A.R Somnath Iyer, J.:— This is an application by a firm dealing in coffee seeds and coffee powder, the turnover of whose inter-State sales of coffee powder for the period between 1st July, 1957, and 20th March, 1958, amounted to Rs. 1,22,866-38 nP. This turnover was the aggregate of the following:—

Rs. nP. (a) the turnover for the period between 1st July 1957, and 30th September, 1957 … 49,352-78 (b) the turnover for the period between 1st October, 1957, and 20th March, 1958 … 73,513-60

2. These inter-State sales were assessed to sales tax under the provisions of the Central Sales Tax Act, 1956. The Commercial Tax Officer called upon the petitioner to pay tax on the turnover of the first period at 3 per cent. The turnover relating to the second period was divided by him into two parts. On a sum of Rs. 32,511-26 nP. he called upon the petitioner to pay tax at 1 per cent. and, on the remaining sum of Rs. 42,971-70 nP. at 5 per cent. In this writ petition, which is directed against the assessment made in this way, Mr. Venkataranga Iyengar contends that the sales of coffee powder made by the petitioner were all exempt from the payment of tax under the Central Sales Tax Act and that the assessing authority could not have called upon the petitioner to pay any tax in respect of those sales. In support of this contention, he relied upon section 8 of the Central Sales Tax Act.

3. The argument addressed is that the coffee powder sold by the petitioner was made out of coffee seeds purchased by it in the State of Mysore on the transaction relating to the sale of which tax had already been collected under the Mysore Sales Tax Act. The contention urged is that the sales of coffee powder were made to registered dealers of goods in the other States, and that those goods were of the description referred to in sub-section (3) of the Central Sales Tax Act. Reliance is, therefore, placed upon the provi so to sub-section (1) of section 8 of that Act, and the contention advanced on the basis of that proviso is that since the sales of coffee powder made out of coffee seeds purchased in the State of Mysore were not liable to sales tax under the Mysore Act, and were therefore exempt from the payment of such tax, the inter-State sales of such coffee powder to the registered dealers in the other States were also exempt from the payment of the sales tax imposed by the Central Sales Tax Act.

4. Section 8 of the Central Sales Tax Act reads:—

“8. Rates of tax on sales in the course of inter-State trade or commerce.—(1) Every dealer who, in the course of inter-State trade or commerce sells to a registered dealer goods of the description referred to in sub-section (3) shall be liable to pay tax under this Act, which shall be one per cent. of his turnover:

Provided that, if under the sales tax law of the appropriate State, the sale or purchase of any goods by a dealer is exempt from tax generally and not in specified cases or in specified circumstances or is subject to tax (by whatever name called) at a rate or rates which is or are lower than the rate specified in sub-section (1), the tax payable under this Act on the turnover in relation to the sale of such goods in the course of inter-State trade or commerce shall be nil or shall be calculated at the lower rate, as the case may be.

(2) The tax payable by any dealer in any case not falling within sub-section (1) in respect of the sale by him of any goods in the course of inter-State trade or commerce shall be calculated at the same rates and in the same manner as would have been done if the sale had, in fact, taken place inside the appropriate State, and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law.

(3) The goods referred to in sub-section (1)—

(a) in the case of declared goods, are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him; and

(b) in any other case, are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or for use by him in the manufacture of goods for sale or for use by him in the execution of any contract;

and in either case include the containers or other materials used for the packing of goods of the class or classes of goods so specified.

Explanation.—For the purposes of this sub-section, “contract” means any agreement for carrying out for cash or deferred payment or other valuable consideration—

(i) the construction, fitting out, improvement or repair of any building, road, bridge or other immovable property; or

(ii) the installation or repair of any machinery affixed to any building or other immovable property.

(4) The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold, containing the prescribed particulars on a prescribed form obtained from the prescribed authority.

(5) Notwithstanding anything contained in this section, the State Government may, if it is satisfied that it is necessary so to do in the public interest, by notification in the Official Gazette, direct that in respect of such goods or classes of goods as may be mentioned in the notification and subject to such conditions as it may think fit to impose, no tax under this Act shall be payable by any dealer having his place of business in the State in respect of the sale by him from any such place of business of any such goods in the course of inter-State trade or commerce or that the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the notification.”

5. This section deals with two classes of goods; the first class is dealt with by sub-section (1) and the second by sub-section (2). The proviso to sub-section (1) being applicable only to inter-State sales referred to in sub-section (1), that proviso becomes applicable to the case of the petitioner only if it is established that the sales made by the petitioner are of goods described in sub-section (3) to registered dealers outside the State.

6. The Commercial Tax Officer came to the conclusion that the sales made between 1st July, 1957, and 30th September, 1957, were not of goods described in sub-section (3), and that being so, he was of the view that those sales were governed by sub-section (2) of section 8 and not by the proviso to sub-section (1).

7. The finding of the Commercial Tax Officer that the coffee powder sold during this period cannot be regarded as goods referred to in subsection (1) is a finding on a question of fact, particularly since the only evidence by which the petitioner could have established that the sales of coffee powder were sales governed by sub-section (r) was not produced by him, since the “C” forms which would have established the truth of that contention were not produced before the Commercial Tax Officer. We must, therefore, take it that the Commercial Tax Officer was right in coming to the conclusion that sub-section (1) of section 8 of the Central Sales Tax Act was not applicable to those sales. That being so, the proviso to that sub-section was equally inapplicable.

8. But the question remains whether the Commercial Tax Officer was right in assessing those sales under the provisions of sub-section (2). Sub-section (2) makes it clear that a tax could be demanded under its provisions on an inter-State sale only in cases in which such tax could have been demanded under a law made by a State imposing sales tax, if the sale had taken place inside that State. That is the clear meaning of sub-section (2).

9. So, the test which should have been applied by the assessing authority in this case was whether, if the coffee powder sold by the petitioner to the dealers in the other States had been sold inside the State of Mysore, any sales tax could have been demanded in respect of those transactions under the relevant Mysore Sales Tax Law. Since the Mysore Sales Tax Law which was operating in the State of Mysore, during the period between 1st July, 1957, and 30th September, 1957, was the Mysore Sales Tax Act, 1948, it will be necessary to examine the provisions of that law for the purpose of deciding this question.

10. Now it is clear from the 32nd entry of Schedule 1 to the 1948 Act, read with footnote (a) appearing under that Schedule, that in the case of coffee the only sale which attracts sales tax is the sale by the first or earliest of the successive dealers in the State of Mysore. That being so, and, since it is not disputed that for the purpose of that entry the word “coffee” occurring in it includes coffee powder, if the coffee powder sold by the petitioner had been made out of coffee seeds which he had purchased in the State of Mysore, and, on the sale of those coffee seeds tax was payable when they were purchased by the petitioner, the sale of such coffee powder, if such sale had taken place in the State of Mysore, would not have attracted liability to tax under the Mysore Act.

11. Although at one stage, Mr. Government Pleader was not willing to admit it, he does not now dispute that the coffee powder sold between 1st July, 1957, and 30th September, 1957, was manufactured by grinding the coffee seeds which had been purchased by the petitioner in the State of Mysore, on the sale of which sales tax was payable when that sale was made. If that be the position, it is clear that if the coffee powder had been sold by the petitioner inside the Mysore State instead of selling it outside that State, on that sale, no sales tax could have been demanded under the Mysore Sales Tax Act, 1948, as provided by sub-section (2) of section 3 of that Act.

12. That being so, and since the meaning of sub-section (2) of section 8 of the Central Act is that tax under that sub-section is exigible in respect of an inter-State sale only if tax was payable under a State law if the sale had been an intra-State sale, no tax was payable in respect of the sales of coffee powder made by the petitioner during the period between 1st July, 1957. and 30th September, 1957.

13. The assessment made on the petitioner in respect of his turnover relating to coffee powder to the extent of Rs. 47,867-77 nP. must therefore, be and is hereby quashed.

14. The petitioner has, however, been called upon to pay sales tax on the turnover relating to the metal containers in which the coffee powder was supplied. The turnover attributable to these containers was Rs. 1,485 and the tax demanded is Rs. 89-10 nP. That part of the assessment will remain undisturbed.

15. What remains to be considered is the validity of the assessment made in respect of the turnover of Rs. 75,482-96 nP. This turnover consists of two parts. One part of it is Rs. 32,511-26 nP., which, according to the Commercial Tax Officer was taxable under section 8(1) of the Central Act. The sales constituting this turnover were supported by the “C” forms to which reference has already been made, and the argument presented by Mr. Government Pleader also is that these sales were governed only by sub-section (1) and not by sub-section (2).

16. But, it is contended for the petitioner that this part of the turnover of Rs. 32,511-26 nP. was not taxable since it fell within the proviso to sub-section (1). The validity of this contention depends upon the interpretation to be placed on section 8(1) and on the proviso to it. To bring this turnover within the proviso, it is urged that the sales of coffee powder if they had been made inside the State of Mysore would have been exempt from the payment of sales tax under the Mysore law and that, therefore, the inter-State sales of the coffee powder were similarly exempt from liability under the Central Act. To support this argument, it is submitted that under the Mysore Sales Tax Act, 1957, which was in force when those sales were made, if coffee seeds were purchased in the State of Mysore, and that sale is taxable, the subsequent sale of coffee powder made out of those seeds is not taxable. In support of this contention, reliance was placed on the 43rd entry in the Second Schedule to the Mysore Sales Tax Act, 1957, and on Explanation III to that Schedule. That entry and the Explanation read:—

“SECOND SCHEDULE

Goods on the sale of which a Single Point Tax is leviable on the first or earliest of successive dealers in the State under section 5(3)(a).

Serial No. Description of the goods. Rate of tax. 1 2 3 * * * 43 Coffee seeds Five per cent. * * * * * *

Explanation. III.—Where a tax has been levied in respect of purchase of coffee seeds under item 43 the coffee powder made out of those coffee seeds is not liable to tax under this Act.

17. Explanation III, according to the argument, created an exemption in respect of sales of coffee powder made out of coffee seeds the sale of which was itself taxable. It was, therefore, argued that under the proviso to section 8(1) of the Central Act, inter-State sales of such coffee powder were also similarly exempt from tax under that Act.

18. The question is whether the proviso has that effect. What the proviso says is that although under sub-section (1) of section 8, in respect of an inter-State sale referred to in that sub-section, tax is payable at 1 per cent. of the turnover that tax is not payable if the transaction, if it had taken place inside a State, was not taxable under the State law. What it further provides is that if the sales tax payable under the State law, if the transaction had taken place inside the State, was less than that payable under sub-section (1), the tax payable has to be computed at the rates specified in the State law and not under subsection (1).

19. This is also the view expressed by this Court in Civil Revision Petition No. 1278 of 1961*, in which it was pointed out that the sale in the course of inter-State trade or commerce is exempt from the payment of tax under the Central Sales Tax Act if that sale, if it had taken place inside the State, was exempt from taxation under the State law. This is what was stated in that decision:—

“The proviso evidently lays down that if the sale transaction dealt with in section 8(1) is exempt from taxation under the appropriate State law or if the purchase transaction leading to that sale transaction is exempt from taxation under that law, in either case, no tax can be levied under section 8(1).”

20. Mr. Government Pleader submitted to us that the view expressed in the aforesaid case requires reconsideration since, according to him a somewhat different view has been expressed by their Lordships of the High Court of Andhra Pradesh in East India Sandal Oil Distilleries Ltd. v. The State of Andhra Pradesh1. Mr. Government Pleader submitted that the exemption under the State law to which the proviso to section 8(1) refers, is an exemption similar to the exemptions created by section 6 of the Mysore Sales Tax Act, 1948, or by section 8 of the Mysore Sales Tax Act, 1957, exhaustive enumerations of which are contained in Schedule III to the one Act and Schedule V to the other. He proceeded to argue that Explanation III to the Second Schedule to the 1957 Act was not an exemption but was only a provision which enabled a second or subsequent dealer in the State of Mysore to contend that since the previous transaction was taxable, his transaction was not.

21. I am not prepared place any such narrow construction on the proviso to section 8(1) of the Central Act or on the word “exempt” occurring in it. I am of the view that what Explanation III to Schedule V to the Mysore Sales Tax Act, 1957, does is to exempt transactions other than the first or the earliest of the successive transactions inside the State from the payment of tax. I do not also think that the decision of this Court in Civil Revision Petition No. 1278 of 1961 requires reconsideration.

22. In that view of the matter, it is clear that no tax under the Central Act could be demanded even if the sales of coffee powder made by the petitioner fell within sub-section (1) of section 8 of the Act, if that powder had been made out of coffee seeds, the sale of which had already been taxed under the Mysore Sales Tax Act, 1957.

23. The other part of the turnover of the petitioner relatable to the period between 1st October, 1957, and 20th March, 1958, consisted of a sum of Rs. 42,971-70 nP. This sum was the price paid by the registered dealers of outside States to the petitioner for coffee powder purchased by them. But since those sales were not supported by “C” forms, the Commercial Tax Officer thought that those transactions were not governed by sub-section (1) of section 8 but only by sub-section (2). In the view that I have taken, it becomes immaterial whether sub-section (1) or sub-section (2) of section 8 governed those sales since, in either event, if the coffee powder sold was made out of coffee seeds purchased in the State of Mysore, the transaction relating to which had been taxed under the Mysore Sales Tax law, no sales tax could have been demanded under the Mysore law, and therefore, no sales tax under the Central Sales Tax Act was exigible.

24. The crucial question, therefore, is whether the coffee powder of the value of Rs. 42,971-70 nP. sold by the petitioner was made out of coffee seeds purchased in the State of Mysore and whether the transaction relating to the purchase of those coffee seeds had been taxed under the Mysore law. The Commercial Tax Officer did not investigate that question but came to the conclusion that sales tax under the Central Act could be demanded at 5 per cent. under sub-section (2) of section 8 of the Central Act, since the sales were not supported by “C” forms. For the reasons stated by me in respect of the turnover for the period between 1st July, 1957, and 30th September, 1957, the statutory provisions in operation during which period were similar to those of the Mysore Sales Tax Act, 1957, which were in force during the period between ist October, 1957, and 20th March, 1958, if coffee powder of the value of Rs. 42,971-70 nP. sold by the petitioner had been made out of coffee seeds, the sale relating to which had already suffered taxation under the Mysore Sales Tax. Act, the sale of such coffee powder, if it had been sold inside the State would not have been taxable under the Mysore Sales Tax Act. That being so, its inter-State sale was also not taxable.

25. Mr. Government Pleader does not admit that the coffee powder sold during this period was made out of coffee seeds purchased in the State of Mysore or that the transaction relating to that purchase was taxed under the Mysore Act. It, therefore, becomes clear that both in the case of coffee powder, the sales of which were supported by “C” forms and which were of the value of Rs. 32,511-26 nP., and in the case of sales of the value of Rs. 42,971-70 nP., which were not supported by those “C” forms, the material question which had to be decided by the Commercial Tax Officer was whether those sales were of coffee powder made out of coffee seeds purchased in the State of Mysore, in respect of which sales tax had already been paid under the 43rd entry of the Second Schedule to the Mysore Sales Tax Act, 1957. Since there are no materials before us on the basis of which we could ourselves come to the conclusion on this question, that part of the assessment of the Commercial Tax Officer which relates to the turnover of Rs. 75,482-96 nP., for the period between 1st October, 1957, and 20th March, 1958, has to be, in my opinion, set aside with a direction that the Commercial Tax Officer will now determine the question whether in the light of the principles enunciated in this order, any part of that turnover is taxable under the Central Sales Tax Act. It is ordered accordingly. The matter will now go back to the Commercial Tax Officer, Davanagere, who will proceed to make the assessment in respect of that part of the turnover afresh and according to law. No costs.

M. Sadasivayya, J.:— I agree.

26. Ordered accordingly.