C GOKALDAS AND CO Vs. STATE OF GUJARAT

JUDGEMENT

(1.) The short question that arises for consideration in these References is whether the assesses are entitled to remission of purchase tax paid by them on purchase of raw tobacco under Rule 12(1A) of the Bombay Sales Tax (Exemptions Set-off and Composition) Rules 1954 The assessees in these references are different but the question involved is the same and it would therefore be convenient to dispose them of by a common judgment. In each of the references the assessees purchased raw tobacco from unregistered dealers on which they were assessed to purchase tax under sec. 10(a) of the Bombay Sales Tax Act 1953 The assessees after purchasing raw tobacco subjected it to the process of grading by passing it through sieves and removing stones and dust from it and as a result of this what came into being was processed tobacco known as bidi pattis. The assessees thereafter sold bidi pattis and despatched them to addressees outside the State of Bombay in the course of inter-State trade or commerce within a period of nine months from the dates of the respective purchases of raw tobacco made by them. In the assessment of the assessees to sales-tax the assessees claimed remission of the purchase tax paid by them on the purchase of raw tobacco under Rule 12(1A) of the Bombay Sales Tax (Exemptions Set-off and Composition) Rules 1954 The Rule relied upon before the Revenue authorities as also before the Tribunal was in the form set out in the Statement of the Case but it is not necessary to reproduce the same since as we shall presently point out no reliance has been placed upon it on behalf of the assessees in the present References. The claim for remission made by the assessees was rejected by the Sales Tax Officer and on appeal to the Assistant Commissioner of Sales Tax the claim met with the same fate. The matter was then carried in revision by the assessees but the Deputy Commissioner of Sales Tax also negatived the claim put forward by the assessees. The assessees thereupon approached the Tribunal in revision. It was not disputed before the Tribunal that bidi pattis were sold by the assessees within a period of nine months from the dates of the respective purchases of raw tobacco from which they were prepared and that the sales of bidi pattis so effected by the assessees were in the course of inter-State trade or commerce. But the contention raised on behalf of the Revenue was that bidi pattis were commercially a different commodity from raw tobacco and it could not therefore be said that when bidi pattis were sold by the assessees raw tobacco purchased by the assessees on which purchase tax had been paid was sold by the assessees in the Course of inter-State trade or commerce so as to attract the applicability of Rule 12(1A). This contention was accepted by the Tribunal and the Tribunal held that bidi pattis being a different commercial commodity from raw tobacco the terms of Rule 12(1A) were not satisfied and the assessees were not entitled to claim remission of purchase-tax paid by them on raw tobacco under that Rule. The correctness of this view of the Tribunal is now challenged before us in these References. Now it must be pointed out at the outset that Rule 12(1A) in the form set out in the Statement of the Case was not in force during the assessment periods relevant to all the four references but it came into force only on 29th June 1957. Prior to 29th June 1957 Rule 12(1A) which was in force was in the following terms:-

(2.) It will be apparent from what is stated above that the only point which remains for consideration in these References is whether the assessees could be said to have sold raw tobacco purchased by them on which they had paid purchase-tax when they sold bidi pattis made out of such raw tobacco. Mr. I. M. Nanavati on behalf of the assessees contended before us that it was no doubt true that Rule 12(1A) required that the goods so purchased being the goods purchased by the assessees on which purchase-tax was paid by them should be sold by the assessees and despatched to an address outside the State of Bombay; but that did not mean that the identical thing namely raw tobacco should be sold without any processing or alteration being performed on it. He submitted that so long as what was sold retained the basic essential properties of tobacco the fact that it was the result of processing or cleaning did not make any difference to the applicability of Rule 12(1A) and in support of this contention he relied on two decisions of the Supreme Court one in Kailash Nath v. State of U. P. (1957) 8 S. T. C. 358 and the other in Tungabhadra Industries Ltd. v. Commercial Tax Officer (1960) 11 S. T. C. 827. We shall presently examine these decisions but we may point out straightway that in our opinion neither of these decisions supports the contention of Mr. I. M. Nanavati. Nor is the contention of Mr. I. M. Nanavati supportable on principle. On a plain grammatical construction Rule 12(1A) grants remission of purchase-tax paid by a registered dealer on goods purchased by him when the goods so purchased are sold and despatched by him to an address outside the State of Bombay within a period of nine months from the date of purchase. What the Rule requires is that the goods purchased by a registered dealer on which purchase-tax has been paid by him must be sold and despatched and not any goods into which the goods purchased are converted. The Rule says that the goods sold and despatched must be the same as the goods purchased. If the goods sold and despatched are a different commercial commodity than the goods purchased the requirement of the Rule would not be satisfied and remission of the purchase-tax paid on the goods purchased would not be admissible to the assessee. Mr. I. M. Nanavati joined issue on this proposition and contended that it was not necessary that the identical goods purchased must be sold and despatched by the assessee but that it was enough if the goods inherently remained the same though when they were sold and despatched they were a commercially different commodity from what they were when purchased. The emphasis which Mr. I. M. Nanavati placed was on the basic essential properties of the goods purchased and he considered it a matter of no importance that the goods purchased were converted into a different commercial commodity and what were sold and despatched were goods constituting such commercially different commodity so long as the basic essential properties remained unchanged. We do not think we can agree With this contention of Mr. I. M. Nanavati. The sales-tax law deals with persons engaged in trade and commerce and when Rule 12(1A) says that the goods purchased must be sold and despatched the requirement of The Rule cannot be said to be satisfied when the goods that are sold are a commercially different commodity from the goods that are purchased. It may he that when the goods purchased are converted into goods which ale a commercially different commodity the basic essential property may remain the same; but on that ground it would not be possible to say that when the latter goods are sold what are sold are the goods purchased for the goods purchased would be one commercial commodify while the goods sold would be another. The real test which must therefore be applied for the purpose of determining the applicability of Rule 12(1A) is not whether the basic essential properties of the goods remain the same but whether the goods sold are the same as the goods purchased as a commercial commodity.

(3.) Mr. I. M. Nanavati relied on certain provisions of the Bombay Sales Tax Act 1953 in support of his contention that the true test to be applied for determining the applicability of Rule 12(1A) was not whether the goods sold were commercially the same commodity as the goods purchased but whether the basic essential properties of the goods were the same. He drew our attention to sub-sec. (a) of sec. 8 which provided for deduction from turnover of sales of goods (i) which were purchased from a registered dealer on or after the appointed day or (ii) on the purchase of which the dealer had paid or was liable to pay purchase tax and pointed out that the proviso to that sub-section prescribed the requirement that the goods must not have been processed or altered in any manner after such purchase. He urged that wherever the legislature wanted a strict test to be satisfied namely that the identical goods which are purchased must be sold the Legislature made a provision such as the proviso to subsec. (a) of sec. 8 but such a proviso was absent in sub-sec. (b) of sec. 8 and was not to be found either in the main part which provided for exclusion of sales of goods made to a dealer who held an authorization and furnished to the selling dealer a certificate in the prescribed from declaring inter alia that the goods so sold to him were intended for being despatched by him to an address outside the State of Bombay or in the second proviso which declared that if the goods so purchased were not despatched by the purchasing dealer to an address outside the State of Bombay within a period of six months from the date of purchase the purchasing dealer should be liable to pay purchase-tax on the purchase of the goods despite the fact that the purchase was made from a registered dealer. The argument was that in a case covered by sub-sec. (b) of sec. 8 it was not necessary that the goods required to be sold by the purchasing dealer must be the identical goods as the goods purchased by him for if that had been the intention of the Legislature the Legislature would have inserted a proviso in the same terms as the proviso to sub-sec. (a) of sec. 8 The absence of the proviso indicated so ran the argument that it was not necessary that the identical goods purchased must be sold without any processing or alteration and that even if any processing or alteration was done in respect of the goods purchased as a result of which the goods purchased were converted into a different commercial commodity and then sold by the purchasing dealer within the prescribed period of six months that did not amount to non-compliance with the declaration in the certificate and was sufficient to repel the applicability of the second proviso to sub-sec. (b) of sec. 8. It was contended that Rule 12(1A) was complementary to sub-sec. (b) of sec. 8 in that it sought to give the same benefit to a registered dealer in respect of purchase tax payable on the purchase of goods effected by him from an unregistered dealer as was given by sub-sec. (b) of sec. 8 in respect of sales-tax in case of purchase of goods effected from a registered dealer and since in the latter case the identical goods purchased by him were not required to be sold so also in the former case the identical goods purchased were not required to be sold. Now it is undoubtedly true that Rule 12(1A) is in a sense complementary to sub-sec. (b) of sec. 8. A registered dealer may purchase goods from a registered dealer or an unregistered dealer. If he purchases goods from a registered dealer he would have to pay sales tax on the goods to the registered dealer for the registered dealer being himself liable to pay salestax to the State Government would pass it on to the purchasing dealer. Now sub-sec. (b) of sec. 8 provides that in such a case if the purchasing dealer holds an authorization and furnishes to the selling dealer a certificate in the prescribed form declaring inter alia that the goods purchased by him are intended for being despatched by him to an address outside the State of Bombay the selling dealer would not be liable to pay salestax on the sale of the goods effected by him to the purchasing dealer and the purchasing dealer in his turn would not have to pay sales-tax to the selling dealer. The purchasing dealer would also not be liable to pay purchase tax on the purchase since the purchase would be from a registered dealer. But if the purchasing dealer purchases goods from a selling dealer who is unregistered though the selling dealer being unregistered there would be no question of the purchasing dealer being liable to pay any amount to the selling dealer by way of sales-tax the purchasing dealer would have to pay purchase-tax to the State Government under sec. 10(a) and such a purchasing dealer would therefore be at a disadvantage compared to a purchasing dealer who purchases from a selling dealer who is registered. The State Government therefore with a view to placing on a par the purchasing dealer in both cases made Rule 12(1A) granting exemption to the purchasing dealers from payment of purchase tax in case of purchase of goods effected by him from a selling dealer who was unregistered. The condition imposed was the same namely that the purchasing dealer must despatch the goods purchased to an address outside the State of Bombay though the period within which this was required to be done was nine months under Rule 12(1A) as against six months under sub-sec. (b) of sec. 8. If the condition is broken then under Rule 12(1A) the purchasing dealer would not be entitled to exemption in respect of purchase-tax payable by him on the purchase while under sub-sec. (b) of sec. 8 the purchasing dealer would become liable to pay purchase tax on the purchase notwithstanding the fact that his purchase is from a registered dealer. The purchasing dealers in both cases are thus placed in the same position. Rule 12(1A) and sub-sec. (b) of sec. 8 are therefore clearly and indubitably complementary to each other. So far we are in agreement with Mr. I. M. Nanavati. But there our agreement ends. Mr. I. M. Nanavati is in our opinion not right in seeking to draw an inference in favour of his contention from the absence of the proviso in sub-section (b) of section 8 and Rule 12(1A). The proviso undoubtedly imposes a stricter condition in that it requires that the goods sold must not have been processed or altered in any manner after purchase and this stricter condition is not insisted upon in sub-sec. (b) of section 8 and Rule 12(A). But that does not in any way affect the main requirement imposed by the plain language of sub-sec. (b) of section 8 and Rule 12(1A) that the goods sold must be the goods purchased. It may be that the goods purchased may be subjected to processing or alteration without in any manner changing the goods into a different commercial commodity. In such a case the goods having been processed or altered the sale of such goods would be outside the exemption contained in sub-section (a) of section 8 but since the goods remain the same commercial commodity the terms of sub-sec. (b) of section 8 and Rule 12(A) would still be satisfied. That would be the only effect of the absence of the proviso in sub-sec. (b) of section 8 and Rule 12 (1A). The proviso merely imposes an additional requirement and if the proviso is absent the additional requirement would not be necessary to be fulfilled but from the absence of the proviso it would not be right to infer that the Legislature in the one case and the State Government in the other also dispensed with the requirement that the goods sold must be commercially the same commodity as the goods purchased. To do so would be to ignore the plain language of the provision enacted in sub-sec. (b) of section 8 and Rule 12(1A). The correct way of looking at the provision appears to be to see whether the goods sold are commercially the same commodity as the goods purchased and it is not relevant to consider whether the goods purchased have been processed or altered in any manner for producing the goods sold except in so far as such question might affect the character of the goods as a commercial commodity.