Empty bottles purchased for manufacturing of Beer & IMFL are exigible to Purchase Tax, Supreme Court

The SC on June 29, 2020 {THE COMMERCIAL TAX OFFICER & ANR. vs  MOHAN BREWARIES AND DISTRILLERIES LIMITED} held that purchase tax under Section 7-A of the Tamil Nadu General Sales Tax, 1959 (hereinafter referred to as ‘the Tamil Nadu Act’ or simply ‘the Act’) is leviable on the purchase turnover of empty bottles purchased by the assessee in the course of its business of manufacture and sale of Beer and IMFL.

It was held by the Bench, comprising of Justice A.M. KHANWILKAR & Justice DINESH MAHESHWARI, that there remains hardly any doubt on the principles that Clarifications/Circulars/Instructions issued by the competent authority are binding on the authorities under the respective statutes but so far as declaration of law in regard to any particular statutory provision is concerned, the view expressed in the binding decision of this Court or the High Court is to be given effect to; and no direction can be issued to enforce a clarification or circular contrary to the declaration of law by the Courts. 

The matters before the SC involved the interpretation of Section 7-A of the Tamil Nadu Act, providing for levy of purchase tax under certain circumstances, with root questions as to whether purchase tax is leviable on the purchase turnover of empty bottles purchased by the assessee in the course of its business of manufacture and sale of Beer and Indian Made Foreign Liquor and as to the operation and effect of the Clarifications dated 09.11.1989 issued by the Special Commissioner and Commissioner of Commercial Taxes and dated 27.12.2000 issued by the Principal Commissioner and Commissioner of Commercial Taxes, Chennai.

It was held that the goods in question (empty bottles) have not been consumed in the manufacture of other goods for sale nor they have been consumed otherwise because of having retained their identity. The Court held that they have also not been used in the manufacture of other goods for sale because manufacture of Beer/IMFL was complete without their use. It was held, however, they have been used for bottling and when bottling remains an integral part of the business activity of the assessee, i.e., of manufacturing the liquor by the process of brewing/distillation and then, selling the manufactured liquor by putting the same in bottles, they have been “used otherwise”. The SC held that being the position, use of the goods in question for bottling takes the turnover of their purchase within the net of Section 7-A of the Act.

The SC held that if it reads clause (a) of sub-section (1) of Section 7-A of the Act sliced down to the elements “uses in manufacture or otherwise”, it is clear that the goods in question (empty bottles) have been used for bottling, which use, even if not for manufacture, had been a use otherwise which has been closely connected with the business of the assessee and whereby the bottles in question did not remain available for sale in the form in which they were purchased. Hence, it was held that applicability of Section 7-A of the Act is complete and remains beyond the realm of doubt.

The Court held that it has no hesitation in concluding that the High Court, after having found that purchase tax was leviable on the turnover in question under Section 7-A of the Act, could not have issued directions for any benefit to the assessee with reference to the Clarifications/Circulars dated 09.11.1989 and 27.12.2000, particularly when such Clarifications/Circulars do not stand in conformity with the statutory provision and its interpretation by the Courts. It was concluded by the SC that the impugned order of the High Court, on the second question as regards the operation and effect of Clarifications/Circulars dated 09.11.1989 and 27.12.2000, cannot be approved. It was held that the net result is that the purchase turnover of the empty bottles purchased by the assessee from the unregistered dealers under bought note is exigible to purchase tax under Section 7-A of the Tamil Nadu Act; and the assessee cannot escape such liability on the strength of the Clarifications/Circulars dated 09.11.1989 and 27.12.2000 which do not stand in conformity with the statutory provision as also declaration of law by the Courts.