M/STungabhadra Industries LtdVsThe
Commercial Tax Officer, Kurnool [1960] INSC 174 (18 October 1960)
18/10/1960 AYYANGAR, NRAJAGOPALA AYYANGAR, NRAJAGOPALA
DAS, S.K
HIDAYATULLAH, M
GUPTA, K.CDAS SHAH, J.C
CITATION: 1961 AIR 412 1961 SCR (2) 14
CITATOR INFO :
R 1964 SC1372 (3,12,13) RF 1974 SC1362 (5) R
1978 SC 945 (13,15) R 1978 SC1496 (12) RF 1980 SC1227 (6) D 1981 SC1649 (13)
E&R 1985 SC1293 (84) RF 1989 SC 516 (17,18) C 1989 SC1316 (13) F 1990 SC 27
(7)
ACT:
Sales Tax--Hydrogenated groundnut oil
(Vanaspati), if groundnut oil--Madras General Sales Tax (Turnover and
Assessment) Rules, 1939, rr4, 5 and 18
HEADNOTE:
The appellant purchased groundnuts out of
which it manufactured groundnut oil ; it also refined the oil and hydrogenated
it converting it into Vanaspati It sold the oil in all the three states Under
the Madras General Sales Tax Act, 1939, and the Turnover and Assessment Rules,
for determining the taxable turnover the appellant was entitled to deduct the
purchase price of the groundnuts from the proceeds of the sale of all groundnut
oil The High Court held that the appellant was entitled to the deduction in
respect of the sales of unrefined and refined groundnut oil but not in respect
of the sales of hydrogenated oil on the ground that Vanaspati was not "
groundnut oil " but a product of groundnut oil
Held, that the appellant was entitled to the
deduction in respect of the sales of hydrogenated groundnut oil also
The hydrogenated groundnut oil continued to
be " groundnut oil " notwithstanding the processing which was merely
for the purpose of rendering the oil more stable To be groundnut oil two
conditions had to be satisfied-it must be from groundnut and it must be "
oil "The hydrogenated oil was from groundnut and in its essential nature
it remained an oil It continued to be used for the same purposes as groundnut
oil which had not undergone the process A liquid state was not an essential
characteristic of a vegetable oil ; the mere fact that hydrogenation made it
semisolid did not alter its character as an oil
CIVIL APPELLATE JURISDICTION: Civil Appeal No498
of 1958
Appeal from the judgment and order dated
February 11, 1955, of the Andhra Pradesh High Court in TRCNo120 of 1953 arising
out of the judgment and order dated December 29, 1952, of the Sales Tax
Tribunal, Madras, in Tribunal Appeal No857 of 1951
A V Viswanatha Sastri, M Ranganatha Sastri
and MSK Sastri, for the appellants
DNarasaraju, Advocate-General for the State
of 15 Andhra Pradesh., TVR Tatachari, DVenkatappayya Sastri and TM Sen, for the
respondent
1960October 18The Judgment of the Court was
delivered by AYYANGAR J.-This appeal on a certificate under Art133 of the
Constitution granted by the High Court of Andhra Pradesh raises for
consideration principally the question whether hardened or hydrogenated
groundnut oil (commonly called Vanaspati) is " groundnut oil " within
the meaning of Rule 18(2) of the Madras General Sales-Tax (Turnover and Assessment)
Rules, 1939
Tungabhadra Industries Ltd.-the appellant in
this appeal-has a factory of considerable size at Kurnool in the State of
Andhra PradeshThe company purchases groundnuts and groundnut kernels within the
State and manufactures groundnut oil and also refined oil as well as
hydrogenated oil all of which it sellsThe appeal is concerned with the
assessment to salestax of this company for the year 1949-50
Section 3 of the Madras General Sales-Tax
Act, 1939, enacts:
" 3(1) Subject to the provisions of this
Act,(a) every dealer shall pay for each year a tax on his total turnover for
such year; and (b) the tax shall be calculated at the rate of three pies for
every rupee in such turnover
(2)............................................
(3)............................................
(4) For the purposes of this section and the
other provisions of this Act, turnover shall be determined in accordance with
such rules as may be prescribed:
Provided that no such rules shall come into
force unless they are approved by a resolution of the Legislative Assembly
(5) The taxes under sub-sections (1) and (2)
shall be assessed, levied and collected in such manner and in such
installments, if any, as may be prescribed:
Provided that(i) in respect of the same
transaction of sale, the buyer or the seller, but not both, as determined by 16
(ii) where a dealer has been taxed in respect of the purchase of any goods in
accordance with the rules referred to in clause (i) of this proviso, he shall
not be taxed again in respect of any sale of such goods effected by him."
Rules were made by virtue inter alia of these provisions entitled " The
Madras General Sales-Tax Turnover and Assessment Rules, 1939 "Of these,
those relevant to the present context are Rules 4 & 5Rule 4 reads:
"4.(1) Save as provided in sub rule (2)
the gross turnover of a dealer for the purposes of these rules shall be the
amount for which goods are sold by the dealer
(2) In the case of the under mentioned goods
the gross turnover of a dealer for the purposes of these rules shall be the
amount for which the goods are bought by the dealer(a) groundnut-"
The result of the combined operation of s4(1)&(2)
in the' case of those who purchased groundnut and having crushed them sold the
oil obtained was, that they had to pay tax on both their purchases of groundnut
and their sales of oil produced there fromThis was considered by the rule
making authority to be an unfair burden and relief was accordingly provided by
Rules 5 and 18 of the same rules, the material portions of which ran:
" 5(1) The tax or taxes under section
3.....shall be levied on the net turnover of a dealerIn determining the net
turnover the amounts specified in clauses (a) to (1) shall, subject to the
conditions specified therein, be deducted from the gross turnover of a dealer
Clause (k) of this rule reads:
(k) in the case of a registered manufacturer
of groundnut oil and cake, the amount which he is entitled to deduct from his
gross turnover under rule 18 subject to the conditions specified in that
rule." (This rule was amended by a notification dated November 9, 1951, by
the addition of the words 17 " groundnut oil ", but this modification
of the rule is not relevant to the present case which is concerned with the
assessment of a period anterior to the modification)
Rule 18 referred to here reads, to quote only
the material words:
" 18(1) Any dealer who manufactures
groundnut oil and cake from groundnut and/or kernel purchased by him may, on
application to the assessing authority having jurisdiction over the area in
which he carries on his business, be registered as a manufacturer of groundnut
oil and cake
(2) Every such registered manufacturer of
groundnut oil will be entitled to a deduction under clause (k) of sub-rule (1)
of rule 5 equal to the value of the groundnut and/or kernel, purchased by him
and converted into oil and cake if he has paid the tax to the State on such
purchases:
Provided that the amount for which the oil is
sold is included in his net turnover:
Provided further that the amount of the
turnover in respect of which deduction is allowed shall not exceed-the amount
of the turnover attributable to the groundnut and/or kernel used in the
manufacture of oil and included in the net turnover
Explanation.-For the purpose of this
sub-rule(a) 143 lbof groundnut shall be taken to be equivalent to 100 lb of
kernel;
(b) 143 lbof groundnut or 100 lb of kernel
when converted into oil will normally be taken to yield 40 lb of oil; and (c) one
candy of oil shall be taken to be equivalent to 500 lbof oil." Then follow
other provisions not relevant for the purposes of the present appeal
The appellant was registered as a
manufacturer of groundnut oil under r18(1)That the appellant purchased the
groundnuts, the value of which was claimed as a deduction in the turnover
within the State and paid tax on such purchase to the State was not in dispute Nor
was there any controversy that the sale 18 price of the oil expressed out of
and sold either as raw groundnut oil, refined oil or hydrogenated oil was,
included in the turnover of the appellant
The Deputy Commercial Tax Officer, Kurnool,
who completed the assessment of the appellant accepted the figures of purchases
and sales submitted by it, and dealing with the claim for the deduct-ion of the
purchase price of the groundnuts from the proceeds of the sale of all oil by
the company-raw, refined and hydrogenated-granted a deduction in respect of the
purchase price of the groundnuts attributable to the unrefined oil sold by the
appellant, but held that the appellant was not entitled to the deduction
claimed in respect of the refined and hydrogenated oil for the reason that it
was only unrefined or unprocessed groundnut oil that was connoted by the
expression groundnut oil' in rule 5(1)(k) read with rule 18(1) and (2) of the
Turnover and Assessment Rules This order of the Deputy Commercial Tax Officer
was affirmed by the Commercial Tax Officer on appeal and the appellant filed a
further appeal to the Sales-Tax Appellate Tribunal The second appellate
authority upfield the contention of the appellant in regard to the sale of
refined oil but rejected it in so far as it related to the sales of
hydrogenated oil The matter was thereafter brought up before the High Court of
Andhra Pradesh by a Tax Revision Case filed under s13(b)(1) of the Act and the
learned Judges upheld the view of the Tribunal and disallowed the claim of the
appellant to the deduction claimed in regard to the sales turnover of hydrogenated
oil
They granted the certificate under Art133
which has enabled the appellant to file an appeal to this Court
The claim of the appellant to the deduction
under r18(2) on the sales of refined groundnut oil is no longer in dispute The
ground upon which both the Tribunal as well as the High Court decided against
the allowance of the deduction in respect of the sales of hydrogenated oil,
while upholding the appellants' case as regards refined oil may be briefly
stated thus: The exemption or deduction from the sale-turnover under r18(2), is
on its terms applicable only to the sale of the oil in the form in which it is
when extracted 19 out of the kernelWhen raw groundnut oil is converted into
refined oil, there is no doubt processing, but this consists merely in removing
from raw groundnut oil that constituent part of the raw oil which is not really
oilThe elements removed in the refining process consist of free fatty acids,
phosphotides and unsaponifiable matterAfter the removal of this nonoleic matter
therefore, the oil continues to be groundnut oil and nothing moreThe matter
removed from the raw groundnut oil not being oil cannot be used, after
separation, as oil or for any purpose for which oil could be usedIn other
words, the processing consists in the nonoily content of the raw oil being
separated and removed, rendering the oily content of the oil 100 per centFor
this reason refined oil continues to be groundnut oil within the meaning of
rules 5(1)(k) and 18(2) notwithstanding that such oil does not possess the
characteristic colour, or taste, odour, etc of the raw groundnut oil
But in the case of hydrogenated oil which is
prepared from refined oil by the process of passing hydrogen into heated oil in
the presence of a catalyst (usually finely powdered nickel), two atoms of
hydrogen are absorbed A portion of the oleic acid which formed a good part of
the content of the groundnut oil in its raw state is converted, by the
absorption of the hydrogen atoms, into stearic acid and it is this which gives
the characteristic appearance as well as the semi-solid-condition which it
attainsIn the language of the Chemist, an inter-molecular or configurational
chemical change takes place which results in the hardening of the oil Though it
continues to be the same edible fat that it was before the hardening, and its
nutritional properties continue to be the same, it has acquired new properties
in that the tendency to rancidity is greatly removed, is easier to keep and to
transport Both the Tribunal as well as the learned Judges of the High Court
held that the hydrogenated oil (or Vanaspati) ceased to be groundnut oil by
reason of the chemical changes which took place which resulted in the
acquisition of new properties including the loss of its fluidityIn other words,
20 they held that Vanaspati or hydrogenated oil 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 r18(2)
The arguments of MrVisvanatha Sastri for the
appellants were briefly two: (1) The reasons behind the rules 5(k) & 18(2)
which were designed to afford relief against what would amount practically to
double taxation of the same assessee both when he purchased and when he sold
the goods, required that the appellants' claim should be allowed(2)
Hydrogenated groundnut oil was no less groundnut oil than either refined or
even unrefined oil The fact that the quality of the oil had been improved does
not negative its continuing to be oil and the materials before the departmental
authorities and the Court established that it continued to be oil and was
nothing more
The argument based on the reason of the rule
cannot carry the appellant far, since in the present case it is an exemption
from tax which he invokes and of which he seeks the benefitIf the words of the
rule are insufficient to cover the case, the reason behind the rule cannot be
availed of to obtain the relief Nor could it be said to be a case of double
taxation of the same goods at the purchase and sale points which is forbidden
by s3(5) of the ActIf the view adopted by the learned Judges of the High Court
that hydrogenated groundnut oil is not " groundnut oil " but a
product of groundnut oil were correct, learned Counsel cannot urge that he
would still be entitled to the deduction for which provision is made in r18(2)
Consequently it is the second of the
submissions alone which really requires to be examined In doing so it would be
convenient to consider the reasoning on the basis of which the view' that
hydrogenated oil was not " groundnut oil " was sought to be sustained
before us
The learned Advocate-General of Andhra
Pradesh who appeared for the respondent-Commercial Tax Officer sought to
support the decision of the High Court by two lines of reasoning
The first was that 21 the exemption applied
only to the sale of the oil as it emerged from the presser and that any
processing of the oil including refining, in order to remove even' the
impurities and free fatty acids, took it out of the category of "
groundnut oil " as used in the rule In support of this submission he
referred us to the Table of Conversion of groundnuts and kernel into oil set
out in the Explanation to r18(2), extracted earlier, and submitted that the 40
lb
of oil for every 100 lb of kernel was based
on the yield of raw groundnut oil and that this was an indication that nothing
other than raw groundnut oil was intended to be covered by the expression
" groundnut oil " in the rule
We must however point out that this last
submission has no factual basis to support it is not known whether the
proportion of 40 lb of oil for every 100 lb of kernel represents the average
weight of oil extractable from different varieties of groundnut kernels or is
the average of the different types of oils which may be produced out of
different varieties of kernels In the absence of any definite data in this
regard it is impossible to accept the argument that the Table of Conversion
justifies any particular construction of what was meant by " groundnut oil
" in the main part of the rule
Nor is the learned Advocate-General
well-founded in his submission that the processing of the oil in order to
render it more acceptable to the customer by improving its quality would render
the oil a commodity other than " groundnut oil " within the meaning
of the rule, For instance, if the oil as extracted were kept still in a vessel
for a period of time, the sediment normally present in the oil would settle at
the bottom leaving a clear liquid to be drawn out The learned Advocate-General
cannot go so far as to say, that if this physical process was gone through, the
oil that was decanted from the sediment which it contained when it issues out
of the expresser, ceased to be di groundnut oil " for the purposes of the
rule If the removal of impurities by a process of sedimentation does not render
groundnut oil any the less so, it follows that even the process of refining, by
the 22 application of chemical methods for removing impuri ties in the oil,
would not detract from the resulting oil being " groundnut oil " for
the purpose of the ruleIt may be mentioned that processes have been discovered
by which even on extraction from the oil mill, the oil issues without any trace
of free fatty acids It could hardly be contended that if such processes were
adopted what comes out of the expresser is not groundnut oil The submission of
the learned Advocate-General based on a contention that the Tribunal and the
learned Judges of the High Court erred in holding that even refined groundnut
oil was " groundnut oil " for the purpose of the rule, must be
rejected
The next question is whether if beyond the
process of refinement of the oil, the oil is hardened, again by the use of
chemical processes it is rendered any the less groundnut oil "In regard to
this, the learned Advocate-General first laid stress on the fact that while
normally oil was a viscous liquid, the hydrogenated oil was semi-solid and that
this change in its physical state was itself indicative of a substantial
modification of the identity of the substance
We are unable to accept this argument No
doubt, several oils are normally viscous fluids, but they do harden and assume
semi-solid 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 cocoanut 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 commodity
The next submission of the learned Advocate
General was that in the course of hydrogenation the oil 23 absorbed two atoms
of hydrogen and that there was an intermolecular change in the content of the
substance This however is not decisive of the matter The question that has
still to be answered is whether hydrogenated oil continues even after the
change to be " groundnut oil "If it is, it would be entitled to the
benefit of the deduction from the turnover, or to put it slightly differently,
the benefit of, the deduction from the turnover cannot be denied, unless the
hydrogenated groundnut oil has ceased to be " groundnut oil "To be
groundnut oil, two conditions have to be satisfied The oil in question must be
from groundnut and secondly the commodity must be " oil "That the hydrogenated
oil sold by the appellants was out of groundnut not being in dispute, the only
point is whether it continues to be oil even after hydrogenation Oil is a
chemical compound of glycerine with fatty acids or rather a glyceride of a
mixture of fatty acids-principally oleic, linoleic, stearic and palmitic, the
proportion of the particular fat varying in the case of the oil from different
oil-seeds and it remains a glyceride of fatty acids even after the hardening
process, though the relative proportion of the different types of fatty acids
undergoes a slight change In its essential nature therefore no change has
occurred and it remains an oil-a glycoside of fatty acidsthat it was when it
issued out of the press
In our opinion, the learned Judges of the
High Court laid an undue emphasis on the addition by way of the absorption of
the hydrogen atoms in the process of hardening and on the consequent
inter-molecular changes in the oil The addition of the hydrogen atoms was
effected in order to saturate a portion of the oleic and linoleic constituents
of the oil and render the oil more stable thus improving its quality and
utility But neither mere absorption of other matter, nor inter-molecular
changes necessarily affect the identity of a substance as ordinarily understood
Thus for instance there are absorptions of matter and inter-molecular changes
which deteriorate the quality or utility of the oil and it might be interesting
to see if such additions and alterations could be taken to 24 render it any the
less " oil "Groundnut oil when it issues out of the expresser
normally contains a large proportion of unsaturated fatty acids-oleic and
linoleic-which with other fatty acids which are saturated are in combination
with glycerine to form the glyceride which is oil The unsaturated fatty acids
are unstable, i.e., they are subject to oxidative changes When raw oil is
exposed to air particularly if humid and warm, i.e., in a climate such as
obtains in Madras, oxygen from the atmosphere is gradually absorbed by the
unsaturated acid to form an unstable peroxide (in other words the change
involves the addition of two atoms of oxygen) which in its turn decomposes
breaking up into aldehydesIt is this oxidative change and particularly the
conversion into aldehydes that is believed to be responsible for the sharp
unpleasant odour, and the characteristic taste of rancid oil If nothing were
done to retard the process the rancidity may increase to such extent as to
render it unfit for human consumption The change here is both additive and
intermolecular, but yet it could hardly be said that rancid groundnut oil is
not groundnut oil It would undoubtedly be very bad groundnut oil but still it
would be groundnut oil and if so it does not seem to accord with logic that
when the quality of the oil is improved in that its resistance to the natural
processes of deterioration through oxidation is increased, it should be held
not to be oil
Both the Tribunal as well as the High Court
have pointed out that except for its keeping quality without rancidity and ease
of packing and transport without leakage, hydrogenated oil serves the same
purpose as a cooking medium and has identical food value as refined groundnut
oil There is no use to which the groundnut oil can be put for which the
hydrogenated oil could not be used, nor is there any use to which the
hydrogenated oil could be put for which the raw oil could not be usedSimilarly
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 25 those
who desire to consume groundnut oilIn our opinion the assessee-company was
entitled to the,, benefit of the deduction of the purchase price of the
kernel-or groundnut, under r18(2), which went into the manufacture of the
hydrogenated groundnut oil from the sale turnover of such oil
One other point which is involved in the
appeal relates to the claim of the appellant to a deduction in respect of the
freight-charges included in the price of the commodity
Under r5(1)(g) of the Turnover and Assessment
Rules, in determining the net turnover of a dealer he is entitled to have
deducted from his gross turnover " all amounts falling under the following
two heads, when specified and charged for by the dealer separately, without
excluding them in the price of the goods sold :
(i) freight;
(ii)...................
The appellant claimed exemption on a sum of
Rs3,88,377-133 on the ground that it represented the freight in respect of the
goods sold by the appellant asserting that they had been charged for separately
The assessing-officer rejected the claim and this rejection was upheld by the
departmental authorities and by the High Court in Revision It would be seen
that in order to claim the benefit of this exemption the freight should (1)
have been specified and charged for by the dealer separately, and (ii) the same
should not have been included in the price of the goods sold The learned Judges
of the High Court held that neither of these conditions was satisfied by the
bills produced by the appellant We consider, the decision of the High Court on
this point was correct In the specimen bill which the learned Counsel for the
appellants has placed before us, after setting out the quantity sold by weight
(23,760 lb.) the price is specified as 15 annas 9 pies per lb and the total
amount of the price is determined at Rs23 388-12-0
From this the railway freight of Rs1,439-12-0
is deducted and the balance is shown as the sum on which sales-tax has been
computed
26 From the contents of this invoice it would
be seen that the appellant has charged a price inclusive of the railway freight
and would therefore be outside the terms of r 5(1)(g) which requires that in
order to enable a dealer to claim the deduction it should be charged for
separately and not included in the price of goods sold The conditions of the
rule not having been complied with, the appellant was not entitled to the
deduction in respect of freight
The result therefore is that the appeal is
allowed in part and the order of the High Court in so far as it denied to the
appellant the benefit of the deduction in the turnover provided by r18(2) of
the Turnover and Assessment Rules is set aside
In view of the appellant having succeeded
only in part, there will be no order as to costs in this appeal
Appeal allowed in part.
Back
