THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES AND DISTILLERIES LIMITED

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

1Copy pinpoint1. The appeals in this batch, involving similar questions between the same parties, have been considered together and are taken up for disposal by this common judgment.

2Copy pinpoint2. Civil Appeal Nos. 7164 of 2013 and 7165 of 2013, filed respectively by the revenue and the assessee, are directed against the final judgement and order dated 10.09.2004, passed by a Division Bench of the High Court of Judicature at Madras in W.P. No. 25081 of 2002, whereby the High Court has allowed the writ petition filed by the assessee while holding, inter alia, that though the purchase turnover, with respect to the purchase of empty bottles from unregistered dealers under bought note, is exigible to purchase tax under Section 7-A of the Tamil Nadu General Sales Tax Act, 19591 but, the assessee is entitled for the benefit of Clarifications dated 09.11.1989 and 27.12.2000 issued by the revenue till the same were withdrawn prospectively by the Clarification dated 28.01.2002 and therefore, the revenue is not entitled to levy purchase tax for the said turnover of purchase of empty bottles for the assessment year 1996-97. 2.1. The assessee has filed another set of appeals in Civil Appeal Nos. 4416-4419 of 2014 against the order of the High Court dated 05.12.2013, passed in Tax Case (Revision) Nos. 1667,1669, 1857 of H 1 Hereinafter also referred to as ‘the Tamil Nadu Act’ or simply ‘the Act’.

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 875 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

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

3Copy pinpoint3. Put in a nutshell, these matters involve the interpretation of B Section 7-A of the Tamil Nadu Act, providing for levy of purchase tax under certain circumstances, with root questions as to whether purchase tax is leviable on the purchase turnover of empty bottles purchased by the assessee in the course of its business of manufacture and sale of Beer and Indian Made Foreign Liquor2 and as to the operation and effect of the Clarifications dated 09.11.1989 issued by the Special Commissioner C and Commissioner of Commercial Taxes, Chennai3 and dated 27.12.2000 issued by the Principal Commissioner and Commissioner of Commercial Taxes, Chennai4. On the sideways, a separate question is as to whether cash discount on the price offered by the assessee to the Tamil Nadu State Marketing Corporation Limited5 is taxable in view of Explanation D 2(iii) to Section 2(r) of the Act?

4Copy pinpoint4. As noticed, the impugned order dated 05.12.2013 in Civil Appeal Nos. 4416-4419 of 2014 is essentially based on the previous order of the High Court dated 10.09.2004 which is in challenge by the revenue as also by the assessee in Civil Appeal Nos. 7164 of 2013 and 7165 of E

2013. Hence, we propose to deal with the cross-appeals against the order dated 10.09.2004 in necessary details. Civil Appeal Nos. 7164 and 7165 of 2013: Relevant Background

5Copy pinpoint5. The assessee is a company incorporated under the Companies F Act, 1956 and is engaged in the business of manufacture of Beer and IMFL products on the strength of license issued under the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules, 1981 in its factory located at No. 7, Selva Street, M.M. Nagar, Valasaravakkam, Chennai – 600 087. It is an assessee on the file of the Commercial Tax Officer, G Porur Assessment Circle.

2 ‘IMFL’ for short. 3 ‘SCCT’ for short 4 ‘PCCT’ for short 5 ‘TASMAC’ for short H

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A 5.1. The assessee, for the purpose of the said business of manufacture of Beer and IMFL, purchased empty bottles from unregistered dealers situated outside the State as well as from non-dealers for the bottling of Beer and IMFL. It has been the case of the assessee that the said bottles were recycled after use by the consumers and were re-filled with Beer and IMFL. The cost of bottles was Rs. 35.69 per case as against the manufacturing cost of Beer of Rs. 109.93 per case, taking the cost of bottles to 32% of the manufacturing cost. With respect to IMFL, the cost of bottles was Rs. 60.40 per case as against the manufacturing cost of Rs. 217.06 per case, which had been 28% of the manufacturing cost. According to the assessee, these bottles purchased against bought notes were the bottles which were already used, filled and sold for a price and continued to be available for re-use and further trading. 5.2. It had also been the case of assessee that as per Rule 29 of the Tamil Nadu Brewery Rules,1983, the manufacturer had the option of filling the Beer either in bottles or casks or even kegs; that the entire Beer and IMFL manufactured by assessee was sold only to TASMAC, who had the exclusive privilege of supplying the liquor by wholesale for the entire State of Tamil Nadu. The assessee had also been offering cash discount for early settlement of bills by TASMAC.

6Copy pinpoint6. For the assessment year 1996-97, the assessee was assessed on the files of the revenue on a total turnover of Rs. 2,52,33,32,932/- and Rs. 2,49,65,22,854/- respectively by the assessment order dated 21.10.1998. Thereafter, the Assessing Officer6, by a notice dated 30.04.1999, proposed to levy purchase tax under Section 7-A of the Act on the purchase of empty bottles from unregistered dealers under bought F note through salesman permits, on a sum of Rs. 24,78,20,465/- at the rate of 16% with surcharge, additional surcharge as also additional tax at the rate of 2.50%. 6.1. In his notice dated 30.04.1999, the AO, inter alia, observed that addition of sub-section (7) to Section 3 with effect from 22.05.1984 G specifically treats the containers or packing materials as part of the goods sold or purchased; that there was no doubt that the bottles lost their identity as bottles, which were liable to tax at 10% before filling and they became integral part of the finished goods after filling and attracted liability under the charging Section 3(7) of the Act; and when the bottles 6 H Hereinafter also referred to as ‘the AO’

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 877 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

became part of the goods, liability under Section 7-A of the Act was definite because, as a part of finished goods used in manufacture, it had not suffered the tax earlier. The AO also observed that in view of decision of this Court in Raj Sheel & Ors. v. State of Andhra Pradesh & Ors.: (1989) 74 STC 379, though the empty bottles were used as packing material and merged with the consideration of the main product, there was no separate sale of these empty bottles purchased from unregistered dealers and hence, such purchase of empty bottles was liable to tax under Section 7-A of the Act, as there was no subsequent taxable event on the sale of the packaging material. 6.2. In response to the said notice dated 30.04.1999, the assessee submitted its objections on 27.09.1999 to the effect that Section 7-A of the Act for levy of purchase tax was not attracted on the purchase of empty bottles for packing Beer and IMFL and, in any event, the proposed levy of purchase tax was illegal and unjustified in view of the Clarification dated 09.11.1989 issued by the SCCT, that was binding on the revenue as per Section 28-A of the Act. The assessee also placed reliance on the proceedings of the Appellate Assistant Commissioner (CT), Chennai7 with respect to the assessment years 1986-87 to 1988-89 holding that imposition of purchase tax on the purchase of empty bottles was illegal and unjustified. The mainstay of the assessee had been that the empty bottles purchased by it were neither consumed nor used in the manufacture of other goods; that the manufacture of Beer or IMFL was complete much prior to its bottling; that the bottling of Beer or IMFL did not complete the process of manufacture; and that it was also a clear trade practice to sell Beer even in barrels, which itself showed that manufacture of Beer had nothing to do with its subsequent bottling. 6.3. The PCCT, before passing final orders on the aforesaid notice dated 30.04.1999 by the AO, issued his Clarification dated 27.12.2000 that purchase of empty bottles could not be made liable to be charged under Section 7-A of the Act during the assessment years 1991-92,1993- 94, 1994-95 and 1995-96 as the Clarification dated 09.11.1989 was in force at the relevant time. G 6.4. However, the PCCT later on re-examined the issue in light of the decision of Tamil Nadu Taxation Special Tribunal, Chennai8 in the case 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’ H

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A Nadu: reported in (2000) 120 STC 493, and stated by his Clarification dated 28.01.2002, in modification of the earlier Clarifications, that the assessee was liable to tax under Section 7-A of the Act for the purchase of empty bottles from unregistered dealers that were used for packing of Beer/IMFL manufactured by it. B 6.5. Apart from the above, the AO, by his notice dated 05.02.2002, proposed to revise the earlier assessment for the assessment year 1996-97 by disallowing the exemption on cash discount allowed by the assessee to TASMAC and to levy tax on the said cash discount, with surcharge and additional surcharge @ 15% and 5% respectively as also the additional sales tax. In response to this notice dated 05.02.2002, the C assessee, by its letter dated 18.03.2002, submitted that any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers is not to be included in the turnover. In this regard, the assessee placed reliance on Explanation 2(iii) to Section 2(r) of the Act. D 6.6. After examining the objections of the assessee, the AO, by his order dated 27.03.2002, confirmed the proposal of levying purchase tax @ 16% under Section 7-A of the Act on the bottles purchased from unregistered dealers with surcharge and additional surcharge @ 15% and 5% respectively as also additional sales tax @ 2.5% and penalty, E essentially on the grounds that empty bottles were purchased from unregistered dealers; that they had been used as raw materials in manufacture of Beer and IMFL products; and that they had not been sold separately. The AO, in support of his conclusion, relied upon the decision of the Division Bench of Madras High Court in Appollo Saline Pharmaceuticals (P) Limited v. Deputy Commercial Tax Officer F and Anr.: (2002) 125 STC 500, which relied upon the decision of this Court in Premier Breweries v. State of Kerala: (1998) 108 STC 598. 6.7. Further, while overruling the objections in respect of levy of tax on cash discount, the AO confirmed the proposal for disallowing the cash discount allowed to TASMAC while observing that discount was G only for early settlement of bills of the Distilleries that was akin to discounting the bills with Banks/Financial Institutions; and though the nomenclature adopted was ‘cash discount’, it was nothing but a commission availed for easy payments which did not fall within the purview of discount and was not deductible. H

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 879 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

7Copy pinpoint7. Being aggrieved by the order so passed by the AO, the assessee A preferred O.P. No.476 of 2002 before the Tribunal seeking quashing of the order dated 27.03.2002 and directions to the AO to give effect to the Clarifications dated 09.11.1989 and 27.12 .2000. 7.1. The Tribunal, by its order dated 26.06.2002, while dismissing O.P. No. 476 of 2002, observed that when the latest Clarification dated B 28.01.2002 was issued on the basis of view taken by the Tribunal and confirmed by the High Court, the assessee was not entitled to question the proceedings of AO on the basis of the Clarifications issued earlier. It was also observed that the rule applicable for tax on the bottles could be extended to casks and kegs too and, by exclusion of casks and kegs, the tax applicable on bottles alone cannot be set aside or withdrawn. The C Tribunal further observed that the decision of the jurisdictional High Court in Associated Pharmaceutical Industries Private Ltd. v. The State of Tamil Nadu: (1986) 63 STC 316 was not applicable as the same was rendered prior to the amendment of Section 7-A(1)(a) of the Act by the Tamil Nadu Act No. 78 of 1986 effective from 01.01.1987; and with insertion of the word “use” by way of amendment, the meaning conveyed by the said section was different from the meaning conveyed earlier. Thus, while proceeding in tune with the Clarification dated 28.01.2002, the Tribunal refused to interfere with the order dated 27.03.2002.

8Copy pinpoint8. Being aggrieved by the Tribunal’s order dated 26.06.2002, the assessee filed the writ petition, being W.P. No. 25081 of 2002, before Madras High Court, seeking a writ of certiorarified mandamus for quashing the proceedings in question while directing the AO to pass fresh orders giving effect to the Clarifications/Circulars dated 09.11.1989 and 27.12.2000. The writ petition so filed by the assessee has been considered and disposed of by the High Court by its impugned order dated 10.09.2004. 8.1. The following three questions were considered by the High Court in its impugned order dated 10.09.2004: - “(i) Whether the purchase turnover of empty bottles purchased by the petitioner Company, who are engaged in the business of manufacturing Beer and IMFL products, from unregistered dealers for bottling Beer and IMFL manufactured by them, through the bought note to the extent of Rs. 24,78,20,465.00 is attracted for purchase tax under Section 7-A of the Tamil Nadu General Sales Tax Act (for brevity “the Act”)?; H

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A (ii) Whether purchase tax is leviable on the purchase turnover of the empty bottles purchased by the petitioner Company to the extent of Rs. 24,78,20,465.00, under Section 7-A of the Act, in spite of the clarifications dated 9.11.1989 and 27.12.2000 issued in favour of the petitioner Company by the Special Commissioner of Commercial Taxes, Chennai, in view of Section 28A of the B Act?; and (iii) Whether cash discount on the price offered by the petitioner Company to the TASMAC is taxable in view of explanation 2(iii) to Section 2(r) of the Act?” C 8.2. After taking into consideration the rival contentions and exhaustively dealing with the case law on the subject, the High Court, by applying the law laid down by this Court in Premier Breweries (supra) and Assistant Commissioner (Intelligence) v. Nandanam Construction Co.: (1999) 115 STC 427; and with reference to the amended Section 7-A of the Act and the object of this provision as D explained by this Court in the case of The State of Tamil Nadu v. M.K. Kandaswami and Ors.: (1975) 36 STC 191 i.e., to plug the leakage and prevent evasion of tax with respect to purchase of goods, rejected the contention of assessee that the turnover for the purchase of empty bottles did not attract levy of purchase tax under Section 7-A of the Act. E The 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] 108 STC 598; and (ii) ASSISTANT COMMISSIONER (INTELLIGENCE) v. NANDANAM CONSTRUCTION CO., F [1999] 115 STC 427, which was followed by this Court in APPOLLO SALINE PHARMACEUTICALS (P) LTD., v. DEPUTY COMMERCIAL TAX OFFICER & ANOTHER, [2002] 125 STC 500, and keeping in mind the object of Section 7- A of the Act, as amended, as observed in STATE OF TAMIL NADU v. M.K. KANDASWAMI & OTHERS, [1975] 36 STC G 191, viz., to plug the leakage and prevent evasion of tax with respect to purchase of empty bottles purchased from unregistered dealers under the bought note, we reject the contention of Mr. C.Natarjan that the purchase turnover for the purchase of empty bottles from unregistered dealers under the bought note is not H attracted for levy of purchase tax under Section 7-A of the Act.”

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 881 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

8.3. However, with respect to the second question, the High Court, A inter alia, observed that the Clarification dated 27.12.2000 gained statutory force in view of Section 28-A of the Act, which was inserted by the amendment with effect from 06.11.1997. Further, while relying on various decisions including that of the Constitution Bench of this Court in the case of Collector of Central Excise, Vadodra v. Dhiren B Chemical Industries : (2002) 126 STC 122, it was also observed that even though the Clarification dated 09.11.1989 was executive in nature, the same was binding on the authorities till the concessions given to the assessee under the Clarification were withdrawn prospectively with effect from 28.01.2002; and the revenue could not refuse the benefit of the Clarifications dated 9.11.1989 and 27.12.2000 in respect of purchase tax under Section 7-A of the Act for the assessment year 1996-97. The High Court answered this question in favour of the assessee as follows:- “8.6.10. It is, therefore, clear that even though the clarification dated 9.11.1989 is executive in nature, the same is binding on the authorities till the concessions given to the petitioner under the clarification were withdrawn, which could be done only prospectively, viz., in the instance case, with effect from 28.1.2002, and the revenue could not refuse the benefit of the clarifications dated 9.11.1989 and 27.12.2000 in respect of levy of purchase tax under Section 7-A of the Act for the impugned assessment year 1996-97. 8.7. For all these reasons, we are convinced that even though the purchase turnover with respect to the purchase of empty bottles from the unregistered dealers under bought note can be charged for purchase tax under Section 7-A of the Act, F the petitioner is entitled for the benefit of the clarifications dated 9.11.1989 and 27.12.2000 till the same is withdrawn prospectively by the clarification dated 28.1.2002 and therefore, the impugned levy of purchase tax on the purchase turnover for the purchase of empty bottles from unregistered dealers under Section 7-A of the G Act is illegal.” 8.4. Lastly, with respect to the third question, the High Court, while relying on various decisions including that of this Court in Neyveli Lignite Corporation Ltd. v. Commercial Tax Officer, Cuddalore and Anr.: (2001) 124 STC 586, took the view that as per Explanation H

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A 2(iii) to Section 2(r) of the Act, cash or other discount on the price of goods sold cannot be included in the turnover for the levy of tax. Accordingly, this question was also answered in favour of the assessee and against the revenue as follows:- “9.4. In NEYVELI LIGNITE CORPORATION LTD. v. C.T.O., B [2001] 124 STC 586, it was held that it is that sale consideration, whether in cash or otherwise, which is receivable in respect of sales made by the dealer which can possibly form part of the turnover of a dealer. 9.5. From the law as enunciated from the decisions referred supra, we are convinced that in view of explanation 2(iii) to Section 2(r) of the Act, the cash or other discount on the price of goods sold cannot be included in the turnover for levy of tax.” 8.5. Therefore, the High Court, particularly in view of its answers to question Nos. (ii) and (iii) as above, allowed the writ petition filed by the assessee.

9Copy pinpoint9. Being aggrieved by the order dated 10.09.2004 so passed by the High Court in W.P. 25081 of 2002, the revenue has filed the appeal by special leave, being Civil Appeal No. 7164 of 2013 questioning the grant of relief to the assessee. On the other hand, the assessee has also filed the appeal by special leave, being Civil Appeal No. 7165 of 2013, against this very order insofar as the High Court has decided the principal question relating to the applicability of Section 7-A of the Act against it. Rival Submissions The Assessee F

10Copy pinpoint10. As regards the question as to whether the purchase turnover of empty bottles purchased from unregistered dealers is exigible to purchase tax, the learned senior counsel for the assessee has submitted that the question of levy of purchase tax on this purchase turnover does not arise while making elaborate reference to the object and scheme of G Section 7-A of the Tamil Nadu Act; to the process of bottling of Beer/ IMLF after the same had been manufactured; and to the fact that the sale of liquor with bottles had only been to TASMAC within the State of Tamil Nadu with bottles being also taxed on such sales. 10.1 The learned senior counsel has referred to the history of insertion of Section 7-A to the Tamil Nadu Act w.e.f. 27.11.1969 and its

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 883 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

various amendments from time to time with the submissions that the said provision was inserted with the main object to plug the leakage and to prevent evasion of tax. Further, with reference to the provisions contained in Section 7-A as applicable at the relevant time and sub- sections (1), (7) and (8) of Section 3 of the Act, the learned senior counsel has contended that the bottles were not disposed of “in any manner other than by way of sale in the State” but these were disposed of only by way of sale to TASMAC within the State of Tamil Nadu itself on payment of sales tax and hence, clause (b) of Section 7-A(1) does not apply. In support of these contentions, the learned senior counsel has relied upon the decision of this Court in the case of Hotel Balaji and Ors. v. State of Andhra Pradesh and Ors.: (1993) 88 STC 98, more particularly on the observations occurring in a few paragraphs of said decision in relation to the provisions contained in the Haryana General Sales Tax Act, 1973.9 10.1.1. The learned senior counsel has also contended that the revenue itself had accepted such factual and legal decision and has issued D Clarifications/Circulars dated 09.11.1989 and 27.12.2000 realising that since the sale value of bottles is subject to tax at the time of sale of the contents, it has no liability to tax under Section 7-A of the Act. 10.2. Taking up clause (a) of sub-section (1) of Section 7-A of the Act, the learned senior counsel has submitted that the language used in the said clause (a) has been ‘consumes or uses such goods in the manufacture of other goods for sale or otherwise’. Thus, according to the learned counsel, what is to be seen is whether bottles were consumed or used in the manufacture of liquor; and as per the said language used in clause (a), it cannot apply to the present case either textually or contextually because Beer/IMFL was fully manufactured and such fully manufactured liquor was transferred to the bottling section; that bottles have got their own identity and they remained bottles at all stages, i.e., before being used for filling the liquor, after being used for this purpose, after liquor was consumed by the consumers, and even when these were cleaned and re-used by the assessee; and that the character and identity of bottles as bottles was never lost, they were capable of repeated use, and the assessee was cleaning and re-using such bottles. The learned senior counsel has referred to the Tamil Nadu Brewery Rules, 1983 and the Tamil Nadu Indian Made Foreign Spirits 9 Hereinafter also referred to as ‘the Haryana Act’. H

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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 the manufacture of Beer/IMFL is concerned, the same had already taken place before bottling and hence, bottles are not ‘consumed or used in the manufacture’ of liquor for sale. The learned senior counsel has also referred to the decision of this Court in the case of State of Uttar Pradesh B and Ors. v. Mohan Meakin Breweries Ltd. and Anr.: (2011) 13 SCC 588 to submit and re-emphasize that process of bottling commences only after completion of manufacturing of Beer when bulk Beer is transferred from the brewery for bottling; and manufacturing of liquor and putting manufactured commodity into bottles being two different processes, it cannot be said that the bottles have been consumed or used in manufacture of other goods. 10.2.1. The learned senior counsel has emphatically contended that in the process of manufacture, conversion of one commodity into a different commodity remains the essential element and if the identity of goods is not changed with irreversible process, manufacture would not be deemed to have taken place. In this regard, the learned counsel has referred to various decisions including those in Mafatlal Industries Ltd. v. Nadiad Nagar Palika and Anr.: (2000) 3 SCC 1, HMM Limited and Anr. v. Administrator, Bangalore City Corporation, Bangalore and Anr.: (1989) 4 SCC 640, Punjab Aromatics v. State of Kerala: E (2008) 11 SCC 482, Collector of Central Excise, Bombay-II v. M/s. Kiran Spinning Mills: (1988) 2 SCC 348, Commissioner of Central Excise & Customs, Gujarat v. Pan Pipes Resplendents Ltd. : (2006) 1 SCC 777, Union of India v. Alembic Glass Industries Ltd.: (2010) 11 SCC 745, Ganesh Trading Co., Karnal v. State of Haryana and F Anr.: (1973) 32 STC 623, Burmah Shell Oil Storage and Distributing Co. of India Ltd., Belgaum v. Belgaum Borough Municipality: AIR 1963 SC 906, and Kathiawar Industries Ltd. v. Jaffrabad Municipality: (1979) 4 SCC 56. 10.2.2. Again, with reference to the decision in Hotel Balaji G (supra), the learned senior counsel would contend that the provisions as contained in the Haryana Act carried the same language i.e., ‘uses them in the State in the manufacture of goods’; and per the enunciation in the said decision, the provision for levy of purchase tax would apply only to those cases where the purchased goods ‘cease to exist as such goods for the reason that they are consumed in manufacture of H

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 885 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

different commodities’ or the purchased goods ‘are put to an end by A their consumption in the manufacture of other goods’; and no such event having taken place where the goods in question (the bottles) had ceased to exist or had been put to an end by consumption in the manufacture of other goods, the question of levy of purchase tax does not arise. B 10.2.3. The learned senior counsel has also submitted that during the period involved in the present case, i.e., from 01.04.1996 to 31.03.1997, the requirement for applicability of clause (a) of Section 7- A(1) was stated in the manner that dealer ‘consumes or uses such goods in the manufacture of other goods for sale or otherwise’; and C the scope of clause (a) was subsequently widened w.e.f. 06.11.1997 when new clause (a) was substituted by the Tamil Nadu General Sales Tax (Sixth Amendment) Act 1997 to read as ‘consumes or uses such goods in or for the manufacture of other goods for sale or otherwise’ but, during the period relevant for the present case, the expression “or for” was not there in the statute. According to the learned counsel, when D Beer/IMFL had already been manufactured before bottling, the bottles were neither consumed nor used in manufacture of the contents; and nothing turns upon the expressions “consumes” or “uses” inasmuch as in both the situations, such consumption or use was required to be ‘in the manufacture of other goods’, which is not the case here. E 10.3. As regards the decisions referred to in the impugned orders, the learned senior counsel for the assessee has submitted that the said decisions do not operate against the contentions of the assessee. 10.3.1. The learned senior counsel would submit that in the case of M. K. Kandaswami (supra), this Court had only analysed the scheme of Section 7-A of the Act, as then existing, and had pointed out that the said provision was itself a charging provision. As regards the decision in the case of Nandanam Construction Co. (supra), the learned counsel would contend that therein, the respondent was purchasing goods such as sand and bricks which were consumed in the construction of flats and hence, this Court held that when the goods ceased to exist in the original form or ceased to be available in the State for sale or purchase, the purchasing dealer of such goods would be liable to tax, if the seller is not or cannot be taxed. The decision in Premium Breweries (supra), has been distinguished by the learned counsel with the submissions that therein, contention of the dealer was that the cardboard cartons, in which H

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A the liquor bottles were packed, may not be taxed at the higher rate applicable to the sale of liquor because cardboard cartons were sold separately but such a contention was not accepted by this Court. Thus, according to the learned counsel, for different fact situation and different question being involved, the said decision has no application to the present case. B 10.3.2. As regards the decision of Madras High Court in the case of Appollo Saline Pharmaceuticals (supra), the learned senior counsel has strenuously argued that the said decision is not correct in law and is even otherwise distinguishable. The learned counsel has pointed out that the goods in question in the said decision were the bottles carrying C ‘intravenous fluid’10 which had different role in the process of manufacture of I.V. fluid as also in the peculiar process of intravenous route of administration, where the fluid is given from a bag connected to a thin tube inserted into the veins; and it is important to keep a check on the rate of flow and delivery by continuous monitoring. The learned counsel would submit that by its very nature, where the manufacture of I.V. fluid requires its particular packing, the said packing does not retain its identity and becomes a part of the composite unit called I.V. fluid; that packing of I.V. fluid in bottle is one time packing and after I.V. fluid is taken out, the packing becomes useless and is discarded; and that in the said decision itself, the entire I.V. fluid contained in bottle was considered to be a composite unit, which is not the case in relation to the bottles used as container of Beer/IMFL. The learned senior counsel has further submitted that the phraseology considered in the matter of Appollo Saline Pharmaceuticals (supra) was ‘in or for the manufacture’, which was the position obtainable after the amendment of Section 7-A of the Act w.e.f. 06.11.1997 whereby, the expression “or for” was inserted in clause (a) thereof but, that was not the position during the period involved in the present case. The learned counsel has also submitted that in the said matter, the High Court did not even consider the relevant decisions of this Court wherein the relevant expressions have been considered and interpreted by this Court including that in the case of Hotel Balaji (supra) wherein, according to the learned counsel, this Court had considered the provisions of Haryana Act which are in pari materia with the provisions of the Tamil Nadu Act in relation to the levy of purchase tax. The learned 10 H ‘I.V. fluid’ for short

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 887 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

counsel has further submitted that in Appollo Saline Pharmaceuticals A (supra), reference was only made to decision of this Court in the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur and Ors.: (1965) 16 STC 563 though the issue involved in the said matter was completely different and related to categories of goods to be included in the registration certificate which has no co-relation B with levy of purchase tax, particularly in view of the language used in Section 7-A(1) (a) of the Act.

11Copy pinpoint11. As regards the Clarifications/Circulars, the learned senior counsel has referred to the contents of the Clarifications dated 09.11.1989 and 27.12.2000 and has made the submissions that in the assessee’s C own case, after examining the relevant facts and legal position, the revenue had specifically clarified that since the sale value of bottles is subject to tax at the time of sale of the contents, it had no liability to tax under Section 7-A of the Act; and such clarifications remain binding on the revenue, as rightly held by the High Court. 11.1. Further, with reference to the decisions of this Court in the D cases of Commissioner of Income Tax, Kochi v. Trans Asian Shipping Services (P) Ltd.: (2016) 8 SCC 604, Signode India Ltd. v. Commissioner of Central Excise & Customs-II: (2017) 4 SCC 613, State of Tamil Nadu and Anr. v. India Cements Limited and Anr.: (2011) 13 SCC 247 and Commissioner of Central Excise, Bolpur v. E Ratan Melting & Wire Industries: (2008) 13 SCC 1, the learned senior counsel has submitted that the law remains settled that the Circular granting benefit to the assessee is binding on the department. Thus, according to the learned counsel, the High Court has rightly applied the principles of such decisions while holding that the benefit of Clarifications dated 09.11.1989 and 27.12.2000 cannot be denied to the assessee. F

11.2. While making reference to the Clarification dated 28.01.2002, which was issued after the Tribunal’s decision in the case of Appollo Saline Pharmaceuticals, the learned senior counsel has contended that therein, the earlier Clarification dated 27.12.2000, clarifying that in the facts and circumstances of the present case, no purchase tax was payable G under Section 7-A of the Act, was neither withdrawn nor cancelled and on the other hand, the expression used in the new Clarification, of modification, makes it clear that the new one was made effective only prospectively and hence, cannot apply for the period in question. In this regard too, the learned senior counsel has referred to and relied upon H

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A various decisions including those in H.M. Bags Manufacturer v. CCE: 1997 (94) ELT 3 and Commissioner of Customs, Mumbai v. Ashish Bajpai: 2007 (217) ELT 163. The revenue

12Copy pinpoint12. The learned Additional Advocate General appearing for the revenue has countered the submissions made on behalf of the assessee while again making elaborate reference to the object and scheme of Section 7-A of the Tamil Nadu Act as also its interpretation and application in various decisions. 12.1. It has been argued on behalf of the revenue that the amendment to Section 7-A of the Act and addition of the words “or uses” in clause (a) thereof had broaden the scope of this provision as also the jurisdiction of assessing authorities to levy purchase tax on any commodity, which had not suffered tax earlier and which has been used in the process of manufacturing any good to be sold. Therefore, the assessee is liable to pay purchase tax under Section 7-A of the Act because the bottles purchased from unregistered dealers were not taxed at the purchase point and charging of such purchase tax does not amount to double taxation. 12.2. The learned AAG has referred to the decision in M.K. E Kandaswami (supra) to submit that therein, this Court has made it clear that Section 7-A of the Act is a charging section and has explained that Section 7-A of the Act deals with “taxable goods”, that is, the kind of goods, the sale of which by a particular person or dealer may not be taxable in the hands of seller but purchase of the same by a dealer in the course of his business may subsequently become taxable. Thus, Section F 7-A of the Act creates a liability against a dealer on his purchase turnover of goods, the sale or purchase of which though generally liable to tax under the Act, have not suffered tax and which, after the purchase, have been dealt by him in any of the modes indicated in Section 7-A(1). The learned AAG has further argued, with reference to the decision in G Premier Breweries (supra), that the calculation of taxable turnover cannot be accomplished without taking into consideration the purchase tax on the goods purchased; and this Court has held that the packed goods have to be seen as one whole for the purpose of calculating the turnover of the goods.

H

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 889 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

12.3. While relying on the decision of the High Court in Appollo A Saline Pharmaceuticals (supra), the learned AAG has pointed out that therein, the Court has held that the turnover of bottles would be part of the turnover of the I.V. fluid because the bottles were not sold individually but as a composite unit of I.V. fluid packed in bottles. It has been contended that on similar lines and analogy, packaging of Beer/IMFL in glass bottles has to be seen as an inseparable composite unit, particularly when the containers are needed to make the goods marketable. Reference has also been made to the decision of this Court in J.K. Cotton (supra) wherein, it was held that the expression “in the manufacture of goods” in sub-section 8(3)(b) of the Central Sales Tax Act should encompass the entire process carried on by the dealer of converting raw materials into finished goods. It has also been contended that levy of sales tax on the bottles sold with liquor has no bearing on the question of levy of purchase tax because such sales tax on bottles was leviable even if the bottles were purchased from registered dealers or in any other manner after payment of tax. D 12.4. Further, while placing reliance on the Tamil Nadu Indian Made Foreign Spirits (Manufacture) Rules, 1981 the learned AAG has submitted that the use of bottle is imperative in the manufacture of Beer/ IMFL as per the rules and guidelines because the product needs resting and proper storing before it is fit to be sold. In regard to Beer bottle, several of its unique characteristics have been recounted on behalf of revenue to submit that the same would identify it only as Beer bottle and nothing else, for example, (i) the thickness of the glass used in the Beer bottle; (ii) the colour of the glass of the bottle, which is a quality attached to specific brands; (iii) the grooves on the neck of the bottle, which are made only for an aluminium cap and not for any other covering, thereby making the bottle fit only for refilling of Beer; and (iv) the length, width, breadth, etc. of the bottle, which is specific to every Beer brand. 12.5. The learned AAG for revenue has further relied upon the interpretation of Section 6-A(ii)(a) of the Andhra Pradesh General Sales Tax Act, 195711 by the Constitution Bench of this Court in the case of G Nandanam Construction Co. (supra) with the submissions that the said provision has been in pari materia with Section 7-A(1)(a) of the Tamil Nadu Act and this Court held that, when the goods cease to exist in the original form or cease to be available in the State for sale or 11 Hereinafter also referred to as ‘the Andhra Pradesh Act’. H

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A purchase, the purchasing dealer of such goods is liable to tax if the seller is not or cannot be taxed. The learned AAG has further relied upon the interpretation and application of Section 7 of the Madhya Pradesh General Sales Tax Act, 195912 by this Court in the case of Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh: (1969) 24 STC 343 with the submissions that the said provision has also been in pari B materia with Section 7-A(1)(a) of the Tamil Nadu Act and this Court held that the assessees were registered as dealers and when they had purchased taxable building materials in the course of their business for manufacturing goods for sale, purchase tax was payable by them.

13Copy pinpoint13. As regards the questions relating to the Clarifications/Circulars, C the learned AAG has submitted that Section 28-A of the Act empowering the Commissioner of Commercial Taxes to issue clarifications came into effect from 06.11.1997 and hence, during the relevant assessment year i.e. 1996-97, there was no statutory provision in the Act empowering the Commissioner to issue the clarification. Thus, according to the learned D AAG, the earlier Clarification dated 09.11.1989 was reduced to a mere administrative circular which had no binding force on a Quasi-judicial Authority or a Court of Law and as a consequence, the Clarification dated 27.12.2000, which was issued in continuity with the earlier Clarification dated 09.11.1989, cannot be made applicable for the assessment year 1996-97. E 13.1. The learned AAG has also relied upon the Constitution Bench decision in Ratan Melting & Wire Industries (supra) with the submission that while dealing with any matter, the Courts can declare law, fill any gaps in legislation or give an interpretation to an already existing law; and the law so declared remains binding on all. Insofar as this matter is concerned, according to the learned AAG, the law came to be declared by this Court in Premier Breweries (supra) that the packed goods have to be seen as one whole for the purpose of calculating the turnover; and on similar lines, in Appollo Saline Pharmaceuticals (supra), the High Court held that an assessee paying purchase tax will not suffer any additional burden because any other manufacturer who had bought the bottles from registered dealers would also be including their cost in the turnover of final goods. 13.2. According to the learned AAG, a natural development of the decisions by the Courts had been that the Clarifications dated 09.11.1989 12 H Hereinafter also referred to as the ‘Madhya Pradesh Act’.

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 891 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

and 27.11.2000 became contrary to the law declared; and it had been in this background that the Clarification dated 28.01.2002 came to be issued. The learned AAG would submit that the interpretation given by the High Court of Madras in Appollo Saline Pharmaceuticals (supra), which is in line with the law declared by this Court in Premier Breweries (supra), gave clarity to the application of Section 7-A of the Act and hence, to give effect to the real meaning of Section 7-A of the Act, the Clarification dated 28.01.2002 ought to be considered applicable because the law as declared would apply across the board and not only prospectively.

14Copy pinpoint14. We may notice another ground taken by the revenue in the petition seeking leave to appeal that the High Court has erred in holding that the so-called ‘cash discount’ falls under the ambit of Explanation C (2)(iii) of Section 2(r) of the Act and therefore, exemption is to be allowed thereupon. The Points for Determination

15Copy pinpoint15. In comprehension of what has been noticed hereinabove, the principal point calling for determination in these appeals is as to whether purchase tax under Section 7-A of the Act is leviable on the purchase turnover of empty bottles purchased by the assessee in the course of its business of manufacture and sale of Beer and IMFL. The second point, co-related with the principal one, is on the operation and effect of the Clarifications/Circulars dated 09.11.1989, 27.12.2000 and 28.01.2002 as issued by the department. Another point arising out of the impugned order dated 10.09.2004 is as to whether cash discount on the price offered by the assessee to the TASMAC is taxable in view of Explanation 2(iii) to Section 2(r) of the Act? The Principal Point: Purchase Tax under S. 7-A of the Act F over the Turnover in Question

16Copy pinpoint16. Taking up the principal point for determination, we may usefully put in a nutshell the major aspects of the rival contentions. It is asserted on behalf of the assessee that purchase tax on the turnover in question is not leviable for two main reasons: One, that the bottles in question had G not been consumed or used in the manufacture of liquor and they were only used as containers in which already manufactured liquor was bottled for carrying and sale; and secondly, the sale value of bottles has been subjected to tax at the time of sale of its contents and therefore, there could arise no question of levy of purchase tax on these very bottles, H

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A which are meant for repeated use. Per contra, it is contended on behalf of the revenue that use of bottles is imperative in the manufacture of Beer/IMFL and their packaging in glass bottles has to be seen as an inseparable composite unit; and that levy of sales tax on the bottles sold with liquor has no bearing on the question at hand because such sales tax on bottles was leviable even if the bottles were purchased after payment of tax. Statutory Provisions

17Copy pinpoint17. Having regard to the subject-matter and the questions involved, appropriate it would be to take note of the relevant statutory provisions in the Tamil Nadu Act. 17.1. Sub-sections (1), (7) and (8) of Section 3 of the Tamil Nadu Act, being the principal charging provision for levy of sales tax, read at the relevant time as under:- “3. Levy of taxes on sales or purchases of goods D (1) Every dealer (other than a casual trader or agent of a non- resident dealer) whose total turnover for a year exceeds three lakhs of rupees and every casual trader or agent of a non-resident dealer, whatever be his turnover for the year, shall pay a tax for each year in accordance with the provisions of this Act. E *** *** *** (7) Notwithstanding anything contained in sub-sections (2), (2A), (2B) or (3) but subject to sub-sections (1) and (8), where goods are sold or purchased together with the containers or packing materials the turnover of such goods shall include the price, cost or value of such containers or packing materials, and the packing charges, whether such price, cost or value or packing charges, are charged separately or not, and tax shall be levied thereon at the rate applicable to the goods contained or packed as if such containers or packing materials were the parts of the goods sold or purchased. (8) Where the sale or purchase of goods contained in any container or packed in any packing material is exempt from tax at the hands of the dealer, then the price, cost or value of such container or packing material and the charges for packing forming part of the H

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 893 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

turnover of the goods under sub-section (7) shall not be liable to A tax. Explanation: For the purposes of sub-sections (7) and (8), “containers” includes gunny bags, tins, bottles or any other containers.” 17.2. As noticed, Section 7-A was inserted in the Tamil Nadu B Act with effect from 27.11.1969. This provision has undergone several amendments from time to time but, for the present purpose, its sub- section (1), as examined by this Court in the judgment dated 15.07.1975 in the case of M.K. Kandaswami (supra) and then, as applicable to the present case pertaining to the assessment year 1996-97, may be noticed. C 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: D (1) Every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under sections 3, 4 or 5, as the case may be, and either,— E (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) disposes of such goods in any manner other than by way of sale in the State; or (c) despatches them to a place outside the State except as a F direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to the purchase aforesaid at the rate mentioned in sections 3, 4 or 5 as the case may be whatever be the quantum of such turnover in a year: Provided that a dealer (other than a casual trader or agent of a G non-resident dealer) purchasing goods (the sale of which is liable to tax under sub-section (1) of section 3) shall not be liable to pay tax under this sub-section, if his total turnover for a year is less than twenty-five thousand rupees. *** *** ***” H

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A 17.2.2. A few significant amendments were made to the provision aforesaid by Tamil Nadu Act No. 78 of 1986 with effect from 01.01.1987 whereby, amongst other changes, the dimensions of its applicability were modified in the principal part and then, a significant change was made in clause (a) where, after the word “consumes”, the words “or uses” were inserted. Then, some further amendments were made to this provision B by Tamil Nadu Act No. 25 of 1993 with effect from 12.03.1993. With such amendments and modifications, Section 7-A (1) of the Act, as applicable to the present case, has been as under:- “Section 7-A. Levy of purchase tax: C (1) Subject to the provisions of sub-section (1) of section 3, every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods, (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under sections 3 or 4, as the case may be, not being a circumstance in which goods liable to tax under D sub-section (2) of section 3 or section 4, were purchased at a point other than the taxable point specified in the First or the Second Schedule and either, (a) consumes or uses such goods in the manufacture of other goods for sale or otherwise; or E (b) disposes of such goods in any manner other than by way of sale in the State; or (c) despatches or carries them to a place outside the State except as a direct result of sale or purchase in the course of inter- F State trade or commerce, shall pay tax on the turnover relating to the purchase as aforesaid at the rate mentioned in sections 3 or 4, as the case may be.” 17.2.3. Another aspect of amendment to the provision aforesaid by Tamil Nadu Act No. 60 of 1997 w.e.f. 06.11.1997 may also be taken note of with a caveat that this amendment is not directly applicable to G the present case pertaining to the assessment year 1996-97 but has its relevance in relation to one limb of submissions made before us. By this amendment, in clause (a) of Section 7-A (1) of the Act, after the expression “in”, the words “or for” were inserted, resulting in further widening of the area of coverage of this provision. H

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 895 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

17.3. For its relevance, we may extract in juxtaposition the A progression of this clause (a) of Section 7-A (1) of the Act i.e., as originally enacted; as applicable to the present case after its amendment w.e.f. 01.01.1987; and as amended further w.e.f. 06.11.1997 as follows:- Clause (a) of Clause (a) of Clause (a) of Section 7-A (1) Section 7-A (1) Section 7-A (1) B as origina lly as applicable to as amended enacted the present case w.e.f. after its 06.11.1997 amendment w.e.f. C 01.01.1987 “(a) consumes “(a) consumes “(a) consumes such goods in or uses such or uses such the manufacture goods in the goods in or for of other goods manufacture of the manufacture for sale or other goods for of other goods D otherwise; or”. sale or for sale or otherwise; or”. otherwise; or”. (emphasis in bold supplied) Judicial Interpretations in the cited decisions E

18Copy pinpoint18. For dealing with the rival contentions, we may also take note of various facets of interpretation of Section 7-A (1) of the Act in the relevant cited decisions. It may, however, be observed that so far as the text of Section 7-A (1) applicable to the case at hand is concerned, there has not been any direct interpretation by this Court or the jurisdictional High Court (except the order impugned). In two of the cited decisions, F one by this Court in the case of M.K. Kandaswami (supra)13 and another by the High Court in the case of Associated Pharmaceutical Industries (supra)14, Section 7-A (1) of the Tamil Nadu Act, as existing before its amendment by Tamil Nadu Act No. 78 of 1986 w.e.f. 01.01.1987, came up for consideration. The other cited decision in relation to Section 7-A G (1) of the Tamil Nadu Act had been by the jurisdictional High Court in the case of Appollo Saline Pharmaceuticals (supra)15 but that was rendered 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 H

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

19Copy pinpoint19. As regards the decisions of jurisdictional High Court dealing with Section 7-A (1) of the Act, in the case of Associated Pharmaceutical Industries (supra), the assessee had purchased and used the bottles for manufacture and sale of medicines, drugs or syrups. It was held by the High Court that though without bottling, the drugs and syrups manufactured could not be sold but, that could not be a reason for holding that the process of manufacture of drugs and syrups was not complete 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 of manufacture; and consequently, the purchase turnover of empty bottles could not be brought to charge under Section 7-A (1) (a) of the Act. 16

20Copy pinpoint20. The other decision concerning the provision contained in Section 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 Saline Pharmaceuticals (supra). Therein, the assessee was engaged in manufacturing and marketing of I.V. fluid and the turnover of the bottles containing I.V. fluid was included in the turnover relating to the fluid by reason of Section 3 (7) of the Act. The assessee was confronted with a demand for payment of purchase tax for the reason that the bottles in which I.V. fluid was packed and sold were those bottles which the assessee had purchased from unregistered dealers and therefore, those bottles had not been subjected to tax at the time of purchase. It was essentially contended before the Madras High Court on behalf of the assessee that if the goods in respect of which purchase tax was sought

16 Another decision of the jurisdictional High Court, rendered prior to the amendment of Section 7-A of the Act w.e.f. 01.01.1987 and even before the decision in Associated G Pharmaceutical 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 had purchased 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 in the process of manufacture of some other goods and, therefore, Section 7-A (1) was not attracted.

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 897 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

to be levied continued to be available for sale or purchase and were in fact sold, such goods cannot be brought to tax under Section 7-A of the Act. 20.1. The High Court referred to the expansion of ambit and coverage of Section 7-A (1) of the Act and observed that after the amendments, recovery of purchase tax was permissible even in cases where goods which had not suffered tax at the time of purchase and are subsequently disposed of by the dealer in circumstances where value of turnover relating to those goods is also subject to tax by deeming the same as forming part of turnover of other taxable goods. The High Court observed that the inclusion of turnover relating to bottles in the total turnover of dealer and thereby, such turnover relating to bottles being also subjected to tax, did not enable the assessee to get out of the net of Section 7-A because the bottles were not sold as bottles but were sold as part of a composite unit namely, I.V. fluid packed in bottles. The High Court also observed that the amended Section 7-A of the Act referred to the consumption or use of goods in or for the manufacture of other goods; and having regard to the nature of goods and the need for a container to make those goods marketable, it was required to be held that the bottles were used in or for the manufacture of I.V. fluid. The High Court observed and held as under (at pp. 503-504 of STC): “7. The submissions made by counsel proceeded on the assumption that the sole object of section 7-A is to ensure recovery of tax on the sale or purchase of goods which tax is required to be paid but had not been paid to the State by reason of the circumstances in which the purchase was made and one of the parties to the transaction is a registered dealer. Though that apparently was the original purpose of the provision, the subsequent amendment to that section in the year 1987 by addition of the words used in section 7-A(1) (a) and enlarging it further by a further amendment with effect from November 6, 1997 would indicate that the object of the Legislature is not confined to mere recovery of tax, which was not recovered by reason of the circumstances in which the purchase was made. After the amendment to section 7-A(1) (a) recovery of purchase tax is permissible even in cases where the goods which had not suffered tax, at the time of purchase are used by the dealer and are subsequently disposed of by the dealer in circumstances where H

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A the value of the turnover relating to those goods is also subject to tax by deeming the same as forming part of the turnover of other taxable goods.

8. It is no doubt true that the turnover of the bottles is, by reason of section 3(7), deemed to be part of the turnover of the assessee B relating to the I.V. fluids and by reason of the inclusion of such turnover of the bottles in that turnover, the turnover relating to these bottles is also subjected to tax. Such inclusion of the turnover relating to bottles, however, does not enable the assessee to get out of the net of section 7-A as the bottles were not sold as bottles but as part of a composite unit, viz., I.V. fluids packed in bottles. C

9. Section 7-A(1)(a) refers to the consumption or use of goods in or for the manufacture of other goods. Having regard to the nature of the goods and the need for a container in order to make those goods marketable, it must necessarily be held that the bottles used here were bottles used in or for the manufacture of the I.V. fluids, D having regard to the law laid down by the apex Court in the case of J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur [1965] 16 STC 563. As set out in the head note to that decision it was held therein that the expression “in the manufacture of goods” in sub-section 8(3)(b) of the Central Sales E Tax Act, should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would not be commercially expedient, goods required in the process would fall within the expression “in the manufacture of goods”.” 20.2. The High Court also found that it was not the case of assessee that the fluids manufactured by it could be sold in the market without 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 the bottles were clearly the goods which were used in or for the manufacture of fluid. The projection on the part of assessee that it would be subjected to 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 has not suffered any additional burden as any other manufacturer

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 899 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

of I.V. fluids who sells the fluids in bottles by purchasing bottles from another registered dealer on which sales tax was paid, would also still be required to include the turnover of those bottles in the turnover of the I.V. fluids. Section 7- A, as submitted by the learned counsel, was intended to plug loss of revenue. We were initially troubled when the facts of the case were presented before us as though the assessee was being burdened with tax twice over. A closure (sic) examination of the case, however, demonstrated that no such additional burden is cast on the assessee. On the other hand, not levying the tax would only amount to the assessee gaining an advantage, which the law did not intend to provide.” C (emphasis in bold supplied)

21Copy pinpoint21. Turning over to the cited decisions of this Court, it may be observed that the 3-Judge Bench decision of this Court in the case of M.K. Kandaswami (supra) has a material bearing and is of utmost significance because the root purpose as also the sweep of this provision for levy of purchase tax have been succinctly explained by this Court while illuminating several of its basic and essential ingredients. 21.1. In the case of M. K. Kandaswami (supra), the respondent dealers had purchased a variety of goods, namely, arecanuts, gingelly seeds, turmeric, grams, castor seeds and butter in such circumstances where their sales were not liable to tax in the hands of the respective sellers although the goods were such, whose sale or purchase was generally liable to tax under the Act. Against the respondent dealers, either pre-assessment proceedings had been initiated or assessments had been made under Section 7-A of the Act on the purchase turnover of these goods on the assertions by revenue that the gingelly seeds and castor seeds were crushed into oil and the butter was converted into ghee by the respective dealers and by such action, the goods in question were consumed in the manufacture of other goods for sale; and hence, this action was covered under clause G (a) of Section 7-A (1). It was also asserted that the other goods namely, arecanuts, turmeric and gram, were transported by the respective dealers outside the State for sale on consignment basis and thereby, those cases were covered by clause (b) or clause (c) of Section 7-A (1). In the backdrop of these facts, when Section 7-A came up for interpretation in H

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A the writ petitions under Article 226 of the Constitution of India, the High Court found the phraseology of Section 7-A to be rather carrying contradiction in terms and the language being far from clear as to its intention. 21.2. However, this Court did not approve the perspective of High B Court and explained the true meaning as also the sweep of the respective expressions in sub-section (1) of Section 7-A of the Act by breaking it up 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 any other person”; (4) The goods purchased are “goods, the sale or purchase of which is liable to tax under this Act”; D (5) Such purchase is “in circumstances in which no tax is payable under 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 for sale or otherwise or (b) despatches all such goods in any manner other than by way of sale in the State or (c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. Section 7-A(1) can be invoked if the above ingredients are cumulatively satisfied….. *** *** ***” (emphasis in bold supplied) G 21.3. This Court, while applying Section 7-A to the given fact situations, pointed out that this section was at once a charging as also a remedial provision in the following words (at p. 198 of STC): “It may be remembered that section 7-A is at once a charging as H well as a remedial provision. Its main object is to plug leakage and

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 901 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

prevent evasion of tax. In interpreting such a provision, a A construction which would defeat its purpose and, in effect, obliterate it from the statute book, should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile. The view taken by the High Court is repugnant to this B cardinal canon of interpretation.” 21.4. This Court further referred to the decision in the case of Ganesh Prasad Dixit (supra) and observed that Section 7 of the Madhya Pradesh Act, as considered therein, though not carrying exact language as that of Section 7-A of the Tamil Nadu Act but their substance and object were the same. This Court also noticed that in Ganesh Prasad C Dixit, it was held that the appellants (building contractors), who were purchasing building materials which were taxable under the Act and had been using them in the course of their business, had consumed the materials otherwise than in the manufacture of goods for sale and for a profit motive and hence, purchase price was taxable on the plain reading D of words of Section 7 of the Madhya Pradesh Act. Taking note of such exposition, this Court observed in M. K. Kandaswami that the ratio decidendi of Ganesh Prasad Dixit was apposite guide for construing Section 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 the E Madhya Pradesh Act. Although the language of these two provisions is not completely identical, yet their substance and object are the same. Instead of the longish phrase, “the goods, the sale or purchase of which is liable to tax under this Act” employed in section 7-A of the Madras Act, section 7 of the Madhya Pradesh Act conveys the very connotation by using the convenient, terse F expression “taxable goods”. The ratio decidendi of Ganesh Prasad is, therefore, an apposite guide for construing section 7- A. Unfortunately, that decision, it seems, was not brought to the notice of the learned Judges of the High Court.”17 (emphasis in bold supplied) G 21.5. A similar provision like Section 7-A of Tamil Nadu Act was also 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 details hereafter a little later. H

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A 196318 and validity thereof was challenged before the High Court. The High Court upheld the validity of Section 5-A while explaining the scheme thereof and, in M. K. Kandaswami, this Court noted with approval the decision of Kerala High Court and further said that the said Section 5-A of the Kerala Act was in pari materia with the Section 7-A of the Act.

22Copy pinpoint22. Moving on to the other cited decisions, as noticed, the High Court has followed the Constitution Bench decision of this Court in the case of Nandanam Construction Co. (supra) and the same decision has been strongly relied upon by the learned Additional Advocate General for revenue before us. On the other hand, learned counsel for the assessee has emphatically relied upon the decision of this Court in Hotel Balaji C (supra) and particularly on the interpretation put by this Court on the provisions contained in the Haryana Act with the submissions that the said provisions had been in pari materia with Section 7-A of the Tamil Nadu Act. We may, therefore, delve into these two decisions in necessary details.

23Copy pinpoint23. The matter involved in the case of Nandanam Construction Co. (supra) was laid before the Constitution Bench in view of the conflict in two 3-Judge Bench decisions of this Court, in Ganesh Prasad Dixit (supra) on one hand and CST v. Pio Food Packers: 1980 (Supp) SCC 174 on the other. E 23.1. For proper comprehension of the ratio of Nandanam Construction Co. (supra), pertinent it shall be to first take note of the decisions in Ganesh Prasad Dixit and Pio Food Packers (supra) and the area of conflict therein. 23.1.1. As noticed hereinbefore, in the case of Ganesh Prasad F Dixit, the appellant, a firm of building contractors and registered as dealer under the Madhya Pradesh Act, was assessed to tax with respect of goods purchased by it for use in its construction business. As regards the issue relating to the imposition of purchase tax under Section 7 of the Madhya Pradesh Act, a 3-Judge Bench of this Court examined the G relevant 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 any taxable goods, in circumstances in which no tax under section 6 is

18 H Hereinafter also referred to as ‘the Kerala Act’

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 903 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

payable on the sale price of such goods and either consumes such goods in the manufacture of other goods for sale or otherwise or disposes of such goods in any manner other than by way of sale in the State or despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under section 6……” This Court observed that even though the phraseology used in Section 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) C either consumes such goods in the manufacture of other goods for sale; or (2) consumes such goods otherwise; or (3) disposes of such goods in any manner other than by way of sale in the State; or (4) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. This Court D held the said appellant liable to pay the purchase tax as it was registered as dealer and had purchased building materials, which were taxable under the Act, in the course of its business; and had consumed the materials otherwise than in the manufacture of goods for sale and for a profit- motive. This Court also examined another contention on behalf of the appellant that the expression “or otherwise” was intended to denote alternative to the expression “sale” immediately preceding and, therefore, the price paid for buying goods consumed in the manufacture of other goods intended to be sold or otherwise disposed of was taxable. This Court did not accept this contention while deducing the intention of Legislature that the consumption of goods renders the price paid for their purchase taxable, if the goods are used in the manufacture of other goods for sale or if the goods are consumed otherwise. The relevant observations and interpretation by this Court in Ganesh Prasad Dixit could be usefully noticed as under (at pp. 348-349 of STC) :- “Counsel for the appellants urged that in the cases of H. G Abdul Bakshi and Bros. and L.M.S. Sadak Thamby & Co., the assessees were carrying on the business of selling goods manufactured by them and for the purpose of manufacturing those goods certain other goods were purchased and consumed in the process of manufacture, but here the goods are not consumed in H

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A producing another commodity for sale, and on that account the two cases are distinguishable. The answer to that argument must be sought in the terms of section 7. The phraseology used in that section is somewhat involved, but the meaning of the section is fairly plain. Where no sales tax is payable under section 6 on the sale price of the goods, purchase tax is B payable by a dealer who 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 in any manner other than by way of sale in the State, or ( 4) C despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce. The assessees are registered as dealers and they have purchased building materials in the course of their business; the building materials are taxable under the Act, and the appellants have consumed the materials otherwise than in the D manufacture of goods for sale and for a profit-motive. On the plain words of section 7 the purchase price is taxable. Mr Chagla for the appellants urged that the expression “or otherwise” is intended to denote a conjunctive introducing specific alternative to the words “for sale” immediately preceding. The E clause in which it occurs means, says Mr Chagla, that by section 7 the price paid for buying goods consumed in the manufacture of other goods, intended to be sold or otherwise disposed of, alone is taxable. We do not think that that is a reasonable interpretation of the expression “either consumes such goods in the manufacture F of other goods for sale or otherwise”. It is intended by the Legislature that consumption of goods renders the price paid for their purchase taxable, if the goods are used in the manufacture of other goods for sale or if the goods are consumed otherwise.” G (emphasis in bold supplied) 23.1.2. However, in Pio Food Packers (supra), a note discordant to the above extracted enunciation came to be stated by another 3- Judge Bench of this Court. In that case, the respondent was carrying on the business of manufacturing and selling canned fruit apart from other products. In its return for the year 1973-74, the respondent claimed that

THE COMMERCIAL TAX OFFICER & ANR. v. MOHAN BREWERIES 905 AND DISTILLERIES LIMITED [DINESH MAHESHWARI, J.]

the turnover representing the purchase of pineapple fruit was not liable to purchase tax under Section 5-A of the Kerala Act for the reason that the pineapple fruit was converted into pineapple slices, pineapple jam, pineapple squash and pineapple juice but by way of such conversion of pineapple fruit into its products, no new commodity was created and therefore, it was erroneous to say that there was a consumption of pineapple fruit “in the manufacture” of those goods. This Court observed as regards the connotations of “manufacture” that ‘it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place’. As regards the process/ C es involved in the said matter, the Court accepted the submissions of assessee that the pineapple slices continued to possess the same identity as the original pineapple fruit and there was no consumption of the original pineapple fruit for the purpose of manufacture. It was also contended on behalf of the revenue that even if no manufacturing process was involved, the case fell within Section 5-A(1)(a) of Kerala Act, as the same was speaking not only of goods consumed in the manufacture of other goods for sale but also of goods consumed otherwise. The Court did not accept this contention of revenue while observing that on true construction, the clause in question was only speaking of goods consumed in the manufacture of other goods for sale or of goods consumed in the manufacture of other goods for purposes other than sale. The Court, inter alia, observed, held and concluded as follows (at pp. 66-67 of STC):- “…..Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it. It is contended for the revenue that pineapple slices have a higher price in the market than the original fruit and that implies that the slices constitute a different commercial commodity. The higher price, it seems to us, is occasioned only because of the labour put into making the fruit more readily consumable and because of the can employed to contain it. It is not as if the higher price is claimed because it is a different commercial commodity. It is said that pineapple slices appeal to a different sector of the trade and that when a customer asks for a H

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