Case: India Tobacco Company Limited Vs. Commercial Tax Officer, Bhavanipore &amp; Others

2. The appellant, India Tobacco Co. Ltd. (hereinafter called the Companywas a dealer within the meaning of 1941 Act carrying on the business of manufacture and sale of cigarettes and smoking tobacco. It obtained the registration certificate No. BH/67B under that Act, and on its basisbecame entitled to exemption under Section 5i) from payment of sales tax on goods purchased by it for use in the manufacture of cigarettes.In 1954, the Legislature of West Bengal enacted the West Bengal Sales Tax Act, 1954 (for short, the 1954 Act) "to impose a tax on the sale of cigarettes and other commodities in West Bengal". The 1954 Act took out cigarettes and a dealer in cigarettes from the purview of the 1941 Act.The Company got itself registered under the 1954 Act and its registration certificate which it had obtained under the 1941 Act was amended and cigarettes were excluded therefrom. By virtue of the provisions of Section 23 of 1954 Act, however, the Company continued to avail of the benefit under Section 5i) of the 1941 Act with regard to purchases of goods required for use in the manufacture of cigarettes.In 1957, the Government of India in consultation with the State Governmentsdecided that an additional duty of excise should be levied ontextiles, sugar and tobacco including manufactured tobacco in replacement of the salestax then levied by the State Governments, the net proceeds being distributed among the States subject to the then income derived by each of the States being assured to it. Before undertaking the necessary legislation for the levy, the President of India made a reference to the Second Finance Commission requesting it to make recommendations as to the principles which should govern the distribution of the net proceeds of this additional duty among the States. Broadly, the recommendation of the Finance Commission was that the States levying a tax under their State Laws on the sale or purchase of sugar, tobacco andtextile after April 1, 1958 would not be entitled to participate in the distribution of the net proceeds of this additional duty. In accordance with the recommendationof the Finance Commission, Parliament enacted the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (Central Act 58 of 1957). This Act came into force on December 24, 1957. It declared the aforesaid three classes of goods "to be of special importance intrade or commerce". Further, the proviso toii) of the Second Schedule appended to the said Act, gave effect to the recommendation of the Finance Commission with regard to the distribution of additional duties among the States. Manufactured Tobacco is mentioned under Item 9(II) of the First Schedule of the 1957 Act. It further indicates that cigarettes, cigars, cheroots andall fall under the description of manufactured tobacco. They have been subjected to this additional duty of excise at different rates. Part I of the Second Schedule relates to distribution of these additional duties.In view of the Central Actof 1957, the State Legislature passed the 1958 Act. It received the assent of the President and was thereafter published inCalcutta Government Gazette on March 30, 1958. It amended the 1954 Act. The 1958 Act, substituted for the words "cigarettes and other commodities" occurring in the preamble of the 1954 Act, the words "certain notifiedIt further replaced the word "cigarettes", wherever it occurred in the 1954 Act, by the words "notified commodities". The 1958 Act substituted a new Section 23 for the original Section 23 of the 1954 Act. The new Section provided that nothing in the 1941 Act shall apply to notified commodity from the date on which the said commodity is or was notified under Section 25 of the 1954 Act as amended by the 1958 Act. Clause (ii) of the Proviso in this new Section 23 provided thatprice of goods sold to a dealer for use by such dealer for manufacturing, making, processing or packing notified commodities shall be deducted in calculating the taxable turnover under Section 5 of the Bengal Finance (Sales Tax) Act, 1941.The notifications issued by the State Government from time to time under Section 25 in respect of "notified commodities" do not include cigarettes.Having regard to the enactment of 1958 Act, the Company wrote to the Commissioner of Commercial Taxes, West Bengal, Respondent No. 3, on April 111958, stating that the registration certificate granted to it under the 1954 Act, bearing No. BH/1/54B, was liable to be cancelled because the Company ceased to be a dealer as defined in that Act. It was further contended that the Company as a manufacturer of cigarettes and smoking tobacco was entitled to have its registration certificate under the 1941 Act suitably amended in order to enable it to purchasefree of tax goods required for use in the manufacture of cigarettes and smoking mixtures in accordance with the proviso to Section 5i) of the 1941 Act. Then, thes of the State on July 1, 1958, amended the registration certificate of the Company under the 1941 Act specifying cigarettes and smoking mixtures as the goods for the manufacture of which it was entitled to purchase free of tax raw material, plant and machinery. This certificate was further amended by the authorities on July 25,On July 30, 1958, the Company wrote to the Additional Commissioner of Commercial Tax (Res. No. 2) requesting him to confirm that it was not liable to pay tax or to file returns either under the 1954 Act or under the 1941 Act. As a consequencethe Additional Commissioner and Commercial Tax Officer, Bhavanipore wrote letters dated September 8, 1958 and September 22, 1958, respectively. The substance of these letters was that from December 24, 1957, a dealer or a manufacturer in cigarettes was not liable to pay any salestax under the 1941 Act or under the 1954 Act and was not entitled to benefits of registration certificate under either of the saidand that, in the circumstances, it was proposed to delete the amendment which was made in the registration certificate of the Company under the 1941 Act on July 1, 1958 by inclusion of cigarettes and smoking mixtures in the manufacturers column of such certificate. The Company wrote back on October 31, 1958 contending that the 1941 Act was applicable to cigarettesand as such, it was entitled to the benefit of Section 5i) of the 1941 Act and theAuthorities were not competent to amend the registration certificate issued under the 1941 Act. These contentions were rejected by the Commercial Tax Officer who by his letter of February 2, 1959 asked the Company again to send its registration certificate for amendment and deletion of exemption entry therefrom.To challenge this action threatened by the SalesAuthorities in their letters of September 8, 1958, September 22, 1958 and February 2,the Company filed a writ petition in March 1959 in the High Court of Calcutta under Article 226 of the Constitution.On behalf of theAuthorities, it was contended before the learned Single Judgewho tried the writ petition, that after the enactment of Central Act of 1957 and 1958 , cigarettes no longer formed the subject matter of tax either under the 1941 Act or the 1954 Act, with the result that the registration certificate in respect of cigarettes under those Acts became a nullity and the exemption granted in respect of the purchase of goods required for the manufacture of cigarettes under the registration certificate issued under the 1941 Act was incompetent. The learned Single Judge negatived this contention thusmy opinion, this is based on an incorrect reading of thes will appear from the delineation of the lawthe provisions contained in Section 5i) of the Act, affected a dealer who sold goods to a registered dealer, as being intended for use by him in the manufacture of goods for sale, and there was a corresponding benefit conferred upon the purchaser, who being a registered dealer acquired the benefit of not having to pay sales tax, when he purchased goods from another dealer for suchThe second thing to be borne in mind is that this exemption is not in respect of cigarettes or smoking tobacco, but in respect of goods intended for use in the manufacture of cigarettesand smoking tobaccowhich is a different thing altogether.The learned Judge further held that cigarettes whichthe subject of the Central Act 58 of 1957did not find any place in the 1958 Act which took away cigarettes from the scope of 1954 Act and there was nothing in the 1958 Act to take away the right of theconferred by the 1941 Act to claim exemption fromin respect of goods purchased for use in the manufacture of cigarettes. In the result, the learned Judge made the Rule absolute and quashed the impugned notices. He also issued a mandamus directing theAuthorities to forbear from the cancellation of the endorsementin the registration certificate of the CompanyAgainst the judgment of the learnedJudge, the Revenue carried an appeal to a Division Bench of the High Court which accepted the appeal and dismissed the writ petition.

Court's reasoning:
An analysis of this Section 25 would show that theAct (as amended by the 1958 Act) can be made applicable by a notification under this section, only to a commodity "which is liable to taxation under the Bengal Finance (Sales Tax) Act,and further, that the 1941 Act "shall cease to apply to such commodity"Act shall apply to such commodityonly from the date of such notification.It is not disputed that cigarettes can be notified as a taxable commodity under the amended Section 25 of the 1954 Act. It necessarily implies that the 1941 Act would cease to apply to cigarettes, only when the requisite notification in respect thereof under Section 25 of the 1954 Act is issued. There can be little doubt that if such a notification were to be issued and later on rescinded, suchwould revive the application of the 1941 Act. The position would be the same, if, as in the present case, no notification under Section 25 specifying cigarettes as a taxable commodity was at all issued.It may further be noted that the 1941 Act was amended by Bengal Act 13 ofwhich was published in the Government Gazette on October1959. It inter alia amended Section 5 of the 1941 Act and prescribed different rates of tax. In obedience to the mandate of14 of the Central Sales Tax Act of 1957, it reduced the rate of tax from 5 N.P. in the rupee to 2 per centum of such part of the taxable turnover of a dealer under the 1941 Act as represents sales of goods (including manufactured tobacco, cigarettes) referred to in Section 14 of the aforesaid Central Act. This amendment of the 1941 Act, effected in 1959, also indicates that after the 1958 Act, the operation of the 1941 Act revived in relation to cigarettes.After a conspectus and conjoint reading of the aforesaid enactments, it seems to us clear that the 1954 Act did not repeal or obliterate the 1941 Act, butby excepting cigarettes from its operation. During the interregnum between the enactment of the 1954 Act and the 1958 Act, the operation of the 1941 Act with regard to cigarettes was in a state of mere interception, and when,as a result of the amendment made by the 1958 Act, that exception or interception was removed, the application of the 1941 Act to cigarettes revived proprio vigore. In any case, definite indications of such revival are available in the language and scheme of the 1958 Act and the Bengal Act 13 of 1959.