Cashew Company & Ors Vs. The Deputy Commercial Tax Officer & Anr 
INSC 853 (15 December
S.C. (J) Sen, S.C. (J) Ahmadi A.M. (Cj) Hansaria B.L. (J) Sen, J.
1996 SCC (1) 468 JT 1995 (9) 4 1995 SCALE (7)239
Civil Appeals Nos. 2371-72 of 1991, 4212 of 1992, 5535 of 1995]
Central Sales Tax Act, 1956 (for short `the Act') was amended by insertion of
sub-section (3) of Section 5 by Act No. 103 of 1976 with effect from Ist April,
1976. The said Section 5(3) reads as under :
is a sale or purchase of goods said to take place in the course of import or
. . .
. . .
Notwithstanding anything contained in sub-section (1), the last sale or
purchase of any goods preceding the sale or purchase occasioning the export of
those goods out of the territory of India shall also be deemed to be in the
course of such export, if such last sale or purchase took place after, and was
for the purpose of complying with, the agreement or order for or in relation to
such export." The common contention of the appellants in this batch of
appeals is that the judgment of this Court in the case of State of Travancore-Cochin
& Ors. v. Shanmugha Vilas Cashew Nut Factory and Others. (1954) SCR 53,
deals with Article 286 of the Constitution and does not conclude the questions
raised in these cases. It has been contended in the first place that cashew
bought and sold by the appellants in the course of export trade is not
different from cashew kernels.
further been contended that the judgment in Shanmugha Vilas Case (Supra) was
based on peculiar findings of facts made in that case. Moreover, the perception
of the Court in this type of controversy has changed as will be evident from
later decisions of this Court. Lastly, it was contended that sub-section (3) of
Section 5 of the Act did not fall for consideration by this Court in Shanmugha
Vilas Case (supra).
in any way, that decision cannot cast any light on the controversy raised in
this case. It has been contended that cashew cannot be regarded as a commodity
different from the cashew kernels. The last sale or purchase of cashew in this
case took place before the sale or purchase occasioning the export of cashew
kernel out of the territory of India and, therefore, should also be deemed to be in the course
of the export trade. There may be some processing of the cashew purchased by
the dealers before the cashew nuts were sold but that will not make the goods
which were sold, in any way different from the goods that were purchased. Both
were cashew or cashew nuts.
view, the distinction sought to be drawn between the provisions of sub-section
(3) of Section 5 of the Act and Article 286(1) of the Constitution is
Article 286(1), the Court has to examine whether any tax is being imposed by
the State Legislature on the sale or purchase of goods "in the course of
the import of the goods into or export of the goods out of the territory of India".
order to resist imposition of sales tax by the State, the assessee will have to
establish the identity of the goods purchased with the goods to be exported out
of the territory of India. In order to fulfill an export obligation, if an
exporter purchases goods and as a result of some processing, the identity and
character of the goods change, then it will not be a case of export of the same
goods. There is no dispute that every change does not bring into existence new
goods nor can it be said that however small the change may be due to the
processing, the identity of the goods will be completely lost. It is a question
of fact and degree. But the point to note is that the issue before the Supreme
Court in Shanmugha Vilas Case (supra) and the issue that has been raised in the
present case are the same. Therefore, it will be wrong to distinguish the
judgment of the Supreme Court in Shanmugha Vilas Case (supra) as confined to
Article 286 of the Constitution. We are unable to uphold the argument that this
judgment does not throw any light on the interpretation of sub-section (3) of
Section 5 of the Act. The controversy raised in both the cases is about the
identity of the goods purchased and the identity of the goods sold. In the case
before us, the penultimate sale is in question. The Supreme Court considered
only the case of the actual export sale or the last sale in course of export
under Article 286 of the Constitution. But here, we have a case of a sale which
took place immediately before the actual sale for export. In the case of Mohd. Serajuddin
v. State of Orissa, 36 STC 136 (SC), it was held that under Article 286, the
sale which was not liable to tax under the State Sales Tax Act was only the
actual sale by the exporter, but the benefit of export sale did not extend to
the penultimate sale to the Indian exporter for the purpose of export. This led
to insertion of sub-section (3) of Section 5 of the Central Sales Tax Act, with
effect from 1st April, 1976 whereby the last sale or purchase of any goods
preceding the sale or purchase occasioning the export of the goods were also
granted exemption from the State levy. But in order to claim protection of
sub-section (3) of Section 5, the assessee will have to establish that the last
sale or purchase before the sale or purchase occasioning export were of those
goods which were exported. The deeming section expands the concept of export
sales to include the penultimate sale or purchase of goods preceding sale or
purchase occasioning the export.
the penultimate sale or purchase of goods must be of those goods which were
question in this case is whether the cashew nut kernels which were exported are
`those goods' which were purchased by the assessee in the penultimate
transaction. In other words, whether the raw cashew nuts which were purchased
were `those goods' which were exported? This was precisely the question that
was answered in the negative in Shanmugha Vilas Case. Therefore, on distinction
can be drawn between the cases now under appeal and the decision of this Court
in Shanmugha Vilas's Case on the plea that the scope of sub-section (3) of
Section 5 of the Central Sales Tax Act was wider than Article 286 of the
Constitution. It is true that sub-section (3) by a legal fiction has widened
the scope of export sale, but the basic concept remains the same. In order to
get immunity from taxation by the State legislature, the goods exported must be
the same goods which were purchased.
question raised in these appeals is whether the purchase of raw goods made by
the appellants after which the cashew kernels were extracted and exported to
foreign countries could be subjected to the State Sales Tax Act in view of the
provisions of Section 5(3) of the Central Sales Tax Act. In other words, the
question is whether the export of cashew kernels obtained out of raw cashew
nuts would amount to export of "those goods which had been
answer will depend on the nature of the cashew kernels that are exported and
the raw cashew purchased by the dealers. This aspect of the matter was gone
into in depth in Shanmugha Vilas Case (supra) by S.R.Das, J. (as he then was).
It has been recorded in the judgment of das, J. that the case was heard at
great length and over several days and ultimately the High Court was directed
to investigate into the disputed facts and send a report. On the basis of the
report given by the High Court, the appeals were heard and finally disposed of.
It will be wrong to distinguish this case on the ground of any special facts.
It does not appear from the judgment that any special feature of cashew trade
peculiar to Shanmugha Vilas was considered by this Court.
appellants have also not been able to show any special fact in this case which
is contrary to what has been found in the judgment of das, J. In fact on
endeavor has at all been made to show how cashew kernels are extracted and in
what way the kernels are basically nothing but the fruits originally plucked.
The facts noted in the remand report sent by the High Court have not been shown
to be contrary to the facts found in the case of the appellants.
facts which were noted by the Constitution Bench in that case were recorded by Das,
J. at page 110 in the following words:- "The High Court has, on remand,
enquired into the process of manufacture through which the raw cashew-nuts are
passed before the edible kernels are obtained.
High Court, in its judgment on remand, goes minutely into the different
processes of baking or roasting shelling, pressing, pealing, and so forth. Although
most of the process is done by hand, part of it is also done mechanically by
drums. Oil is extracted out of the outer shells as a result of roasting. After
roasting the outer shells are broken and the nuts are obtained. The poison is
eliminated by pealing off the inner skin. By this process of manufacture, the
respondents really consume the raw cashew and produce new commodities. The
resultant products, oil, and edible kernels, are well recognized commercial
are separate articles of commerce quite distinct from the raw cashew-nuts.
it is significant that the respondents place order for "cashew- nuts"
but orders are placed with them for "cashew-nut kernels".
basis of these facts, Das, J. concluded at page 111 that - "It the
circumstances, "the goods" exported are not the same as the goods
purchased. The goods purchased locally are not exported. What are exported are
new commodities brought into being as a result of manufacture. There is a
transformation of the goods. The raw cashews are consumed by the respondents in
the sense that a jute mill consumes raw jute, or a textile mill consumes cotton
and yarn. The raw cashews are not being actually exported the purchase of raw
cashews cannot be said to have been made "in the course of " export
so as to be entitled to immunity under clause (1)(b)." It was argued, and
some of the High Courts have also taken the view, that this judgment is
confined to the facts of this case. But this, in our opinion, will be a wrong
view to take. By that judgment as many as eight appeals were disposed of. The
High Court on remand had made a report on how the edible kernels are extracted
from raw cashewnuts and having examined minutely the whole process, the Court
came to the conclusion that the kernels were not the same goods as raw cashew
nuts purchased by the dealers. What was exported were the edible kernels and
what was purchased for the purpose of export were raw cashew nuts. This Court
has taken the view that after examining the facts in detail the final products
were not the same goods as raw cashew nuts.
be mentioned that Patanjali Sastri, C.J., speaking for the majority, was also
of the view that raw cashew nuts and kernels manufactured out of them by
various processes, partly mechanical and partly manual, were not commercially
the same commodity. It was held at page 70:- "This finding, which is not
seriously disputed before us, would be an additional ground for rejecting- the
claim to exemption in respect of these purchases, . . ." It has not been
shown how the facts of the cases under appeal are different from the facts of
that case. It has also not been shown that the kernels in these cases have been
extracted from cashew nuts by a different process or the cashew nuts were of some
other variety. In that view of the matter, it must be held that the controversy
is concluded by the judgment of this Court in Shammugha Vilas case (supra).
also unable to uphold the contention that perception of this Court, as will
appear from the later judgments, has changed in this regard. A judgment of a
Five- Judge Bench, which has not been doubted by any later judgment of this
Court, cannot be treated as overruled by implication. The judgments on which
the reliance was placed on behalf of the appellants do not support this
contention in any manner. In the case of M/s Tungabhadra Industries Ltd. v. The
Commercial Tax Officer, Kurnool, (1961) 2 SCR 14, a Bench of five Judges had to
decide the question whether refined oil continues to be groundnut oil within
the meaning of Rules 5(1)(k) and 18(2) of the Madras General Sales Tax
(Turnover and Assessment) Rules, 1939. It was argued that such oil did not
possess the characteristic colour or taste or odour, etc, of raw groundnut oil.
The Tribunal as well as the High Court had taken the view that hydrogenated oil
(Vanaspati) ceased to be groundnut oil by reason of the chemical changes which
resulted in the acquisition of new properties including the loss of its
fluidity. The Tribunal as well as the High Court had taken the view that Vanaspati
was not groundnut oil, but a product of groundnut oil, manufactured out of
groundnut oil and therefore not entitled to the benefit of the deduction under
Rule 18(2). This Court upheld the contention made on behalf of the appellant
that hydrogenated groundnut oil was no lesser groundnut oil than either refined
or even unrefined oil. The fact that the quality of the oil had been improved
did not negative its continuing to be oil and the materials before the departmental
authorities and the Court held that it continued to be oil and was nothing
Court took the view:- "No doubt, several oils are normally viscous fluids,
but they do harden and assume semisolid condition on the lowering of the
temperature. Though groundnut oil is, at normal temperature, a viscous liquid,
it assumes a semi- solid condition if kept for a long enough time in a
refrigerator. It is therefore not correct to say that a liquid state is an
essential characteristic of a vegetable oil and that if the oil is not liquid,
it ceases to be oil. Mowrah oil and dhup oil are instances where vegetable oils
assume a semi-solid state even at normal temperatures. Neither these, nor
coconut oil which hardens naturally on even a slight fall in temperature, could
be denied the name of oils because of their not being liquid. Other fats like
ghee are instances where the physical state does not determine the identity of
the Tribunal as well as the High Court have pointed out that except for its
keeping quality without leakage, hydrogenated oil serves the same purpose as a
cooking medium and has identical food value as refined groundnut oil.
is no use to which the groundnut oil can be put for which the hydrogenated oil
could not be used, nor it there any use to which the hydrogenated oil could be
put for which the raw oil could not he used. Similarly we consider that
hydrogenated oil still continues to be `groundnut oil' notwithstanding the
processing which is merely for the purpose of rendering the oil more stable
thus improving its keeping qualities for those who desire to consume groundnut
oil." We fail to see how the principles laid down in the case of Tungabhadra
(supra) runs counter to the ration of the judgment of this Court in the case of
Shanmugha Vilas (Supra). This Court in the Tungabhadra case (supra) laid down
that liquid state was not an essential characteristic of a vegetable oil. If
the oil is not liquid, it did not cease to be oil. The groundnut oil assumed
semi-solid condition if kept for long enough time in a refrigerator.
was no use to which the groundnut oil could be put for which hydrogenated oil
was not put.
been noted in the judgment in Shanmugha Vilas Case, raw cashew nut cannot be
used as edible nut at all.
there is no dispute that it can be used for more than one purpose. Therefore,
in our judgment, it will not be right to say that the decision in Tungabhadra's
Case has in any way whittled down the principles laid down in Shanmugha Vilas
case of Deputy Commissioner of Sales Tax (Law) v. Pio Food Packers (46 STC 63
SC), it was held that when pineapple fruit was processed into pineapple slices
for the purpose of being sold in sealed cans, there was no consumption of the
original pineapple fruit for the purpose of manufacturing and the case did not
fall within Section 5A(1)(a) of the Kerala General Sales Tax Act, 1963. The
language of clause (a) of Section 5A(1) of the Kerala General Sales Tax Act was
"consumes such goods in the manufacture of other goods for sale or
otherwise;". All that this Court laid down was that when pineapple was
sliced and canned for sale, the slices did not cease to be pineapple.
pointed out in that case that there was no essential difference between
pineapple fruit and canned slices. It was held that clause (a) of Section 5A(1)
truly spoke of goods consumed in the manufacture of other goods for sale. This
Court merely held that if pineapple is sliced and made ready for sale in the
market, the slices did not lose the character of being pineapple. There again
it was a case of a fruit which was merely sliced and made ready for sale by
adding preservatives and by canning. This case also does not in any away affect
the principles laid down in the case of Shanmugha Vilas. Furthermore, in that
case, the problem was construction of the word `consume' in Section 5A(1)(a) of
Kerala General Sales Tax Act.
case of Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan, 46 STC
256 (SC), it was held by this Court that "rayon tyre-cord fabric" was
"rayon fabric". It was observed by Pathak, J. (as his Lordship then
was) that it was fairly well-settled that the words or expressions must be
construed in the sense in which they are understood in the trade, by the dealer
and the consumer. It is they who are concerned with it and it is the sense in
which they understand it that constitutes the definitive index of the
legislative intention when the statute was enacted." In the instant case
also, if the common parlance test is applied, cashew nuts and cashew kernels
have different markets altogether. It is true that in the case of Shanmugha
Vilas, it was noted that the finding of the High Court was not disputed
seriously before this Court. But nothing has been brought on record to
contradict the finding of the High Court in that case in any one of the cases
now before us.
Foods v. State of Karnataka (63 STC 239) was a case of export
of lobsters. In that case the appellants purchased shrimps, prawns and lobsters
locally for complying with orders for export and they cut the heads and tails
of the shrimps, prawns and lobsters and then they were subjected to peeling, deveining
and cleaning and freezing before being exported in cartons. The appellants
claimed that no local sales-tax was payable by them in view of Section 5(3) of
the Central Sales Tax Act, 1956 which precluded levy of sales-tax on local
purchase if they were made pursuant to export orders and the sale was of `those
goods' purchased. It was held by this Court that by reason of processing of the
goods after their purchase, there was no change in their identity and that, in
fact, commercially they were to be regarded as the original goods.
case does not help the appellants. Even if a purchaser goes to the retail
market to buy lobsters, the seller may, if so required by the buyer, peel the
shell and cut the head and tail of the lobsters according to the direction of
the customer. But the sale will, nonetheless, be of lobsters. If this is done on
a big scale by a trader, the character of the goods sold will not change. The
goods that were purchased were those goods which were exported.
cases under appeal, it has been noted in the order dated 15th April, 1982 by
the Deputy Commercial Tax Officer that cashew nut was commercially a different
commodity from raw cashew nut as oil was extracted and thereafter kernels were
exported under separate contracts.
also appears from the said order of 15th April, 1982 that an amount of Rs.18,419/-
has been added back to the turn over on account of sale of cashew husk.
Therefore, a purchaser of raw cashew nut can extract oil and sell it in the
domestic market, he can also sell the husk locally, he can also extract the
kernels after going through an elaborate process and sell them with or without
further processing to the exporter for fulfilling his export commitments. Since
raw cashew nuts can be used for so many purposes and the process of extracting
the kernels so elaborate, it cannot be said that the goods (raw cashew nuts)
purchased in the penultimate sale were the same goods (cashew nut kernels)
which were sold for export.
of the view that cashew nut kernels are not the same goods as raw cashew nuts.
It does not appear that either on facts found or in law, the decision in Shanmugha
Vilas Case needs reconsideration. The appeals therefore fail and are dismissed.
There will be no order as to costs.