Kerala High Court
M. Narayanan Nambiyar vs State Of Kerala on 21 March, 1979
Equivalent citations: [1979]44STC191(KER)
JUDGMENT V.P. Gopalan Nambiyar, C.J.
1. These tax revision cases relate to the same assessee for different assessment years, namely, the assessment years 1970-71 to 1973-74, both inclusive. The accounts of the assessee were rejected and the assessment was made on best of judgment basis. The assessee was conducting a rice and flour mill called Dhanalakshmi Rice and Flour Mills, Ezhome, near Payangadi. The only point that is urged in these revision petitions is that the estimate of the purchase turnover of paddy, liable to tax under Section 5A of the General Sales Tax Act, made by the Sales Tax Officer and sustained by the Tribunal, was unjustified and unwarranted in law. In view of the contentions raised, it is unnecessary to notice the amount of purchase turnover of paddy brought to tax under the best of judgment. The contention raised is that paddy, purchased locally and milled and converted into rice, would not attract the provisions of Section 5A of the Act so as to render the dealer liable to levy of tax. Section 5A, Clause (1) and Sub-clause (a) thereof, which is the relevant provision, reads:
5A. 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-- (a) consumes such goods in the manufacture of other goods for sale or otherwise;
The section has recently come in for examination before this Court in at least two decisions. In Deputy Commissioner of Sales Tax v. Pio Food Packers [1978] K.L.T. 279, the question arose whether sale of pine-apple, the inedible portions of which had been removed (namely, the crown, the skin and the core) and which, thereafter, was sliced, filled in cans adding sugar as a preservative, sealed under temperature, and put into boiling water for sterilisation, could be said to involve "consumption" of the raw pine-apple for the purpose of "manufacture" of "other goods". This Court discussed the meaning of the three expressions emphasised supra. With respect to the treatises and judicial decisions, it was explained that while every manufacture involves a change, every change is not a manufacture. It was further noticed that there must be a transformation of the article into a new and different one, the resultant article being commercially different from the original one, which is subjected to a change amounting to a manufacturing process. It was well-recognised that, in the consideration and the practical application of these principles or decisions to concrete facts, philosophy and sophistry are bound to play their due share. That, it was pointed out, would alone explain the apparently conflicting decisions on more or less similar, if not identical, facts.
2. The present case adds one more to the perplexing list of cases which fall to be resolved by the practical application of the principles expounded in the earlier decisions regarding the three terms or concepts emphasised above. That there is "consumption" of the paddy within the meaning of that expression, as explained in the treatises and judicial decisions, when paddy is milled or dehusked to result in the production of rice, seems clear enough; but the difficult questions to be faced are: Does the process of dehusking or milling amount to a process of manufacture ? And, is the rice produced as a result of the operation a new or different product or article vis-a-vis the paddy from which it was produced ? In other words, is the rice "other goods" qua the paddy from which it was milled or dehusked ? We are confronted with the oft-repeated aphorism that while every manufacture involves a change, every change is not a manufacture. This has been noticed and referred to in the treatises and decisions noticed in Deputy Commissioner of Sales Tax v. Pio Food Packers 1978 K.L.T. 279 Unaided by authorities, and as a matter of first impression, we are inclined to take the view that a manufacturing process is involved in the dehusking of paddy or in the milling of paddy into rice in the mills. As a matter of first impression again, we are inclined also to think that paddy and rice are commercially two different articles or commodities. We propound to ourselves the question: Would the world of trade and commerce accept the two commodities as one and the same ? Or regard them as commercially different commodities? We should think the latter to be the correct answer. These first impressions of ours should furnish the answer against the assessee.
3. But we are up against a wall of judicial decisions not easy to scale or batter down. We shall attempt to grapple with them as best as possible. The counsel for the assessee relied on the decision of the Mysore High Court in State v. Raghurama Shetty [1975] 35 S.T.C. 360. The question there directly arose under Section 6(i) of the Karnataka Sales Tax Act of 1957, as to whether the turnover of rice, sold after purchasing paddy and milling the same, was liable to be assessed to sales tax under the provisions of the Act. The question was practically the same as arises for consideration here, and arose with reference to a section almost similarly worded. It was ruled that the mere dehusking of paddy and getting rice out of the same would not amount to "manufacture", and that, on the facts and circumstances, there was no "consumption" of paddy resulting in the "manufacture" of other goods in the terms of the section. The position was discussed with respect to the treatises, which are referred to also by the Division Bench of our High Court in the Pine-apple case 1978 K.L.T. 279 noticed previously. The decision is directly in favour of the assessee. So is the decision of the Allahabad High Court in Bakhat Ram Takhat Ram v. State of U.P. [1973] 32 S.T.C. 14 rendered not with respect to a section so strongly the same as, or similar to, the one involved in this case, but in relation to the terms of an exemption notification. The question there arose whether rice in its commercially known form, or in its original state as paddy, could be included within the expression "foodgrains" for the purpose of earning the exemption under Section 3-D, Clause (1), of the U.P. Sales Tax Act. The decision is not as strongly appropriate to the point under consideration as the Mysore case1. But we may note the following observations: Reverting now to the main contention, what has to be seen is as to whether paddy is a 'foodgrain' or not. Foodgrain is a comprehensive term, which includes all grains which are used as food by human beings. Paddy, as such, no doubt, is not fit for human consumption, but encased inside it is rice, which is taken out from paddy by a process called husking or hulling. In other words, paddy is nothing but unhusked rice. In Webster's New International Dictionary, the meaning of paddy is "in commerce, unmilled or rough rice, whether growing or cut, also, rice in general". According to the Oxford English Dictionary, paddy means 'the rice in the straw or (in commerce) in the husk'. In Encyclopaedia Britannica, we find mentioned in the heading 'preparation of rice': 'The kernel of rice, as it leaves the thresher, is enclosed by the hull or husk and is known as paddy or rough rice. Rough rice is used for seed and feed for livestock, but most of it is milled for human consumption'. Even in the commercial world, paddy is regarded as a foodgrain.
The view expressed in the treatises referred to, militate against regarding paddy and rice as commercially two different commodities, or regarding rice as "other goods" vis-a-vis the paddy from which it is produced.
4. As against these, the learned Government Pleader placed reliance on the decision of the Supreme Court in Ganesh Trading Co. v. State of Haryana [1973] 32 S.T.C. 623 (S.C.). The question there arose with respect to the provisions of the Punjab and Haryana Sales Tax Act as to whether the dealers, who bought paddy, dehusked it, either in their own mills or in other mills, and sold rice to the Government and other registered dealers, were entitled to exclude the turnover relating to the paddy purchased. Under the concerned Sales Tax Act, exemption was provided from payment of sales tax, if the identical paddy in respect of which purchase tax was levied, was sold again, and not if the paddy sold constituted a different or other distinct commodity. The contention was that paddy and rice are commercially identical and, therefore, the exemption granted in respect of paddy would enure for the rice as well. The Supreme Court observed:
Now, the question for our decision is whether it could be said that when paddy was dehusked and rice produced, its identity remained. It was true that rice was produced out of paddy but it is not true to say that paddy continued to be paddy even after dehusking. It had changed its identity. Rice is not known as paddy. It is a misnomer to call rice as paddy. They are two different things in ordinary parlance. Hence quite clearly when paddy is dehusked and rice produced, there has been a change in the identity of the goods. In this view it is not necessary for us to refer to the decisions of some of the High Courts read to us at the time of hearing.
There is yet another difficulty in the way of the appellants. Both the Punjab Sales Tax Act, as well as that Act as amended by Haryana, make a distinction between rice and paddy in their respective Sales Tax Acts. Rice and paddy are treated differently.
The approach to the question as to whether rice and paddy constitute two different commodities or not deserves notice and comparison with the views reflected in the Allahabad and Mysore decisions and in the treatises and lexicons referred to therein. In Sri Siddhi Vinayaka Coconut & Co. v. State of A.P. [1974] 34 S.T.C. 103 (S.C.) the question arose as to whether "watery coconuts" and "dry coconuts" are two different commercial commodities. With respect to the provisions of the Andhra Pradesh General Sales Tax Act, 1957, the Supreme Court, after noticing the relevant provisions of the Act and the schedule, which had clearly treated the two different varieties of coconuts as different commodities, observed: ...This Court has in a number of cases held that the same commodity at different stages could be treated and taxed as commercially different articles. In A. Hajee Abdul Shukoor & Co. v. State of Madras [1964] 15 S.T.C. 719 (S.C.) this Court held that 'hides and skins in the untanned condition are undoubtedly different as articles of merchandise than tanned hides and skins' and pointed out 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'. We may also refer to the decisions in Jagannath v. Union of India [1962] 2 S.C.R. 118 where tobacco in the whole leaf and tobacco in the broken leaf were treated as two different commodities, East India Tobacco Co. v. State of Andhra Pradesh [1962] 13 S.T.C. 529 (S.C.) where Virginia tobacco and country tobacco were treated as two different commodities, and Venkataraman v. State of Madras [1970] 25 S.T.C. 196 (S.C.) where cane jaggery and palm jaggery were treated as two different commodities.
The decision is quite enlightening as to the approach to be made, for the purposes of sales tax legislation, in viewing the spectrum of commercially different commodities.
5. The learned Government Pleader complained that the decision of the Mysore High Court in State v. Raghurama Shetty [1975] 35 S.T.C. 360 did not consider either the decision in Ganesh Trading Co. v. State of Haryana [1973] 32 S.T.C. 623 (S.C.) (sic) or the one in Sri Siddhi Vinayaka Coconut & Co. v. State of A.P. [1974] 34 S.T.C. 103 (S.C.) both of which were pronouncements of the Supreme Court. Attention was drawn to the decision in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 S.T.C. 319 (S.C.) where the Supreme Court emphasised the principle that each commercial commodity becomes a separate object of taxation in a series of sales of that commodity so long as the commodity retained its identity. The learned Government Pleader also drew our attention to the decision in K.C. Pazhanimala v. State A.I.R. 1969 Ker. 154 (F.B.). That decision was rendered, no doubt, under a different background, and with respect to the provisions of the Essential Commodities Act. The observations made by the Full Bench are interesting and enlightening on the aspect that arises for consideration here. Observed the learned Judges:
19. The preamble of the impugned order only shows that it was for maintaining and increasing the supplies of rice and paddy and for securing their equitable distribution and availability at fair prices. The first question to be decided is whether the effect of the impugned order is to regulate by licences or permits the production or manufacture of any essential commodity. Rice is an essential commodity. Conversion of paddy into rice through the rice mills is production or manufacture of rice. The term production can only mean making goods available for human wants. To constitute manufacture there must be a transformation of that article into another article which is commercially different from the one which was converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. In market rice is a different commodity from paddy and therefore when there is a conversion of paddy into rice through rice mills there is either production of rice or manufacture of rice from paddy. The object of the impugned order is therefore to control the same for the purpose of making paddy and rice available to the community at fair prices. The impugned order therefore falls under Section 3(2)(a) of the Essential Commodities Act. It was argued on behalf of the State that the purpose of the impugned order is to regulate by licences or permits the use of any essential commodity. According to the State, paddy is used for manufacturing rice through mills and what is sought to be regulated by the impugned order is the same use. The expression 'use' is a word of very wide significance. The expression in Section 3(2)(d) is not use and consumption but use or consumption. The two expressions, therefore, connote different meanings. In Murray's New English Dictionary, the word 'use' is defined as:
'act of employing a thing for any (especially a profitable) purpose; the fact, state, or condition of being so employed: utilization or employment for or with some aim or purpose, application or conversion to some (especially good or useful) end'.
Reference was also made by the learned Government Pleader to the decision of this Court in Commissioner of Income-tax, Kerala v. Casino (Pvt.) Ltd. [1973] 91 I.T.R. 289 where a Division Bench of this Court adopted a liberal construction of the terms "manufacturing" or "processing" of goods. The decisions cited have only tended to confirm the impression, which we formed in the first blush, that a process of "manufacture" is involved in the production of rice by milling paddy, and that rice so produced represents "other goods" different and distinct in nature and character from the paddy from which it was produced.
6. In the course of arguments, we were somewhat troubled by the consequences of our conclusion. We asked the learned Government Pleader whether it would not jar on the ears to hold that the rustic process of a conversion of rice through the pestle and mortar should be a process of manufacture. The rapid extermination of such antiquated methods by the modern sophisticated ones, no less than the rapidly expanding network of sales tax legislations, attempting to bring into the tax-gatherer's net many things which might seem to stand outside its fold, should, we think, supply a sufficient answer to our bewilderment. And there is yet scope for philosophy and sophistry to run riot.
In the view that we take, the Appellate Tribunal was right in its conclusion. We affirm its judgment and dismiss these tax revision cases with no order as to costs.