Andhra HC (Pre-Telangana)
P. Subba Raju & Company vs The State Of Andhra Pradesh on 12 June, 1987
Equivalent citations: [1989]72STC317(AP)
Author: B.P. Jeevan Reddy
Bench: B.P. Jeevan Reddy
JUDGMENT Upendralal Waghray, J.
1. These two T.R.Cs. under section 22(1) of the Andhra Pradesh General Sales Tax Act (hereinafter referred to as "the APGST Act") are filed by the same assessee and the controversy is about the assessment year 1978-79. T.R.C. No. 2 of 1984 relates to the assessment under the APGST Act and T.R.C. No. 6 of the 1984 relates to the assessment under the Central Sales Tax Act.
2. The assessee in connection with his business purchases bones of recently killed animals (raw bones) from various parsons in the State, who are not registered dealers under the Act and after drying the bones, gets them crushed in a mill. This operation results in products like, crushed bones, bone grist, bone-meal and sinews. These products are sold by the assessee to various persons in the State and outside the State. The purchase of raw bones by the assessee from the unregistered dealers is the first sale in the State and this was taxable at 1 per cent under the APGST Act vide item 62 of the First Schedule. It is not disputed that the raw bones purchased by the petitioner from the unregistered dealers did not suffer any tax. At the relevant time section 5(1) of the Act provided for levy of tax at 4 per cent on the turnover of a dealer except in respect of those goods which were specified in any of the Schedules referred to under section 5(2). Section 5(2) provides for a single point levy of tax as mentioned in the various Schedules. We are concerned with the First Schedule. Item 62 of the said Schedule at the relevant date reads as follows :
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"62. Bones and horns of animals At the point of 1 paisa in the (1062) first sale in the rupee."
State.
Another item 23 of the same Schedule reads as follows :
"23. Chemical fertilizers and At the point of 3 paise in the bone-meal (1023) first sale in the rupee."
State.
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3. The authorities have held that two products obtained by the assessee after crushing the dried raw bones, viz., sinews and bone-meal, are new commercial commodities, i.e., other than bones. They held that sinews are liable to tax under section 5(1) of the Act at 4 per cent and bone-meal is liable to tax at 3 per cent under section 5(2) read with item 23 of the First Schedule. The Tribunal has relied upon the decision of the Madhya Pradesh High Court reported in Shaw Leiner Ltd. v. Sales Tax Officer [1982] 51 STC 169 for the conclusion that sinews are different commercial commodities from bones. The authorities further levied tax under section 6-A of the Act in respect of purchase of raw bones referable to the production of sinews and bone-meal. The main controversy raised in these two cases by the counsel for the petitioner is about the liability to the assessee to pay tax under section 6-A in respect of purchase of raw bones made by him. A subsidiary controversy is raised in T.R.C. No. 6 of 1984, viz., that by virtue of section 8(2A) of the Central Sales Tax Act, the levy under that Act for the inter-State turnover should be restricted to the lower rate of tax under the APGST Act payable on bones, viz., 1 per cent and not 4 per cent under the Central Sales Tax Act. If, however, the first contention is held against the petitioner that they are not bones, the second controversy will not survive.
4. It is urged by Sri Dasaratharama Reddi, learned counsel for the assessee, that no process of manufacture is involved in drying and crushing of the raw bones and sinews are the dried up fibre tissues which are attached to the bones. According to him, no new goods are produced nor is there any consumption of raw bones as contemplated by section 6-A of the Act. There is no controversy before us regarding the sale by the petitioner of the other products or any liability of the petitioner under section 6-A in respect of the purchase of raw bones referable to those products. It is useful to extract section 6-A of the Act as it stood then :
"6-A. Levy of tax on turnover relating to purchase of certain goods. - Every dealer, who in the course of business :
(i) purchases any goods (the sale or purchase of which is liable to tax under this Act) from a registered dealer in circumstances in which no tax is payable under section 5 or under section 6, as the case may be, or
(ii) purchases any goods (the sale or purchase of which is liable to tax under this Act) from a person other than a registered dealer, and
(a) consumes such goods in the manufacture of other goods for sale or consumes them otherwise, or
(b) disposes of such goods in any manner other than by way of sale in the State, or
(c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay tax on the turnover relating to purchase aforesaid at the same rate at which but for the existence of the aforementioned circumstances, the tax would have been leviable on such goods under section 5 or section 5-A or section 6 :
Provided that in respect of declared goods such rate together with the rate of additional tax specified in section 5-A shall not exceed four per cent of the purchase price of such goods."
5. The validity of this section has been upheld by a Division Bench of this Court in Hindustan Milkfood Manufacturers Ltd. v. State of A.P. which had followed various decisions of the Supreme Court. A reading of the aforesaid section 6-A in the background of the scheme of the Act shows that it is a remedial provision which seeks to make the purchaser of goods liable to tax if those goods had not suffered tax on the occasion of purchase by the said dealer. The principle being that goods liable to tax shall not escape the levy. Section 6-A(ii)(a) contemplates a situation where certain goods purchased (which were liable to tax, but did not suffer tax) are consumed in the production of other goods. In the present case the raw bones are liable to tax under section 5(2) read with item 62 of the First Schedule at the point of first sale in the State. It is not disputed that the raw bones purchased by the assessee from the dealers who are not registered under the Act have not suffered any sales tax. A liability is imposed on the petitioner as the purchaser of raw bones to the extent they are consumed in the manufacture of other goods in view of section 6-A(ii)(a) of the Act. According to the counsel for the petitioner there was neither any consumption of raw bones nor any manufacture resulting in other goods (i.e., sinews). He has referred to some decisions for this purpose. In Deputy Commissioner of Sales Tax v. Pio Food Packers , it has been held by the Supreme Court that the preparation of pineapple slices from raw pineapple does not result in the production of a new commercial commodity. Section 5-A of the Kerala General Sales Tax Act which is similar to section 6-A of the Andhra Pradesh Act fell for consideration and it was held that although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity and no new commodity, i.e., "other goods", was produced. In this view it was held that there was no liability to tax under that provision.
6. The next case is State of Tamil Nadu v. Subbaraj and Company [1981] 47 STC 30, a decision of the Madras High Court where section 7-A of the Tamil Nadu General Sales Tax Act, which is similar to our section 6-A, fell for consideration. In that case also raw bones purchased by the assessee after being crushed were converted into bone grists, bone-meal, fluff horns and hoof. It was held that the aforesaid products were also bones and the process of crushing of bones did not result in the production of other goods or consumption of raw bones. The Madras High Court has relied upon the decision of the Supreme Court reported in Deputy Commissioner of Sales Tax v. Pio Food Packers .
7. The next decision relied upon by the counsel for the assessee is also of the Supreme Court reported in Sterling Foods v. State of Karnataka , where section 5(3) of the Central Sales Tax Act fell for consideration. The assessee in that case purchased shrimps, prawns and lobsters obtained from the sea and after cutting the heads and tails, cleaning and freezing exported them. Following the earlier decision in Deputy Commissioner of Sales Tax v. Pio Food Packers the Supreme Court held that no new commodity was produced as a result of the aforesaid process.
8. The counsel for the petitioner has also referred to a decision of this Court in Nandanam Construction Company v. Assistant Commissioner [1983] 53 STC 42 where the interpretation of section 6-A(a) of the Act fell for consideration. The Bench has referred to a conflict in two Supreme Court judgments, viz., Ganesh Prasad Dixit v. Commissioner of Sales Tax [1969] 24 STC 343 and Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63, regarding the expression "or otherwise" used in a similar provision. The Bench chose to follow the subsequent decision of the Supreme Court and held that the goods purchased by the dealer should be consumed by him in the manufacture of other goods for attracting the liability under section 6-A(ii)(a) as it stood then. It is also pointed out by the learned counsel that as a consequence of this decision, section 6-A(ii)(a) of the Act was amended by Act 18 of 1985 with effect from 1st July, 1985. In that case, the assessee was carrying on the business of construction of ownership flats and purchased granite, bricks, sand, etc., which were used in the construction of flats. It was held that the aforesaid process was neither a manufacture nor resulted in production of any new goods. The ratio of this case does not help the petitioner, as here the drying and crushing of raw bones results in production of goods which were sold by the assessee. The controversy is whether there is a manufacture and the raw bones are consumed in that process producing different commodity.
9. The learned Government Pleader has referred to three decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax [1969] 24 STC 343, State of Tamil Nadu v. Kandaswami [1975] 36 STC 191 and State of Karnataka v. Raghurama Shetty [1981] 47 STC 369. In the first case, section 7 of the Madhya Pradesh General Sales Tax Act fell for consideration. A building contractor purchased goods like sand, bricks etc., which were used by him in the course of his business of construction of buildings. It was held that the goods or material purchased by him were consumed by the assessee and therefore he was liable to pay tax in respect of the turnover for the said purchases. The controversy whether the construction of flats amounts to a production of goods which was pointed out in the Bench decision of this Court need not detain us, as in the present case goods are produced as a result of the process in this case.
10. In the next case the provisions of section 7-A of the Madras General Sales Tax Act fell for consideration. The ratio of the earlier decision in Ganesh Prasad Dixit v. Commissioner of Sales Tax was followed and the appeal was allowed holding that (a) the goods purchased by the assessee like gingelly seeds had not suffered tax hitherto and (b) the conversion by the assessee of the goods like gingelly seeds into oil, etc., results in the production of new commodities. The assessee was held liable to pay tax on the purchase turnover of gingelly seeds.
11. In the third case, section 6 of the Karnataka Sales Tax Act fell for consideration by the Supreme Court and the assessee were owners of rice mills. They used to purchase paddy from agriculturists and convert it into rice and sell the resultant rice in the market. The question was whether the paddy was consumed in the process and the resultant product rice was a new commodity as understood in commercial circles. The Supreme Court held the paddy purchased by the assessees had not suffered tax, the paddy was consumed in the process which yielded a new commodity - rice and the assessees are liable to pay tax on the purchase of paddy. The test is to see whether a new commodity (i.e., other than the one purchased) is produced by the process employed. "Manufacture" for this purpose has been given a wide connotation and is understood to include any process where a conversion of goods purchased by the assessee (i.e., consumption takes place) with a different commodity takes place. In the case of pineapples or shrimps it was held that even after the process no new commodity is produced, that is, there is to consumption of goods purchased. In the Bench decision of our Court it was held that by using sand, etc., in the construction of a building no "goods" were produced and we are not concerned with that controversy here.
12. In State of Tamil Nadu v. Subbaraj and Company [1981] 47 STC 30 the Madras High Court followed the Supreme Court decision in Deputy Commissioner of Sales Tax v. Pio Food Packers but the question whether sinews are a commodity different from bones was not considered. It is also not clear whether bone-meal was separately treated from bones under the Madras Act. The Pio Food Packers' case regarding pineapples will not apply where a different commodity from the one which was purchased in produced as a result of the process adopted by the assessee. The Madhya Pradesh High Court has held that sinews are a commodity different from bones after referring to some literature on the subject. We agree with the conclusion of the Madhya Pradesh High Court on this aspect.
13. In our case, sinews and bone-meal are commodities different from raw bones as understood in commercial circles and these products were meant for sale by the petitioner. The different entries in the First Schedule regarding bone and bone-meal also indicate the legislature's recognition about this. The validity of these entries is not challenged. Therefore, the Tribunal is right in holding that the assessee's turnover of purchase of raw bones to the extent it was consumed for the production of bone-meal and sinews is liable to tax under section 6-A(ii)(a) of the Act. The controversy under section 8-A of the Central Sales Tax Act does not survive in view of the conclusion reached above.
14. The T.R.Cs. are, therefore, dismissed, but in the circumstances, without costs.
15. Petition dismissed.