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Judgment
Sinha, J.—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
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(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.
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 u/s 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. u/s 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 u/s 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 u/s 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. u/s 4, tax was to be paid at the rate of 3 per cent, on the turnover. u/s 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:
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 u/s 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 u/s 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.
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.
Having regard to the amendment of the provisions of the 1954 Act by the 1958 Act, the Petitioner Company wrote to the Commercial Tax Authorities that the registration certificate under the 1954 Act should be cancelled as it was no longer necessary, and so far as the registration certificate under the 1941 Act was concerned, it should be suitably amended in order to enable it to purchase free of taxes, goods required by it for use in the manufacture of cigarettes and smoking tobaccos and of containers, in accordance with the provision of Section 5(2)(a)(ii) of the 1941 Act. In compliance with the said application, the Commercial Tax Authorities amended the registration certificate under the 1941 Act, on or about July 1, 1958. The amendment was by the inclusion of cigarettes and smoking mixtures, as being items in respect of which purchases of goods intended for the actual process of manufacture thereof, were to be exempted from payment of sales tax from the date July 1, 1958. The Authorities also amended the registration certificate to include certain materials under the heading "consumable "stores", which were required by the company for the purpose of the manufacture of cigarettes and smoking mixtures. A copy of the said registration certificate, so amended, is annexure "B" to the petition. On or about September 22, 1958 the Respondent No. 1 wrote to the Petitioner, claiming that with effect from December 14, 1957 a dealer or manufacturer of cigarettes was not liable to pay sales tax under the 1941 Act or the 1954 Act, and was not therefore entitled to the benefits of the registration certificate under either of the said Acts, and it was proposed to delete the amendment which was made in the registration certificate of the Petitioner under the 1941 Act, on July 1, 1958 by inclusion of cigarettes and smoking mixtures, in respect of which goods, all purchases for their manufacture were to be; exempted from payment of sales tax. The Petitioner company protested to the effect that it was still entitled to such exemption, and no question of deletion could arise. Actually, this is the whole controversy in this case, namely as to whether by reason of the various statutes, rules and notifications mentioned above, the Petitioner company has lost its rights under the provisions of Section b(2)(a)(ii) of the 1941 Act. The way that the Respondents view the matter is as follows: It is contended that the sale of cigarettes formed the subject-matter of payment of sales tax under the 1941 Act. By the 1954 Act, cigarettes were taken out of the scope of the 1941 Act. Thereafter, when by the Central Act of 1957, cigarettes came to be taxed as an excise item by the Centre, the 1958 Act was passed, by which cigarettes were taken out of the 1954 Act. It is argued that since cigarettes no longer form the subject-matter of either the 1941 or the 1954 Act, a registration certificate in respect of cigarettes, under those Acts, became a nullity and therefore 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, also became incompetent. In my opinion, this is based on an incorrect reading of the law. As will appear from the delineation of the law above mentioned, the provisions contained in Section b(2)(a)(ii) 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 such purposes. The 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 cigarettes and smoking ''tobaccos, which is a different thing altogether. In other words, the exemption in respect of the manufactured article, is not the same thing as an exemption in respect of the ingredients, necessary for its manufacture. For example, in the case of cigarettes, the exemption would be claimed in respect of paper, tobacco, etc. That being so, the question is as to by what process, the manufacturer can be said to have lost this right, which as I have stated above, is a very substantial right, so far as the Petitioner is concerned and amounts to lakhs of rupees. It is necessary, therefore, to travel once more through the series of legislation, etc., to see whether this right has been lost. This right was expressly conferred by the 1941 Act. It was expressly kept alive under the 1954 Act. The learned Government pleader tried to argue that u/s 23 of the 1954 Act, the rights under the 1941 Act had gone and merged into the rights given under proviso II of Section 23 of the 1954 Act. In my opinion, this argument is unacceptable. As I have pointed out above, proviso II expressly states that the deduction was to be made in calculating the taxable turnover "under Section 5 of the said Act" meaning the 1941 Act. The result is that the right given under the 1941 Act in this respect continued even when we came to the 1954 Act. Inasmuch as cigarettes became the subject-matter of the Central Act of 1957, the 1958 Act took out cigarettes from the scope of the 1954 Act, and that Act was to apply to notified commodities only. But nothing in the 1958 amendment took away the right of the Petitioner to claim exemption in respect of goods required for it for the manufacture of cigarettes, etc. That right conferred by the 1941 Act, continued to exist. It is, therefore, an over simplification to state that from December 14, 1957 a dealer or a manufacturer of cigarettes has neither any liability for payment of any sales tax under the 1941 Act or the 1954 Act, and consequently, he is not entitled to the benefits of a registration certificate under either of the said Acts. The registration of a dealer under the 1941 Act has no particular reference to the sale of any particular commodity. For the purpose of registration, the question to be considered is as to whether the dealer is liable to pay tax u/s 4 of the Act. He would be liable to pay tax if his gross turnover during the year exceeded the taxable quantum, at any time within such year. The "taxable "quantum" in relation to any dealer who manufactures or produces any goods for sale, is ten thousand rupees or in relation to any other dealer fifty thousand rupees. The Petitioner Company had always had a turnover which exceeded the taxable quantum. We are however concerned with its right to avoid paying sales tax on purchases of materials required for manufacture of cigarettes, etc. The class or classes of goods intended to be purchased by him for use in the manufacture of goods or for container etc. for such manufactured goods, must be specified in its certificate of registration. Without these goods being so specified in the registration certificate, neither a dealer nor a registered dealer purchaser can claim exemption. It is, there fore, not logical to say that because under the 1941 Act, dealers are exempted from paying sales tax on the sale of cigarettes, the exemption granted to a purchaser of goods for the manufacture of cigarettes, etc., should be taken away. There is no provision of law, by which this has been effected. Put simply, this is how the law stands at present. Under the 1941 Act, the Petitioner company is a dealer liable to pay tax u/s 4. For that purpose, it has to get itself registered, and a registration certificate has already been issued to it. Unless the class or classes of goods so exempted have been mentioned specifically in the) registration certificate, it cannot avoid payment of sales tax upon its purchases. In the registration certificate, issued to it, cigarettes and smoking mixtures have been specifically endorsed as classes of goods for the manufacture of which goods can be purchased without payment of sales tax. Now the authorities propose to delete the mention of cigarettes and smoking mixtures from the registration certificate. This deletion would only be justified if it was found that the benefit conferred by Section 5(2)(a)(ii) of the 1941 Act upon a registered-dealer-purchaser has been taken away. I do not see any reason for saying that it has. It is quite unnecessary for me, for the purpose of this application, to determine as to whether for the purposes of carrying on business as a dealer, in the manufacture and sale of cigarettes and smoking tobacco, it is necessary for dealers to get themselves registered under the 1941 or the 1954 Act. That requires careful consideration of the various amendments and wordings of the Central Act of 1957. The fact however is that the Petitioner company has been registered under the 1941 Act, and continues to be so registered. There has been no attempt to cancel the registration certificate altogether. The only question that arises is as to whether it is still entitled as a registered-dealer-purchaser to deduct amounts relating to the purchase of goods intended for use by it in the manufacture of goods for sale. The answer to it is that this right conferred upon a registered dealer purchaser continues, and has not been taken away. The matter may be looked at from another point of view. Let us assume for the time being that a dealer under the 1941 Act, is no longer liable to pay sales tax under that Act, and is, therefore, not entitled to bring into the computation of sales tax under the said Act, the sale of cigarettes or smoking tobacco, which would now be con-considered as goods liable to excise duty under the Central Act of 1957. It does not follow that dealers are not liable to pay sales tax as regards the purchase and sale of the ingredients of these articles. In respect of such transactions, therefore, the provisions of Section b(2)(a)(ii) apply in full force, both to the dealer who sells and the registered dealer who purchases, goods for the purpose of manufacture of articles for re-sale. The attempt by the Respondents, therefore, to delete the mention of such items from the certificate of registration of the Petitioner company under the 1941 Act is contrary to law, and the reasons advanced therefore are not acceptable.
The result is that this Rule must be made absolute and the notices mentioned in prayer (1) of the petition dated September 8, 1958, September 22, 1958 and February 2, 1959, are quashed and/or set aside, and there will be a writ in the nature of Mandamus directing the Respondents to forbear from the cancellation of the endorsement in the registration certificate of the Petitioner company in relation to cigarettes and smoking mixtures, as made on July 1, 1958. This will be without prejudice to the Respondents proceeding in future to take action in accordance with law. There will be no order as to costs.