Decided on January 27,1960

Commercial Tax Officer, Bhowanipore Charge Respondents


- (1.)The Petitioner is a well known company carrying on business of manufacturing and selling cigarettes and smoking tobaccos in India. The Petitioner being a "dealer" within the meaning of the Bengal Finance (Sales Tax) Act, (Ben. VI of 1941), got itself registered under the Act and obtained the necessary certificate there under. Under the said Act, a "dealer" has been defined to mean any person who carries on the business of selling goods in West Bengal, and includes the Government. The word, "turnover" used in relation to any period means the aggregate of the sale prices or parts of sale prices receivable, or if a dealer so elects, actually received by the dealer, during such period, after deducting amounts, if any, refunded by the dealer in respect of any goods returned by the purchaser within such period. Certain portions of Section 4 of the said Act are very important and are set out below:
4(I) With effect from such date as the State Government may, by notification in the official Gazette appoint every dealer whose gross turnover during the year immediately preceding the commencement of this Act exceeded the taxable quantum, shall be liable to pay tax under this Act on all sales effected after the date so notified.

Provided that the tax shall not be payable on sales involved in the execution of a contract which is shown to the satisfaction of the Commissioner to have been entered into on or before the date so notified


(5) In this Act the expression "taxable quantum" means-

(a) In relation to any dealer who imports for sale any goods into West Bengal, or manufactures or produces any goods for sale, 10,000 rupees ; or

(c) in relation to any other dealer, 50,000 rupees.

(2.)Section 5 of the said Act deals with the rate of tax. It has been provided that the tax payable by dealers under the Act shall be levied at the rate of 5 naye paise in the rupee on his "taxable turnover". The expression "taxable turnover'' means 'the gross turnover, after deducting- there from certain permissible deductions set out in Sub-section (2) of Section 5. The first deduction relates to sale of goods declared tax-free under Section 6. The next deduction relates to sales made to registered dealers. This provision is very important and the head of exemption must be set out:
(ii) Sales to a registered dealer-

All goods of the class or classes specified in the certificate of registration of such dealer, as being intended for resale by him, or for use by him, in the manufacture of goods for sale or for use by him in the execution of any contract Such other sales as may be prescribed would also be the subject-matter of deduction. Under Section 6, sale of goods specified in the first column of the schedule is non-taxable, subject to conditions and exceptions specified therein. The schedule can be amended by notification in the Official Gazette and has in fact been amended from time to time. Section 7 of the said Act deals with the registration of dealers. It is laid down that no dealer shall, while being liable to pay tax under Section 4 of the Act, carry on business as a dealer, unless he has been registered. and possesses a registration certificate. If a dealer carries on such business and is not registered, he is liable to pay a penalty. I now come to the rules framed under the Act, called the "West Bengal Sales Tax "Rules". Rule lays down that in calculating his taxable turnover, a registered dealer may deduct from his gross turnover, certain items. The items specified were 27 in number, and item 28 has been added by a notification, dated March 3, 1958. I shall have occasion, to revert to this item at a later stage. Coming back to the provisions of the Act, I have already mentioned that under Section 5(2)(a)(ii), a dealer, in calculating his "taxable turnover" may deduct sales to a registered dealer, of goods of the class or classes specified in the certificate of registration, as being intended for use by him in the manufacture of goods for sale. This provision of law confers benefit upon a dealer who sells goods to a registered dealer. It also confers a corresponding benefit upon the purchaser, who, as a registered dealer purchasing goods, intended for use by him in the manufacture of goods for sale, is exempted from paying sales tax. It will be remembered that the payment of sales tax is the ultimate liability of the consumer. The seller is not liable to pay sales tax, but while selling goods liable to Sales Tax, he is required by law to realise the sales tax from his purchaser, unless that purchaser happens to be a registered dealer. In this particular case, the Petitioner company was a dealer registered under the 1941 Act and it had a taxable turnover, as its turnover greatly exceeds the limits prescribed. For purposes of the manufacture of cigarettes and smoking tobaccos, it has to purchase enormous quantities of goods from other dealers. For example it purchases paper from the Titagarh Paper Mills Go. Ltd. and tobacco from some other source. Therefore, under this provision, it was getting a substantial benefit and this was specifically mentioned in the registration certificate issued to it under the 1941 Act. Under the schedule of the 1941 Act. only tobacco meant for "Hukah" was excepted. Cigarettes or smoking tobacco, or ingredients necessary for manufacturing the same are not excepted. In the year 1954, was passed the West Bengal Sales Tax Act, 1954. This was preceded by the West Bengal Cigarettes Taxation Ordinance, 1954. As this was replaced by the Sales Tax Act, 1954 it is not necessary to refer to it except for the fact that the company took out a registration certificate under the Ordinance. This West Bengal Act IV of 1954 was an Act to impose a tax on the sale of cigarettes and other commodities in West Bengal. Roughly speaking, the idea was that there should be a special Act for the imposition of sales tax on cigarettes and other special commodities. With, regard to such sales, this 1954 Act would be applicable and to that extent, the matter would come out of the scope of the 1941 Act. Under this Act a "dealer" means any person who sells cigarettes, manufactured, made or processed by him in West Bengal or brought by him into West Bengal from any place outside West (Bengal, for the purpose of sale in West Bengal. Under Section 4, tax was to be paid at the rate of 3 per cent, on the turnover. Under Section 5, every dealer must get himself registered under the Act. Section 23 of the Act is of importance find the relevant part thereof is set out below:

23. Nothing in the Bengal Finance (Sales Tax) Act, 1941 shall apply to cigarettes:

Provided that:

(i) the said Act shall continue to apply in respect of cigarettes sold before the

commencement of this Act and in respect of sales of such cigarettes subsequent to the commencement of this Act;

(ii) prices of goods sold to a dealer as defined in this Act for use by such dealer

in manufacturing, making or processing cigarettes shall be deducts in calculating the taxable turnover under Section 5 of the said Act.

It will thus be seen that cigarettes went out of the scope of the 1941 Act, but the benefit that was provided under Section 5(2)(a)(ii) of the 1941 Act, both as regards the seller and the purchaser (being a registered dealer) was left intact. In other words, notwithstanding the 1954 Act, the Petitioner company was exempted from paying Sales Tax upon its purchase of articles intended for use in the manufacture of cigarettes, etc. The result was that, so far as the registration certificate of the Petitioner was concerned, as a dealer under the 1941 Act, the necessary correction was made as to the item cigarettes which became the subject-matter of the certificate taken out by it under the 1954 Act. The registration certificate under the 1941 Act, however, continued in respect of other articles, and did not come to an end. In the year 1957, there came into existence a Central Act passed by Parliament called the "Additional Duties "of Excise (Goods of Special Importance) Act, 1957". The preamble to the said Act states that it was an Act to provide for the levy and collection of additional duties of excise on certain goods and for the distribution of a part of the net proceeds thereof among the States, in pursuance of the principle of distribution formulated, and the recommendations made by the Finance Commission, in its report dated September 30, 1957 and to declare those goods to be of special importance in inter-State trade or commerce. What happened was as follows: It was felt that with regard to certain articles like tobacco and sugar, etc., the different States were levying taxes at widely varying rates and this was affecting inter-State trade. It was therefore decided that this Act would be passed, and a common tax would be levied by the Centre in the form of an excise duty. After the tax was collected, a certain portion was to be divided amongst the States. But a State which continued to tax such goods after April 1, 1958 would not participate in the distribution. The result was that after the Central Act was passed, the States proceeded to amend their own Acts by excluding articles which were subject to the Central Act, from the scope of the said Act. Amongst the articles which were to be the subject-matter of the Central Act, would be included, under the heading of "manufactured tobacco," most of the classes of cigarettes manufactured by the Petitioner company. West Bengal is one of the States that participated in the distribution under the second schedule Part II of the Act. In order to take advantage of this distribution the State of West Bengal promulgated the West Bengal Sales Tax (Amendment) Act, 1958, being West Bengal Act III of 1958. This was preceded by the West Bengal Sales Tax (Amendment) Ordinance, 1958, but as it was replaced by the Act. it is not necessary to make any reference to it. By this amending Act, several provisions of the 1954 Act were amended. Briefly speaking, cigarettes were taken out of the scope of the 1954 Act, which continued to apply to notified commodities under that Act. Section 23 of the 1954 Act was amended and became applicable to notified commodities but not cigarettes (until notified). A section, being Section 24(A) was added to the 1954 Act by Section 10 of the Amendment Act. The added section runs as follows:

24(A) Notwithstanding anything Contained in the West Bengal Sales Tax (Amendment) Act, 1958, this Act shall continue to apply to-

(i) cigarettes sold before the commencement of that Act, and

(ii) cigarettes in respect of which no additional duties of excise have been levied under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, as if that Act had not been passed.

(3.)On or about March 3, 1958 by a notification published by the Government of West Bengal, an item, namely, item 28 was added to the list of articles mentioned under Rule 3 of the Bengal Sales Tax Rules framed under the 1941 Act. which meant that in respect of this new item a registered dealer may deduct from his gross turnover, sales in respect thereof, in arriving at his taxable turnover. Item 28 includes sales of tobacco other than cigarettes on which duty has been paid under the Central Act. of 1957, as also the sale of tobacco other than cigarettes on which the duty has not been so paid provided the Commissioner was satisfied that a lump payment had been made on account of sales tax payable in respect of such sales.

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