged in the business of building houses/flats and had consumed the goods like bricks and sand in suchconstruction. The Constitution Bench found that such consumption wasclearly a consumption otherwise than manufacture but was covered underCthe provisions for levy of purchase tax. The Constitution Bench alsostated the reason for such construction that the goods in question wereconsumed and ceased to exist in their original form so as to be sold inthat original form.

49. Keeping the principle aforesaid in view, we may now take upDelements (ii) and (iv) of clause (a) of sub-section (1) of Section 7-A ofthe Act. Thus, the question is as to whether the bottles in question havebeen “consumed otherwise” or “used otherwise”.

49.1. As already noticed, consumption requires the thing inquestion being exhausted or ceasing to exist for being used up. TheEbottles in question, even when used as containers of the liquormanufactured by the assessee, had neither been exhausted nor hadceased to exist; they have rather continued to exist while retaining theirbasic identity and character as bottles. Of course, they (empty bottles)had been filled up with liquor but such filling up has not resulted in thebottles themselves being used up. Hence, the activity in question doesFnot fall within the ambit of element (ii). However, the very same logicdoes not apply to element (iv) because it cannot be said that the bottlesin question have not been “used otherwise”.

49.2. As noticed, the expression “use” is of wide amplitude and itrefers to the usage or engagement of an article for the accomplishmentGof a purpose irrespective of whether the article itself undergoes a visiblechange or not. The fact that the bottles in question have indeed beenused by the assessee in its overall activity of manufacture and sale ofliquor is clear from the fact that the manufacture of liquor by the processof brewing or distillation did not conclude the activity of the assessee.HUndoubtedly, for the sale of such manufactured liquor to TASMAC, the

assessee was required to put the same into the bottles; and the sale byassessee could have taken place only after such bottling of the liquor.The assessee has, indisputably, undertaken this process of bottling bythe use of the goods in question, i.e., the empty bottles purchased fromunregistered dealers.Hence, it is but apparent that thegoods 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 themain activity of manufacture of liquor as also as necessary ingredient ofthe end-purpose of sale of liquor. Significantly, after such use for bottling,the goods in question (empty bottles) did not remain available for sale inthe form in which they were purchased by the assessee.

49.3. In other words, the process of bottling with the use of bottlesin question has been an unalienable part of the complete chain ofprocesses that the assessee was obliged to undertake for its business,i.e., manufacturing and selling the liquor. By this process, the bottles inquestion were used by the assessee in such a manner that they were nolonger available for sale in the form they were purchased fromunregistered dealers. That being the position, the bottles in question haveindeed been “used otherwise” by the assessee. The assessee cannotavoid operation of the words “or otherwise” so far use of the bottles isconcerned by merely establishing that they have not been consumed inmanufacture or otherwise and further that they have not been used inmanufacture. Even when these three elements viz., “consumed inmanufacture”; “consumed otherwise”; and “used in manufacture” donot exist as regards the bottles in question in the business activity of theassessee, it is but apparent the activity of the assessee clearly entails theuse of bottles for the purpose of bottling and sale of liquor manufacturedby it. This activity clearly takes the bottles in question within the fourthelement i.e., “used otherwise”.

49.4. Hence, though the bottles in question have not been“consumed otherwise”, they have indeed been “used otherwise”; andtherefore, the activity of assessee in relation to the bottles in question isclearly covered by element (iv) of clause (a) of sub-section (1) of Section7-A of the Act.

50. To summarise the discussion aforesaid and to put our views ina nutshell, the goods in question (empty bottles) have not been consumedin the manufacture of other goods for sale nor they have been consumedotherwise because of having retained their identity. They have also not AB

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Abeen used in the manufacture of other goods for sale becausemanufacture of Beer/IMFL was complete without their use. However,they have been used for bottling and when bottling remains an integralpart of the business activity of the assessee, i.e., of manufacturing theliquor by the process of brewing/distillation and then, selling themanufactured liquor by putting the same in bottles, they have been “usedBotherwise”. That being the position, use of the goods in question forbottling takes the turnover of their purchase within the net of Section 7-A of the Act.

50.1. To put it more simply, if we read clause (a) of sub-section(1) of Section 7-A of the Act sliced down to the elements “uses inCmanufacture or otherwise”, it is clear that the goods in question (emptybottles) have been used for bottling, which use, even if not for manufacture,had been a use otherwise which has been closely connected with thebusiness of the assessee and whereby the bottles in question did notremain available for sale in the form in which they were purchased. This Dis the plain and clear operation of the dictum of Constitution Bench inthe case of Nandanam Construction Co. (supra). Hence, applicabilityof Section 7-A of the Act is complete and remains beyond the realm ofdoubt.

51. Having thus arrived at the conclusion that ingredients (1) toE(5) and (6)(a) for applicability of Section 7-A (1) are cumulatively satisfied,the inescapable result is that the turnover in question is exigible to purchasetax. However, there remains another limb of submissions on the part ofassessee that when the bottles have not been disposed of “in any mannerother than by way of sale in the State” and had been disposed of only byway of sale to TASMAC within the State of Tamil Nadu itself; and theyFhad been subjected to sales tax at the same rate as that of the contents,purchase tax would not be leviable. This line of submissions on the partof assessee, in our view, remains entirely baseless.

52. As already noticed, the goods in question (empty bottles) havebeen used to complete the process of making the manufactured goodsG(Beer/IMFL) marketable. It is also clear that the bottles have not beensold by the assessee simply as bottles. They have been sold as an essentialcomponent of the marketable commodity. That being the position, chargingof sales tax on these bottles comes into operation by virtue of Section 3(1) read with Section 3 (7) of the Tamil Nadu Act. As noticed, the assesseeHis indisputably a dealer covered under sub-section (1) of Section 3 of the Act. By virtue of sub-section (7) of Section 3, when the assessee hassold the goods (Beer/IMFL) together with the bottles as containers orpacking material, turnover of 83 Beer/IMFL was bound to include theprice, cost or value of such bottles whether such price, cost or value hadbeen charged separately or not; and sales tax was bound to be leviedthereupon at the rate applicable to the goods contained, i.e., Beer/IMFL.The Explanation to Section 3 of the Act puts it beyond doubt that theexpression “containers” includes bottles.

52.1 Another relevant feature of the provisions in question is thatapplicability of Section 7-A of the Act has not been made dependent onthe event of levy of sales tax on the goods for which purchase tax is tobe levied. As noticed, levy of purchase tax is dependent on cumulativeexistence of the necessary ingredients of Section 7-A of the Act; and noexception or exclusion is provided with reference to the factum of levyof sales tax on the goods in question at the time of their sale. In fact, notmuch of elaborate discussion in this regard appears requisite, for a directanswer being available in a 3-Judge Bench decision of this Court in the case of Premier Breweries (supra) wherein, pari materia provisionsof the Kerala Act as regards levy of sales tax were considered. In thesaid case of Premier Breweries, the appellant had sold liquor packed incardboard cartons. It was contended that such cardboard cartons hadalready borne tax under the entry “paper other than the newsprintcardboard and their products” and hence, such cartons could not havebeen taxed again when sold along with Beer. This Court examined sub-sections (5) and (6) of Section 5 of the Kerala Act, which had beenmore or less akin to sub-sections (7) and (8) of Section 3 of the TamilNadu Act, and negatived the contention of the dealer. The relevantparagraphs of the said decision, taking note of sub-sections (5) and (6)of Section 5 of the Kerala Act and rejecting this part of the contentionsof assessee, could be usefully noticed as follows (at pp.602 and 607-608of STC):- “5. Before examining the decisions, it will be useful to refer to therelevant provisions of the Kerala General Sales Tax Act. Tax onsale or purchase of goods has been imposed by section 5 of theAct. Sub-sections (5) and (6) of section 5 of the Act provide:

“5. (5) Notwithstanding anything contained in sub -section (1) orsub-section (2), but subject to sub-section (6), where goods soldare contained in containers or are packed in any packing materials, AB

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the rate of tax and the point of levy applicable to the containers orpacking materials, as the case may be, shall, whether the price ofthe containers or packing materials is charged separately or not,be the same as those applicable to goods contained or packed,and in determining turnover of the goods, the turnover in respectof the containers or packing materials shall be included therein.

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(6) Where the sale or purchase of goods contained in any containersor packed in any packing materials is exempt from tax, then thesale or purchase of such containers or packing materials shallalso be exempt from tax.”

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22. We shall now deal with another point urged on behalf of theappellant. It has been contended that the cardboard cartons havealready borne tax under the entry “paper, other than the newsprint,cardboard and their products” in the First Schedule of the Act. Itis a single-point tax. The cardboard cartons cannot be taxed onceagain when sold along with the beer.

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23. There are two answers to this contention. Sub-section (5) ofsection 5 specifically provides that the rate of tax and point oflevy applicable to the containers shall be the same as thoseEapplicable to the goods sold. Therefore, even if the cartons havealready been subjected to tax by virtue of specific provision ofsection 5(5) they will be liable to tax at the same point and at thesame rate as the goods contained therein.

24. Moreover, the packing materials as such are not being taxedunder sub-section (5) of section 5 of the Act. The subject-matterof tax are the goods packed in the containers. In calculating theturnover of the goods, packing materials will have to be taken intoaccount. The packing materials will be taxed at the same rate andat the same point as the goods contained in the packing material.This is because the goods are sold packed in containers and arecharged accordingly. This is a rule of computation of the turnoverof the goods. If no tax is ultimately found leviable on the goodsthen no tax can be levied on the containers in which the goods arecontained.”

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52.2 As already noticed, this question was also examined by theHHigh Court in the case of Appollo Saline Pharmaceuticals (supra)

although the said decision was rendered in relation to the bottles usedfor packing of I.V. fluid and the provision examined therein was that asexisting after amendment of clause (a) of sub-section (1) of Section 7-A with insertion of the words “or for” but, such amendment is of noeffect so far as this limb of contentions is concerned. In the said decision,the High Court repelled such a contention against levy of purchase taxon bottles because of the bottles being subjected to sales tax when beingsold with I.V. fluid while observing that such sales tax was neverthelessleviable even in relation to the bottles which were purchased from aregistered dealer after payment of sales tax. The relevant portion inparagraph 11 of the said decision of the High Court in Appollo SalinePharmaceuticals (extracted in paragraph 20.2 hereinbefore) obviouslyconforms to the ratio of Premier Breweries (supra), which, in our view,is a direct and complete answer to the contention of the assessee. Asnoticed, in the entire scheme of Section 7-A of the Act, nowhere anyexception is provided that if a particular commodity or goods would besubjected to sales tax in the event of their sale, they may not be liable topurchase tax. On the contrary, as rightly observed by the High Court,even if the bottles had been purchased after payment of sales tax, theturnover of such purchase was nevertheless required to be included inthe total turnover at the time of sale of the contents with the containers.

52.3 In other words, the fact that the bottles in question weresubjected to sales tax at the same rate as applicable to their contents isentirely irrelevant and has no bearing on the exigibility of the turnover inquestion to purchase tax. In this regard, we may also observe that eventhough the provision relating to the purchase tax was initially inserted toplug the loss of revenue in relation to the goods that were consumed inmanufacture or were consumed otherwise, its scope and amplitude hasbeen widened with insertion of the expression “or uses” and thereby, notonly consumption but even use in manufacture or use otherwise of thegoods has been made subject to the levy of purchase tax. We need notexpand more on these aspects of the matter. Suffice it to observe for thepresent purpose that merely because the bottles in question were to besubjected to sales tax, when being sold as containers of the liquor, liabilityof purchase tax cannot be obviated.

52.4. To put it differently, it is apparent that so far as sales tax onthe bottles in question at the time of their sale is concerned, the same isleviable by virtue of Section 3 (7) of the Act and there is nothing in AB

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ASection 7-A to even suggest that levy of sales tax at the time of sale ofthe goods in question would exclude them from the net of purchase tax.That being the position, the second limb of submissions on the part ofassessee turns out to be hollow and baseless, and cannot be accepted.

53. Therefore, the final result of the discussion aforesaid is thatBpurchase tax under Section 7-A of the Act is leviable on the purchaseturnover of empty bottles purchased by the assessee in the course of itsbusiness of manufacture and sale of Beer and IMFL.

OPERATION AND EFFECT OF DEPARTMENT’SCLARIFICATIONS/CIRCULARS

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54. As noticed, the High Court in its impugned order dated10.09.2004 did reach to the conclusion that purchase tax was leviable onthe purchase turnover of the empty bottles but found the assessee entitledto the benefit of Clarifications/Circulars issued by the revenue on09.11.1989 and 27.12.2000. The revenue has questioned this part of theDorder of the High Court on the grounds and contentions as noticedhereinabove. In order to examine the rival contentions in this regard andthe correctness of proposition adopted by the High Court, we may takenote of the statutory provision in the Tamil Nadu Act on the power of theCommissioner of Commercial Taxes to issue clarification as also theparticular Clarifications/Circulars relevant to the present case.E55. Section 28-A came to be inserted to the Tamil Nadu Act byway of its amendment by Act No. 60 of 1997 w.e.f. 06.11.1997. ThisSection 28-A reads as under :

“28-A. Power to issue clarification by Commissioner ofCommercial Taxes. –F

(1) The Commissioner of Commercial Taxes on an application bya registered dealer, may clarify any point concerning the rate oftax under the Act. Such clarification shall be applicable to thegoods specified in the application :

GProvided that no such application shall be entertained unless it isaccompanied by proof of payment of such fee, paid in such manner,as may be prescribed.

(2) The Commissioner of Commercial Taxes may, if he considersit necessary or expedient so to do, for the purpose of uniformity inHthe work of assessment and collection of tax, clarify any point concerning the rate of tax under this Act or the procedure relatingto assessment and collection of tax as provided for under thisAct.

(3) All persons working under the control of Commissioner ofCommercial Taxes shall observe and follow the clarification issuedunder sub-section (1) and sub-section (2).”

55.1. Prior to the insertion of the aforesaid Section 28-A in theTamil Nadu Act, the SCCT had issued Clarification dated 09.11.1989 inregard to the issue of levy of purchase tax on empty bottles in thefollowing terms :

“The Spl. Commissioner and Commissioner of Commercial Taxes,Madras 5 letter No. Acts Cell I/D. Dis. 105980/88 dated 9.11.1989.

Sub : TNGST ACT 1959 – Amendment of Section 7A-Levy ofPurchase tax on empty bottles for backing (sic) IMFL – Whetherattracts – clarified.

Ref: Your letter No.9142/88 B2 dated 23.9.88.

As it is stated that sale value of the bottles is subjected to tax atthe time of sale of the contents there is no liability to tax underSection 7(A).

2. This cancels the clarification issued in this office D.Dis. Actscell I/136907/88 dated 17.1.89.

Sd/- S. Savarkar,

For Spl. Commr. And Commr of Comml Taxes.”

55.2. After insertion of the aforesaid Section 28-A and in relationto the request further made by the assessee, the PCCT proceededto issue Clarification dated 27.12.2000, practically reiterating the earlieropinion in the following terms:- “COMMERCIAL TAXES DEPARTMENT

FROMTO

THIRU P.C. CYRIAC, I.A.S., Tvl. Mohan Breweries andPrinciple Commissioner and Distilleries Ltd.,Commissioner of Commercial Rayala Towers,

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Taxes

II Floor, 781-85 Anna Salai, Chennai – 600 002.

Chepauk,

Chennai – 600 005

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D. DIS. ACTS CELL II/52900/2000 DATED : 27.12.2000CLARIFICATION NO.192/2000

Sir,

Sub : TNGST Act 1959 – Clarification on rate of tax for purchaseof old/used bottles for filling beer/IMFL products – requested –reg.

Ref : From Tvl. Mohan Breweries and Distilleries Ltd., Chennai-2. Lr. Dt. 13.7.2000.

Tvl. Mohan Breweries and Distilleries Ltd., Chennai-2, intheir letter cited have requested clarification for the years 1991-92, 93-94, 94-95 and 95-96 in respect of purchase of old bottlesassessed to tax under section 7-A of the TNGST Act, 1959.

The details furnished by the petitioners have been perusedand the following clarification on rate of tax is issued :

In this office reference D.Dis.Acts Cell.I/105980/88,dt.9.11.89, it has been clarified that “if the sale value of bottles issubjected to tax at the time of sale of the contents. there is noliability to tax under section 7- A”. Perhaps, your company did notmade it clear that the sale value of the bottle was also included inthe price of the product. Now that you have clarified this pointspecifically, that the value of empty bottles also has been includedin the sale price of the product, the clarification issued in ActsCell II/105980/89, dt. 9.11.89 will apply to IMFL/Beer.

Sd/- P. C. Cyriac,

Principal Commissioner and Commissioner

of Commercial Taxes.”

55.3. Further, after the decision of the Tribunal in AppolloSaline Pharmaceuticals: 120 STC 493, the SCCT issued anotherClarification dated 28.01.2002 in modification of the earlier Clarificationdated 27.12.2000 and stated that the purchase in question was liable to tax under Section 7-A of the Act. This Clarification dated 28.01.2002reads as under :

“COMMERCIAL TAXES DEPARTMENT

From

To

Thiru Arun Ramanathan,I.A.S., Tvl. Mohan Breweries andSpecial Commissioner and Distilleries Limited,Commr. of Commercial Taxes, Rayala Towers, IInd Floor,Chepauk, Chennai – 5. 781-85 Anna Salai, Chennai-2.

--------------------------------------------------------------------------- Acts Cell – II/6914/2002, Dt. 28.1.2002

Sir,

SUB : TNGST ACT 1959 – Clarification on rate of tax forpurchase of old/used bottles for filling beer/IMFL Products – Issued– Modified.

Ref : PC & CCT. Chennai – 6, D. Dis. Acts Cell-I/52900/2000, Dated :27.12.2000.

In this office reference cited it was clarified to Tvl. MohanBreweries and Distilleries Limited, Chennai-2 as follows :- “In this Office Ref. D. Dis. Acts Cell-I/105980/88 Dated :9.11.89, it has been clarified that “if the sale value of bottlesis subjected to tax at the time of sale of the contents, thereis no liability to tax under Section 7-A. Perhaps, yourcompany did not make it clear that the sale value of bottlewas also included in the price of the product. Now that youhave clarified this point specifically, that the value of emptybottles also has been included in the sale price of the product,the clarification issued in Acts Cell-I/105980/89,Dated:9.11.89 will apply to IMFL/Beer.”

The issue has been re-examined in the light of the decisionof the Tamil Nadu Taxation Special Tribunal in the case of AppolloSaline Pharmaceuticals Private Limited reported in 120 STC.P.493, and the clarification issued in the reference cited is modifiedas below:

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It is hereby clarified that purchase of empty bottles fromun-registered dealers used for the packing of Beer/IMFLmanufactured by Tvl. Mohan Breweries and Distilleries Limited,Chennai is liable to tax under section 7-A as per decision reportedin 120 STC Page 493.

(Sd.) Arun Ramanathan,Special Commissioner and Commissionerof Commercial Taxes.”(underlining in original)

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56. As noticed, in support of its conclusion that the revenue cannotCrefuse the benefit of Clarifications dated 09.11.1989 and 27.12.2000 tothe assessee, the High Court has relied upon various decisions includingthat of the Constitution Bench of this Court in the case of DhirenChemical Industries (supra). The learned counsel for the assesseehas additionally relied upon several other decisions as mentionedhereinbefore.[43] On the other hand, it is contended on behalf of the revenueDthat Clarifications dated 09.11.1989 and 27.12.2000 were merelyadministrative in nature and had no binding force on a Quasi-judicialAuthority or a Court of law; and that as per dictum of the ConstitutionBench in Ratan Melting & Wire Industries (supra), the law declaredby the Court as regards the issue at hand would remain binding and notEthe said Clarifications.

57. Having regard to the reasoning of High Court and thecontentions of rival parties as also for dealing with the operation andeffect of the Clarifications/Circulars aforesaid, we need to imbibe theprinciples enunciated in the binding decisions of this Court, particularlythe dictum in two Constitution Bench decisions in Dhiren ChemicalFIndustries[44] and Ratan Melting & Wire Industries[45].

57.1. In Dhiren Chemical Industries (supra), the questionsreferred to the Constitution Bench were relating to the interpretation ofthe phrase “on which the appropriate amount of duty of excise has alreadyGbeen paid”; and operation of the exemption notification issued by theCentral Government, exempting iron or steel products made out of freshunused re-rollable scrap if appropriate amount of duty had already beenpaid. In the context of such questions and the exemption notification43 Vide paragraph 11.1 ibid.44 Rendered on 12.12.2001H45 Rendered on 14.10.2008

calling for interpretation, though the Constitution Bench placed theinterpretation in favour of the revenue but also observed as follows (atp. 125 of STC):

“11. We need to make it clear that, regardless of the interpretationthat we have placed on the said phrase, if there are circularswhich have been issued by the Central Board of Excise andCustoms which place a different interpretation upon the saidphrase, that interpretation will be binding upon the Revenue.”

57.2. The aforesaid observations in Dhiren Chemical Industriesled to certain misunderstanding as regards operation and effect of thecirculars and as to whether effect can be given to the circular of theGovernment in preference to the binding precedents of High Court andof this Court. This led to the other reference to the Constitution Benchand the issue came to be resolved in the case of Ratan Melting & WireIndustries (supra).

57.3. In Ratan Melting & Wire Industries (supra), theConstitution Bench referred to the above-quoted observations in DhirenChemical Industries and also noted that those observations had beenexplained in another decision in the case of Kalyani PackagingIndustries v. Union of India: (2004) 6 SCC 719. The ConstitutionBench observed and noted as follows:- “3. …… In Kalyani Packaging Industry v. Union of India itwas noted as follows: (SCC p. 721, para 6)

“6. We have noticed that para 11 of Dhiren Chemical case isbeing misunderstood. It, therefore, becomes necessary to clarifypara 11 of Dhiren Chemical case. One of us (Variava, J.)was a party to the judgment of Dhiren Chemical case andknows what was the intention in incorporating para 11. It mustbe remembered that law laid down by this Court is law of theland. The law so laid down is binding on all courts/tribunalsand bodies. It is clear that circulars of the Board cannot prevailover the law laid down by this Court. However, it was pointedout that during hearing of Dhiren Chemical case because ofthe circulars of the Board in many cases the Department hadgranted benefits of exemption notifications. It was submittedthat on the interpretation now given by this Court in DhirenChemical case the Revenue was likely to reopen cases. Thus

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Apara 11 was incorporated to ensure that in cases where benefitsof exemption notification had already been granted, theRevenue would remain bound. The purpose was to see thatsuch cases were not reopened. However, this did not meanthat even in cases where the Revenue/Department had alreadycontended that the benefit of an exemption notification wasBnot available, and the matter was sub judice before a court ora tribunal, the court or tribunal would also give effect to circularsof the Board in preference to a decision of the ConstitutionBench of this Court. Where as a result of dispute the matter issub judice, a court/tribunal is, after Dhiren Chemical case,Cbound to interpret as set out in that judgment. To hold otherwiseand to interpret in the manner suggested would mean that courts/tribunals have to ignore a judgment of this Court and followcirculars of the Board. That was not what was meant by para11 of Dhiren Chemical case.”

D57.4. Taking note of the above and clarifying the law on the subject,the Constitution Bench of this Court in Ratan Melting & Wire Industries(supra) laid down the principles in no uncertain terms as follows :

“7. Circulars and instructions issued by the Board are no doubtbinding in law on the authorities under the respective statutes, butEwhen the Supreme Court or the High Court declares thelaw on the question arising for consideration, it would notbe appropriate for the court to direct that the circular shouldbe given effect to and not the view expressed in a decisionof this Court or the High Court. So far as the clarifications/circulars issued by the Central Government and of the StateFGovernment are concerned they represent merely theirunderstanding of the statutory provisions. They are notbinding upon the court. It is for the court to declare whatthe particular provision of statute says and it is not for theexecutive. Looked at from another angle, a circular which isGcontrary to the statutory provisions has really no existencein law.”

58. In view of the aforesaid pronouncement by the ConstitutionBench of this Court in Ratan Melting & Wire Industries (supra), thereH

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIESAND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

remains hardly any doubt on the principles that Clarifications/Circulars/Instructions issued by the competent authority are binding on theauthorities under the respective statutes but so far as declaration of lawin regard to any particular statutory provision is concerned, the viewexpressed in the binding decision of this Court or the High Court is to begiven effect to; and no direction can be issued to enforce a clarificationor circular contrary to the declaration of law by the Courts.

59. In view of the above, the decisions relied upon by the learnedsenior counsel for the assessee do not require much dilation. However,we may refer to a few representative decisions as infra.

59.1. In the case of Trans Asian Shipping (supra), reference tothe circular was made by this Court only after declaration of law whileindicating that the circular clarified the need and essence of the provisionswhen such circular was issued contemporaneously by the Central Boardof Direct Taxes with introduction of the provisions of Section 115-VFand 115-VG in the Income Tax Act, 1961. As regards the circular, thisCourt observed as under :- “30. We would also like to refer to Circular No.05/2005 dated15-7-2005 explaining the need and essence of the introduction ofthese provisions which was issued contemporaneously by theCentral Board of Direct Taxes (CBDT). The Circular clarifiesthat the Scheme is a “preferential regime of taxation”. It alsoclarifies that “charging provision is under Section 115-VA readwith Section 115-VF and Section 115-VG”. Circulars of CBDTexplaining the scheme of the Act have been held to be binding onthe Department repeatedly by this Court in a series of judgments”…...

59.2. In Signode India (supra), the circular concerned wasexplanatory of the expression “cargo handling services” as defined inSection 65(23) of the Finance Act, 1994 and was standing in conformitywith the statutory provision.

Therein, this Court observed as under :- “11. There is yet another aspect of the case which would requirea mention. In a Circular bearing No.F.No.B.11/1/2002-TRU dated1-8-2002 issued by the Central Board of Excise and Customs,services liable to tax under the category of “cargo handlingservices”, have been clarified to mean services provided by cargo AB

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59.3. In the case of India Cements Limited (supra), this Courtnoticed the declaration of law by the Constitution Bench in the case ofRatan Melting & Wire Industries (supra) that a circular which isBcontrary to the statutory provisions has really no existence in law. InIndia Cements Limited, the circular in question was not found to be inconflict with any statutory provision or the applicable schemes and,therefore, the same was held binding on the adjudicating authority in thefollowing words: –

C“30. In the present case, it is not the case of the Revenue that theCircular dated 1-5-2000 is in conflict with either any statutoryprovision or the deferral schemes announced under theaforementioned government orders. We, therefore, hold that thesaid circular is binding in law on the adjudicating authority underthe TNGST Act.”D

60. The aforesaid and other decisions, essentially dealing withexemption notifications, have no application to the present case; and inany event, none of the decisions, as referred on behalf of the assesseeor as referred by the High Court, could be read for any principle contraryto that laid down by the Constitution Bench in Ratan Melting & WireEIndustries (supra).

61. For what has been discussed hereinabove, we need notexamine as to whether the Clarifications/Circulars in question could besaid to be such clarification as envisaged by Section 28-A of the Actbecause even if the Clarifications/Circulars in question are treated to beFthose authorised by Section 28-A, they cannot have any effect over andabove the interpretation of Section 7-A of the Act by the Courts. Inother words, applicability of Section 7-A to the turnover in question couldonly be decided on the interpretation of the provision and its applicationto the given fact situation and not on the basis of Clarifications/CircularsGin question. Put differently, the so-called Clarifications dated 09.11.1989and 27.12.2000 had not been of explaining the meaning of any doubtfulterm or expression in the statutory provision nor they were explainingthe object and purport of the provision concerned. The said Clarifications/Circulars had merely been the expression of the understanding of theconcerned officer, be it SCCT or PCCT, about operation of Section 7-A

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of the Act vis-à-vis the purchase turnover of the empty bottles purchasedby the assessee. However, such understanding of the officer concernedturns out to be a pure misunderstanding, when it stands at contradictionor incongruous to the declaration of law by the Courts; and could only beignored. The latest Circular of the year 2002, issued after decision of thejurisdictional Tribunal in the case of Appollo Saline Pharmaceuticals(supra) could also be read only to the extent it is in conformity with thedecision of the Tribunal (that came to be approved by the High Court)and in any case, even this circular cannot be decisive of the interpretationof Section 7-A of the Act. The decisive interpretation shall only be theone which is rendered in the binding decision/s of the Court. In continuity,we may also observe that various other decisions referred on behalf ofthe assessee, that modification of any particular circular or guideline orpolicy decision could only be made effective prospectively, have noapplication whatsoever to the present case.

62. In the aforesaid view of matter, we have no hesitation inconcluding that the High Court, after having found that purchase taxwas leviable on the turnover in question under Section 7-A of the Act,could not have issued directions for any benefit to the assessee withreference to the Clarifications/Circulars dated 09.11.1989 and 27.12.2000,particularly when such Clarifications/Circulars do not stand in conformitywith the statutory provision and its interpretation by the Courts.

63. Hence, the impugned order of the High Court, on the secondquestion as regards the operation and effect of Clarifications/Circularsdated 09.11.1989 and 27.12.2000, cannot be approved.

64. The net result of the discussion foregoing is that the purchaseturnover of the empty bottles purchased by the assessee from theunregistered dealers under bought note is exigible to purchase tax underSection 7-A of the Tamil Nadu Act; and the assessee cannot escapesuch liability on the strength of the Clarifications/Circulars dated09.11.1989 and 27.12.2000 which do not stand in conformity with thestatutory provision as also declaration of law by the Courts.

Other Question

65. So far as the other question regarding taxability of cash discounton the price offered by the assessee to the Tamil Nadu State MarketingCorporation Limited is concerned, the High Court has ruled in favour ofthe assessee with reference to the decision in the case of Neyvli Lignite A

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ACorporation Ltd. and the clear expressions in Explanation 2(iii) toSection 2(r) of the Act.

65.1. The relevant provision reads as under:- “Section 2(r).- “turnover” means the aggregate amountfor which goods are bought or sold, or delivered or supplied orBotherwise disposed of in any of the ways referred to in clause (n),by a dealer either directly or through another, on his own accountor on account of others whether for cash or for deferred paymentor other valuable consideration, provided that the proceeds of thesale by a person of agricultural or horticultural produce, otherCthan tea, and rubber (natural rubber, latex and all varieties andgrades of raw rubber) grown within the State by himself or onany land in which he has an interest whether as owner,usufructuary mortgagee, tenant or otherwise, shall be excludedfrom his turnover.

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Explanation (2) Subject to such conditions and restrictions, ifany, as may be prescribed in this behalf- *********

(iii) any cash or other discount on the price allowed in respect ofEany sale and any amount refunded in respect of articles returnedby customers shall not be included in the turnover; *********”

65.2. In view of the clear phraseology of the above extractedFExplanation, not much of discussion appears requisite as regards thisissue that has rightly been decided by the High Court in favour of theassessee and not much of serious contentions have been put forward bythe revenue in this regard. The impugned order of the High Court, to thisextent, calls for no interference.

GCONCLUSION

66. In view of the above, the appeal filed by the revenue (CivilAppeal No. 7164 of 2013) is partly allowed by holding that the purchaseturnover of the empty bottles purchased by the assessee from theunregistered dealers under bought note is exigible to purchase tax underHSection 7-A of the Tamil Nadu Act; and the assessee cannot escape such liability on the strength of the Clarifications/Circulars dated09.11.1989 and 27.12.2000. As a necessary consequence, the appealfiled by the assessee (Civil Appeal No. 7165 of 2013) is dismissed.

Civil Appeal Nos. 4416-4419 of 2014

67. This set of appeals by the assessee pertaining to assessmentyears 1986-87, 1987-88, 1988-89 and 1989-90, directed against thecommon order dated 05.12.2013 passed by the High Court in a batch oftax revision petitions, involves essentially the same question on theapplicability of Section 7-A of the Act against the assessee.

68. Briefly put, the relevant background aspects relating to theseappeals had been that by the respective assessment order pertaining tothe said assessment years 1986-87, 1987-88, 1988-89 and 1989-90 theAO held the assessee liable for purchase tax against the purchase ofempty bottles from unregistered dealers and also levied penalty on variousscores like turnover relating to excise duty and vend fees as also theturnover relating to purchase tax. After the respective orders passed bythe Appellate Authority, the matters ultimately travelled to the Tribunalin cross appeals preferred by the assessee and by the State. The Tribunal,by its common order dated 09.09.2002, decided various issues includingthose relating to purchase tax under Section 7-A of the Act and levy ofpenalty in relation to the turnover pertaining to excise duty, vend fee andpurchase tax. So far the issue relating to purchase tax was concerned,the Tribunal took the view that the assessee was liable for purchase taxunder Section 7-A of the Act while relying upon the decision of the HighCourt in Appollo Saline Pharmaceuticals (supra) and of this Court inPremier Breweries (supra).

69. Aggrieved by the order so passed by the Tribunal, the assesseefiled Tax Revision petitions, being Tax Case (Revisions) Nos. 1667,1669,1857 of 2008 and 13 of 2009 before the High Court. The High Court, byits impugned common order dated 05.12.2013, has partly allowed thesaid petitions while deciding the issues pertaining to penalty in favour ofthe assessee but, has dismissed the same in relation to the levy ofpurchase tax under Section 7-A of the Act. In regard to the issue ofpurchase tax, the High Court relied on the reasoning given in its earlierorder dated 10.09.2004 for assessment year 1996-97, which we havetaken note of hereinbefore. The assessee has, therefore, assailed thesaid common order dated 05.12.2013 insofar as the High Court has A

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Aconfirmed its liability towards purchase tax under Section 7-A of the Actfor the aforesaid assessment years 1986-87, 1987-88, 1988-89 and 1989-90 in Civil Appeal Nos. 4416-4419 of 2014.

70. What has been discussed and held hereinbefore in relation toorder dated 10.09.2004, equally applies to this set of appeals too.BTherefore, the High Court has rightly decided the issue of levy of purchasetax against the assessee in its order dated 05.12.2013 and no case forinterference at the instance of the assessee is made out.

71. Accordingly, Civil Appeal Nos. 4416-4419 of 2014 filed by theassessee stand dismissed.

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Ankit Gyan

Appeals disposed of.

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