- (1.) These appeals, by special leave, raise the question of the true construction of the provisions of R. 5(1)(i) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, hereinafter referred to as the Rules.
(2.) 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. v. Government of Madras, 1961-12 STC 126 at p. 132 (Mad) thus: "Taking, however, the cumulative effect of the various processes to which the assessee subjected the tobacco before he sold it, it is clear that what was eventually sold by the assessee was a manufactured product, manufactured from the tobacco that the assessee 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 assessee 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. 10,67, 923-10-9 and Rs. 7,71,661-11-0 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 contention 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 an additional ground that the entire turnover of the sales on chewing tobacco was not liable to be assessed. The Tribunal rejected both the contentions and confirmed 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.
(3.) 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. 5(1) 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 S.5(vii) of the Act.;