judgement:
ivil Appeal No. 1360 of 1974.
From the judgment and Order dated 14.12.1973 of the Delhi High Court in suit No. 64 of 1969.
Ms. Suruchi Agarwal and T.V.S.N. Chari for the Appellants.
H.K. Puri and Mrs. Urmila Sirur for the Respondents.
The Judgment of the Court was delivered by DR. A.S.ANAND,J.
This appeal, by special leave, is directed against the judgment of the Full Bench of the Delhi High Court, dated 14.12.1973 in Suit No. 64/69, delivered in a reference made by a learned Single Judge for opinion of the Full Bench.
The questions referred by the learned Single Judge to the Full Bench revolved around the scope and effect of the provisions of Sections 54 and 59B of the Indian Income Tax Act 1922 (hereinafter referred to as the '1922 Act ') and Sections 137 and 138 of the Income Tax Act 1961 (hereinafter referred to as the '1961 Act ') as amended from time to time in 1964 and 1967 in the context of the claim of privilege by the Income Tax Department for the production of the 551 documents relating to assessment of an assessee summoned by the Civil Court.
The following three questions were referred to and considered by the Full Bench: "1.
What is the position of law relating to privilege prior to 1964? 2.
What is the position of law relating to privilege after 1964 ?; and 3.
What is the effect of the production of certified copies relating to income tax assessment records, and how far certified copies can be admitted in evidence ?" The circumstances under which these questions arose, briefly put, are as follows: 2.
The plaintiff, Trilok Chand Jain, instituted a suit for recovery of Rs. 1,39,722.86 against the defendants, M/s. Dagi Ram Pindi Lal and Smt.
Budh Wanti Gulati, w/o Shri Pindi Lal Gulati, the appellants herein.
During the course of proceedings in the suit, when evidence was being recorded, the plaintiff obtained summons from the court requiring the Income Tax Department to produce in the court records relating to the Income Tax Assessment of the defendants, M/s. Dagi Ram Pindi Lal, for the assessment years 1964 65 to 1971 72.
The Income tax officer to whom the summons were issued, sent the record in a sealed cover through an Inspector along with a letter, dated November 1,1972, claiming that the said record was privileged under Section 137 of the 1961 Act.
The plaintiff also applied for and obtained summons requiring the Income tax Officer to produce the Income tax record relating to M/s Borizeon Industrial Products (P) Ltd. and Bishamber Nath Kaul.
That record was also sent by the Income Tax Officer in a sealed cover alongwith a letter in which it was submitted that no disclosure of information regarding income tax pertaining to an income tax assessee could be made.
The plaintiffs, it appears, in the meanwhile filed in the court a number of certified copies of the accounts of the defendants, which he had been able to obtain from the income tax authorities and sought permission of the Court to tender the certified copies in evidence.
Arguments were addressed by the parties before the learned Single Judge on the question of privilege as claimed by the Income Tax officer.
Being of the opinion that the question of privilege, as claimed by the Income Tax officer, was important and likely to arise in 552 the course of trial of suits in future also, a reference was made by the learned Single Judge to the Full Bench.
In dealing with the three questions (supra) referred to it, the Full Bench considered different situations.
It considered the first question in the following four situations: "(a) Where the documents, records, etc.
in respect of which privilege is claimed were filed by an assessee or a third party before April 1,1962, with effect from which date the Indian Income Tax Act, 1922 was repealed, in respect of assessment years up to and including assessment year 1961 62 in proceedings for the said assessment years taking place under the Indian Income tax Act,1922; (b) Where the documents, records, etc. were filed by an assessee or a third party after April 1,1962, but before April 1,1964 in respect of assessment years up to and including assessment year 1961 62 in proceedings for the said assessment years taking place under the Indian Income_tax Act,1922; (c) Where the document, records, etc. were filed by an assessee or a third party after April 1,1962, but before April 1,1964, in respect of assessment years up to and including assessment year 1961 62 in proceedings for the said assessment years taking place under the Income tax Act, 1961;and (d) Where the documents, records, etc. were filed by an assessee or a third party after April 1,1962, but before April 1,1964, in respect of assessment years 1962 63 and 1963 64 in proceedings for the said assessment years taking place under the Income tax Act, 1961." and sustained the claim of privilege by the Income Tax Department in each one of the situations.
The Full Bench while considering the second question, dealt with the following situations: (a) Where the documents, records, etc.
in respect of which privilege is claimed were filed by an assessee or a third party after April 1, 1964, in respect of assessment years up to and including assessment year 1961 62 in proceedings for the said 553 assessment years taking place under the Indian Income tax Act, 1922; (b) Where the documents, records etc.
were filed by an assessee or a third party after April 1, 1964, in respect of assessment years up to and including year 1961 62 in proceedings for the said assessment years taking place under the Indian Income tax Act, 1961; (c) Where the documents, records, etc. were filed by an assessee or a third party after April 1, 1964, in respect of assessment years 1962 63 and 1963 64 in proceedings for the said assessments years taking place under the Income tax Act, 1961; and (d) Where the documents, records, etc. were filed by an assessee or a third party after April 1, 1964, in respect of assessment years 1964 65 onwards.
" The claim of privilege was sustained in all above situations also.
Dealing with the effect of omission of Section 137 and substitution of section 138 (1) (a) and (b), the High Court opined; ". .that when a party to a proceeding in a Court applies for summoning any documents, records etc.
from the income tax authorities, the Court may summon the said documents, records, etc.
But on receipt of summons, it is open to the Commissioner of Income tax to consider the matter as provided under section 138 (1) (b), and decide whether it would be (sic) in the public interest to produce or furnish the documents, records, etc.
summoned for, and submit his view to the Court in answer to the summons.
In case, he is satisfied that the production etc.
would not be in the public interest, his decision is final and the Court to which the said decision is communicated cannot question the same." [EMPHASIS SUPPLIED] The Full Bench, however, did not express any opinion on the third question.
Learned counsel for the appellant has not questioned the findings of the Full Bench in so far as they relate to the claim of privilege in respect 554 of documents filed prior to the repeal of the 1922 Act or before the omission of Section 137 from the 1961 Act.
She has questioned the findings of the Full Bench only as regards the power and jurisdiction of the Court to summon the documents, after the repeal of the 1922 Act and after the deletion of Section 137 from the 1961 Act by the Finance Act, 1964 as also the interpretation placed by the Bench on Section 138 (1) (b) of the Act.
The controversy before us has been confined to the finding of the High Court relating to the claim of privilege for the production of documents which were filed after the repeal of Section 137, with effect from 1.4.1964 in respect of assessment years 1964 65 onwards.
Thus, it is the finding on situation (d) of the second question as rendered by the Full Bench Which alone has been questioned and debated before us.
The precise argument of the learned counsel for the appellant is that after the repeal of Section 137 of the 1961 Act by Act V of 1964, there is no longer any impediment left in the way of a civil court to summon the production of documents filed by an assessee during the assessment proceedings before an Income tax Officer after 1.4.1964 in respect of assessment years 1964 65 onwards, and that the finality attached to an order of the Commissioner with regard to claim of privilege under Section 138 (1) (b) has no relationship to the power of the court to summon that record.
For a proper appreciation of the question debated before us, it would be desirable to refer to the relevant provisions of the 1922 Act and 1961 Act, as amended from time to time, and notice the changes brought about in the matter of claim of privilege by the Income Tax Department.
Section 54 (1) and (2) of the 1922 Act provided as follows: "54.
Disclosure of information by a public servant (1) All particulars contained in any statement made, return furnished or accounts or documents produced under the provisions of this Act or in any evidence given, or affidavit or deposition made, in the course of any proceedings under this Act other than proceedings under this Chapter, or in any record of any assessment proceeding, or any proceeding relating to the recovery of a demand, prepared for the purpose of this Act, shall be treated as confidential, and notwithstanding 555 anything contained in the Indian Evidence Act, 1872(1 of 1872) no Court shall save as provided in this Act, be entitled to require any public servant to produce before it any such return, accounts, documents or record or any part of any such record, or to give evidence before it in respect thereof.
(2) If a public servant discloses any particulars contained in any such statement, return, accounts,documents, evidence, affidavit deposition or record, he shall be punishable with imprisonment which may extend to six months, and shall also be liable to fine.
By Section 9 of the Taxation Laws (Amendment) Act of 1960, Section 59 B was inserted in the 1922 Act with effect from April 1, 1960.
It provided as under: "59 B Disclosure of information regarding tax payable Where a person makes an application to the Commissioner in the prescribed form and after payment of the prescribed fee for information as to the amount of tax determined as payable by any assessee in respect of any assessment made on or after the 1st day of April, 1960, the Commissioner may, notwithstanding anything contained in section 54, if he is satisfied that there are no circumstances justifying its refusal, furnish or cause to be furnished the information asked for.
" Both the aforesaid provisions dealt with the confidential nature of the documents filed, before the Income Tax authorities and the claim of privilege to disclose the same to anyone, including a court of law.
Section 54 (1) declared that the various documents referred to therein shall be treated as confidential and prohibited a court from requiring any public servant to produce before it any such document or to give evidence before it in respect thereof, notwithstanding anything contained in the .
Sub Section (2) of Section 54 made punishable, the disclosure by a public servant, of any information contained in those documents.
the effect of introduction of Section 59 B by Taxation Laws (Amendment) Act 1960 was that it entitled a person to make an application to the Commissioner to obtain information thereafter as to the amount of tax determined, as payable by an assessee in respect of any assessment made 556 on or before April 1, 1960, and authorised the Commissioner to furnish or cause to be furnished the sought for information, if he was satisfied that there were no circumstances justifying its refusal.
This legal position continued to prevail till April 1, 1960, when the 1922 Act was repealed by the 1961 Act.
In the 1961 Act , provisions were made corresponding to sections 54 and 59 B of the 1922 Act in Sections 137 and 138.
The relevant portions of Sections 137 and 138 of the Act provided as follows: "137.
Disclosure of information prohibited (1) All particulars contained in any statement made, return furnished or accounts or documents produced under the provisions of this Act, or in any evidence given or affidavit or deposition made in the course of any proceedings under this Act, other than proceedings under Chapter XXII, or in any record of any assessment proceedings, or any proceedings relating to recovery of a demand, prepared for the purposes of this Act, shall be treated as confidential, and notwithstanding anything contained in the , no Court shall, save as provided in this Act, be entitled to require any public servant to produce before it any such return, accounts, documents or record or any part of any such record, or to give evidence before it in respect thereof.
(2) No public servant shall disclose any particulars contained in any such statement, return, accounts, documents, evidence, affidavit, deposition or record.
(3) . . (4) . . (5) . . "138.
Disclosure of information respecting tax payable WHERE A person makes an application to the Commissioner in the prescribed form and pays the prescribed fee for information as to the amount of tax determined as payable by an assessee in respect of any assessment made either under this Act or the Indian income tax Act, 1922.
On or after the 1st day 557 of April, 1960, the Commissioner may, notwithstanding anything contained in Section 137, if he is satisfied that there are no circumstances justifying its refusal, furnish or cause to be furnished the information asked for.
The provisions of Section 137(1) of the 1961 Act were, as is seen, almost identical to the provisions of sub section (1) of Section 54 of the 1922 Act and Section 137 (2) prohibited a public servant from disclosing the particulars contained in any of the documents mentioned in Section 137 (1).
The provisions of Section 138 of the 1961 Act were almost identical to the provisions of Section 59 B of the 1922 Act.
With effect from April 1, 1964, Section 137 of the 1961 Act was omitted from the Statute vide Section 32 of the Finance Act No. V of 1964, and Section 138 was substituted by a new Section vide Section 33 of the Finance Act No. V of 1964.
The substituted Section 138 reads as under: "138.
Disclosure of information respecting assessees: (1) Where a person makes an application to the Commissioner in the prescribed form for any information relating to any assessee in respect of any assessment made either under this Act or the Indian Income tax Act, 1922, on or after the 1st day of April, 1960, the Commissioner may, if he is satisfied that it is in the public interest so to do, furnish or cause to be furnished the information asked for in respect of that assessment only and his decision in this behalf shall be final and shall not be called in question in any Court of law.
(2) Notwithstanding anything contained in sub section (1) or any other law for the time being in force, the Central Government may, having regard to the practices and usages customary or any other relevant factors, by order notified in the Official Gazette, direct that no information or document shall be furnished or produced by a public servant in respect of such matters relating to such class of assessees or except to such authorities as may be specified in the order.
The scope of Section 138, of the 1961 Act was, as can be seen, enlarged by the substituted provisions of Section 138.
Under the original 558 Section 138 a person could make an application for information only as to the amount of tax determined, as payable by an assessee, under sub section (1) of the substituted Section 138, a person could make an application for any information relating to an assessment.
Again, under the original Section 138, before the necessary information could be furnished or cause to be furnished to an applicant, the Commissioner was to be satisfied that there were no circumstances justifying refusal to furnish the information asked for; under sub Section (1) of the substituted Section 138, the Commissioner was required to be satisfied that it was in the public interest to furnish the information asked for and "his decision in this behalf shall be final and shall not be called in question in any court of law." Vide sub Section (2) of the substituted Section 138, the Central Government was also empowered to direct, by an order notified in the Official Gazette, that no information or document shall be furnished or produced by a public servant in respect of such matters relating to such class of assessees or except to such authorities as may be specified in the order.
10, The substituted Section 138 was once again amended and substituted vide Section 28 of the Finance Act, 1967 with effect from April 1, 1967.
The new sub section (1) of section 138 reads as follows: "(1)(a) The Board or any other income tax authority specified by it by a general or special order in this behalf may furnish or cause to be furnished to (i) any officer, authority or body performing any functions under any law relating to the imposition of any tax, duty of cess, or to dealings in foreign exchange as defined in section 2(d) of the Foreign Exchange Regulation Act, 1947; or (ii)such officer, authority or body performing functions under any other law as the Central Government may, if in its opinion it is necessary so to do in the public interest, specify by notification in the Official Gazette in this behalf, any such information relating to any assessee in respect of any assessment made under this Act or the Indian income tax Act, 1922 as may, in the opinion of the Board or other Income tax authority, be necessary for the purpose of enabling the officer, authority or body to perform his or its functions under that law.
559 (b) Where a person makes an application to the Commissioner in the prescribed form for any information relating to any assessee in respect of any assessment made under this Act or the Indian Income tax Act 1922, on or after the 1st day of April, 1960 the Commissioner may, if he is satisfied that it is in the public interest so to do, furnish or cause to be furnished the information asked for in respect of that assessment only and his decision in this behalf shall be final and shall not be called in question in any court of law.
" The provisions of sub Section (1) of Section 138 as they originally stood were incorporated in clause (b) of the substituted sub Section (1) and a new provision was incorporated in clause (a) of sub Section (1) which empowered the Board or any other income tax authority specified by it by a general or special order in that behalf to furnish or cause to be furnished, information relating to any assessee to such officer, authority or body as is mentioned in the provision to enable him or it to perform its functions under the Act.
Vide clause (b)of the substituted sub Section (1) of Section 138, finality has also been attached to an order of the Commissioner, made on an application filed by any person seeking information relating to an assessee in respect of any assessment.
The Commissioner, has to make an order, after being satisfied that it is in the public interest so to do, to furnish or cause to be furnished such information and that decision of the Commissioner is immune from challenge in any court of law.
The controversy as already noticed, before us is limited to the jurisdiction or lack of it of a civil court to seek production of documents relating to assessments filed after April 1, 1964 in assessment proceedings 1964 65 onwards, after the omission of Section 137 of the Act.
The Full Bench, in the impugned judgment, came to the conclusion that the omission of Section 137 did not make any difference and that the ban on the courts as contained in the repealed Section 137 continued to remain in force by virtue of the provisions of Section 138 (1) and after 1967 by Section 138 (1)(b) of the Act even in respect of the documents filed in the assessment proceeding after April 1, 1964 for assessments relating to the period 1964 65 onwards.
The Full Bench also pressed into aid the provisions of Section 6 of the General Clauses Act to 560 hold that the repeal of Section 137 did not remove the ban on the courts to summon any documents from the income tax authorities, even in respect of documents which had been filed before the Income tax authorities after the repeal of Section 137 after April 1, 1964.
In our opinion the High Court fell in error in coming to that conclusion.
It not only ignored the legislative intent manifest in the omission of Section 137 of the 1961 Act, after the repeal of the 1922 Act, but also ignored the powers of a court under the general law, to summon such documents, record etc.
as is found relevant to a case pending before the court, in the absence of any specific prohibition, under any law for the time being in force.
The High Court assumed that by Section 54 of the 1922 ACt and Section 137 of the 1961 Act, the jurisdiction of the courts to call for documents from the income tax authorities had been taken away for all times to come, notwithstanding the repeal of the 1922 Act or the omission of Section 137 specifically from the 1961 Act.
The High Court appears to have lost sight of the position that under the Code of Civil Procedure, the courts of law have always possessed the jurisdiction to call for the production of documents relevant to the case before the court from anybody having custody of those documents.
Section 54 of the 1922 Act and after its repeal Section 137 of the 1961 Act had only placed fetters on the exercise of that jurisdiction, in respect of the specified documents, by the courts, notwithstanding anything contained in any other law for the time being in force.
The exercise of the jurisdiction to seek production of documents had, thus only been put under a cloud in so far as the record of assessment is concerned.
With the repeal of the 1922 Act and omission of Section 137 of the 1961 Act, the fetters on the exercise of that jurisdiction were removed with the result that the exercise of the jurisdiction to call for the production of documents relevant to the case pending before the court, even from the income tax authorities, revived.
Neither Section 54 of the 1922 Act nor Section 137 of the 1961 Act had taken away for all times the jurisdiction of the courts to call for the record from the income tax authorities.
Those provisions, as already noticed had, only put the exercise of that jurisdiction under a cloud and those fetters were coterminous with the life of Section 54 of the 1922 Act or Section 137 of the 1961 Act.
The finality which has been attached to the order if the Commissioner under Section 138 (1) (b) of the Act is applicable only in cases where application is made to the Commissioner by a party or any other person 561 for receiving documents or information.
It has nothing to do with the powers of the courts to summon the production of assessment record of an assessee, filed after 1.4.1964.
The Privilege as to secrecy, which the assessee had acquired under Section 54 of the 1922 Act remained unimpaired by the repeal of that Act or even by the omission of Section 137 of the 1951 Act in respect of record filed prior to 1.4.1964 and relating to the assessments prior to that date.
That privilege did not extend, after April 1, 1964, to record filed before the income tax authorities, for the assessment years 1964 65 onwards.
Section 6 of the General Clauses Act as well as Section 138 (1) (b) of the 1961 Act cannot extend the ban on the exercise of the jurisdiction by the courts to summon the production of documents from the income tax authorities after April 1, 1964 relating to assessment year 1964 65 in respect of the record filed after April 1, 1964.
Section 6 (C) of the on which reliance was placed by the HIgh Court reads as under: "6.
Where this ACt, or any Central Act or regulation made after the commencement of this Act, repeals any enactment hitherto made or hereafter to be made, then, unless a different intention appears, the repeal shall not . . . (c) affect any right, privilege, obligation or liability acquired or incurred under any enactment so repealed.
" A plain reading of the Section shows that the repeal of any enactment unless a different intention appears, shall not affect any right, privilege, obligation or liability acquired, accrued or incurred under the repealed enactment.
In respect of the documents filed after the repeal of Section 137 of the 1961 Act, with effect from April 1, 1964, relating to assessments for the period 1964 65 onwards, no right, privilege, obligation or liability can be said to have been acquired, accrued or incurred prior to the omission of section 137 of the Act.
Therefore, the ban contained in Section 137 of the 1961 Act on the exercise of the powers of a civil court to call for production of documents etc.
could not be said to have continued to exist, in matters arising subsequent to the omission of that Section with effect from April 1, 1964 and that ban came to an end in respect of the period after April 1, 1964.
The general principle is that an enactment which is repealed, is to be treated, except as to transactions past and closed, as if it had never existed.
The assessee had acquired no right or 562 privilege under the repealed Act, since the provision is only a procedural restriction and did not create any substantive right on the assessee, in respect of assessments for the period after the omission of Section 137 of the 1961 Act.
Thus, reliance placed on the provisions of Section 6 of the to hold the continuation of the ban on the exercise of jurisdiction by the courts was misplaced.
Dealing with the scope of Section 138 (1) (b) of the Act, the High Court held that the said provisions attached a finality to an order of the Income Tax Commissioner and applied to the cases where the record was summoned even by a court of law.
The High Court opined: "The complete omission of the declaration of the confidential nature of the documents, records, etc.
and the removal of the ban on courts and public servants no doubt, suggests that the power of a court under the general law to summon such documents, records,etc.
relevant to the case before it has been restored.
But at the same time, the legislature which empowered the Commissioner of Income tax to furnish the information if he is satisfied that it is in the public interest so to do made the decision of the Commissioner final and un questionable in a Court of law.
When two powers are thus vested in two legal authorities, neither of them can be ignored, and both of them have to be reconciled and given effect to .
In the case of the two powers under consideration, it has to be noted that the power to summon which vests in a court is under the general law, while the power of the Commissioner has been conferred upon him by a special law and has, therefore, to prevail over the former.
In view of the same, it has to be held that while it is open to a court to summon the documents, records etc.
from the Income tax Commissioner, it is equally open to the Commissioner on receiving the summons to consider whether the production/furnishing of the documents, records etc.
would be in the public interest, and submit the same to the court in answer to the summons.
" We are unable to subscribe to the above view.
Clause (b) of sub Section (1) of Section 138 is limited in its scope and application.
Under it, any person can make an application to the 563 Commissioner for any information relating to an assessee in respect of any assessment made either under the 1922 Act or under the 1961 Act on or after the 1st April 1960 and the Commissioner of Income Tax has the authority to furnish or cause to be furnished the information asked for on being satisfied that it is in the public interest so to do and such an order of the Commissioner is final and cannot be called in question in any court of law.
The Commissioner of Income Tax under this clause performs only an administrative function, on his subjective satisfaction as to whether it is in the public interest to furnish the information or not to any person seeking such information and his decision in that behalf is final and the aggrieved person cannot question it in a court of law.
By enacting this provision, the legislature could not be said to have intended that the Commissioner of Income Tax would have the authority to sit in judgment over the requisition made by a court of law requiring the production of record of assessment relating to an assessee in a case pending before the court.
When a court of law, in any matter pending before it desires the production of record relating to any assessment after applying its judicial mind and hearing the parties and on being prima facie satisfied that the record required to be summoned is relevant for the decision of the controversy before it it passes a judicial order summoning the production of that record from the party having possession of the record.
The Commissioner of Income Tax cannot, therefore, refuse to send the record, as he certainly is not authorised to set at naught a judicial order of a court of law.
He must obey the order of the court by sending the record to the court concerned indeed it is open to the Commissioner of Income Tax to claim privilege, in respect of any document or record so summoned by a court of law, under Sections 123 and 124 of the and even then it is for the court to decide whether or not to grant that privilege.
Had the legislature intended that no document from the assessment record of an assessee should be produced in a court on being summoned by it, without the approval of the Commissioner of Income Tax, it would have said so in Section 138 of the Act itself.
The repeal of Section 137 of the Act clearly discloses the legislative intent that it was felt by the legislature that it was no more necessary to keep the records of assessment by the Income Tax Department relating to an assessee as confidential from the courts and the bar with regard to the production of any part of the record was removed in so far as the courts are concerned.
The finality which has 564 been attached to the order of the Commissioner under Section 138(1)(b) of the Act is, thus, restricted to the cases where the information etc.
as contemplated by the Section is called for by any person, other than a court of law by a judicial order.
The High Court, therefore, fell in error in holding that the assessment records of an assessee filed before the income tax authorities, even after April 1, 1964, are immune from production in a court of law on summons for their production being issued by the court and that the disclosure of any information from the record even to the courts is subject to the veto powers of the Commissioner of Income Tax.
Section 138(1)(b) does not affect the powers of the courts to require the production of assessment records or the disclosure of any information therefrom to it, in a case pending before the court when the court, by a judicial order, requires the production of the record, considered relevant by it for decision of a case pending before it.
As a result of the above discussion, we, therefore, find that the answer given by the Full Bench of the High Court in the impugned judgment, to situation (d) of the second question (supra) as formulated by it, is erroneous and we set it aside.
Consequently, we hold that after the repeal of Section 137 of the Act, there is no longer any impediment left in the way of a court to summon the production of documents filed by an assessee before the income tax authorities after April 1, 1964 relating to assessment proceedings for 1964 65 onwards and that the finality attached to an order of the Commissioner under Section 138(1)(b) has no relevance to the exercise of powers by a court to summon the production of documents in a case pending before the Court.
Since, the challenge before us had been confined to the answer given by the High Court to situation (d) of the second question as formulated by it and no other finding of the High Court was called in question, we have refrained from expressing any opinion on the other findings recorded by the Full Bench of the High Court.
The appeal consequently succeeds to the extent indicated above and is allowed.
We, however, make no order as to costs.
V.P.R. Appeal allowed.

dataset_name: IN-Abs

summary:
The Plaintiff respondent instituted a suit for recovery of Rs.1,39,722.86 against the defendants appellants.
When evidence was being recorded in the suit proceedings, the plaintiff obtained summons from the court requiring the Income Tax Department to produce in the court records relating to the income tax assessment of the defendants for the assessment years 1964 65 to 1971 72.
The Income Tax Officer produced the record in a sealed cover.
The plaintiff also obtained summons requiring the Income Tax Officer to produce the income tax record relating to two other assessees, which was produced in the Court by the Department in a sealed cover with a submission that no disclosure of information regarding income tax 546 pertaining to an income tax assessee could be made.
The plaintiffs in the meanwhile filed in the court a number of certified copies of the accounts of the defendants, which he had obtained from the Income Tax authorities and sought permission of the Court to tender the certified copies in evidence.
Before a Single Judge of the High Court on the question of privilege as claimed by the Income Tax Department, arguments were addressed by the parties.
The following three questions were referred to the Full Bench (i) What is the position of law relating to privilege prior to 1964? (ii) What is the position of law relating to privilege after 1964? and (iii) What is the effect of the production of certified copies relating to income tax assessment records, and how far certified copies can be admitted in evidence? The Full Bench answered the first and second questions sustaining the claim of the privilege by the Income Tax Department and the Full Bench did not express any opinion on the third question.
Against the judgment of the Full Bench of the High Court, appeal was filed by special leave.
The controversy before this Court was confined to the finding of the High Court relating to the claim of privilege for the production of documents which were filed after the repeal of Section 137, with effect from 1.4.1964 in respect of assessment years 1964 65 onwards.
The appellants (defendants) contended that after the repeal of Section 137 of the Income Tax Act, 1961 by the Finance Act, 1964 there was no longer any impediment left in the way of a civil court to summon the production of documents filed by an assessee during the assessment proceedings before an Income Tax Officer after 1.4.1964 in respect of assessment years 1964 65 onwards, and that the finality attached to an order of the Commissioner with regard to claim of privilege under Section 138(1)(b) had no relationship to the power of the court to summon that record.
Allowing the appeal of the defendants appellants, this Court, 547 HELD:1.01.
Section 54 of the Income Tax Act, 1922 and after its repeal, Section 137 of the Income Tax Act, 1961 had only placed fetters on the exercise of the jurisdiction, in respect of the specified documents, by the courts, notwithstanding anything contained in any other law for the time being in force.
The exercise of the jurisdiction to seek production of documents had, only been put under a cloud in so far as the record of assessment is concerned.
[560E] 1.02.
With the repeal of the 1922 Act and omission of Section 137 of the 1961 Act, the fetters on the exercise of the jurisdiction were removed with the result that the exercise of jurisdiction to call for the production of documents relevant to the case pending before the court, even from the income tax authorities, revived.
[560E F] 1.03.
Neither Section 54 of the 1922 Act nor Section 137 of the 1961 Act had taken away for all times the jurisdiction of the courts to call for the record from the Income Tax authorities.
Those provisions had only put the exercise of that jurisdiction under a cloud and those fetters were coterminous with the life of Section 54 of the 1922 Act or Section 137 of the 1961 Act.
[560F G] 2.01.
Clause (b) of Sub Section (1) of Section 138 is limited in its scope and application.
Under it, any person can make an application to the Commissioner for any information relating to an assessee in respect of any assessment made either under the 1922 Act or under the 1961 Act on or after the 1st April 1960 and the Commissioner of Income Tax has the authority to furnish or cause to be furnished the information asked for on being satisfied that it is in the public interest so to do and such an order of the Commissioner is final and cannot be called in question in any court of law.
The Commissioner of Income Tax under this clause performs only an administrative function, on his subjective satisfaction as to whether it is in the public interest to furnish the information or not to any person seeking such information and his decision in that behalf is final and the aggrieved person cannot question it in a court of law.
By enacting this provision, the legislature could not be said to have intended that the Commissioner of Income Tax would have the authority to sit in judgment over the requisition (Judicial order) made by a court of law requiring the production of record of assessment relating to an assessee in a case pending before the court.
[562H 563D] 548 2.02.
When a court of law, in any matter pending before it, desires the production of record relating to any assessment after applying its judicial mind and hearing the parties and on being prima facie satisfied that the record required to be summoned is relevant for the decision of the controversy before it it passes a judicial order summoning the production of that record from the Party having possession of the record.
The Commissioner of Income Tax cannot, therefore, refuse to send the record, as he certainly is not authorised to set at naught a judicial order of a court law.
He must obey the order of the court by sending the record to the court concerned.
[563D F] 2.03.
It is open to the Commissioner of Income Tax to claim privilege, in respect of any document or record so summoned by a court of law, under Sections 123 and 124 of the and even then it is for the court to decide whether or not to grant that privilege.
Had the legislature intended that no document from the assessment record of an assessee should be produced in a court on being summoned by it, without the approval of the Commissioner of Income Tax, it would have said so in Section 138 of the Act itself.
[563F G] 2.04.
The repeal of Section 137 of the Act clearly discloses the legislative intent that it was felt by the legislature that it was no more necessary to keep the records of assessment by the Income Tax Department relating to an assessee as confidential from the courts and the bar with regard to the production of any part of the record was removed in so far as the courts are concerned.
The finality which has been attached to the order of the Commissioner under Section 138(1)(b) of the Act is restricted to the cases where the information etc.
as contemplated by the section is called for by any person, other than a court of law by a judicial order.
[563G 564A] 2.05 The finality which has been attached to the order of the Commissioner under Section 138(1)(b) of the Act is applicable only in cases where application is made to the Commissioner by a party or any other person for receiving documents or information.
It has nothing to do with the powers of the courts to summon the production of assessment record of an assessee, filed after 1.4.1964.
The privilege as to secrecy, which the assessee had acquired under Section 54 of the 1922 Act remained unimpaired by the repeal of that Act or even by the omission of Section 549 137 of the 1961 Act in respect of record filed prior to 1.4.1964 and relating to the assessments prior to that date.
That privilege did not extend, after April 1,1964.
to record filed before the income tax authorities, for the assessment years 1964 65 onwards.
[560H 561B] 2.06.
Section 138(1)(b) does not effect the powers of the courts to require the production of assessment records or the disclosure of any information therefrom to it, in a case pending before the court when the court, by a judicial order, requires the production of the record, considered relevant by it for decision of a case pending before it.
[564B C] 2.07.
The High Court, therefore, fell in error in holding that the assessment records of an assessee filed before the income tax authorities, even after April 1,1964, are immune from production in a court of law on summons for their production being issued by the court and that the disclosure of any information from the record even to the courts is subject to the veto powers of the Commissioner of Income Tax.
[564B] 3.01.
Section 6 of the General Clauses Act as well as Section 138 (1)(b) of the 1961 Act cannot extend the ban on the exercise of the jurisdiction by the courts to summon the production of documents from the income tax authorities after April 1,1964 relating to assessment year 1964 65 in respect of the record filed after April 1,1964.
[561B C] 3.02.
Section 6 of the General Clauses Act provides that the repeal of any enactment, unless a different intention appears, shall not affect any right, privilege, obligation or liability acquired, accrued or incurred under the repealed enactment.
[561F] 3.03 The general principle is that an enactment which is repealed, is to be treated, except as to transactions past and closed, as if it had never existed.
The assessee had acquired no right or privilege under the repealed Act, since the provision is only a procedural restriction and did not create any substantive right in the assessee, in respect of assessments for the period after the omission of Section 137 of the 1961 Act.
Thus, reliance placed on the provisions of Section 6 of the General Clauses Act to hold the continuation of the ban on the exercise of jurisdiction by the courts was misplaced.
[561H 562B] 3.04.
In respect of the documents filed after the omission of Section 550 137 of the 1961 Act , with effect from April 1,1964, relating to assessments for the period 1964 65 onwards, no right, privilege, obligation or liability can be said to have been acquired accrued or incurred prior to the omission of Section 137 of the Act.
[561F G] 3.05 The ban contained in Section 137 of the 1961 Act on the exercise of the powers of a civil court to call for production of documents etc.
could not be said to have continued to exist, in matters arising subsequent to the omission of that Section with effect from April 1, 1964 and that ban came to an end in respect of the period after April 1, 1964.
[561G] 4.
After the repeal of Section 137 of the act, there is no longer any impediment left in the way of a court to summon the production of documents filed by an assessee before the income tax authorities after April 1,1964 relating to assessment proceedings for 1964 65 onwards and that the finality attached to an order of the Commissioner under Section 138 (1)(b) has no relevance to the exercise of powers by a court to summon the production of documents in a case pending before the Court.
[564D E]


judgement:
Civil Appeal No. 350 of 1974.
Appeal by Certificate from the Judgment and Order dated 29/30 8 1973 of the Gujarat High Court in Special Civil Application No. 163 of 1973.
M.H.Baig, Rajiv Shakdhar, R.Sasi Prabhu (for M/s S.A. Shroff & Co.) for the Appellants.
P.S. Poti, Bimal Roy Jad.
Anip Sachthey and Ms. Rashmi Dhariwal for the Respondents.
The Judgment of the Court was delivered by MOHAN, J.
This is an appeal by certificate granted by the High Court of Gujarat at Ahmedabad under articles 132(1) and 133 (1)(a) of the Constitution of India.
It is directed against the judgment dated 29/30th August, 1973 in special Civil Application No. 163 of 1973.
The facts leading to this appeal are briefly as under: The Appellant is a company registered under Indian .
It is engaged in the business of manufacturing resins, chemicals, sodium carboxy methyl, cellulose and certain other chemicals.
Industrial alcohol is one of the raw materials used by the appellant company.
Though, till the year 1969, the appellant was purchasing industrial alcohol from the market, it installed its own distillery from may 1970 at Bilimora, within the State of gujarat.
This was for the purpose of manufacturing industrial alcohol from molasses.
On July 3rd, 1969 the second respondent, the Director of Prohibition and excise, Gujarat State, Ahmedabad issued a licence to the appellant for manufacturing spirit.
In accordance with the conditions No. 2 and 3 of the licence, the 2nd respondent appointed a staff of 9 persons.
The said staff consisted of one Inspector, one Sub Inspector, one Nayak, one jamadar and five constables to supervise the manufacture of spirit in the 678 appellant 's distillery plant.
The appellant was also required to provide residential accommodation to the supervisory staff within the factory premises.
On July 3rd, 1969 the 2nd respondent asked the appellant to deposit the supervisory charges.
From time to time, these supervisory charges were also deposited in accordance with the directions of 2nd respondent.
It requires to be stated at this stage that the levy of supervisory charges, is traceable to section 58(A) of Bombay Prohibition Act of 1949.
The Section says: "Sec.58(A) : The State government may be general or special order direct that the manufacture, import, export, transport, storage, sale, purchase, use collection or cultivation of any intoxicant, denatured spirituous preparation, hemp, mhowra flowers, or molasses shall be under the supervision of such Prohibition and Excise or Police Staff as it may deem proper to appoint, and that the cost of such staff shall be paid to the State Government by person manufacturing, importing,exporting,transporting, storing,selling, purchasing, using, collecting or cultivating the intoxicant, denatured spirituous preparation hemp, mhowra flowers or molasses: Provided that the State Government may exempt any class of persons or institution from paying the whole or any part of the cost of such staff." Section 143 of the said Act confers power for making rules.
Rules have been framed called Bombay Prohibition (Manufacture of Spirit) (Gujarat)Rules, 1963.
These rules inter alia regulate the working of distilleries, manufacturing spirit.
Rule 2 provides for the licence.
Condition Nos.2 and 3 of the licence require payment of the supervisory staff and for provision of quarters for the residential accommodation of the staff respectively.
The appellant filled Civil Application No. 163 of 1973 in the High court of Gujarat challenging the constitutional validity of Section 58(A) of the Act.
By the impugned judgment,, the said petition was dismissed.
Hence, the present civil appeal.
679 The arguments of the appellant briefly stated will boil down to this.
It has been categorically laid down in Synthetics & Chemicals Ltd. vs State of U.P. & Ors., [1989] Supp. 1 SCR 623 that in respect of industrial alcohol, the states have no power to impose the impost as is sought to be done in the instant case.
The theory of privilege as adumbrated by the High court can no longer be sustained in view of the judgement.
Even otherwise, there is no quid pro quo.
In countering the submissions, it is argued on behalf of the State that Synthetics and Chemicals Ltd. etc.
(supra) dealt merely with the vend fees.
That is not the case here.
The maintenance of the Staff contemplated under Section 58(A) of the Act is primarily for the purpose of ensuring that while dealing with industrial alcohol, no attempt shall be made to divert nonpotable alcohol.
Therefore, by regulatory measures, the States sees to it that industrial alcohol is not diverted for the use as potable alcohol.
Such a regulatory measure is perfectly valid as seen from Southern Pharmaceuticals & Chemicals vs State of Kerala, ; This decision was noted with approval in Synthetics & Chemicals Ltd. Etc.
(Supra).
However, such a power was sustained though not on police power but as a regulatory measure.
As regards the services rendered, the appellants are precluded from contending that the services did not make the impost, since the High Court has noted that it was not contended before it that there was not sufficient quid pro quo between the quantum of impost and the services rendered to the manufacturer or businessman.
We are relieved of the necessity of deciding the correctness of these submissions by a detailed judgment, since identical points were raised in Civil Appeal No. 503 of 1974 (Sh.
Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. vs The State of Gujarat & Anr.) to which one of us (Mohan, J.) was a party.
The said Civil Appeal has been dismissed considering these aspects and upholding the validity of Section 58(A).
The said judgment will squarely cover this case as well.
We fully concur with the reasons contained therein.
In Synthetics & Chemicals Ltd. etc.
(supra) concerning the power to make regulations in order that non potable alcohol may not be diverted for use as potable alcohol, the following observations are found at page 681: 680 "The position with regard to the control of alcohol industry has undergone material and significant change after the amendment of 1956 to the IDR Act.
After the amendment, the state is left with only the following powers to legislate in respect of alcohol: (a) it may pass any legislation in the nature of prohibition of potable liquor referable to entry 6 of list II and regulating powers.
(b) it may lay down regulations to ensure that non potable alcohol is not diverted and misused as a substitute for potable alcohol.
(c) the State may charge excise duty on potable alcohol and sales tax under entry 52 of list II, However, sales tax cannot be charged on industrial alcohol in the present case, because under the Ethyl Alcohol (price Control) Orders, sales tax cannot be charged by the State on industrial alcohol.
(d) however, in case State is rendering any service, as distinct from its claim of so called grant of privilege, it may charge fees based on quid pro quo.
" In this connection, we may also usefully refer to southern Pharmaceuticals & Chemicals (supra).
This case related to the constitutional validity of Sections 12 A, 12 B,14(e) & (f), 68 A of Kerala Abkari Act (1 of 1077) and Rules 13 and 16 of the Kerala Rectified Spirit Rules, 1972.
One of the contentions raised was that the provision contained under Section 14 (e) of the Act for the collection of supervisory charges was clearly invalid inasmuch as: (a) They are in conflict of Rule 45 of Central Excise Rules and, (b) They could not be sustained as fee as there was no quid pro quo.
In the said judgment at page 1875, para.27 Southern Pharmaceuticals & Chemicals (supra) reads as under: " A fee may be charged for the privilege or benefit conferred, 681 or service rendered or to meet the expenses connected there with.
A fee my be, levied to meet the cost of supervision and may be, something more.
It is in consideration for the privilege, licence or service".
Again in para 29, it was stated thus: "There is a broad co relationship between the fee collected and the cost of the establishment under Section 14(e) of the Act it is provided that the commissioner, with the previous approval of the Government may prescribe the size and nature of the establishment necessary for supervision of a manufactory and the cost of the establishment and other incidental charges in connection with such supervision be realised from the licensee.
There can be no doubt that the supervisory staff is deployed in a bonded manufactory by the Government for its own protection to prevent the leakage of revenue, but there is no denying the fact that a licensee undoubtedly receives a service in return.
The cost of the establishment levied under Section 14(e) of the Act is to be collected from the licensee in the manner provided by Rule 16(4) of the Kerala Rectified Spirit Rules, 1972,relevant part of which reads: "(4) All the transactions in the spirit store shall be conducted only in the presence of an Excise Officer not below the rank of an Excise Inspector.
Such officer shall be assisted by at least two Excise Guards.
The cost of establishment of such officer and the guards shall be payable by the licensee in advance in the first week of every month as per counter signed challan to be obtained from such officer.
The rate at which the cost of establishment is to be paid by the licensee shall be fixed by the Commissioner from time to time and intimated to the licensee in writing. ." There is admittedly no provision made in the Central Rules for the recovery of supervisory charges, perhaps because as the Court observed in the Hyderabad Chemicals and Pharmaceutical 's case ; (supra) it was felt that the duty on medicinal and toilet preparations containing alcohol 682 would be sufficient to defray the cost of such supervision.
But the absence of such a provision in the Central Rules, as we have already indicated, does not deprive the State from making a provision in that behalf.
It is true that the supervisory charges are in the nature of a compulsory exaction from a licensee and the collections are not credited to a separate fund, but are taken to the consolidated fund of the State and are not separately appropriated towards the expenditure incurred in redering the service.
However, as observed in Government of Madras vs Zenith Lamp & Electricals Ltd., ; 1973 SC 724) followed in State of Rajasthan vs Sajjanlal Panjawat,[1974] 2 SCR 741; (AIR that by itself is not decisive, by reason of ART.
266 of the Constitution.
It is equally true that normally a fee is uniform and no account is taken of the paying capacity of the recipient of the service, but absence of uniformity will not make it a tax if co relationship is established [see Commissioner H.R.E., Madras vs Lakshmindra Thirtha Swamiar of Shirur Mutt and Government of Madras vs
Zenith Lamp and Electricals Ltd., ; and ; (supra)].
The cost of supervision would necessarily vary with the nature and extent of the business carried on by a licensee.
Therefore, the supervisory charges can be sustained even if they are regarded as a fee for services rendered by the State or its instrumentalities.
" In dealing with Synthetics Chemical case (supra) the following observations were made: "Learned Advocates General for the States of Gujarat and Kerala have also made their submissions, and referred to several decision and the concept of police power, and contented that imposition of a fee would be the most effective method of regulating intoxicating liquor other than alcohol.
According to the Advocate General of Kerala, that would be justified as the reasonable measure in regard to intoxicating liquor.
According to him, it has been accepted by courts all along that the 'police power ' of the State enables regulations to be made regarding manufacture, transport, possession 683 and sale of intoxicating liquor.
Such police power could be exercised as to impose reasonable restriction as to effectuate the power.
He referred to the observations of this Court in Cooverjee B.Bharucha vs The Excise Commissioner and the Chief Commissioner, Ajmer & Ors., ; which quoted the passage from Crowley vs Christensen,(1890) 24 Lawyers ' Edn. 620.
Reference was also made to Hari Shanker 's case (supra).
Where this Court quoted Vol.
38 of the American Jurisprudence where it was stated that the higher the fee is imposed for a licence, better is the regulation.
Reliance was also placed on P. N. Kaushal 's case (supra).
It was contended that it has been accepted by this Court that the police power is excercisable for regulation of an activity of a legislature within the permissible field or impost as regulatory measure.
It may be valid though it may neither be fee nor a tax in the limited sense of the term.
See the observations of this court in Southern Pharmaceuticals & Chemicals.
Trichur & Ors., etc.
vs State of Kerala & Ors.
,etc.[1982] 1 SCR 519 at 537 .
Regarding regulatory measures in connection with medicinal preparations containing alcohol it was observed by this Court that the impugned provisions had to be enacted to ensure that the Rectified spirit is not misused under the pretext of being used for toilet and medicinal preparations containing alcohol.
Such a regulation is a necessary concomitant of the police power of the State to regulate such trade or business which is inherently dangerous to public health.
The American doctrine of police power is not perhaps applicable as such in India, but power of sovereignty to regulate as part of the power of the competent legislature to effectuate its aim are there.
It is true that that in the State of West Bengal vs Subodh Gopal Bose & Ors., [1954]V SCR 587 at 601 604 and Kameshwar Prasad & Ors., vs The State of Bihar & Anr., ; the concept of police power was accepted as such, but this doctrine was not accepted in India as an independent power but was recognised as part of the power of the State to legislate with respect to the matters enumerated in the State and Concurrent Lists, subject to constitutional limitations.
It 684 was that the American jurisprudence of police power as distinguished from specific legislative power is not recognised in our Constitution and is, therefore, contrary to the scheme of the Constitution.
In interpreting the provisions of our Constitution, we should go by the plain words used by the Constitution makers and the importing of expression like 'police power ', which is a term of variable and indefinite connotation can only make the task of interpretation more difficult.
It was contended that in enacting a law with respect to intoxicating liquor as part of the legislative power measures of social control and regulation of private rights are permissible and as such may even amount to prohibition.
We are of the opinion that we need not detain ourselves on the question whether the States have the police power or not.
We must accept the position that the States have the power to regulate the use of alcohol and that power must include power to make provisions to prevent and or check industrial alcohol being used as intoxicating or drinkable alcohol.
The question is whether in the grab of regulations a legislation which is in pith and substance, as we look upon the instant legislation, fee or levy which has no connection with the cost or expenses administering the regulation, can be imposed purely as regulatory measure.
Judges by the pith and substance of the impugned legislation, we are definitely of the opinion that these levies cannot be treated as part of regulatory measures.
in this view of the matter we do not detain ourselves with examining the numerous American decisions to which our attention was drawn by learned counsel very elaborately and thoroughly.
" This is an added reasoning to uphold the validity of Section 58(A).
Turning to the second argument about the absence of quid pro quo, we need only extract the following from the judgment of the High Court: "Section 58(A) of the Bombay Prohibition Act creates a statutory duty of supervision and incidentally provides for recovering from a manufacturer or a businessman the cost of supervision which is primarily necessitated by the manufacturer 685 or businessman having been permitted under a licence to carry on lawfully a business or industrial activity which would otherwise have been unlawful.
We need not go into the details of this aspect because it has not been contended before us that if the levy under Section 58A is held to be a fee, there is no sufficient quid pro quo between the quantum of the impost and the services rendered to the manufacturer or businessman.
" In the result, the appeal fails and is dismissed with cost.
V.P.R. Appeal dismissed.

summary:
The appellant, a company registered under the Indian , was using industrial alcohol as one of the raw materials for manufacturing resins, chemicals, sodium carboxy methyl, cellulose and certain other chemicals.
In May, 1970, the company installed its own distillery for the purpose of manufacturing industrial alcohol from mollasses.
The respondent No.2 on 3.7.1969 issued a licence to the company for manufacturing spirit.
In accordance with the conditions No. 2 and No. 3, the respondent No. 2 appointed a 9 member supervisory staff consisting of one Inspector, one Sub Inspector, one Nayak, one Jamadar and five constables, to supervise the manufacture of the spirit in the company 's distillery plant.
The appellant company was required to provide residential accommodation to the supervisory staff within its factory premises and to deposit supervisory charges from time to time.
The company complied the requirements.
In 1973 the appellant company filed a Civil Application in the High Court challenging the constitutional validity of the Section 58(A) of the Bombay Prohibition Act, 1949.
The High Court dismissed the petition, hence this appeal by certificate granted by the High Court under Articles 132(1)133(1)(a) of the Constitution.
The appellant company contended that this Court in Synthetics and Chemicals Ltd. case, [1989] Supp.1 SCR 623 held that in respect of 676 industrial alcohol, the States had no power to impose the impost;that in view of the judgment of this Court, the theory of privilege as adumbrated by the High Court could not be sustained, and that there was no quid pro quo.
The respondent State submitted that the Synthetics and Chemicals Ltd. case dealt merely with the vend fees, and not about supervisory charges.
Dismissing the appeal, this Court HELD: 1.01.
The States have the power to regulate the use of alcohol and that power must include power to make provisions to prevent and/or check industrial alcohol being used as intoxicating or drinkable alcohol.
This is an added reasoning to uphold the validity of Section 58(A).
[684D, F G] Synthetics & Chemicals Ltd.v.
State of U.P. and Ors., [1989] Supp.1 SCR 623 Followed.
1.02.Section 58(A) of the Bombay Prohibition Act creates a statutory duty of supervision and incidentally provides for recovering from a manufacturer or a businessman having been permitted under a licence to carry on lawfully a business or industrial activity which would otherwise have been unlawful.
[684G 685A] 1.03.The maintenance of the staff contemplated under Section 58(A) of the Act is primarily for the purpose of ensuring that while dealing with industrial alcohol, no attempt shall be made to divert non potable alcohol.
Therefore, by regulatory measures, the State sees to it that industrial alcohol is not diverted for the use as potable alcohol.
Such a regulatory measure is perfectly valid.
However, such a power was sustained though not on police power but as a regulatory measure.
[679C D] Southern Pharmaceuticals & Chemicals vs State of Kerala, ; ; Sh.
Bileshwar Khand Udyog Khedut Sahakari Mandali Ltd. vs The State of Gujarat & Anr., C.A. No. 503 of 1974 Followed.
The appellants are precluded from contending that the services did not make the impost, since the High Court has noted that it was not contended before it that there was not sufficient quid pro quo between the 677 quantum of impost and the services rendered to the manufacturer or businessman.
[679E F]


judgement:
ivil Appeal No. 1031 of 1979 etc.etc.
From the Judgment and Order dated 23/24.11.1977 of the Bombay High Court in Sales Tax Reference No. 92 of 1976.
S.K. Dholakia, S.M. Jadhav and A.S. Bhasme for the Appellants.
Vinod A. Bobde, Ms. A.K. Verma, U.A. Rana, P.G. Gokhale, Ms. Sangeeta Aggarwal and D.N. Mishra for the Respondents.
The Judgement of the Court was delivered by RANGANATHAN,J. These are appeals by the Revenue arising out of proceedings under the Bombay Sales Tax Act, 1959 (hereinafter called `the Act ').
The respondents, Bharat Petroleum Corporation Ltd. (in CA 1031 of 1979) and Phulgaon Cotton Mills Ltd. (in the four other appeals) are assessees to sales tax.
They claimed a set off, against the sales tax payable by them for the years in question, of certain sums, invoking the provisions of rules 41 and 41 A framed under the Act, as they stood at the relevant time.
As the wording of these rules, in so far as it is material for our present purposes, is identical and the basis of the claim was also common, it will be convenient to dispose of both sets of appeals by a common judgment and we proceed to do so.
The set off claimed by the assessees was in terms of section 42 and rules 41 and 41A, which may now be referred to : (1) Section 42 reads thus : ``42.Draw back, set off, refund etc.
The State Government may provide by rules that (a)in such circumstances and subject to such conditions as may be specified in the rules a draw back, set off or refund of the whole or any part of the tax (i) xx xx xx (ii) paid or levied or leviable in respect of any earlier sale or 812 purchase of goods under this Act or any earlier law, be granted to the purchasing dealer ; (b) xx xx xx The State Government has notified various rules from time to time in exercise of this power which are collected in Chapter VII of the Rules.
Of these we are concerned with rules 41 and 41A. (2) Rule 41 (omitted w.e.f. 24.6.81) was a very long rule containing several clauses.
In so far as is relevant for our present purposes, it was in the following terms: ``41.
Drawback, set off etc.
of tax paid by a manufacturer In assessing the amount of tax payable in respect of any period by a Registered dealer, who manufactures taxable goods for sale (hereinafter in this rule referred to as the ``Manufacturing dealer ' '), the Commissioner shall grant to him a draw back, set off or as the case may be a refund of the aggregate of the following sums, that is to say : (a) xx xx xx (aa) xx xx xx (b) xx xx xx (bb) xx xx xx (c) xx xx xx (cc) xx xx xx (d) xx xx xx (e) a sum recovered from the Manufacturing dealer by another registered dealer by way of sales tax or, general sales tax or both, as the case may be, on the purchase by him, of goods from such registered dealer, being goods specified in schedule C to the Act other than in entries 1 to 11(both inclusive) and 15 therein and in Schedule D other than in entries 1 to 4 (both inclusive) 813 therein and in Schedule E other than in entries 1 and 2 therein, when the purchasing dealer did not hold a recognition or when the dealer held a recognition but effected the purchase otherwise than against a certificate under section 12 of the Act provided that such goods are used by him in the manufacture of taxable goods for sale or in the packing of taxable goods manufactured by him for sale.
Explanation : xx xx xx (Material portions Underlined) (3) The relevant portion of rule 41A, which has been invoked in the case of Phulgaon Cotton Mills Ltd., reads thus : "41A.(1) Drawback, set off etc.
of tax paid by a manufacturer in respect of purchases made on or after the 15th July 1962 : In assessing the amount of tax payable in respect of any period by a Registered dealer who manufactures taxable goods for sale or export* (hereinafter in this rule referred to as the ``manufacturing dealer ' '), the Commissioner shall, in respect of the purchases made by such dealer on or after the 15th July, 1962 of any goods specified in Schedule B, C, D, or E and used by him within the State in the manufacture of taxable goods (**) which have in fact been sold by him (and not given away as samples or otherwise) or which have been exported by him or used by him in the packing of goods so manufactured grant him a draw back, set off or, as the case may be, a refund of the aggregate of the following sums, that is to say: (a) a sum recovered from the manufacturing dealer by other Registered Dealers by way of sales tax, or general sales tax, as the case may be, both, on the purchase by him from such registered dealers, when the manufacturing dealer did not hold a Recognition or when he held a recognition but effected the * The words ``or export ' 'were inserted by a notification dated 31.8.70.
** The words ``which have in fact. .so manufactured ' 'were substituted by a notification dated 15.1.1976 for the words ``for sale or export or in the packing of goods so manufactured for sale or export ' '.
814 purchase otherwise than against a certificate under section 11 of the Act; (b) xx xx xx (c) xx xx xx (d) xx xx xx (Material portions underlined) (4)There was also a claim under rule 43AB but we are not concerned with that in the present appeals.
Now to turn to the facts which give rise to these appeals.
A.Burmah Shell The Bharat Petroleum Corporation Ltd.is before us as the successor in interest of the Burmah Shell Refineries Ltd. which is the assessee with which we are concerned.
We shall refer to it as the `refinery 'to distinguish it from the Burmah Shell Oil Storage and Distributing Company of India Ltd. which will be briefly referred to hereinafter as the `Marketing company '.
We are concerned with the period from 1.1.1961 to 31.12.1961.
The refinery registered itself as a `dealer ' under the Act and possessed a recognition certificate under section 25,after having failed in a plea, raised in earlier assessment years, that it was not a `dealer ' and was not required to be registered as such.
It had entered into a contract with the marketing company under which it agreed to process and refine crude oil belonging to the marketing company and manufacture kerosene for it.
This contract was in the nature of a bailment by the marketing company to the refinery, the refinery taking the crude oil and returning it after purification, as refined kerosene.
For the performance of this task it received payments from the manufacturing company by way refining charges on the basis of the job work done from time to time.
The refined kerosene was eventually sold by the marketing company and the refinery had nothing to do with the sales.
It may be mentioned here that there was no sales tax payable on sales of kerosene till 31.3.1961 but it became liable to sales tax thereafter.
For the above purification process, the refinery needed to use 815 sulphuric acid.
During the calendar year 1961, it purchased 3048.760 MT of acid for Rs. 3,52,742 from Dharmsi Morarji Chemical Co. Ltd.(hereinafter referred to as ``Dharmsis ' ') under an agreement dated 9.6.1955 which was to remain in force for a period of ten years from 1.1.1966 (Sic).
On the sulphuric acid it so purchased, a sales tax of Rs.13,421.15 (Rs.15,107.72, according to the High Court) was recovered from it by Dharmsis, as the refinery did not purchase it on the strength of the recognition certificate held by it as the certificate could have been utilised only if the goods purchased had been intended to be used by it in the manufacture of goods for sale by itself, whereas the manufactured kerosene was sold by the marketing company.
When the sulphuric acid was used in the refining process, the crude oil got refined and purified but the impurities therein precipitated into the acid and yielded ``acid sludge ' '.
The refinery 's contract with Dharmsis provided that the acid sludge should be sold by the refinery to the Dharmsis which, apparently, had its own uses for the sludge.
Accordingly, the refinery sold 3541.985 MT of acid sludge, during the relevant period, for Rs.68,108 the correctness of this figure was unsuccessfully contested before the High Court and on this amount it paid sales tax.
The record does not show the amount of sales tax paid by the refinery on this account, but, having regard to the nature of the commodity and turnover involved, it must, admittedly, have been a very small amount.
Having done this, the refinery claimed that, as against the sales tax paid by it for the period in question (including the tax paid on the acid sludge), it was entitled to a set off(and a refund, if need be) of the amount of Rs. 13,421.15 paid by it as sales tax on its purchases of sulphuric acid.
Its argument is that it is entitled to this refund as all the conditions set out in clause (e) rule 41 were fulfilled this wise : (a) It is a `manufacturer ', as the process of refining carried out by it falls within the wide definition of `manufacture ' contained in s.2(17) of the Act viz. : ``2(17) `manufacture ', with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise treating, or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed ' '.
816 It is also a Registered dealer.
(b) It manufactured taxable goods for sale.
The acid sludge manufactured by it was taxable throughout the year and the pure kerosene manufactured by it was taxable .w.e.f.
1 4 1961 onwards.
(c) Tax had been recovered from it on its purchases of sulphuric acid from Dharmsis who are Registered dealers as the purchases had not been effected on the basis of a recognition certificate.
The Sales Tax Officer allowed the set off only to the extent of Rs. 1,101.40 without giving any details as to the manner in which this figure had been arrived at.
On appeal, the Appellate Assistant Commissioner held that the assessee was entitled to no set off at all under rule 41 as what was manufactured by the assessee was kerosene and not acid sludge and the kerosene was sold not by the assessee manufacturer but by some other company.
The Appellate Tribunal, however, allowed the assessee 's claim in full and its view was upheld, on reference, by the High Court.
Hence the present appeal.
B.Phulgaon Cotton In the case of Phulgaon Cotton Mills, we are concerned with four accounting periods : 1 7 73 to 30 6 74, 1 7 74 to 30 6 75, 1 7 75 to 30 6 76 and 1 7 76 to 30 6 77.
The issue as to the application of rule 41A arises in the following circumstances.
The assessee purchased raw unginned cotton from agriculturists and unregistered dealers.
The cotton was ginned, yielding ginned cotton and seeds.
One of the issues raised in the assessments was as to whether purchase tax should be paid on the total value of the raw cotton purchased or on the said purchase price less the value of the cotton seeds obtained therefrom.
This question was answered against the assessee and is no more in issue before us.
The assessee manufactured yarn and cloth from the ginned cotton.
Besides cotton and yarn, cotton waste and yarn waste were also obtained in the course of the manufacture and these were also sold by the assessee.
Some quantity of the fabrics produced by the assessee were also exported.
817 During the periods 1 7 73 to 30 6 74 and 1 7 74 to 30 6 75, the assessee had paid sales tax on the purchase value of the entire raw cotton purchased by it.
It, therefore, claimed a set off, under rule 41A, of the purchase tax so paid as it had to pay sales tax on the yarn and cotton waste sold by it.
It also claimed set off under rule 43AB in respect of the three periods other than between 1 7 74 and 30 6 75 but we are not concerned with this claim.
The Sales Tax Officer allowed only partial relief to the assessee under rule 41A.
He permitted a set off not of the entire purchase tax paid by the assessee on the raw cotton purchased by it but only of a part thereof proportionate to the extent of yarn sales.
The Appellate Tribunal however upheld the contention of the assessee.
It allowed a set off of the entire purchase tax paid by the assessee on the raw cotton, machinery and other purchases which had been used in the process of manufacture of cotton waste.
In doing so it followed the principle of the decision of the High Court in the case of Burmah Shell Refineries, (1978) 41 S.T.C. 337.
It observed : ``21. .When the raw cotton is ginned or ginned cotton is used in the process of manufacturing yarn, there is bound to be cotton waste.
In view of these facts, the appellant will also be entitled to full set off so far as the purchases of cotton are concerned, which have resulted in the production of taxable commodity i.e. cotton waste.
Each and every ounce of cotton is used in the manufacture of cotton waste which is a taxable commodity.
The question of, therefore, allowing proportionate set off so far as the purchases of cotton or machinery which are used in manufacturing of cotton waste does not arise.
The appellant is entitled to full set off so far as purchases of cotton machinery and other purchases, which are used in the manufacture of cotton waste, a taxable commodity.
There is no conflict in the decisions given by the Tribunal in earlier rulings given in the appellant 's own cases.
No such argument of production of cotton waste by product simultaneously was canvassed.
All that was canvassed was that yarn waste was a taxable by product.
Hence, full set off on purchase of cotton be allowed.
Tribunal negatived this contention by pointing out that there is no simultaneous production of yarn and cloth.
First yarn is manufactured and then cloth.
Thus question of referring this issue to larger Bench does not arise.
The cases will have, 818 therefore, to go back to the Assistant Commissioner for deciding the quantum of set off admissible under Rule 41 A on these basis for all the periods." The Tribunal, however, directed that the deductions should be so allowed as not to result in a double deduction of the same amount of purchase tax.
Aggrieved by the order of the Tribunal, the Commissioner of Sales Tax filed petitions for special leave to appeal to this Court therefrom as no useful purpose would be served by approaching the High Court on reference in view of the decision of that Court in the Burmah Shell Refineries case on the point at issue having gone against the Revenue.
Leave was granted by this Court on 3 9 90 and hence the four civil appeals by the Revenue in the case of Phulgaon Cotton Mills Limited.
Before dealing with issue on the interpretation of rules 41 and 41A which has been debated before us, we wish to point out the difficulties encountered by us as the facts in the case of Phulgaon Cotton Mills are not quite clear from the record.
From the Tribunal 's order, it is seen that, during the periods 1 7 75 to 30 6 76 and 1 7 76 to 30 6 77, the assessee purchased no raw cotton from unregistered dealers and no purchase tax was levied thereon.
Nevertheless, some relief under rule 41A was allowed by the Officer in the assessments for these periods as well.
The basis on which a claim was made, and partially allowed, under rule 41A in respect of these periods is not known.
Also, the Tribunal has allowed full relief on the basis that since cotton was used in the manufacture of cotton waste, the assessee was entitled to relief in respect of purchase tax paid on raw cotton though for these years there was no such tax.
But the order of the Tribunal refers also to "set off so far as purchases of machinery and other purchases ' ' indicating that perhaps some purchase tax had been paid in respect of those purchases and set off had been sought in respect thereof.
But, even assuming this, the discussion regarding cotton waste appears to be pointless since, admittedly, the yarn manufactured was liable to sales tax and, on the Tribunal 's reasoning, this was sufficient to enable the assessee to claim set off of the purchase tax paid on cotton, machinery and other materials used in the manufacture.
But these aspects have not been touched upon before us.
The arguments before us, as we shall refer presently, revolved round a very simple issue.
We shall discuss this issue 819 and leave the other aspects touched upon above to be clarified, if need be, when the assessment is finally redone in the light of our judgment.
Shri Dholakia, learned counsel for the State of Maharashtra, submits that the issue in these appeals is a very simple one.
Rules 41 and 41A are intended to give relief to a dealer in respect of purchase of goods which are used in the manufacture of taxable goods for sale, the clear idea being that where the manufactured goods will also be liable to sales tax in the hands of the manufacturer there should be a relief of the taxes paid by him on the goods purchased by him for use in such manufacture, so as to avoid double taxation.
In the Bharat Petroleum case, the manufactured goods viz. pure kerosene were neither sold by the respondent so as to attract sales tax in his hands nor, indeed, liable to sales tax at all for the first three months.
So also, in the case of Phulgaon Cotton Mills, the cotton purchased on payment of tax was used for the manufacture of cloth which was not liable to sales tax.
A set off cannot be allowed merely because a bye product or waste product (viz. the acid sludge in the one case and the cotton waste in the other) was sold for a nominal turnover which was subject to tax.
Even assuming that the sulphuric acid or cotton purchased can be said to have been used for the manufacture of two commodities (viz. kerosene and acid sludge in the one case and cloth and cotton waste in the other), the set off under the rules relied upon should be split up proportionately and allowed only to a proportionate extent, the proportion being decided on the basis of the respective turnovers of the taxable and non taxable goods.
He submits that though the rules do not specifically provide for such a bifurcation, an apportionment of such nature is almost invariably implicit in a tax law and is also consonant with the object and purpose of the rules.
He, therefore, submits that the High Court and Tribunal ought to have restricted the relief only to a proportionate extent as done by the sales tax officer.
He points out that the basis on which the apportionment was made by the officer had not been specifically challenged before the appellate authorities and is not in issue before us.
On the other hand, Sri Bobde, learned counsel appearing for Bharat Petroleum laid stress on two aspects of the rule.
First, he points out that, under the rule, it is not a requirement that the manufactured goods have to be sold by the manufacturing dealer himself.
The fact is that the kerosene constituted taxable goods after 1.4.61 and was sold by the marketing company.
The second aspect of the rule is that, admittedly, the 820 sulphuric acid purchased was wholly used in the manufacture of two items kerosene and acid sludge one of which viz. the sludge was taxable and also subjected to tax.
Once this condition is fulfilled, the amount of set off is specified in the rule itself as the amount of purchase tax paid on the goods so used and cannot be scaled down proportionately merely because, according to the department, the turnover of the taxable goods is insignificant.
Sri Rana, learned counsel appearing for the Phulgaon Cotton Mills, adopts this argument mutatis mutandis.
We have given deep thought to these contentions and we have come to the conclusion that, plausible and attractive as the argument urged on behalf of the State is, the conclusion arrived at by the High Court and the Apellate Tribunal has to be upheld.
But before dealing with this aspect, we may dispose of two minor questions.
The first which arises in the Bharat Petroleum case is whether rule 41 contemplates that the goods purchased by the dealer should be used for manufacture of taxable goods for sale by him.
The High Court has given good reasons, with which we are inclined to agree, for holding that no such restrictions can be read into this rule but this contention is of no significance in view of our conclusion that the assessee would be entitled to the set off claimed even on the basis of the taxable sales of acid sludge effected by it.
The other point is whether the assesees can be said to manufacture ``acid sludge ' ' and ``cotton waste ' ' respectively.
It is suggested for the State that the assessees are purchasing acid and cotton for the manufacture of kerosene and yarn/cloth respectively and it is ludicrous to suggest that the assessees are purchasing sulphuric acid and cotton for manufacturing acid sludge and cotton waste.
Put like that the assessee 's contention seems a little artificial.
But the contention is not really absurd.
For, the assessees do purchase sulphuric acid and cotton for use in a manufacturing process which yields not only kerosene and yarn/cloth but also acid sludge and cotton waste.
As pointed out in State of Gujarat vs Raipur Manufacturing Co. Ltd.
,(1967) 19 S.T.C.1, where a subsidiary product is turned out regularly and continuously in the course of a manufacturing business and is also sold regularly from time to time, an intention can be attributed to the manufacturer to manufacture and sell not merely the main item manufactured but also the subsidiary products.
There is also no evidence on record to suggest, at least so far as acid sludge is concerned, that it is not a commercial commodity with a market but an item of waste.
The contract with Dharmsis speaks to the contrary and moreover, as pointed out by the High Court, the assessee had been 821 practically compelled by the Department to apply for and obtain a recognition certificate for the manufacture of sludge and it had also paid tax as dealers in acid sludge.
These two contentions have, therefore, to be rejected.
Turning now to the main question, we are inclined to agree with respondents ' counsel that they are entitled to a set off of the entire tax paid by them on the purchases of sulphuric acid and cotton respectively.
The only condition under the rule is that the goods purchased on payment of tax should have been used in the manufacture of taxable goods for sale.
Their concurrent user for the manufacture of another item of goods which may or may not be taxable is immaterial though we may point out that in the Bharat Petroleum case, the kerosene was also taxable for nine months in the year and in the case of Phulgaon Cotton Mills, yarn was also manufactured and it was subject to tax.
Sri Dholakia contends for an implicit principle of apportionment on the basis of turnovers of various items of goods manufactured and restriction of the quantum of set off to a proportion based on the turnover of taxable goods to the total turnover.
He cited certain decisions under the Income tax and Sales Tax Acts in support of this contention : Anglo French Textiles vs C.I.T., , S.C.; Tata Iron & Steel Co. vs State, ; and Best & Co. vs C.I.T.,(1966) , S.C. We do not think these cases are of assistance.
The first two cases dealt with the question as to when profits and gains can be said to accrue or arise in a manufacturing business and the third held that when a receipt is a composite one of capital and revenue nature, it is open to the Revenue to apportion the same and bring the latter to tax.
These are situation in which the taxable element is severable.
Under the rules presently under consideration also, situations are conceivable where such severance is implicit.
For instance, suppose the cotton purchased is utilised partly for manufacture of cloth that is taxable and part for manufacture of cloth that is not taxable or partly for the manufacture of yarn which is taxable and is sold and partly for manufacture of cloth which is not taxable.
In these instances, it is clear that only some of the cotton is utilised for the first purpose and some for the second purpose and so only the purchase tax paid in respect of the quantity utilised for the first purpose will be eligible for set off.
But the type of user with which we are concerned is a composite one in which it is not possible to correlate any part of the purchased goods as having gone in for the purpose of manufacture of taxable goods.
The position is picturesquely brought out in 822 the case of Bharat Petroleum.
The entire sulphuric acid purchased has no doubt been used in the manufacture of kerosene though perhaps not a drop of acid clings to the kerosene manufactured.
Equally, the entire sulphuric acid has gone into the composition of the acid sludge.
The 3048.760 M.T. of acid have dissolved the impurities in the crude oil and conglomerated with them to constitute 3541.485 M.T. of acid sludge.
Having regard to the nature of the interactions here, it is incontrovertible that the entire sulphuric acid purchased has gone into the manufacture of the sludge.
The rules do not require that the purchased goods must have been used only for the manufacture of taxable goods for sale.
In this situation, it is not possible to cut down the quantum of relief clearly outlined in the rule on the basis of some general principle claimed to underlie the provision.
As Sri Bobde rightly pointed out, the basis for the relief provided is not very clear cut.
Various reliefs have been provided in a group of rules which come in for application in various situations.
The relief may be based on the principle that the manufactured product is taxed either in the hands of the same assessee or in someone else 's hands, or that the manufactured goods are exported which may yield no tax but earn foreign exchange, or even that the purchases are utilised for manufacture of goods in the State thus contributing to the industrial development of the State.
It is, therefore, difficult to read into the provision a quantitative correlation of the goods resulting in a taxable turnover and the purchases of raw materials on which tax has been paid.
In this background, the straight forward answer to the question raised lies in the literal interpretation of the language of the rules without straining to discover some doubtful principle for denying relief.
For the above reasons, we agree with the view taken by the High Court and followed by the Tribunal and dismiss these appeals.
We, however, make no order regarding costs.

summary:
The assessee Oil refinery, predecessor in interest to the respondent Corporation in one of the appeals had registered itself as a dealer under the Bombay Sales Tax Act, 1959.
During the Calendar year 1961, it had purchased sulphuric acid from a chemical company for processing and refining crude oil and manufacturing kerosene for a marketing company.
On the sulphuric acid so purchased sales tax was recovered from it by the chemical company.
While the refined kerosene which was not taxable upto 31.3.1961 was sold by the marketing company, the acid sludge yielded in the purification process was sold by the refinery.
The refinery paid sales tax on the acid sludge sold by it, and claimed a set off (and a refund, if need be) of the sales tax paid by it on its purchase of sulphuric acid, on the ground that all the conditions set out in clause (e) of Rule 41 of the Bombay Sales Tax Rules, 1959 were fulfilled, viz., it was manufacturer within the meaning of Section 2 (17) of the Act, that it was also a registered dealer, that it manufactured taxable goods for sale, that while acid sludge was taxable throughout the year, kerosene was taxable with effect from 1.4.1961 onwards and that tax was recovered on the raw material purchased by it by the chemical company.
808 The Sales Tax Officer allowed the set off only partly.
On appeal, the Appellate Assistant Commissioner held that the assessee was entitled to no set off at all under Rule 41 since what was manufactured by the assessee was kerosene and not acid sludge, and the kerosene was sold not by the assessee manufacturer, but by some other company.
The Appellate Tribunal, however, allowed the assessee 's claim in full and on reference this was upheld by the High Court.
The respondent Cotton Mill in the other appeals purchased raw unginned cotton from agriculturists and unregistered dealers during periods 1.7.73 to 30.6.74 and 1.7.74 to 30.6.75 and paid sales tax on the raw cotton so purchased.
The cotton was ginned yielding place to ginned cotton and cotton seed.
The respondent manufactured yarn and cloth from the ginned cotton.
The cotton waste and yarn waste obtained in the course of manufacture were also sold by the assessee.
It paid sales tax on the yarn and cotton waste sold by it and claimed a set off, under 41 A of the Rules, of the sales tax paid on the purchase value of the entire raw cotton purchased by it.
The Sales Tax Officer allowed a set off of only part of the purchase tax paid on the raw cotton purchased by the assessee proportionate to the extent of yarn sales.
On appeal, the Appellate Tribunal allowed a set off of the entire purchase tax paid on the raw cotton, machinery and other purchases, which had been used in the process of manufacture of cotton waste.
It, however, directed that the deductions should be so allowed as not to result in a double deduction of the same amount of purchase tax.
In the appeals, by Special leave, before this Court, on behalf of the State Government, it was contended that Rules 41 and 41 A were intended to give relief to a dealer in respect of purchase of goods which were used in the manufacture of taxable goods for sale, that the manufactured goods, viz., pure kerosene was neither sold by the respondent so as to attract sales tax in his hands nor, was it liable to sales tax at all for the first three months, and the cotton purchased on payment of tax was used for the manufacture of cloth which was not liable to sales tax, and that a set off could not be allowed merely because a by product or waste product, viz., acid sludge and cotton waste was sold for a nominal turn over, which was subject to tax, and that the set off should be split up proportionately and allowed only to a proportionate extent, on the basis of the respective 809 turnover of the taxable and non taxable goods, and an apportionment of such nature was implicit in a tax law and was also in consonance with the object and purpose of the rules.
On behalf of one of the respondents it was contended that under Rule 41 it was not a requirement that the manufactured goods had to be sold by the manufacturing dealer himself and that the sulphuric acid purchased was wholly used in the manufacture of two items kerosene and acid sludge one of which, viz., the sludge, was taxable and also subjected to tax, and the amount of set off was specified in the rule itself as the amount of purchase tax paid on the goods so used, and could not be scaled down proportionately merely because the turnover of the taxable goods was insignificant.
The other respondent adopted these contentions.
Dismissing the appeals, this Court, HELD: 1.1 The assessees are entitled to a set off of the entire tax paid by them on the purchases of sulphuric acid and cotton respectively.
The only condition under the rule is that the goods purchased on payment of tax should have been used in the manufacture of taxable goods for sale.
Their concurrent user for the manufacture of another item of goods which may or may not be taxable is immaterial though kerosene was also taxable for nine months in the year and yarn was also manufactured and it was subject to tax.
Commissioner of Sales Tax vs Burmah Shell Refineries Limited, (1978) 41 S.T.C. 337, referred to. 1.2.
The principle of apportionment on the basis of turnovers of various items of goods manufactured and restriction of the quantum of set off to a proportion based on the turnover of taxable goods to the total turnover cannot be accepted.
No doubt under the rules, situations are conceivable where severance of taxable element is implicit, but the type of user in the instant case is a composite one, in which it is not possible to correlate any part of the purchased goods as having gone in for the purpose of manufacture of taxable goods.
Anglo French Textiles vs C.I.T., , S.C.; Tata Iron & Steel Co. vs State ; and Best & Co. vs C.I.T. , S.C., distinguished.
810 1.3 In the instant case the entire sulphuric acid purchased has no doubt been used in the manufacture of kerosene though perhaps not a drop of acid clings to the kerosene manufactured.
Equally, the entire sulphuric acid has gone into the composition of the acid sludge.
Having regard to the nature of the interactions in the instant case,it is incontrovertible that the entire sulphuric acid purchased has gone into the manufacture of the sludge.
The rules do not require that the purchased goods must have been used only for the manufacture of taxable goods for sale.
Therefore, it is not possible to cut down the quantum of relief clearly outlined in the rule on the basis of some general principle claimed to underline the provision.
1.4 The basis for the relief provided is not very clear cut.
Various reliefs have been provided in a group of rules which come in for application in various situations.
The relief may be based on the principle that the manufactured product is taxed either in the hands of the same assessee or in someone else 's hands, or that the manufactured goods are exported which may yield no tax but earn foreign exchange, or even that the purchases are utilised for manufacture of goods in the State thus contributing to the industrial development of the State.
It is, therefore, difficult to read into the provision a quantitative correlation of the goods resulting in a taxable turnover and the purchases of raw materials on which tax has been paid.
1.5 Rule 41 does not contemplate that the goods purchased by the dealer should be used for manufacture of taxable goods for sale by him.
No such restriction can be read into this rule.
2.1 Where a subsidiary product is turned out regularly and continuously in the course of a manufacturing business and is also sold regularly from time to time, an intention can be attributed to the manufacturer to manufacture and sell the subsidiary product.
State of Gujarat vs Raipur Manufacturing Co. Ltd., (1967) 19 S.T.C. 1, relied on.
2.2 The assessees in the instant case do purchase sulphuric acid and unginned cotton for use in a manufacturing process, which yield not only kerosene and yarn/cloth, but also acid sludge and cotton waste.
There is also no evidence to suggest that acid sludge is not a commercial 811 commodity with a market but an item of waste.