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Member, Board Of Revenue, West Bengal v. Phelps & Co. (P) Ltd. .
Factual and Procedural Background
Phelps & Co. (P) Ltd., a company incorporated under the Indian Companies Act, 1913, and registered as a dealer under the Bengal Finance (Sales Tax) Act, 1941, sold industrial hand-gloves during the assessment period comprising the four quarters ending 31 March 1957. The purchasing companies—Indian Iron & Steel Co. Ltd., Indian Standard Wagon Co. Ltd., and The Hooghly Docking & Engineering Co. Ltd.—used these gloves for their workmen engaged in hot or corrosive operations within their factories.
The assessee claimed exemption on these sales under Section 5(2)(a)(ii) of the 1941 Act. The Commercial Tax Officer disallowed the claim, holding that gloves were not “required for the purpose of manufacture of goods for sale.” The Assistant Commissioner and subsequently the Board of Revenue upheld this decision.
Invoking Section 21(1), the assessee sought a reference to the Calcutta High Court. When the Board refused, the assessee invoked Section 21(2), prompting the High Court to direct the Board to state a case. Three questions were framed, but the assessee later waived the third. The High Court answered Questions (i) and (ii) in favour of the assessee. The Board of Revenue obtained special leave and appealed to the Supreme Court.
Legal Issues Presented
- Whether gloves worn by workers engaged in hot jobs or handling corrosive substances can be considered “used in the manufacture of goods for sale” within the meaning of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941.
- Whether the description “mill stores” in the purchasing dealer’s certificate of registration covers “gloves.”
Arguments of the Parties
Appellant (Board of Revenue, West Bengal)
- Contended that Section 5(2)(a)(ii) applies only to goods actually used in the manufacture of finished goods and not to articles merely “used in the course of manufacture,” such as protective gloves.
Respondent (Phelps & Co. (P) Ltd.)
The opinion does not contain a detailed account of the respondent’s legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur, AIR 1965 SC 1310; (1965) 1 SCR 900 | The phrase “in the manufacture of goods” covers any process so integrally connected with production that, without it, manufacture would be commercially inexpedient. | The Court applied this interpretation to hold that protective gloves, being essential for workers handling hot or corrosive materials during manufacture, are within the statutory phrase. |
Court's Reasoning and Analysis
The Supreme Court focused on construing the words “for use by him in the manufacture of goods for sale” in Section 5(2)(a)(ii). Noting that the same phrase appears in Section 8(b) of the Central Sales Tax Act, 1956, the Court adopted the construction given in J.K. Cotton Spinning & Weaving Mills, which extends the expression to all integrally connected processes indispensable to manufacture from a commercial standpoint.
Applying that test, the Court observed that the gloves were intended for use by workers engaged in hot or corrosive processes during production of iron and steel goods. Because such protection is necessary to carry out the manufacturing operations safely and effectively, the gloves qualify as goods “used in the manufacture” within the statutory exemption. Consequently, the argument that only goods directly incorporated into the finished product are covered was rejected as inconsistent with binding precedent.
Holding and Implications
Appeal dismissed; High Court judgment affirmed. The assessee is entitled to exemption under Section 5(2)(a)(ii) for sales of protective gloves to the purchasing manufacturers. The immediate consequence is that the disallowance of Rs 72,250-11-0 is set aside, and the assessee benefits from the tax exemption. The decision applies existing Supreme Court precedent and therefore does not create a new legal rule but reaffirms the broad interpretation of “used in the manufacture” for input exemptions.
K.S Hegde, J.— This appeal by special leave arises from a judgment of the High Court of Calcutta in a reference made to it under Section 21 (3) of the Bengal Finance (Sales Tax) Act, 1941 (Act 6 of 1941). That was a reference made by the Board of Revenue, West Bengal in pursuance of the directions given by the High Court. After stating a case, the Board referred three questions to the High Court at the instance of the assessee company. The assessee informed the High Court that it did not want any answer to the third question. The High Court answered Questions (i) and (ii) in favour of the assessee company. Aggrieved by that order the Board of Revenue has come up in appeal to this Court.
2. The material facts are these:
“Phelps & Co. (P) Ltd. the assessee is a company incorporated under the Indian Companies Act, 1913 having its Registered Office in New Delhi. It is carrying on business, amongst other places, at Calcutta. It was registered as a dealer under the Bengal Finance (Sales Tax) Act, 1941 and was carrying on the business of tailors, drapers, out fitters and industrial ‘gloves’ manufactures.”
3. In respect of the assessment for the four quarters ending on March 31, 1957 the said dealer in its claim for exemption under Section 5(2)(a)(ii) of the Act, included the following transactions:
(1) Sales to Indian Iron and Steel Co. Ltd. for Rs 51,554-8-0.
(2) Sales to Indian Standard Wagon Co. Ltd. for Rs 20,150-1-0.
(3) Sales to The Hoogly Docking & Engineering Co. Ltd. for Rs 546-2-0.”
The Commercial Tax Officer, Esplanade Charge, who assessed the dealer found that the above transactions related to the sales of different types of ‘hand gloves’ which the purchasing dealers purchased for the purpose of the same being used by their workers while being engaged in work in the factories. He by his order, dated December 4, 1957 observed that the purchase of hand gloves could not be called as being required for the purpose of manufacture of goods for sale, and, accordingly, disallowed the dealer's claim for exemption of Rs 72,250-11-0. That order was affirmed by the Assistant Commissioner of Commercial Taxes in appeal as well as by the Board of Revenue. Thereafter the assessee company filed a petition under Section 21(1) of the Act asking the Board of Revenue to refer certain questions of law to the High Court. The Board refused to refer those questions. Dissatisfied by the order of the Board, the dealer moved the High Court of Calcutta under Section 21(2) of the Act for direction to the Board to state a case. The High Court accepted that petition and directed the Board to state a case and submit the questions that the assessee company wanted it to submit to the High Court. The Board accordingly stated a case and submitted the following three questions:
“(i) Whether ‘gloves’ put on by the purchasing Companies workmen engaged in hot jobs or in handling corrosive substances in the course of manufacture can be stated to have been used in the manufacture of goods for sale as understood by the provisions of Section 5(2)(a)(ii) of the Bengal Finance (Sales Tax) Act, 1941.
(ii) Whether the item ‘mill stores’ appearing in the certificate of registration of the Indian Iron & Steel Company Ltd., covers ‘gloves’.
(iii) Whether a selling dealer claiming exemption under Section 5(2) (a)(ii) of the Bengal Finance (Sales Tax) Act, 1941 read with Rule 27-A of the Bengal Sales Tax Rules, 1941 is required to ascertain after receipt of a declaration in Statutory form No. XXIV from a purchasing registered dealer if the latter's certificate of registration covers the goods purchased.”
4. As mentioned earlier the assessee company did not want the High Court to answer No. (iii). Hence it is not necessary for us to go into that question.
5. The only point that we have got to decide is whether the assessee company is entitled to the exemption asked for by it. Section 5(2) to the extent relevant for our present purpose reads:
“5. (2) In this Act the expression ‘taxable turnover’ means in the case of a dealer who is liable to pay tax under Section 4, that part of his gross turnover during any period which remains after deducting therefrom —
(a) his turnover during that period on —
(i) * * *
(ii) sales to a registered dealer of goods of the class or classes specified in the certificate of registration of such dealer, as being intended for resale by him, or for use by him in the manufacture of goods for sale or for use by him in the execution of any contract.”
6. We have now to find out what exactly is the meaning of the expression “for use by him in the manufacture of goods for sale”. Identical words are used in Section 8(b) of the Central Sales Tax Act, 1956. This Court was called upon to find out the scope of that expression in J.K Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur AIR 1965 SC 1310, (1965) 1 SCR 900. Dealing with that expression this Court observed:
“The expression ‘in the manufacture of goods’ would normally encompass the entire process carried on by the dealer of converting raw materials into finished goods. Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression ‘in the manufacture of goods’.”
In the present case the assessee company had sold the goods in question to certain manufactures who were manufacturing iron steel materials. It is also clear from Question (i) that those gloves were to be used by workmen who were engaged in hot jobs or in handling corrosive substances in the course of manufacture. That being so it cannot be denied that those gloves had to be used in the course of manufacture.
7. Mr B. Sen, learned counsel for the Board of Revenue contended that Section 5(2)(a)(ii) takes in only such goods which are actually used in the manufacture and not those goods which are used in the course of manufacture. It is not necessary for us to examine that contention in view of the decision of this Court to which we have already made reference. We are bound by the ratio of that decision.
8. For the reasons already mentioned we hold that High Court decision is correct.
9. In the result this appeal fails and the same is dismissed with costs.
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