Karnataka High Court
Nagesh Traders vs Joint Commissioner Of Commercial ... on 19 March, 2001
Equivalent citations: [2001]124STC402(KAR)
Author: R. Gururajan
Bench: R. Gururajan
ORDER M.F. Saldanha, J.
1. The common point and one of some interest both legally and academically that falls for determination in these two petitions hinges around the question as to whether wheat bran and wheat flakes are to be categorisable under a common head for purposes of sales tax. Admittedly, the petitioners are dealing in these two commodities and the decisions of the lower authorities have gone against them to the extent that a distinction has been drawn between wheat bran and wheat flakes to the extent of holding that they require to be classified separately and the short question that this Court is required to decide is as to whether the distinction that has been sought to be made is justifiable or not. We refrain from dealing with the minor issues such as the assessment years, the quantum, etc., because this Court is really called upon to decide the point of law involved and the application given to the decision will automatically follow.
2. The petitioners' learned counsel submitted that in the milling process bran is a by-product. He demonstrated to us from samples which were produced that this wheat bran either emerges in the form of fine powder in which case it is called bran or, in a rougher form in small pieces when it is categorised by the traders as wheat flakes. The essential point that was emphasised by the learned counsel was that the distinction made by the department is wholly unwarranted and artificial because there is no dispute about the common user of these two products in so far as they are both marketed and used exclusively as cattle feed. We need to mention here that the learned Government Advocate was quick to point out that as far as the factual position goes, and he substantiated this by producing the relevant material from the record, that the petitioners themselves list the two items separately and not under a common head for billing purposes. Also, what the learned Government Advocate demonstrated, which is undisputed, is that the prices for the two items are slightly dissimilar. It is on this basis that, whereas the petitioners' learned counsel submitted that the two products are essentially a finer and rougher form of the same item, the learned Government Advocate submitted that there is a very valid and rational distinction that can be made between the two items and that this is the reason why even in the trade they are described as separate items and they fetch different prices. We have borne these facts in mind while applying the various tests for purposes of determining as to whether the department was justified in drawing a distinction between the two items. The petitioners' learned counsel Sri Shankaregowda relied on a number of decisions in support of the principles that have been culled out by him and which he pressed into operation. In the first instance, he drew our attention to a decision of the Madras High Court reported in Balramakrishnaa Flour Mills v. State of Tamil Nadu [1991] 80 STC 106. This is a division Bench decision and the learned counsel placed heavy reliance on it because he contended that the division Bench in that case was dealing with wheat bran which is the same commodity with which we are concerned, that it was also a case where the wheat bran was used as cattle feed and the court in terms recorded the finding that wheat flakes are nothing but a variety of wheat bran. All that the court observed was that the flakes were a rougher form of bran. Next, reliance was placed on a decision of the Supreme Court [Porritts & Spencer (Asia) Ltd, v. State of Haryana] where the commodity involved was a different one namely dryer felts but the learned counsel submitted that the Supreme Court has unequivocally in this case, laid down the principle that the court must go by the dual tests, firstly as to how the item is understood in common parlance and secondly but more importantly, by applying the user test. Learned counsel submitted that when the customer desires to purchase either wheat bran or wheat flakes he is asking for a derivative of the same item, in a different form but that whichever of them is being purchased, the understanding is that it is basically the same commodity which is going to be used as a cattle feed. In order to reinforce this submission, the learned counsel then cited another decision of the Supreme Court reported in Atul Glass Industries (P.) Ltd. v. Collector of Central Excise , wherein the court pointed out that it is essential for the deciding authority to find out as to how precisely the item is identified by the specialist class of people in the trade and the dealers because this is really the barometer for purposes of ascertaining whether the items in question are equitable or not.
3. The learned counsel then placed very heavy reliance on a decision of the Supreme Court (Alladi Venkateswarlu v. Government of Andhra Pradesh). This decision is of considerable importance because this was a case in which a distinction was made between rice and two products which conformed to the description of puffed rice. After carefully considering the items in question, the Supreme Court held that they are all exempt because they must be regarded as one and the same or in other words as different items of rice. While the court considered the aspect that both parched and puffed rice are edible, the important principle that was laid down was that even though they had undergone a process of heating and parching without any ingredients or appreciable changes in chemical composition since there were no separate entries covering each of these items that rice in entry 66 would have to be held to be wide enough to cover both forms of rice. We have had occasion to point out repeatedly that when it comes to the question of classification or categorisation unless the Legislature has consciously picked out and specified an item very clearly that it would not be proper to deny the assessee the benefit that could accrue by ensuring that the item comes under the next best of closest entry provided it is not doing violence to the law or to science. In this regard, purely for the guidance of the tax authorities, we are reproducing below a passage that holds good for all time from this judgment of the Supreme Court which lays down an important guideline :
"We do not think that it is fair to so interpret a taxing statute as to impute an intention to the Legislature to go on taxing what is virtually the same product in different forms over and over again. Such a result would be contrary to basic axioms of taxation. Unless the language of the taxing statute was absolutely clear, it should not be given an obviously unfair interpretation against the assessee."
All that we would like to add here is that an attempt should never be made to bend over backwards and make distinctions purely for the sake of stepping up the rate of tax or denying an exemption when through a plain process of clear logical interpretation such a result is not permissible. Similarly, the tendency to relegate, at the slightest pretext, an item that apparently does not strictly conform to a particular entry to the residuary category is also unjust if it is perfectly permissible to categorise it under a more beneficial or next best head. On the basis of this decision, the petitioners' learned counsel strongly submitted that there could be no better test than that which emerges from this case for purposes of holding that wheat flake and wheat bran in both of which cases there is no subsequent element of processing, would certainly be equitable under the same entry.
4. The learned counsel then drew our attention to another decision of the Supreme Court reported in Krishna Chander Dutta (Spice) Pvt. Ltd. v. Commercial Tax Officer where the Supreme Court again laid down that the functional/common parlance commercial test is sometimes required to be applied and it was held in this case that both pepper and turmeric even though powdered and even though they alter their overall complexion and consistency retain their basic identities and can therefore not be categorised separately. Relying on this principle, learned counsel submitted that bran is at the highest a powdered form of flakes or rather that flakes are an unpondered form of barn and that no distinction can be made between the two. In order to further reinforce his Submission, our attention was invited to another decision of the Supreme Court reported in Commissioner of Sales Tax U.P. v. Lal Kunwa Stone Crusher (P.) Ltd. wherein the Supreme Court had occasion to point out that in the case of stone and crushed stone, the Legislature has made a conscious distinction between the two products even though the genesis of the item is the same and that consequently, where for certain valid reasons differing rates of tax are required to be applied that it would be necessary to categorise the items separately. The learned counsel for the petitioners laid heavy emphasis on the fact that if there was any intention on the part of the Legislature to categorise wheat flake as a separate product and tax it separately, that then it would have been found under a separate entry and since this was not done, the court will have to uphold the petitioners' contention that the item wheat bran is wide enough to include bran in all its forms one of which is flakes. Again, to support this argument the learned counsel pointed out to us that in the decision reported in [2000] 117 STC 312 (State of Kerala v. Namputhiris Pickle Industries) the Supreme Court upheld the position that chillies in their original form cannot be distinguished from the product chilly powder merely because the chillies have been pulverised and because the items may be sold under separate descriptions at slightly varying prices. What was interesting was that the learned counsel also relied on the reverse argument by pointing out to us that in the decision reported in [1994] 92 STC 1 (Namputhiris Pickle industries v. State of Kerala) the Full Bench of the Kerala High Court drew a definite distinction between the chilly powder and curry powder because of the fact that curry power essentially consisted of chilly powder to which other items had been added and therefore it was treated as a separate commodity. Again, in the decision reported in Bheraghat Mineral Industries v. Divisional Deputy Commissioner of Sales Tax [App.] the court laid down that dolomite stone which forms the basic ingredient for the cement industry is not different in its crushed form when it is supplied in stone pieces. This view was confirmed by the Supreme Court in the decision reported in [2000] 120 STC 205 (Divisional Deputy Commissioner of Sales Tax v. Bherhaghat Mineral Industries) by reiterating the view that it was the same product. Thereafter, the learned counsel cited another decision reported in Bangalore Wood Industries v. Asst. Commissioner of Commercial Taxes (Assessment), Hassan wherein he pointed out that even in the case of rafters and beams which had been cut to different sizes the court still upheld the broad classification that it conforms to timber because irrespective of the modifications carried out it still answered the basic market definition of timber. In his reply, the petitioners learned counsel had occasion to draw our attention to another decision of the Supreme Court reported in Atul Glass Industries (P.) Ltd. v. Collector of Central Excise which though a decision under the Excise Act laid down an important principle which has been relied on in the present case. The Supreme Court was dealing with items of sea food such as prawns and shrimps. The department had contended that these products in their raw or virgin form do not bear any resemblance either descriptionwise or pricewise to the processed products. The court took cognizance of the fact that commercially these are regarded as the same commodity but the most important principle laid down by the Supreme Court on the basis of several foreign decisions was that the products retained their original character and identity and regardless of the process of transformation that no distinction is tenable. The learned counsel submitted before us that even in a case of this type where the difference in the product was very much appreciable that the court ultimately examined the question of basic characteristics and identity for purposes of the process of equation.
5. On the basis of these principles the short submission canvassed was that even without entering into any elaborate analysis because the two items namely wheat bran and wheat flakes are so close to each other and so similar and have not undergone any manufacturing process in between that the department was definitely in error in having not clubbed them under the same entry. We reproduce below the wording of the entry in question which is as follows :
"Flour and husks of pulses, flour and soji of maize ; grits and flakes of maize ; parched rice ; rice soji and beaten rice ; bran of rice, wheat and maize."
What was strongly emphasised was the fact that as far as wheat bran is concerned, the entry does not make any distinction between bran and flakes and conversely what the learned counsel points out perhaps with some justification is that in the case of maize where the bran and flakes are both mentioned that they are bracketed under the same entry and qualify for the same rate of taxation and submitted therefore that whichever way one examines the question, it would be irrational and improper to draw any distinction between the two.
6. The learned Government Advocate very vehemently submitted that in order to qualify for exemption it is necessary for the assessee to demonstrate that the form is specific under any of the entries and it was his submission that no process of stretching is permissible. His first submission was that since the entry which refers to bran does not include the item flakes as far as wheat bran is concerned that it would therefore be impermissible to try and include flakes under bran. As indicated by us earlier the learned Government Advocate submitted that where the assessee himself has billed for these items under separate heads and has charged differential prices for them that the assessee is estopped from insisting on for purposes of taxing or enunciating that they must be treated as synonymous. We have elaborately dealt with the principles that can be culled out from the various contentions and it is very clear that the manner in which a product is marketed for commercial reasons or the manner in which it is priced would not be an ultimate, test because there are deeper and more substantial and more cogent methodologies which the law applies when it comes to the question of taxation or exemption all of which revolve around the wording of the entries and mention or non-mention of a particular item.
7. The learned Government Advocate drew very heavy assistance from the decision of the Supreme Court commonly known as Rajasthan Roller Flour Mills case wherein admittedly, the Supreme Court held that while dealing with wheat flour, maida and suji derived from wheat are not wheat within the meaning of item (iii) of Section 14(i) of the Central Sales Tax Act, 1956 and they are different and distinct goods from wheat. The Supreme Court held that even though wheat, is consumed for producing these items, the commodities obtained are different commodities from wheat, that wheat loses its identity but gets consumed and in its place new goods/commodities emerge. New goods so emerging have a higher utility than the commodity consumed, they are different goods commercially speaking. It is on the basis of these principles that the learned Government Advocate submitted that the department was fully and completely justified in having refused to equate wheat bran with flakes and the learned Government Advocate submitted that it is this decision which would cover the fate of the present case. He also submitted that the Supreme Court had occasion to consider the earlier decision reported in Alladi Venkateswarlu v. Government of Andhra Pradesh [1978] 41 STC 394 and to hold that the principles which apply to that case where the court was dealing with rice did not hold good in the present instance. We have very carefully evaluated the principles laid down by the Supreme Court in this case and we need to first of all observe that the case itself is distinguishable on facts because we are here dealing with wheat bran and wheat flakes and in neither of the two cases does the wheat cease to exist and a new product emerges. Secondly, the two items that are being equated do not lose their identities or characteristics if they are interchanged from one to the other and in our considered view, the Supreme Court drew a broad distinction in the Rajasthan Roller Flour Mills case . That principle will not hold good as far as the present situation is concerned. Lastly, the learned Government Advocate submitted that as far as the present case is concerned, the petitioners are precluded from or estopped from contending that they are equitable as they themselves are treating them as separate products. We have had occasion to observe that the commercial marketability aspect is the last and the least reliable of the tests that would apply and we have gone on the basis of the more reliable and broader and deeper principles that have been discussed by us earlier for purposes of arriving at an ultimate decision.
8. Having very carefully evaluated the principles that have been culled out from the decisions cited by us, having evaluated the submissions very competently placed before us both the learned counsel who have been of immense assistance to the court in the course of the hearing and more importantly, having independently appraised the items in question and having applied our minds to the differences or similarities, identities and characteristics of wheat bran and wheat flakes, in our considered view, no distinction is permissible between the two. They would both qualify for consideration under one and the same entry. To this extent therefore the department was in error in having drawn a distinction between the two items. We summarise our findings on the points of law referred to the court in so far as we hold that the department was in error in having categorised wheat bran and wheat flakes separately, that the two products are equitable and that they would qualify for tax/exemption, wherever applicable equally in the light of our findings. The impugned orders wherein a contrary view has been taken would necessarily have to be set aside and the department is directed to take consequential corrective action within an outer-limit of four months from the date of the receipt of the order by the department.
9. The petitions accordingly succeed. In the circumstances of the case, there shall be no order as to costs.