Travancore Tea Estates Co. Ltd. Vs.
State of Kerala [1976] INSC 243 (11 October 1976)
KHANNA, HANS RAJ KHANNA, HANS RAJ SINGH,
JASWANT
CITATION: 1976 AIR 2469 1977 SCR (1) 755 1976
SCC (4) 470
ACT:
Central Sales Tax Act (74 of 1956) s. 8(3)(b)
and Central Sales Tax (Registration and Turnover) Rules, 1957, r.
13---Goods used in the manufacture or
processing of goods for sale--Scope--Fertilisers used for growing tea plants,
if could be included in goods used in the manufacture of tea for sale.
HEADNOTE:
Section 8 of the Central Sales Tax Act, 1956,
deals with rates of tax on sales in the course of inter-State trade or
commerce. Section 8(1)(b) provides that 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-s. (3) shall be liable to pay tax at 3% of his
turnover.
Section 8(3)(b) refers, inter alia to goods
of the class or classes specified in the certificate of registration of the
registered dealer purchasing the goods as being intended for re-sale by him, or
subject to any rules made by the Central Government in this behalf,, for use by
him in the manufacture or processing of goods for sale. Rule 13 of the Central
Sales Tax (Registration and Turnover) Rules, 1957, framed under the Act,
provides that the goods referred to in s. 8(3)(b) which a registered dealer may
purchase shall be goods intended for use by him inter alia as raw materials and
processing materials in the manufacture or processing of goods for sale.
The appellant owned tea estates in the
respondent-State and was also maintaining factories for the manufacture of tea.
It prayed for inclusion in its Certificate of registration, ( 1 ) fertilisers,
chemicals, weedicides, insecticides, fungicides and pesticides for use in tea
cultivation; and (2) weighing and measuring and packing equipments for use in
tea estates. The Department refused to include them and the Tribunal and the High
Court confirmed the orders.
In appeal to this Court it was contended
that, (1) cultivation and the growing of tea leaves was so integrally connected
with the manufacture of tea that it could be taken to be a part of the process
of manufacturing tea, and since fertilisers etc. were needed for tea
cultivation, the same should be held to. be intended for use in the manufacture
or processing of tea for sale; and (2) since weighing equipment used in the
factories had been included in the certificate, the weighing equipment used for
the purpose of cultivation should similarly be included.
Dismissing the appeal,
HELD: (1) The goods in item (1) are intended
for use not in the manufacturing process in respect of tea meant for sale but
are only needed for the cultivation and growth of tea plants and leaves. There
is no direct relationship between the use of fertilisers etc. and the
manufacturing process and hence, they were rightly not included in the
registration certificate. [761 G] (a) Cultivation and growth of tea plants
result in the production of raw material in the form of green tea leaves which
are ultimately processed into tea meant for sale. But such cultivation and
growth are, in the very nature of things, prior to the manufacturing process
and do not answer to the description of manufacture and processing of tea meant
for sale. There is a vital difference between an agricultural operation and a
manufacturing process. What is needed for use purely in an agricultural
operation cannot be held to be required for use in a manufacturing process.
[762 D] (b) The fact that the time lag between the plucking of tea leaves and
their being subjected to the manufacturing process is very little would not
detract 756 from the conclusion that the cultivation and growth of tea plants
is distinct and separate from the manufacturing process. [761 C] (c) Rule 24 of
the Income Tax Rules, 1922, and r. 8 of the Income Tax Rules, 1962, prescribe
the formula which should be adopted for apportioning the income realised as a
result of the sale of tea after it is grown and subjected to the manufacturing
process in the factory, thus recognising the difference between the
agricultural income which is yielded in the form of green leaves purely by the
land over which tea plants are grown, and the non-agricultural income which is
the result of subjecting the green leaves plucked to a particular manufacturing
process. [761 E] (2) The same reasoning holds good in respect of weighing
machines used, not in the factories but, in the tea fields.
[762 E] J.K. Cotton Spinning & Weaving
Mills Co. Ltd. v. The Sales Tax Officer 16 STC 563. and Indian Copper
Corporation Ltd. v. Commission of Commercial Taxes 16 STC 259 followed.
Tea Estate India (P) Ltd. v. Commissioner of
Income-tax 103 ITR 785 referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1698 of 1971.
(Appeal by Special Leave from the Judgment
and Order dated 8-4-1971 of the Kerala High Court in T.R.C. No. 46/69).
S.T. Desai, A.G. Meneses, Markos Vellapilly
and K.J.
John, for the Appellant.
K.T. Harindra Nath and K.M.K. Nair for the
Respondent.
The Judgment of the Court was delivered by
KHANNA, J. This is an appeal by special leave against the judgment of the
Kerala Hight Court dismissing revision petition of the petitioner against the
order in appeal of the Appellate Tribunal whereby the Tribunal refused to
include certain items in the sales tax registration certificate of the
appellant.
The appellant, Travancore Tea Estates Co.
Ltd., is a company incorporated in England having its registered office in
London. The appellant carries on the business of tea planting in India at
Vandiperiyar in Peermade Taluk in Kerala State. Eight tea estates are owned by
the appellant in Peermade Taluk. To manufacture tea grown in those estates, the
appellant maintains separate tea factories in each of those estates. On an
application made by the appellant for registration under. the Central Sales Tax
Act, 1956 (Act 74 of 1956) (hereinafter referred to as the Act), the sales tax
authorities granted registration certificate to the appellant on January 9,
1963. Aggrieved by the non-inclusion of certain items of goods in the
registrationcertificate the appellant filed writ petition in the Kerala High
Court. The High Court directed the Sales Tax Officer to decide the question
regarding the inclusion of items in the light of the decisions of this Court in
1. K. Cotton Spinning & Weaving Mill3' Co. Ltd. v. 757 The Sales Tax
Officer (1) and Indian Copper Corporation Ltd. v. Commissioner of Commercial
Taxes.(2) The Sales Tax Officer thereafter allowed the inclusion of some of the
items of goods asked for by the appellant in the registration certificate but
refused to include certain other goods in that certificate. The appellant
thereupon preferred appeal before` the Appellate Assistant Commissioner of
Sales Tax, Kottayam, who partly allowed the appeal by directing further
inclusion of certain items. The Appellate Assistant Commissioner however,
declined to include the following items in the certificate in respect of which
prayer had been made by the appellant:
"1. Fertilisers, chemicals, weedicides,
insecticides, fungicides and pesticides for use in tea cultivaton:
2. Cement and other building materials for
installing and housing tea machinery and equipments:
3. Building materials, iron and hose-pipes,
sanitary fittings for use in estates and estate factories ,'
4. Weighing and measuring and packing
equipments for use in tea estates; and
5. All other articles and things for use in manufacture
and processing of sale of tea." The appellant then took the matter in
further appeal before the Appellate Tribunal and prayed for the inclusion in
the certificate of the above mentioned items. The Appellate Tribunal did not
accept the prayer of the appellant and dismissed the appeal. Revision petition
was thereupon filed by the appellant before the Kerala High Court against the
order of the Tribunal.
In appeal before the High Court it was stated
on behalf of the appellant in respect of the first item relating to
fertilisers, chemicals, weedicides and insecticides, that they were used for
cultivation of tea leaves. The contention of the appellant was that the growing
and manufacturing of tea constituted one integrated process and therefore the items
of goods required for growing tea should be deemed to be goods intended for use
in the manufacture of tea within the meaning of section 8(3)(b) of the Act.
This contention had also been advanced by the appellant earlier before the
Tribunal but the Tribunal rejected this contention as in its view "the
legislature has not included production by agriculture as one of the operations
for which goods can be purchased under section 8 of the Central Sales Tax Act".
The Tribunal further held that merely because the agricultural, process of the
company is connected with the process of manufacture, production of tea did not
form part of the manufacture and processing of tea. The High Court disagreed
with this reasoning of the Tribunal and observed that the expression "in
the manufacture of goods" in section 8(3) (b) of the Act normally
encompasses the entire process carried on by the dealer of converting the raw
material into finished goods. In the opinion of the High Court, the growing of
tea leaves (1) 16 S.T.C. 563. (2) 16 S.T.C. 259.
758 was so integrally connected with the
manufacture of tea that it could reasonably be taken as a part of the process
of manufacturing tea. This circumstance, however, in the opinion of the High
Court, by itself was not sufficient to make the goods eligible for inclusion in
the registration certificate. The High Court accordingly observed:
"Under rule 13 read with section 8(3)
(b) the use of the goods in the manufacture or processing of goods for sale
will not be a sufficient ground for inclusion in the certificate. The further
requirement is that the goods must be for use as raw materials or processing
materials or machinery, plant, equipment, tools, stores, spare parts,
accessories, fuel or lubricants. The first item, namely, fertilisers,
chemicals, insecticides, etc.
in our opinion cannot fall within the
category of a raw material or processing material or machinery etc. The learned
counsel for the company sought to contend that fertilisers, chemicals etc.
would come within file category of stores mentioned in section 8(3)(b) and that
as such it is eligible for specification in the certificate. We are unable to
agree with this submission. The word 'stores' in the context in which it
appears in rule 13 has to be necessarily goods intended for use in the manufacture
or processing of goods for sale and it is not possible to hold that
fertilisers, chemicals, weedicides, insecticides etc. can come within this
category. They are not in any way directly connected with the manufacturing or
processing of tea.
As pointed out earlier, the expression 'in
the manufacture' can take within its compass only processes which are directly
related to the actual production. As such the claim for inclusion of this item
in the Sales Tax Registration Certificate cannot be supported." The prayer
of the appellant regarding items (2), (3) and (4) was also disallowed in the
light of the observations of this Court in the case of 1. K. Cotton Spinning
& Weaving Mills Co. Ltd. (supra). Item No. (5), in the opinion of the High
Court, was too vague and indefinite to deserve inclusion in the certificate. In
the result the revision petition was dismissed.
Before dealing with the contentions advanced,
it may be useful to refer to the relevant provisions. Section 7 of the Act
makes provision for registration of dealers.
Section 8 of the Act deals with rates of tax
on sales in the course of inter-State trade or commerce. Clause (b) of sub-section
(1) of that section provides that every dealer, who in the course of
inter-State trade or commerce sells to a registered dealer other than the
Government goods of the description referred to in sub-section (3) shall be
liable to pay tax under this Act which shall be 3 per cent, of his turnover.
The percentage before July 1, 1966 was two.
Sub-section 3(b) reads as under:
"(3) The goods referred to in clause (b)
of subsection (1)--759 (b) are goods of the class or classes specified in the
certificate of registration of the registered dealer purchasing the goods as
being intended for re-sale by him or subject to any rules made-by the Central
Government in this behalf, for use by him in the manufacture or processing of
goods for sale or in mining or in the generation or distribution of electricity
or any other form of power;" The Central Sales Tax (Registration and
Turnover) Rules, 1957 have been framed by the Central Government.
Rule 13 of the rules reads as under:
"13. The goods referred to in clause (b)
of subsection (3) of section 8 which a registered dealer may purchase, shall be
goods intended for use by him as raw materials, processing materials,
machinery, plant, equipment tools stores, spare parts, accessories, fuel or
lubricants, in the manufacture or processing of goods for sale, or in mining,
or in the generation of electricity or any other form of power." The
question with which we are concerned in this appeal is whether the items of
goods in respect of which prayer of the appellant for being included in the
registration certificate was refused, answer to the description of goods as
given in the above rule. Mr. Desai on behalf of the appellant has not pressed
the case of the appellant in respect of item No. (5) which was found by the
High Court to be vagne and indefinite. He has also not made any submissions in
respect of items (2) and (3) relating to Cement and building materials. The
main contention of Mr. Desai has related to item No. (1) pertaining to
fertilisers, chemicals, weedicides, insecticides, fungicides and pesticides for
use in tea cultivation. According to the learned counsel, cultivation and the
growing of tea leaves was so integrally connected with the manufacture of tea
that it could be taken to be part of the process of manufacturing tea.
As fertilisers and othergoods mentioned in
item (1) were needed for tea clutivation, the same should, according to the
learned counsel, be held to be intended for use in the manufacture or
processing of tea for sale. Regarding item (4), the case of the appellant is
that though weighing equipment used in the factories has been allowed to be
included in the certificate, the weighing equipment used for the purpose of
cultivation has not been included in the certificate. The weighing equipment to
be used for cultivation should also, it is urged, be included in the certificate.
The above contentions have been controverted
by Mr.
Narendra Nath, and he has urged that neither
the goods mentioned in item No. (1) nor the weighing equipment needed for
cultivation are directly, connected with the process of manufacturing tea.
After giving the matter our earnest
consideration, we are of view that the contention of Mr. Narendra Nath is
well-founded.
760 Rule 13 has been the subject matter of
two. decisions of this Court In the case of Indian Copper Corporation (supra),
the assessee was a dealer engaged both in mining operations of copper and iron
ore and the manufacturing of finished products from the ore for sale. This
Court held that the two processes being inter-dependent, it would be impossible
to exclude vehicles which are used for removing from the place where the mining
operations were concluded to the factory where the manufacturing process
started, from the registration certificate. The expression "goods intended
for use in the manufacturing or processing of goods for sale" was held to
include such vehicles as were intended to be used for removal of processed
goods from the factory to the place of storage. The mere fact that there is a
statutory obligation imposed upon the owner of the factory or the mine to
maintain hospital facilities would not, in the opinion of this Court, supply a
connection between the goods and the manufacturing or processing of goods or
the mining operations so as to make them goods intended for use in those
operations. The expression "intended to be used". it was further
held, cannot be equated with "likely to facilitate" the conduct of
the business of manufacturing or of processing goods or of mining.
In J. K. Cotton Spinning & Weaving Milis
Co. Ltd.
(supra) the appellant manufactured for sale
cotton textiles, tiles and other commodities. Certain items of goods in the
certificate of registration of the appellant were deleted by the sales tax authorities
on the ground that they had been earlier erroneously included in the'
certificate.
This Court in that context dealt with the
scope and ambit of section 8(3) (b) of the Act read with rule 13. It was held
that the expression "in the manufacture of goods" in section 8(3)(b)
should normally encompass the entire process carried on by the dealer of
converting raw materials into finished good's. 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 fail within the expression
"in the manufacture of goods." It was further held that the process
of designing might be distinct from the actual process of turning out finished
goods. But there was no warrant for limiting the meaning of the expression
"in the manufacture of goods" to the process of production of goods
only. The expression "in the manufacture" was held to take in within
its compass all processes which are directly related to the actual production.
Drawing and photographic materials directly related to the actual production of
goods were held to be goods intended for use "in the manufacture of
goods". Building materials, including lime and cement, not required in the
manufacture of tiles for sale was, however, held to be not raw material in the
manufacture or processing of goods or even as "plant".
We may now turn to the present case. The
question which essentially arises for determination is whether fertilisers and
other goods mentioned in item No. (1) are intended for use by the appellant as
equipment or stores in the manufacture or processing of tea meant for 761 sale,
as urged on behalf of the appellant. The controversy between the parties has
centred round the point as to whether fertilisers and other goods mentioned in
item No. (1) can be said to be goods intended for use in the manufacture or
processing of tea meant for sale. So far as this question is concerned, we find
that the growing and plucking of tea leaves from the plants and the processing
of those leaves in the factories are parts of a continued activity.
The assertion of Mr. Desai that the tea
leaves would lose their value unless they are processed in the factory soon
after they are plucked is not being questioned. It does not, however, follow
from that that the cultivation of tea plants and the growth of tea leaves is
not something distinct from the manufacturing process to which tea leaves are subjected
in the factories. The fact that the time lag between the plucking of tea leaves
and their being subjected to manufacturing process in the factories is very
little would not detract from the conclusion that the cultivation and growth of
tea plants and leaves is something distinct and separate from the manufacturing
process to which those leaves are subjected in the factories for turning them
into. Tea meant for sale. Income which is realised by sale of tea by a tea
company which grows tea on its land and thereafter subjects it to manufacturing
process in its factory is an integrated income. Such income consists of
elements or components.
One element or component consists of the
agricultural income which is yielded in the form of green leaves purely by the
land over which tea plants are grown. The second element or component consists
of non-agricultural income which is the result of subjecting green leaves which
are plucked from the tea plants grown on the land to a particular manufacturing
process in the factory of the tea company. Rule 24 of the Income-tax Rules,
1922 and rule 8 of the Income-tax Rules, 1962 prescribe the formula which
should be adopted for apportioning the income realised as a result of the sale
of tea after it is grown and subjected to the manufacturing process in the
factory. Sixty per cent. is taken to be agricultural income and the same
consists of the first element or component, while 40 per cent represents nonagricultural
income and the same comprises the second element or component (see Tea Estate
India (p.) Ltd. v. Commissioner of Income-tax(1).
Fertilisers and the other goods mentioned in
item No. (1) are intended for use not in the manufacturing process in respect
of tea meant for sale, they are essentially needed for the cultivation and
growth of tea plants and leaves.
There is no direct relationship between use
of fertilisers and other goods mentioned in item No. (1 ) and the manufacturing
process in respect of tea meant for sale. What is meant by manufacture of tea
is clear from pages 863-4 of Vol. 21 of Encyclopedia Britannica (1965 Edition)
wherein it is observed:
"Black and green teas result from
different manufacturing processes applied to the same kind of leaf. After
plucking, the leaf is withered by being spread on bamboo trays in the sun, or
on withering tats within doors. The process takes 18 to 24 hours. Next it is
rolled. by hand or by machines. The object of rolling is to break 762 the leaf
ceils and liberate the juices and enzymes sealed within. The roll may last as
long as three hours. Then it is taken to the roll breaker and green leaf
sifting machine and after that fermented in baskets, on glass shelves or on
cool cement floors under damp cloth for 4 or 41/2 hours.
The firing process (drying) follows, in pans
or baskets or in firing machines. It takes 30 to 40 min. The difference between
black tea and green tea is the result of manipulation. Green tea is
manufactured by steaming without fermentation in a perforated cylinder or
boiler, thus retaining some of the green colour. Black tea is allowed to
ferment after being rolled and before firing. In the case of black tea the
process of fermentation, or oxidation, reduces the astringency of the leaf and,
it is claimed, developes the colour and aroma of the liquor. In making green
tea, the fermentation process is arrested by steaming the leaf while it is
green and by light rolling before drying." The cultivation and growth of
tea plants and leaves cannot, in our opinion, be comprehended in the expression
"in the manufacture or processing of goods for sale".
Cultivation and growth of tea plants no
'doubt results in the production of raw material in the form of green tea
leaves which are ultimately processed into tea meant for Sale, but such
cultivation and growth are in the very nature of things prior to the
manufacturing process and do not answer to the description of manufacture and
processing of tea meant for sale. There is a vital difference between an
agricultural operation and a manufacturing process, and the same should not be
lost sight of. What is needed for being used purely in an agricultural
operation cannot be held to be goods required for use in a manufacturing
process. We are, therefore, of the opinion that the appellant was not entitled
to get fertilisers and other goods mentioned in item No. (1 ) included in the
registration certificate.
The same reasoning would also hold good in
respect of weighing machine used not in the factories but in the tea fields.
appeal consequently fails and is dismissed
with coats.
V.P.S. Appeal dismissed.
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