Case: State of Madras Vs. Bell Mark Tobacco Company

1. Messrs Bell Mark Tobacco Companyrespondents in this appealare dealers in tobacco and tobacco products. They were assessed to sales tax by the Deputy Commercial Tax Officer, Pudukkottai, on their turnover in the years58 from sales of "chewing tobacco". Their appeals to the Commercial Tax Officer and the Sales Tax Tribunal, Madras, were dismissed. The respondents then approached the High Court of Madras in exercise of its revisional jurisdiction and raised three principal contentions :(1) that they were not liable to pay sales tax on their turnover from the sales of packets of chewing tobacco prepared by them;(2) that the cost of packing material was not liable to be included in computing the taxable turnover; and(3) that they were entitled to rebate of the excise duty paid by them on the raw tobacco from which the chewing tobacco was prepared.2. The High Court held that in computing the taxable turnover of the respondents, the turnover from the sales of "chewing tobacco" was liable to be included and the cost of packing material could not be excluded from the taxable turnover of the respondents. But in the view of the High Court, the respondents were entitled to rebate of excise duty paid by them on raw tobacco from which chewing tobacco was manufactured. Contentions Nos. (1) and (2) were therefore decided in favour of the State and the third against them. With certificate granted by the High Court, these appeals have been preferred by the State.

Reasoning: This decision is prima facie determinative of the only question which is raised in these appeals by the State.In the view of the High Court the cumulative effect of the various processes, such as soaking in jaggery water, "shredding of tobacco" and addition of "flavouring essences" to which tobacco was subjected before it was sold, amounted to a manufacturing process and the product sold was a manufactured product from raw tobacco purchased by the respondents. We are in complete agreement with the view of the High Court on this part of theis clear on the terms of the rule that if the dealer has paid excise duty in respect of the goods sold by him, that excise duty is liable to be deducted in the computation of the net turnover of the dealer. But if the excise duty has been paid in respect of another commodity, it is not liable to be deducted. We have pointed out that chewing tobacco is not raw tobacco, and the respondents paid excise duty to the Central Government only in respect of raw tobacco. They do not claim to have paid excise duty in respect of "chewing tobacco". Excise duty paid in respect of raw tobacco is not therefore liable to be excluded in the computation of the taxable turnover of the respondents, since the excise duty paid in respect of raw tobacco used in the manufacture of chewing tobacco is not duty paid in respect of the goods sold by the respondents within the meaning of rule 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules,our judgment this argument proceeds upon a misconception of the true meaning of section 5 of thetobacco" is, for reasons already set out, manufactured from raw tobacco. It is common ground that the respondents were charged to tax in respect of the first sale effected by them in the State of Madras and they are not exempt from taxation under section 3,he proviso could obviously not refer to tax other than the sales tax with which the whole Act, and especially the provisions of section 5, deals. It is intended to provide by the proviso that in the computation of taxable turnover of a dealer in respect of any goods included in clause (vii) the dealer is entitled to the rebate to the extent of sales tax paid by him on the raw tobacco used in the manufacture of those goods.