Deputy
Commissioner of Sales Tax (Law), Board of Revenue Vs. Thomas Stephen & Co.
Ltd. [1988] INSC 73 (14
March 1988)
Mukharji,
Sabyasachi (J) Mukharji, Sabyasachi (J) Rangnathan, S.
CITATION:
1988 AIR 997 1988 SCR (3) 248 1988 SCC (2) 264 JT 1988 (1) 631 1988 SCALE
(1)569
CITATOR
INFO : RF 1988 SC1133 (5) D 1990 SC 196 (3,6) F 1990 SC 781 (47)
ACT:
Kerala
General Sales Tax Act, 1963: s. 5A(I)-Cashew Shells and consumed stores used as
fuel in the Kiln and maintenance Whether exempt from Tax-Consumption in process
of manufacture resulting in other goods-Essentiality of.
HEAD NOTE:
%
Section 5A(1) of the Kerala General Sales Tax Act, 1963, requires a dealer to
pay purchase tax on the taxable goods purchased in circumstances in which no
tax is payable, if he (a) consumes such goods in the manufacture of other goods
for sale or otherwise, or (b) disposes of such goods in any manner other than
by way of sale in the State, or (c) despatches them to any place outside the
State except as a direct result of sale or purchase in the course of inter-
state trade or commerce.
The assessee-company,
a manufacturer and dealer in ceramics was sought to be assessed to tax under s.
5A of the Act for the assessment years 1974-75, 1975-76 and 1976-77 among other
things for the purchase turnover of cashew shells and consumed stores, lime
shells etc., purchased by it. The assessee contended that cashew shells were
used by them as fuel for manufacturing products and, therefore, by virtue of
notification S.R.O. 732/73 the purchase turnover of cashew shells was exempt
from tax. In the alternative, it was contended that the purchases in question
were not liable for levy of tax since none of the conditions prescribed in
clause (a), (b) or (c) of s. 5A(1) of the Act were satisfied, and that lime
shells and certain consumed stores had been used in the maintenance of the kiln
and the factory, and were not taxable in view of the conditions prescribed in
s. 5A.
The
assessing authority and the First Appellate Authority brought these purchases
to tax under s. 5A(l) of the Act. The Tribunal rejected the assessee's claim of
exemption under the said notification. However, it held that these items were
not taxable under s. 5A of the Act. It took the view that the cashew shells had
been used only as fuel in the kiln for the manufacture of tiles and other goods
and, hence, clause (a) of s. 5A(1) of the Act was not satisfied, there being no
consumption of the 249 cashew shells in the manufacture of other goods or
otherwise, that there was no disposal of lime shells or the consumed stores
which were used up for the maintenance of the factory and kiln and that there
was also no consumption of those goods in the manufacture of other goods for
sale or otherwise. The High Court upheld the decision of the Tribunal.
Dismissing
the special leave petitions by the Revenue, ^
HELD:
l. Goods used for ancillary purpose like fuel in the process of manufacture, do
not fall within s. 5A(1)(a) of the Act. Consumption must be in the manufacture
as raw- material or of other components which go into the making of the end
product, to come within the mischief of the section.
Cashew
shells do not tend to the making of the end product.
These
had been used as fuel in the kiln and did not get transformed into the end product.
These had not been used as raw material in the manufacture of the goods but
only as aid in the manufacture of goods by the assessee. Cashew shells,
therefore, do not attract levy of tax under the said section. The same is the
position with regard to the lime shells and consumed stores, which have been
used only in the maintenance of the kiln and the factory and not used in the
manufacture of the end product. [252E-G]
2.
Disposal means transfer of title in the goods to any other person. The
expression "dispose" means to transfer or alienate. Clause (b) of
section 5A(1) requires that the goods in question should be transferred to some
person otherwise than by way of sale. In the instant case, there was no
evidence of transfer of cashew shells, the lime shells or the consumed stores
at all. These were used by the assessee himself as fuel in the case of cashew
shells for maintenance of kiln. Therefore, there was no disposal of the goods
as known to law. Sub clause (b) of s. 5A(I) was, therefore, not applicable. [253G-H;
254A-B]
CIVIL
APPELLATE JURISDICTION: Special Leave Petition (Civil) Nos. 8747-49 of 1987.
From
the Judgment and order dated 9.12.1986 of the Kerala High Court in TRC Nos. 152
to 154 of 1986 V.J. Francis for the Petitioner.
The
Judgment of the Court was delivered by 250 SABYASACHI MUKHARJI, J. This is a
petition for leave to appeal under Article 136 of the Constitution of India
from the Judgment and order of the High Court of Kerala, dated December 9, 1986. The High Court by the impugned judgment
dismissed the revision cases, which were brought at the instance of the
revenue.
The assessee
is a manufacturer and dealer in tiles, terra-cotta wares and ceramic. It was
assessed to tax under Section 5A of the Kerala General Sales Tax Act, 1963, hereinafter
called 'the Act' for the assessment years 1974- 75, 1975-76 and 1976-77 among
other things on the purchase turnover of cashew shells and consumed stores,
lime shells etc., purchased by the assessee-Company. These are in abundant
supply in that area. These are used, as it appears from the judgment of the
High Court and from the facts found by the Tribunal, as fuel in the kiln in the
factory of the assessee for the manufacture of tiles and others. It was sought
to be assessed to tax. The assessee contended that cashew shells were used by
them as fuel for (emphasis supplied) manufacturing products referred to above
and, therefore, by virtue of notification S.R.O. 732/73 the purchase turnover
of cashew shells were exempt from tax. In the alternative, it was contended by
the assessee that the purchases in question were not liable for levy of tax
since none of the conditions prescribed in clause (a), (b) or (c) of Section 5A
of the Act were satisfied.
The assessee
had also purchased during the relevant years in question, lime shell and
certain stores described as consumed which had been used in the maintenance of
the kiln and the factory. These purchases were also claimed as non-taxable in
view of the conditions prescribed in Clause (a), (b) or (c) of Section 5A of
the Act, being not satisfied. The assessing authority and the First Appellate
Authority overruled the contentions of the assessee and brought these purchases
to tax under Section 5A (1) of the Act.
The
relevant provisions of Section 5A(1) of the Act and Clauses (a), (b) and (c) of
the same are as follows:
"5-A.
Levy of purchase tax-(1) Every dealer who, in the course of his business,
purchases from a registered dealer or from any other person any goods the sale
or purchase of which is liable to tax under this Act in circumstances in which
no tax is payable under Section 5, and either- 251 (a) consumes such goods in
the manufacture of other goods for sale or otherwise; or (b) disposes of such
goods in any manner other than by way of sale in the state; or (c) despatches
them to any place outside the State except as a direct result of sale or
purchase in the course of inter-state trade or commerce, shall, whatever be the
quantum of the turnover relating to such purchase for a year, pay tax on the taxable
turnover relating to such purchase for the year at the rates mentioned in
section 5." In second appeal the Tribunal also did not accept this case of
the assessee regarding non-taxability of the purchase turnover of the cashew
shells under the said Notification. The Tribunal, however, held that the cashew
shells had been used only as fuel in the kiln for the manufacture of tiles and
other goods and, hence, Clause (a) of Section 5A(1) of the Act, was not
satisfied, there being no consumption of the cashew shells in the manufacture
of other goods or otherwise. The Tribunal was of the opinion that these were
used for the manufacture. The Tribunal also held that there was no disposal of
the lime shells or the consumed stores which were used up for the maintenance
of the factory and kiln and that there was also no consumption of those goods
in the manufacture of other goods for sale or otherwise. In this view of the
matter the Tribunal held that these items were not taxable under Section 5A of
the Act.
The revenue
being aggrieved went to the High Court. The High Court upheld the decision of
the Tribunal and rejected the revenue's contention.
The
construction of Section 5A of the Act, came-up for consideration before this
Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam
v. Pio Food Packers, [1980] Vol. 46 STC 63. That was a case dealing with
pineapples sliced for being sold in sealed cans. It was held that there was no
consumption of the original pineapple fruit for the purpose of manufacture and
the case did not fall under Section 5A(1)(a) of the Act. It was further 252
observed that although a degree of processing was involved in preparing
pineapple slices from the original fruit, the commodity continued to possess
its original identity, notwithstanding the removal of inedible portions, the
slicing and thereafter canning it on adding sugar to preserve it.
On the
construction of the section, this Court observed that section 5A(1)(a) of the
Act envisaged the consumption of a commodity in the manufacture of another
commodity (emphasis supplied). The goods purchased should be consumed, the
consumption should be in the process of manufacture, and the result must be
manufacture of other goods. Pathak, J as the learned Chief Justice then was, at
page 67 of the report observed as follows:
"The
learned counsel for the revenue contends that even if no manufacturing process
is involved, the case still falls within section 5A(1)(a) of the Kerala General
Sales Tax Act, because the statutory provision speaks not only of goods
consumed in the manufacture of other goods for sale but also goods consumed
otherwise. There is a fallacy in the submission The clause, truly read, speaks
of goods consumed in the manufacture of other goods for sale or goods consumed
in the manufacture of other goods for purposes other than sale." The
cashew shells in the instant case, had been used as fuel in the kiln. The
cashew shells did not get transformed into the end product. These have not been
used as raw- materials in the manufacture of the goods. These have been used
only as an aid in the manufacture of the goods by the assessee. Consumption
must be in the manufacture as raw- material or of other components which go
into the making of the end product to come within the mischief of the section.
Cashew
shells do not tend to the making of the end product.
Goods
used for ancillary purposes like fuel in the process of the manufacture, do not
fall within section 5A(1)(a) of the Act. Cashew shells, therefore, do not
attract levy of tax under the said section. The same is the position with
regard to the lime shell and consumed stores, which have been used only in the
maintenance of the kiln and the factory and not used in the manufacture of the
end product.
The
revenue, therefore, was wrong in its contention on this aspect Support was
sought to be obtained from certain observations of this Court in Ganesh Prasad Dixit
v. Commissioner of Sales Tax.
253
Madhya Pradesh, [1969]3 SCR 490 at page 491 where this Court was dealing with
the provisions of Madhya Pradesh General Sales Tax Act, 1959. There the
expression used was 'either consumes such goods in the manufacture of the goods
for sale or otherwise'. At page 495 of the report Shah, J. speaking for this
Court observed as under:
"Mr.
Chagla for the appellants urged that the expression or otherwise" is
intended to denote a conjunctive introducing a specific alternative to the
words for sale immediately preceding. The clause in which it occurs means, says
Mr. Chagla, that by s. 7 the price paid for buying goods consumed in the
manufacture of other goods, intended to be sold or otherwise disposed of, alone
is taxable. We do not think that that is a reasonable interpretation of the
expression "either consumes such goods in the manufacture of other goods
for sale or otherwise". It is intended by the Legislature that consumption
of goods renders the price paid for their purchase taxable, if the goods are
used in the manufacture of other goods for sale or if the goods are consumed
otherwise." These observations, in our opinion, have no relevance to the
present facts of the case. Further this very contention was negatived, though
without reference to Ganesh Prasad's case (supra) in the passage set out
hereinbefore in Deputy Commissioner of Sales Tax v. Pio Food Products (supra).
The expression consumption otherwise must in the context mean consumption of
other goods for purposes other than sale.
Another
contention raised before the High Court was that the goods had been disposed of
otherwise than by way of sale within the State and, hence, liable to tax by
virtue of section 5A(1)(b) of the Act The question, therefore, is whether there
is any disposal of these goods in any manner otherwise than by way of sale
within the State. Disposal means transfer of title in the goods to any other
person.
The
expression "dispose" means to transfer or alienate. It was formerly
an essential word in any conveyance of land.
See Jowitt
"The Dictionary of English Law" and also Webster Comprehensive
Dictionary (International Edn.)-Vol. 1, page 368. Clause (b) of the section
requires that the goods in question should be transferred to some person
otherwise than by way of sale. In this case, there was no evidence of any
transfer at all, therefore, there was no 'disposal' of the goods as 254 known
to law. The High Court records that admittedly there was no transfer of the
cashew shells, the lime shells or the consumed stores in this case. These were
used by the assessee himself as fuel in the case of cashew shells for the
maintenance of kiln. Sub-clause (b) of section 5A(1) was, therefore, not
applicable. In the background of the facts of this case, the High Court, in our
opinion, was right.
The
petition for leave must fail and is rejected.
P.S.S.
Petitions dismissed.
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