Kerala High Court
Deputy Commissioner Of Sales Tax (Law), ... vs K.V. Balakrishnan on 23 August, 1990
Equivalent citations: [1991]81STC424(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. These are connected cases. The Revenue is the petitioner in this batch of seven cases. The respondent, in all the cases, is the same. The respondent is an assessee under the Kerala General Sales Tax Act, 1963. The matter relates to the assessment years 1976-77, 1977-78, 1978-79, 1979-80, 1980-81, 1981-82 and 1982-83. The assessee is a manufacturer of wet grinders. The purchase turnover on the items such as bearings, crown, belt, fire-clay, drums, cables, hardware, paint, casting iron scrap, etc., were brought to lax under Section 5A of the Kerala General Sales Tax Act holding that they were consumed in the process of manufacture of wet grinders. Admittedly, the said items were not taxed under Section 5 of the Act. The assessments were upheld in first appeals. But, in the second appeals filed by the assessee, the Sales Tax Appellate Tribunal, by a common order dated July 25, 1989, held that the purchase turnover relating to the said items cannot be taxed under Section 5A of the Kerala General Sales Tax Act. The Appellate Tribunal held that the said items which are consumable stores cannot be said to be "consumed" in the manufacture of other goods since the language used in Section 5A of the Act is not "uses such goods in the manufacture of other goods". A direction was given to delete the amounts (the purchase price) of the said goods from the turnover determined under Section 5A of the Act. Thereafter, the Revenue has filed this batch of seven tax revision cases assailing the common order passed by the Sales Tax Appellate Tribunal dated July 25, 1989.
2. We heard counsel for the Revenue, Special Government Pleader (Taxes), Mr. N.N. Divakaran Pillai, as also counsel for the respondent/ assessee Mr. O. Ramachandran Nambiar. Counsel for the Revenue submitted that the Appellate Tribunal was in error in holding that the purchase turnover of the items such as bearings, crown, belt, fire-clay, drums, cables, hardware, paint, casting iron scrap, etc., are not exigible to tax under Section 5A of the Act. Counsel for the respondent/assessee submitted that the said goods were only used in the manufacture of other goods and there is no consumption as envisaged by Section 5A(1)(a) of the Act to attract the levy of tax.
3. On hearing the rival contentions of the parties, we are of the view that the reasoning and conclusion of the Appellate Tribunal, holding that the items such as bearings, crown, belt, fire-clay, drums, cables, hardware, paint, casting iron scrap, etc., are not exigible to purchase tax under Section 5A of the Act, is a clear error. Admittedly, the assessee is a manufacturer of wet grinders. The above items formed components of the end-product--wet grinders. Is it possible to say that there is no consumption of the said goods in the manufacture of other goods for sale ? In our opinion, the answer should be in the negative.
4. Section 5A(1)(a) of the Kerala General Sales Tax Act runs as follows:
"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 ; or ...............
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."
The scope of the above section has been discussed in the decisions of this Court and the Supreme Court, vide--Malabar Fruit Products Company v. Sales Tax Officer [1972] 30 STC 537 (Ker), Yusuf Shabeer v. State of Kerala [1973] 32 STC 359 (Ker), State of Tamil Nadu v. Kandaswami [1975] 36 STC 191 (SC). The Supreme Court approved the decision of the Kerala High Court in Yusuf Shabeer's case [1973] 32 STC 359 in [1975] 36 STC 191 (State of Tamil Nadu v. Kandaswami) at page 201. In State of Karnataka v. Raghurama Shetty [1981] 47 STC 369 (SC), the question arose whether the assessees (millers) were liable to pay purchase tax under Section 6(i) of the Karnataka Sales Tax Act on the turnover consisting of the price paid by them for purchasing paddy, which were converted into rice for sale. The Karnataka High Court held that paddy and rice being the same, it cannot be said that the assessees/millers had manufactured "other goods" out of paddy and so Section 6(i) of the Karnataka Sales Tax Act is not attracted. [It should be stated that Section 6(i) of the Karnataka Sales Tax Act is substantially similar to Section 5A(1)(a) of the Kerala General Sales Tax Act.]. Venkataramiah, J., delivering the judgment of the Supreme Court highlighted the meaning of the word "consumption" occurring in the statute, as follows :
"...................Consumption in the true economic sense does not mean only use of goods in the production of consumers' goods or final utilisation of consumers' goods by consumers involving activities like eating of food, drinking of beverages, wearing of clothes or using of an automobile by its owner for domestic purposes. A manufacturer also consumes commodities which are ordinarily called raw materials when he produces semi-finished, goods which have to undergo further processes of production before they can be transformed into consumers' goods. At every such intermediate stage of production, some utility or value is added to goods which are used as raw materials and at every such stage the raw materials are consumed. Take the case of bread. It passes through the first stage of production when wheat is grown by the farmer, the second stage of production when wheat is converted into flour by the miller and the third stage of production when flour is utilised by the baker to manufacture bread out of it. The miller and the baker have consumed wheat and flour, respectively, in the course of their business. We have to understand the word 'consumes' in Section 6(i) of the Act in this economic sense."
Quoting the observations in Anwarkhan Mehboob Co. v. State of Bombay [1960] 11 STC 698 (SC) at 702-703, the learned Judge stated as follows :
"Consumption consists in the act of taking such advantage of the commodities and services produced as constitutes the 'utilisation' thereof."
Finally, the court said that :
"...................the assessees had consumed the paddy purchased by them when they converted it into rice which is commercially a different commodity."
In Deputy Commissioner of Sales Tax v. Thomas Stephen & Co. Ltd. [1988] 69 STC 320 (SC), the question arose whether the manufacturer, a dealer in tiles, terra-cotta wares and ceramics, can be assessed on the purchase turnover of cashew shells, lime shells and consumed stores, etc., which were used as fuel in the kiln and factory of the assessee for the manufacture of tiles and other goods. The court held that cashew shells purchased were used as fuel and lime shells and consumed stores were used for maintenance of the kiln and factory and the purchase turnover of such goods cannot be brought to tax under Section 5A(1)(a) or (b) of the Kerala General Sales Tax Act. In considering the content of Section 5A(1)(a) of the Kerala General Sales Tax Act, Sabyasachi Mukharji, J., delivering the judgment of the Bench, observed, at page 323, as follows :
"...............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."
5. The Sales Tax Appellate Tribunal held that "the items in the instant case cannot be said to be consumed in the manufacture of other goods for sale and further that since tax is suffered under Section 5 of the Act, when the ultimate goods are sold the provisions contained in Section 5A of the Act could not be attracted." It was also stated that the items in the instant case which are consumable stores cannot be said to be "consumed" in the manufacture of other goods since the language used in Section 5A is not "uses such goods in the manufacture of other goods". We are afraid that the Appellate Tribunal has totally misunderstood the language and content of Section 5A(1)(a) of the Kerala General Sales Tax Act. The fact that the end-product suffered tax under Section 5 of the Act is irrelevant. We are concerned with the exigibility to tax of the goods purchased which were used as components for the end-product, which no doubt are independently taxable if they are commercially distinct and different goods and not taxed under Section 5 of the Act.
6. We are of the view that the approach made by the Sales Tax Appellate Tribunal is plainly erroneous and unsustainable. We are of the view that in manufacturing the end-product "wet grinders", various items such as bearings, crown, belt, fire-clay, drums, cables, hardware, paint, casting iron scrap, etc., were taken advantage of and utilised for the end-product. The said items were components which went into the making of the end-product. In the circumstances, it cannot be denied that the said items were consumed in the manufacture of other goods for sale. The purchase turnover of such goods are exigible to tax under Section 5A(1)(a) of the Act. The Tribunal was clearly in error in taking a different view.
7. Counsel for the respondent vehemently contended that the various items were only "used" in the manufacture of wet grinders and so it cannot be said that they were "consumed" in the manufacture of the end-product. Strong reliance was placed on two Bench decisions of the Madras High Court reported in State of Tamil Nadu v. Associated Sales of India [1980] 46 STC 401 and State of Tamil Nadu v. Subbaraj & Co. [1981] 47 STC 30. In [1980] 46 STC 401 (State of Tamil Nadu v. Associated Sales of India) the Madras High Court held that when folded clips were purchased from unregistered persons and used in the manufacture of office files, it cannot be said that the folded clips were consumed in the manufacture of office files. It was held that the purchase turnover of folded clips did not attract tax under Section 7A of the Tamil Nadu General Sales Tax Act [corresponding to Section 5A(1)(a) of the Kerala General Sales Tax Act]. Similarly, in [1981] 47 STC 30 (Mad.) (State of Tamil Nadu v. Subbaraj & Co.) when raw bones were purchased and converted into crushed bones by a process of breaking in disintegrator, the court held that there was no consumption of the goods purchased in the manufacture of other goods. Relying on the above two decisions of the Madras High Court, counsel for the assessee vehemently contended that the purchase turnover on the items such as bearings, crown, belt, fire-clay, drums, cables, hardware, paint, casting iron scrap, etc., cannot be brought to tax under Section 5A(1)(a) of the Kerala General Sales Tax Act.
8. With great respect to the learned Judges of the Madras High Court, we arc of the opinion that in view of the observations contained in the later decisions of the Supreme Court reported in Raghurama Shetty's case [1981] 47 STC 369 and Thomas Stephen & Co. Ltd, case [1988] 69 STC 320 at 323, the two Madras decisions brought to our notice cannot be said to lay down the correct law on the subject.
9. The common order of the Sales Tax Appellate Tribunal dated July 25, 1989, is set aside to the above extent. The above lax revision cases are allowed.