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K.A.K. Anwar & Co. Vs. State of Tamil Nadu [1997] INSC 868 (27 November
1997)
S.C.
SEN, B.N. KIRPAL, K.T. THOMAS
ACT:
HEADNOTE:
THE
27TH OF NOVEMBER, 1997 Present:
Hon'ble
Mr. Justice S.C.Sen Hon'ble Mr.Justice B.N.Kirpal Hon'ble Mr. Justice K.T.Thomas
K. Parasaran, H.N. Salve and S. Sivasubramaniam, Sr.Advs., A.T.M.Sampath, V.Balaji,
K.J. Chandran, Nikhil Sakhandand, K.K. Mani, R. Ayyam Perumal, V.G. Pragasam,
K. Swami, P.R.
Tiwari,
A. Raghunath, A. Mariarputham, V. Krishnamurthy, Advs. with them for the
appearing parties.
The
following Judgment of the Court was delivered:
WITH Civil
Appeal Nos. 4747-48, 4749-50, 4751-52 of 1993 6660 of 1995, 1453 and 855 of
1994 KIRPAL, J.
Leave
granted in SLP (c) Nos. 5384-85 of 1984.
The
common question which arises in these appeals is whether the turn-over in
respect of hides and skins which has once been subjected to tax under the Tamil
Nadu General Sales Tax Act, on its purchase at the raw stage, could be taxed
again on inter-state sales as tanned or dressed hides and skins.
According
to the appellants they purchase raw hides and skins and after dressing they are
sold in the course of inter-state trade. The contention of the dealers before
the assessing authority was that hides and skins, whether in a raw or dressed
form, are declared goods under Section 14 (iii) of the Central Sales Tax Act
and they are regarded by the sald Act as a single commodity. This being so
Section 15 of the Central Sales Tax Act provides that the goods which have
suffered tax once cannot be taxed again at the time of inter-state sale. As the
tax had been levied at the time of purchase of raw hides and skins, therefore,
there should be no levy of tax on their inter-state sale after the said raw
hides and skin had been dressed.
The
assessing authority, in all these cases, did not accept the said contention as
the authorities were of the opinion that raw hides and skins were a commodity
which were different from dressed hides and skins and, therefore, the
restrictions contemplated by Section 15 of the Central Sales Tax Act was not
applicable.
The
decision of the assessing authority was challenged by some of the appellants by
taking recourse to the provisions under the Act and after an adverse decision
from the Tribunal, revision petitions are filed before the High Court at Madras. Some of the other appellants chose
to challenge the decision of the sales tax authority as well as the
constitutional validity of Section 3 of the Tamil Nadu General Sales Tax (3rd
Amendment) Act, 1987 substituting item no. 7 and the relevant entries thereto
in the IInd filing writ petitions before the High Court of Madras. The High
Court, by different decisions, came to the conclusion that raw hides and skins
was a commodity which was commercially different from dressed hides and skins
both under the State Act as well as the Central Act and that the State had the
legislative competence to tax the inter-state sale of dressed hides and skins
even though tax had been paid on the purchase of raw hides and skins. The
further finding of the High Court was that there was no merit in the challenge
to the legality of the entries which had been substituted in the IInd Schedule
by the Amending Act of 1987.
The
controversy in these appeals relates to three periods, namely, for the period
prior to 23rd March,
1987;
for
the period 23rd March, 1987 to 4th September, 1991, when amendment was made to
item no.7 to the IInd Schedule pursuant to the aforesaid Amending Act and for
the period subsequent to 4th September, 1991 when the said schedule was again
amended, as a result of which the original entry got restored.
In
order to appreciate the rival contentions it is necessary to refer to the
statutory provisions. Sections 14 and 15 of the Central Sales Tax Act, in so
far as they are relevant for the purpose of these cases, are as under:
"14.
Certain goods to be of special importance in Inter state trade or commerce:- It
is hereby declared that the following goods are of special importance in inter
state trade or commerce:- ........
(iii)
hides and skins, whether in a raw or dressed state."
15.
Restrictions and conditions in regard to tax on sale or purchase of declared
goods within a State:- Every sales tax law of a State shall, in so far as it
imposes or authorises the imposition of a tax on the sale or purchase of
declared goods, be subject to the following restrictions and conditions,
namely:- (a) the tax payable under the law in respect of any sale or purchase
of such goods inside the State shall not exceed four per cent of the sale or purchase
price thereof, and such tax shall not be levied at more than one stage;
(b)
Where a tax has been levied under that law in respect of the sale or purchase
inside the State or any declared goods and such goods are sold in the course of
inter state trade or commerce, and tax has been paid under this Act in respect
of the sale of such goods in the course of inter state trade or commerce, the
tax levied under such law shall be reimbursed to the person making such sale in
the course of inter state trade or commerce in such manner and subject to such
conditions as may be provided in any law in force in that State.
............
(Provision
extracted is the one which was in force in 1987) After the promulgation of the
Central Sales Tax Act the State Legislature introduced IInd Scheduled to the
State Act providing for the rates as well as the points of levy in respect of
declared goods. This was done in view of the provisions of Sections 14 and 15
of the Central Act.
"Item
No.7 of the Second Schedule in so far as it related to the levy of sales tax on
hides and skins, as it was originally enacted and in force upto 22.3.1987 read
as hereunder:
----------------------------------------------------------
Sl. No. Description Point Rate of Effective of goods of levy tax per from cent
(1) (2) (3) (4) (5) -----------------------------------------------------------
7.
ORIGINAL & PRESENT ENTRY (a) Raw hides At the point 2 1.4.1959 and skins of
last purchase in the State. 3 18.6.1967 (b) Dressed At the point 1 1.4.1959
hides and of first sale 1-1/2 18.6.1967 skins (which in the State were not
subjected to tax under 2 21.2.1978 this Act as raw hides and skins).
Note:
Rate
of tax increased on item 7 (a) from 2% to 3% by Act 5 of 1967 w.e.f. 18.6.1967.
Rate
of tax increased on item 7 (b) from 1% to 1-1/2% w.e.f. 18.6.1967 by Act 5 of
1967 and from 1-1/2% to 2% w.e.f. 21.2.1978 by Act 22 of 1978" After and
by virtue of the impugned Amendment Act 31 of 1987, which was proceeded by
G.O.P. No. 291 dated 20.3.1987, item 7 of the Second Schedule and the relevant
entries thereto read as hereunder:
"7(a)
Raw hides At the point 2 and skins. of last purchase in the State.
(b)
Dressed At the point hides and of first sale skins. in the State. 2
------------------------------------------------------------ With effect from
6th September, 1991 item no.7 of the IInd Schedule was once again substituted
and after such amendment the item read as under:- "7(a) Raw hides At the
point and skins of last purchase in the State 4 (b) Dressed hides At the point
and skins of first sale (which were in the State. 4 not subjected to tax under
this Act as raw hides and skins).
The
main thrust of the arguments of the learned counsel for the appellants was two
fold. It was explained that with a view to preserve the raw hides and skins
they are first `cured' by either wet salting, dry salting or drying. In the
`cured state' the raw materials can be preserved for a temporary period. In the
next stage the hides and skins are `picked' and thereafter they are tanned in which
state they can be preserved almost indefinitely. These tanned hides and skins
are processed further to yield dressed hides and skins which are then ready for
use. It was submitted that raw hides and skins and dressed hides and skins,
irrespective of their state, are the same commodities. After `raw hides and
skins' are purchased they are then dressed which has the effect of preserving
them. They do not undergo any change and, therefore, `raw hides and skins' and
`dressed hides and skins' cannot be considered as commercially separate
commodities, the difference being only in form. This being so, it was
contended, hide and skins can be taxed at only one stage in the State with the
result that if they have been subjected to tax at the raw state under the local
Act, then section 15 of the Central Sales Tax Act would have the effect of
preventing tax being levied on dressed hides and skins.
In the
alternative, it was contended that even assuming that `raw hides and skins' and
`dressed hides and skins' could be considered to be commercially distinct
commodities under Section 14(III), even then Section 14(III) of the Central
Sales Tax Act regards hides and skins as a single commodity and they cannot be
taxed twice over in any one State. Elaborating this contention, it was
submitted that Section 15 of the Central Sales Tax Act provides that every
sales tax law of a State shall, insofar as it imposes or authorises the
imposition of tax on the sale or purchase of declared goods, imposes two
restrictions, namely, the tax payable of declared goods, imposes two
restrictions, namely, the tax payable in respect of "such goods"
cannot exceed 4% and; secondly it cannot be levied at more than one stage.
The
expression "such goods" occurring in Section 15, clause (a), it was
submitted, meant "declared goods" referred to in Section 14 which, in
the present case, is hides and skins. A necessary corollary of this was that
hides and skins could be taxed only once in a State and once hides and skins
have been taxed in a State, in whichever form it may have been, the same cannot
be taxed again. Therefore if the State law regarded them as different goods
enabling the State to tax them twice, then to that extent the relevant
provisions of the State law, being in conflict with Section 15 of the Central
Sales Tax Act, would be ultra vires.
On
behalf of the appellants, strong reliance was placed on the decision of this
Court in the cases of State of Tamil Lal and
Ors. Etc. [(1969) 3 SCR 849], Telangana Steel Etc. [(1976) 3 S.C.R. 168]. In Chandu
Lal's case (supra), the leader had paid purchase tax on the purchase of unginned
cotton and, after ginning the cotton and removing the seeds, it had sold the
ginned cotton to customers outside the State. In respect of the cotton seed
sold by it to registered dealers, a deduction had been claimed from the
purchase turnover but the same was not allowed on the ground that the goods
sold, namely cotton seed, were not the goods in respect of which purchase tax
had been levied inasmuch as unginned cotton underwent a manufacturing process
and the goods produced were different from those purchased. Allowing the appeal
of the State of Punjab, a three Judges Bench of this Court
observed at page 853 that "declared goods" in Section 14 of the
Central Sales Tax Act, 1956 are individually specified under separate items.
"Cotton ginned or unginned" is treated as a single commodity under
one item of declared goods'. Reliance was placed on this observation and it was
contended that because the entry in Section 14(III) reads as hides and skins,
raw or dressed, it would mean that raw hides and skins and dressed hides and
skins are treated as a single commodity.
In the
case of Mahi Traders (supra), the question which arose was whether leather
splits and coloured leather were hides and skins which fall in the category of
"declared goods" as set out in Section 14 of the Central Sales Tax
Act and, therefore, entitled to the concession available under Section 15 of
the Act, namely, the benefits of single point taxation and of a smaller rate of
tax. This Court held that leather splits were nothing but cut pieces of hides
and skins and would, therefore, fall within Section 14(III) of the Central
Sales Tax Act. Dealing with the question relating to coloured leather, the
Court dealt with the process in which the raw hides and skins undergo till they
are tanned and observed as follows:
"Structurally,
hides and skins have a thick middle layer called corium, which is converted to
leather by tanning. The operations involved in leather manufacture however fall
into three groups. Pre-tanning operations include soaking, liming, deliming,
bating and picking and post tanning operations are splitting and shaving, neutralising,
bleaching, dyeing, fat-liquoring and stuffing, setting out, samming, drying,
staking and finishing. These operations bring about chemical changes in the
leather substance and influence the physical characteristics of the leather,
and different varieties of commercial leather are obtained by suitably
adjusting the manufacturing operations. These processes need not be gone into
in detail but the passages relied upon clearly show that hides and skins are
termed `leather' even as soon as the process of tanning is over and the danger
of their putrefaction is put an end to. The entry in the CST Act, however,
includes within its scope hides and skins until they are `dressed'.
This,
as we have seen, represents the stage when they undergo the process of
finishing and assume a form in which they can be readily utilised for
manufacture of various commercial articles. In this view, it is hardly material
that coloured leather may be a form of leather or may even be said to represent
a different commercial commodity. The statutory entry is comprehensive enough
to include the products emerging from hides and skins until the process of
dressing or finishing is done". (emphasis added) This Court then concluded
that splits and coloured leather continued to be hides and skins entitled for
special treatment under the Central Sales Tax Act.
A.P.
and others (1994 Supp (2) SCC 259, the question was whether iron wires were
separate commercial goods from wire rods from which they were produced. Without
deciding whether both the goods were one commercial commodities or not and Pyare
Lal Malhotra Etc., [(1976) 3 SCR 168] and Rajasthan Rajasthan and Ors., (1994
Supp (1) SCC 413), this Court held that as both the rods and wires form part of
one sub item viz., (iv) (xv), they could not be taken as separate taxable
commodity and if wire rod which had been purchased by the dealers had already
been subjected to sales tax, then wires which are drawn from the said rods
could not be taxed again.
In
arriving at this conclusion, it was observed that when the sub-item spoke of
wires "rolled, drawn, galvanized, aluminized, tinned or coated...."
it showed that even if they were separate commercial commodities, the
Legislature nevertheless did not want wires to be taken as a commodity
different from rods for the purpose of permitting imposition of sales tax once
again on wires, despite rods having been subjected to sales tax.
Even
though the aforesaid decisions seem to support the contentions urged on behalf
of the appellants, we find that the two questions involved in these cases,
namely, whether dressed hides and skins and raw hides and tanned skins are
different commodities and, secondly, whether Section 14(iii) of the Central
Sales Tax Act regards them as the single commodity, appear to have been decided
differently by a Constitution Bench of this Court in Hajee Abdul Shakoor and
appellant therein had contended that tanned and untanned hides and skins did
not form different commodities and, therefore, tax could not be levied on the
sales of hides and skins in the raw condition when no tax is levied on the sale
of hides and skins in the tanned condition. On the other hand the State had
contended that they were two different commodities and constituted two separate
commodities for the purpose of taxation. The Court at page 227 observed that
"hides and skins in the untanned condition are undoubtedly different as
articles of merchandise than tanned hides and skins." If then dealt with
the contention that tanning was only a preservative process which makes no
change in the nature of the article itself, a submission which has also been
raised in the present case on behalf of the appellant.
The
Court, however, did not accept this submission and in this connection it
approved the observations in Government 231) to the effect that tanning of raw
hides and skins was a manufacturing process as a result of which the product
that emerges is different from the raw material as after tanning the hides and
skins become a different commodity and then concluded at page 228 that "it
is, therefore, not correct to say that the process of tanning brings about no
change in the raw hides and skins and that therefore both types of hides and
skins form one commodity." The appellant therein had also referred to the
decision in Abdul Subban and observations had been made at page 228:
"Section
14(3) of the Central Sales Tax Act, 1956 (Act 74 of 1958) also treats hides and
skin whether dressed or raw, as a single commodity... Since skins tanned or untanned,
constitute only one class of goods and the sale of that class of goods can be
taxed only at a single point, obviously there can be no tax on a sale of tanned
goods, if tax has already been paid on an earlier transaction when those skins
were untanned." The aforesaid conclusion in Abdul Subban's case was not
accepted by this Court and it was observed at page 228 that "no reason is
given why the two kinds of hides and skins are treated as a single
commodity." Again at page 229 the finding of the Court was that "we,
therefore, hold that raw hides and skins dressed hides and skins constitute different
commodities of merchandise and they could therefore be treated as different
goods for the purposes of the Act." From the aforesaid observations it
clearly follows that the Constitution Bench had, in no uncertain terms, come to
the conclusion that raw hides and skins and dressed hides and skins were not
one and the same commodity. Therefore, the first contention raised in the
present case by the learned counsel for the appellant cannot be accepted
notwithstanding the reliance by them on the aforesaid decision in the case of Telanganna
Steel Industries case. It may here be noted that in none of these decisions was
the attention of the Learned Judges drawn to the aforesaid observations of the
Constitution Bench in Abdul Shakoor's case.
The
other submission that Section 14(iii) of the Central Sales Tax Act, in any
case, treats raw hides and skins and dressed hides and skins as one and the
same commodity, because it is included in the same sub-heading in Section 14
also stands concluded by Abdul Shakoor's case. As already noted herein above,
this Court specifically referred to those observations in Abdul Subban's case
(supra) which had interpreted Section 14 (iii) of the Central Sales Tax Act to
mean that hides and skins whether dressed or raw were single commodity and this
observation was disapproved when at page 228 this Court observed in Abdul Shakoor's
case that "no reason is given why the two kinds of hides and skins are
treated as a single commodity". The Court was called upon to refer to the
provisions of Section 5 Clause (vi) of the Madras General Sales Tax Act, 1959
which related to the levy of tax on the sale of hides and skins and which read
as follows:
"Subject
to such restrictions and conditions as may be prescribed, including conditions
as to licences and licence fees.....
(vi)
The sale of hides and skins, whether tanned or untanned shall be liable to tax
under section 3, sub- section (1) only at such single point in series of sales
by successive dealers as may be prescribed. (emphasis added) This provision was
replaced by Section 5A (4) which is as under:
"The
sale of hides and skins, whether in a raw or dressed state, shall be liable to
tax only at such single point in the series of sales by successive dealers as
may be prescribed but at the rate of two percent on the turnover at that
point." (emphasis added) The Court while interpreting the said provisions
then held, as under:
The
real question is whether these provisions that raw hides and skins and dressed
or tanned hides and skins as one class of goods for the purpose of taxation or
as two different classes of goods. If they threat them as one class of goods,
the contention at the time of their sale in a raw condition meets the
requirements of law as hides and kins could be taxed only at a single point. If
the dressed or tanned hides and skins are not taxed at the time of their sale
that does not offend against the statutory provisions. No question of
discrimination arises as a sale of raw hides and skins of whatever origin,
i.e., whether produced in the State or imported into the State would be equally
liable to the levy of tax.
If the
statute treats both these kinds of hides and skins as different commodities the
provisions of sub-rule (1) of r.16 providing for the levy of tax on raw hides
and skins at a certain point even in the absence of any provision for the
taxation of dressed hides and skins cannot be said to be discriminatory and
invalid. The articles to be taxed were not the same and the legislature could
provide differently about their taxation.
(emphasis
added) The language of Section 14 (iii) of the Central Sales Tax Act is
similarly worded as the language of aforesaid Sections 5 (vi) and 5A of the
Madras General Sales Tax Act.
It is
while interpreting this that it was held that raw and dressed hides and skins
were different articles and that is why the legislature could provide
differently about their taxation. The fact that both the articles are mentioned
under the same heading is also of no material consequence.
Taxation
Officer (11 STC 149) wherein it was held that ginned and unginned cotton
constituted one commodity inter alia for the reason that ginned and un-ginned
cotton were under the same head and thereby indicating that the legislature
looked upon ginned and un-ginned cotton as one and the same thing, it was held
in Abdul Shakoor's case at page 229 that "The fact that certain articles
are mentioned under the same heading in a statute or the Constitution does not
mean that they all constitute one commodity. The inclusion of several articles
under the same heading may be for a reason other than that the articles
constitute one and the same thing." This means that merely being put under
one head would not make two different commodities a single item for purposes of
taxation.
When
dressed hides and skins are different goods from raw hides and skins, we do not
find anything in the language of Section 14 of the Central Sales Tax Act which
can lead us to the conclusion that these two different commodities were to be
regarded as constituting a single commodity for the purpose of taxation.
Sections 14 and 15 of the Central Sales Tax Act have to be read together as
they constitute a scheme relating to taxation of goods of special importance in
inter-state trade or commerce. While Section 14 enumerates the items which are
regarded as being goods of special importance in inter-state trade or commerce,
it is Section 15 which imposes the restriction and conditions in regard to tax
on sale or purchase of declared goods within a State.
Section
14, in other words, is not a taxing provision but it merely classified
different commodities under the same species under one entry. Merely because
different goods or commodities are listed together in the same sub-heading or
sub-item in Section 14 cannot mean that they are regarded as one and the same
item. Whenever the legislature wanted different goods placed in the same entry
to be regarded as a single commodity it expressly provided for the same. By Act
103 of 1976 sub-sections (c) and (d) were inserted in Section 15 of the Central
Sales Tax Act. With the introduction of Section 115 (d) "each of the
pulses referred to in Clause (vi-a) of Section 14, whether whole or separated
and, whether with or without husk, were to be treated as a single commodity of
the purposes of levy of tax under that law." If the intention of the
legislature had been that the various commodities mentioned in the same clauses
in Section 14 were to be regarded as a single commodity it would have
specifically provided as such. The legislature, however, chose to single out
different types of pulses only to be regarded as a single commodity.
Notwithstanding
the fact that the raw hides and skins had been held by this Court in Abdul Shakoor's
case (supra) as being distinct from dressed hides and skins the legislature did
not think it appropriate to insert a clause similar to Section 15 (d) which may
have had the effect of regarding raw hides and skins and dressed hides and
skins as being treated as a single commodity for the purposes of levy of tax.
The
words "hides and skins, whether in a raw or dressed state" in Section
14(iii) of the Central Sales Tax Act clearly seem to indicate that the
legislature recognised that raw hides and skins was an item different from
dressed hides and skins. As has already been noticed hereinabove it is after
undergoing a manufacturing process involving various stages that raw hides and
skins becomes dressed Pyare Lal Malhotra Etc. (1976 (3) SCR 168) at page 173
that "sales tax law is intended to tax sales of different commercial
commodities and not to tax the production of the manufacture of particular
substances out of which these commodities may have been made. As soon as
separate commercial commodities emerge or come into existence, they become
separately goods, without change of their identity as such goods, are merely
subjected to some processing or finishing or are merely jointed together, they
may remain commercially the same goods which cannot be taxed again, in a series
sales, so long as they retain their identity as goods of a particular type. In
the present case dressed hides and skins is a separate commercial commodity
which emerges after raw hides and skins has been subjected to manufacturing
process and, therefore, Section 14(iii) deals with two different types of goods
which unlike the case of pulses referred to in Section 15 (d), is not regarded
by the Act as one and the same commodity.
Having
come to the conclusion that raw hides and skins and dressed hides and skins are
two types of commodities, it must flow therefrom that when the appellants
purchased raw hiides and skins on payment of tax they would be liable to pay
sales tax in respect of dressed hides and skins and such levy will not fall
foul of Section 15 as the two goods are different taxable commodities. In other
words the same goods would not have been taxed more than once. In our opinion,
therefore the High Court was right in coming to the conclusion which it did,
namely, that the sales tax authorities could levy sales tax on the sale of
dressed hides and skins and that the provisions of Section 3 of the Tamil Nadu
General Sales Tax (3rd Amendment) Act, 1987 are not ultra vires.
The
appeals are accordingly dismissed with no order as to costs.
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