Appeals Nos
90 andand 91 of 1965
Appeals by special leave from the judgment and order dated September 4 1963 of the Madras High Court in Tax Cases Nos 120 and 121 of 1963
80 A Ranganandhan Chetty and A V Rangam for the appel lant
T A Ramachandran and O C Mathur for the respondent
The Judgment of the Court was delivered by Subba Rao J
These appeals by special leave raise the question of the true construction of the provisions of r 51 i of the Madras General Sales Tax Turnover and Assessment Rules 1939 hereinafter referred to as the Rules
The facts are not in dispute and they may be briefly stated
The respondent Messrs Swastik Tobacco Factory is a dealer in tobacco
It purchased raw tobacco by processing it in a prescribed manner converted it into chewing tobacco and sold it as such in small paper packets
The said process has been described by a Division Bench of the Madras High Court in Bell Mark Tobacco Co vs Government of Madras1 thus  Taking however the cumulative effect of the various processes to which the assessee subjected the tobacco before he sold it is clear that what was eventually sold by the assessee was a manufactured product manufactured from the tobacco that the assesses had purchased
Soaking in jaggery water is not the only process to be considered
The addition of flavouring essences and shredding of the tobacco should establish that what the assesses sold was a product substantially different from what he had purchased for the purpose of these appeals it was not disputed that the respondent purchased raw tobacco converted it by a manufacturing process into chewing tobacco and sold it in small paper packets
The respondent paid excise duty in respect of the raw tobacco purchased by it
For the assessment years 1955 56 and 1956 57 the Assistant cum Deputy Commercial Tax Officer assessed the respondent to sales tax on the turnover of Rs 1067923 10 9 and Rs 771661 11 0 respectively
The respondent claimed that the excise duty paid by it to the Central  Government in respect of the raw tobacco should be deducted from the turnover ascertained by the said Officer
But his conten tion was rejected
On appeal the order of the said Officer was confirmed by the Appellate Assistant Commissioner of Commercial Taxes
On a further appeal to the Sales Tax Appellate Tribunal the assessee in addition to the question of deduction raised 1 1961 12 STC 126132
81 an additional ground that the entire turnover of the sales on chewing tobacco was not liable to be assessed
The Tribunal set aside the order of the Appellate Assistant Commissioner
The State carried the matter in two revisions to the High Court of Madras
A Division Bench of the said High Court agreed with the view expressed by the Tribunal and dismissed the revisions
Hence the present appeals
Mr A V Rangam learned counsel for the State argued that the raw tobacco was converted by a manufacturing process into chewing tobacco a different commodity and that therefore under r 51 of the Rules as excise duty was paid only in respect of the raw tobacco and not chewing tobacco the said duty was not deductible from the turnover of the assessee
He did not contest the correctness of the decision of the High Court on the question of the taxability of the chewing tobacco under section 5vii of the Act
Mr T A Ramachandran learned counsel for the respondent contended that the said rule was couched in a comprehensive language so as to take in excise duty paid on raw tobacco converted by a manufacturing process into chewing tobacco
The relevant rule reads thus  Rule 5
1 The tax or taxes under section 3 or 5 or 5A or the notification or notifications under section 61 shall be levied on the net turnover of the dealers
In determining the net turnover the amounts specified in the following clauses shall subject to the condition specified therein be deducted from the gross turnover of a dealer  i the excise duty if any paid by the dealer to the Central Government in respect of the goods sold by him Both the advocates argued on the basis of the factual position
that packets of chewing tobacco were goods different from tobacco from which the said goods were manufactured
While the learned counsel for the State laid emphasis on the words goods sold by him the learned counsel for the respondent relied upon the expression in respect of preceding the said words
If instead of the expression in respect of  the word on were there the intention of the rule would be manifest and the answer to the question raised would be obvious
The excise duty paid by the respondent was only on the raw tobacco and not on the goods  sold by it and therefore the said duty was not deductible thereunder
So far there is no dispute
But it was said that the 82 expression in respect of made all the difference
The words in respect of it was said meant attributable and therefore the argument proceeded the excise duty paid on the tobacco though it was not paid on the goods sold by the respondent was attributable to the said goods sold
The object of the concession is presumably to avoid payment of tax on tax in respect of the same goods
If excise duty was paid by a dealer on certain goods it would be deducted from the gross turnover of the dealer in regard to the said goods as otherwise in effect sales tax would have to be paid on the amount paid towards excise duty
This concession could have no relevance if the goods subjected to excise duty were different from the goods sold
Raw tobacco when converted by a process of manufacture into chewing tobacco be comes a different marketable product
There will be no comparison between the raw tobacco and the chewing tobacco in the matter of demand or even price
Duty on raw tobacco may have some effect on the cost of the manu factured product but it cannot possibly be said that the said duty is paid in respect of the manufactured product
Rule 51i of the Rules therefore permits deduction from the gross turnover of the dealer only the excise duty paid by him in respect of the same goods sold by him
Learned counsel for the respondent cited some English deci sions in support of his contention that the expression in respect of the goods was very wide and that it took in the raw material out of which the goods were made
The House of Lords in Inland Revenue Commissioners vs Courts  Co1 in the context of payment of estate duty con strued the words in respect of in section 52 of the Finance Act 1894 57  58 Vict
c 30 and observed that the phrase denoted some imprecise kind of nexus between the property and the estate duty
The House of Lords in Asher vs Seaford Court Estates Ltd 2 in construing the provisions of section 2 sub section
3 of Increase of Rent and Mortgage Interest Restrictions Act 1920 10  11 Geo 5 c 17 held that the expression in respect of  must be read as equivalent to attributable
The Privy Council in Bicber Ltd vs Commissioners of Income tax1 observed that the said words could mean more than consisting of or namely
It is not necessary to refer to other decisions
It may be accepted that the said expression received a wide interpretation 1  732
3 2 83 having regard to the object of the provisions and the setting in which the said words appeared
On the other hand Indian tax laws use the expression in respect of as synonymous with the expression on  see article 288 of the Constitution of India section 3 of the Indian Income tax Act 1922 sections 32 and 35 Second Proviso of the Madras General Sales Tax Act 1939 section 31A of the Central Excise and Salt Act 1944 and sections 9 of the Kerala Sales Tax Act
We should not be understood to have construed the said provisions but only have referred to their to state the legislative practice
Consistent with the said practice r 51i of the Rules uses the same expression
When the said rule says excise duty paid in respect of the goods the excise duty referred to is the excise duty paid under section 31 read with the Schedule of the 1 of 1944
Under the said section read with the Schedule excise duty is levied on the goods described in the Schedule
Therefore when r 51i of the Rules refers to the duty paid in respect of the goods to the Central Government it necessarily refers to the duty paid on the goods mentioned in the Schedule
As the duty exempted from the gross turnover is the duty so paid under the Central Act read with the Schedule the expression in respect of in the context can only mean excise duty paid on goods
In our view the expression in respect of the goods in r 51i of the Rules means only on the goods
Even if the word attributable is substituted for the words in respect of the result win not be different for the duty paid shall be attributable to the goods
If it was paid on the raw material it can be attributable only to the raw material and not to the goods
We therefore hold that only excise duty paid on the goods sold by the assessee is deductible from the gross turnover under r 51i of the Rules
We cannot therefore agree with the construction of r 51i of the Rules accepted by the High Court
No other question was raised before us
In the result we modify the order of the High Court accordingly
In the circumstances we direct the parties to bear their respective costs
Order modified


Summary:
The respondent factory used to purchase raw tobacco and after processing it sell it as chewing tobacco
Excise duty was paid by the factory in respect of raw tobacco purchased by it
In sales tax proceedings the factory contended that the excise duty so paid to the Central Government must be deducted to arrive at the net turnover under r 51i of the Madras General Sales Tax Turnover and Assessment Rules 1939
The assessing officer as well as the Appellate Assistant Commissioner rejected the contention but it was accepted by the Tribunal
The revision filed by the
State in the High Court was dismissed whereupon the State appealed to this Court by special leave
It was contended on behalf of the appellant that the raw tobacco was converted by a manufacturing process into chewing tobacco a different commodity and that therefore under r 51i of the Rules as excise duty was paid only in respect of raw tobacco and not chewing tobacco the said duty was not deductible from the turnover of the assesses
HELD  Me object of the concession in r 51i is presumably to avoid payment of tax on tax in respect of the same goods
This concession would have no relevance if the goods subjected to excise duty were different from the goods sold
Tobacco when converted by a process of manufacture into chewing tobacco becomes a different marketable product
Duty on raw tobacco cannot therefore be said to be paid in respect of the manufactured product
82 B D The expression in respect of the goods in r 51i means only on the goods and cannot take in the raw material out of which the goods were made
83 E Inland Revenue Commissioners vs Court  Co 1963 2 All
ER 722 and Asher vs Seaford Court Estates Ltd LR  considered
The excise duty paid by the respondent was only on the raw tobacco and not on the goods sold by it and therefore the said duty could not be deducted from its turnover under r 51 i
83 E F