Patna High Court
North Koel Kendu Leaves And Mahulam ... vs Union Of India (Uoi) And Ors. on 6 March, 1997
Equivalent citations: [1997]228ITR630(PATNA)
JUDGMENT Nagendra Rai, J.
1. The common question of law is involved in all the five cases and as such they have been heard together and are being disposed of by this common judgment.
2. The petitioners, assessees under the Income-tax Act and traders in kendu leaves, have filed the present writ applications for a declaration that the main provision of Sub-section (1) of Section 206C of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), is not applicable and their case is covered by the proviso to the said sub-section and, accordingly, a direction may be issued to respondents Nos. 2 and 3 (CIT, Ranchi and Income-tax Officer, Daltonganj Ward) to give exemption certificate in terms of the proviso to the aforesaid section read with rule 37C of the Income-tax Rules, 1962 (hereinafter referred to as "the Rules"), in the prescribed Form No. 27C and for quashing the decision taken by the Government of India, Ministry of Finance, Department of Revenue (respondent No. 1) on January 10, 1996, holding that the provision of Section 206C(1) shall be applicable in the case of kendu leaves traders as the exception carved out in the proviso to Sub-section (1) of Section 206C is not applicable in their case.
3. The petitioners' case is that they purchase the kendu leaves from the forest department or from the Bihar State Forest Development Corporation (hereinafter referred to as "the Corporation") and after processing the same they sell them to manufacturers of bidis. The Corporation invites tenders for advance sale of kendu leaves on lump sum basis every year in accordance with the terms and conditions of the tender notice read with the relevant rules. The successful tenderers have to take delivery of the kendu leaves within 48 hours after the same are plucked from the bushes or brought to the collection centre. If delivery is not taken within the aforesaid period there is every chance of deterioration of the leaves. After taking delivery they dry the leaves for a period of five days, The drying process is to be skillfully done so that the whole kendu leaves may be dried from all the sides. After drying, water has to be sprinkled on the dried kendu leaves for maintaining the requisite moisture. Thereafter, the leaves are sorted out and screened after discarding the damaged leaves. After screening, the properly dried and sprinkled leaves are packed in bundles and thereafter they are transported to airtight godown for further preserving the quality and colour of the bidi leaves, which are kept in the godown for a period of one month and thereafter sold in the market. Due to the aforesaid activities or processes the kendu leaves are converted into bidi leaves of reddish colour. In other words, by adopting the entire process the kendu leaves are converted into a marketable commodity known as bidi leaves.
4. Section 206C of the Act, which came into effect from 1988 contains a provision for collection of tax at source in respect of profits and gains from the business of trade in alcoholic liquor, forest produce, scrap, etc. According to the said provision, the tax has to be collected at source at the rate of 15 per cent, on the sale price of any forest produce other than timber. The Corporation, which is a seller, according to the said provisions, has to collect the income-tax at the aforesaid rate of sale price of the kendu leaves from the purchasers provided the purchases are made . for trading purposes. According to the proviso, no tax has to be collected at source from the purchasers if the kendu leaves are utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes. In case the proviso is attracted then a certificate has to be issued by an Assessing Officer in accordance with the provisions in Form No. 27C. The purchase of kendu leaves by the petitioners is not trading purposes. On the other hand, the kendu leaves after processing in the manner as mentioned above are converted into bidi patties and as such in the case of purchase of kendu leaves the tax cannot be deducted at source in terms of the provisions of Sub-section (1) of Section 206C of the Act.
5. The Maharashtra Kendu Leaves Merchant Association made a representation to the Finance Ministry to the effect that the operation carried out by the kendu leaves merchants after purchase of the kendu leaves and before sale would constitute processing and as such no tax should be collected at source from the purchases made by such traders. The Government of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, by letter dated January 23, 1989, informed the president of the aforesaid Association that the operations of drying and sprinkling of water, etc., on the kendu leaves purchased by the traders would constitute processing. No tax would be collectible at source in respect of the purchases made by such traders and their profit and loss would be computed in accordance with the provisions of the Income-tax Act. A copy of the said letter has been annexed as annexure-1 to the writ application.
6. Accordingly, the petitioners used to apply for grant of certificate of exemption under the provisions of rule 37C of the Rules and the authorities used to issue necessary exemption certificate in Form No. 27C. They applied for the exemption certificate for the year 1966-67 (sic), but no exemption certificate was granted and thereafter they approached the higher authority but no relief was granted on the ground that the Central Board of Direct Taxes issued another letter dated January 10, 1996, withdrawing the clarification dated January 23, 1989, and has opined that the operations carried out by the kendu leaves traders like drying, sprinkling of water, bundling of kendu leaves, etc., do not change the nature and character of the leaves and these are performed only to maintain .the leaves in saleable and marketable condition. Thus, the operations do not result in any change of the products and as such the provision of Section 206C is applicable in their cases and not the exception as carved out in the proviso to Sub-section (1) of Section 206C. A copy of the said letter has been annexed as annexure-2 to the writ application.
7. Thus, the petitioners have claimed for quashing of annexure-2 as well as for a declaration that their case is covered by the proviso to Sub-section (1) of Section 206C as the activities after the purchase of kendu leaves prior to sale to the bidi merchants constitute processing and as such the tax in case of purchase by them cannot be deducted at source and they are entitled to certificates in terms of the proviso to Section 206C read with rule 37C of the Rules.
8. The stand of the Revenue Department is that the Corporation invites tenders for the kendu leaves every year and the entire works like drying, sprinkling of water, bundling of kendu leaves are done by the Corporation at its own cost. Alternatively, their stand is that mere drying, sprinkling of water, bundling of the kendu leaves, etc., cannot be equated with processing as the said activities do not change the nature and character of the kendu leaves and the processes are performed only to maintain the leaves in saleable and marketable condition.
9. The petitioners have not filed a reply to the counter affidavit. But they have filed a copy of the tender notice for advance sale of kendu leaves, 1996 session, from a perusal of which it appears that after delivery of kendu leaves is taken by the purchasers they have to perform all the activities such as drying, sprinkling of water, sorting out, bundling of the kendu leaves and keeping the same in the bags. Thus, in view of the aforesaid terms of the tender notice, the correctness of which has not been denied by the respondent department, it has to be accepted that after taking delivery of the kendu leaves the purchasers have to do drying, sprinkling of water, sorting out, bundling of kendu leaves and transport ing the same to the godowns and they have to bear all the costs.
10. If the purchase of kendu leaves is for trading purpose then it is an admitted position that the tax has to be collected at source by the seller from the buyers of leaves at the rate mentioned in Sub-section (1) of Section 206C. However, if the goods purchased by the petitioners are utilised for the purposes of processing then the proviso will be applicable and the petitioners are entitled to certificates of exemption. The answer to this question depends upon the determination of the question as to whether the activities of the petitioners, namely, drying, sprinkling, sorting out, bundling of kendu leaves, etc., amount to processing of the bidi leaves or not.
11. To consider the rival contentions of the parties it will be apt to refer to the relevant provisions having a bearing on the question in controversy.
12. Section 206C of the Act runs as follows :--
" (1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to the percentage specified in the corresponding entry in column (3) of the said Table, of such amount as income-tax :
Table Sl. No. Nature of goods Percentage (1) (2) (3)
(i) Alcoholic liquor for human consumption (other than Indian-made foreign liquor) Fifteen per cent.
(ii) Timber obtained under a forest lease
(iii) Timber obtained by any mode other than under a forest lease.
Five per cent.
(iv) Any other forest produce not being timber Fifteen per cent.
Provided that where the Assessing Officer, on an application made by the buyer, gives a certificate in the prescribed form that to the best of his belief any of the goods referred to in the aforesaid Table are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes, the provisions of this sub-section shall not apply so long as the certificate is in force.
(2) The power to recover tax by collection under Sub-section (1) shall be without prejudice to any other mode of recovery.
(3) Any person collecting any amount under Sub-section (1) shall pay within seven days the amount so collected to the credit of the Central Government or as the Board directs.
(4) Any amount collected in accordance with the provisions of this section and paid under Sub-section (3) shall be deemed as payment of tax on behalf of the person from whom the amount has been collected and credit shall be given to him for the amount so collected on the production of the certificate furnished under Sub-section (5) in the assessment made under this Act for the assessment year for which such income is assessable.
(5) Every person collecting tax in accordance with the provisions of this section shall within ten days from the date of debit or receipt of the amount furnish to the buyer to whose account such amount is debited or from whom such payment is received, a certificate to the effect that tax has been collected, and specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed.
(5A) Every person collecting tax in accordance with the provisions of this section shall prepare half yearly returns for the period ending on 30th September and 31st March in each financial year, and deliver or cause to be delivered to the prescribed income-tax authority such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed.
(6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of Sub-section (3).
(7) Without prejudice to the provisions of Sub-section (6), if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of two per cent, per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax was actually paid.
(8) Where the tax has not been paid as aforesaid after it is collected, the amount of the tax together with the amount of simple interest thereon referred to in Sub-section (7) shall be a charge upon all the assets of the seller, Explanation. -- For the purposes of this section, --
(a) 'buyer' means a person who obtains in any sale, by way of auction, tender or any other mode, goods of the nature specified in the table in Sub-section (1) or the right to receive any such goods but does not include,--
(i) a public sector company,
(ii) a buyer in the further sale of such goods obtained in pursuance of such sale, or
(iii) a buyer where the goods are not obtained by him by way of auction and where the sale price of such goods to be sold by the buyer is fixed by or under any State Act ;"
13. The certificate of exemption according to the proviso to Sub-section (1) of Section 206C is granted under the provision of rule 37C of the Rules, which runs as follows ;
" 37C. Certificate for no collection of tax at source under Section 206C(1). -- (1) The certificate to be given by the Assessing Officer to the effect that any of the goods referred to in the Table in Sub-section (1) of Section 206C are to be utilised for the purposes of manufacturing, processing or producing articles or things and not for trading purposes shall be in Form No. 27C.
(2) The certificate given under Sub-rule (1) shall be valid for such period (not exceeding one year from the date of certificate) as the Assessing Officer may specify therein, unless it is cancelled by him at any time before the expiry of the specified period, (3) An application for a fresh certificate may be made, if required, after the expiry of the period of validity of the earlier certificate.
(4) The certificate shall be valid only for the person named therein."
14. The clarification dated January 10, 1996, contained in annexure-2 runs as follows :
"I am directed to refer to your letter F. No. CCIT/MP/Tech. 5/3-146 of 1994-95/Vol. III/5563, dated February 13, 1995, on the subject mentioned above. The issue for consideration was whether the operations of drying, sprinkling of water, bundling of tendu leaves, etc., constitute processing and place tendu leaf-traders outside the purview of Sections 44AC and 206C of the Income-tax Act, 1961.
It is found that the operations carried out by the tendu leaf-traders do not change the nature and character of the leaves and these are performed only to maintain the leaves in a saleable and marketable condition. Further, such operations do not result in any change in the product. Therefore, mere drying, sprinkling of water, bundling of tendu leaves, etc., cannot be equated with processing.
Various judicial pronouncements, available abuses subsequent to be issue of the aforesaid clarification, dated January 23, 1989, through our F. No. 150/165 of 1988-TPL support the above position, making it incumbent to withdraw the view expressed earlier and to clarify that the provisions of Section 206C, shall be applicable to the case of tendu leaf-traders as the exception carved out in the proviso to Sub-section (1) of Section 206C is not applicable in such cases. A copy of the letter withdrawing the clarification issued earlier, vide letter dated 23rd January, 1989, is enclosed."
15. The word "processing" has been used in different contexts in different Acts. The said word is of wide amplitude. It has various shades of meaning and it has been interpreted in different ways under various enactments. The word "processing" has not been defined under the Act. The meaning of said word "processing" came up for consideration before the apex court in the case of Chowgule and Co. P. Ltd. v. Union of India [1981] 47 STC 124. In that case the question for consideration was as to whether the goods purchased by the assessee engaged in the business of mining ore and selling it in the export market for use in different operations carried out by it for the aforesaid purposes can be said to be goods purchased for use in the manufacture or processing of goods for sale or in mining so as to attract the lower rate of sales tax under Section 8(1)(b) of the Central Sales Tax Act, 1956. It appears that the sales tax authority in that case held that the activities of blending of ore while loading it in the ship by means of a mechanical ore handling plant did not constitute manufacturing or processing of ore for sale within the meaning of Section 8(3)(b). Dealing with the said matter, the apex court held as follows (page 130) :
" It still remains to consider whether the ore blended in the course of loading through the mechanical ore handling plant can be said to undergo processing when it is blended. The answer to this question depends upon what is the true meaning and connotation of the word 'processing' in Section 8(3)(b) and rule 13. This word has not been defined in the Act and it must, therefore, be interpreted according to its plain nature meaning. Webster's Dictionary gives the following meaning of the word 'process': 'to subject to some special process or treatment, to subject (especially raw material) to a process of manufacture, development or preparation for the market, etc., to convert into marketable form as livestock by slaughtering, grain by milling, cotton by spinning, milk by pasteurising, fruits and vegetables by sorting and repacking'. Where, therefore, any commodity is subjected to a process or treatment with a view to its 'development or preparation for the market', as, for example, by sorting and repacking fruits and vegetables, it would amount to processing of the commodity within the meaning of Section 8(3)(b) and rule 13. The nature and extent of processing may vary from case to case ; in one case the processing may be slight and in another it may be extensive; but with each process suffered, the commodity would experience a change. Wherever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical force or pressure without addition or admixture of any other material and yet the operation would amount to processing of camphor powder as held by the Calcutta High Court in Sri Om Prakas Gupta v. CCT [1965] 16 STC 935. What is necessary in order to characterise an operation as 'processing' is that the commodity must, as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore possessing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical compositions demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical compositions, because what is produced by such blending is ore of a different chemical and physical composition. When the chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to 'processing' of ore within the meaning of Section 8(3)(b) and rule 13. It is no doubt true that the blending of ore of diverse physical and chemical compositions is carried out by the simple act of physically mixing different quantities of such ore on the conveyor belt of the mechanical ore handling plant. But to our mind it is immaterial as to how the blending is done and what process is utilised for the purpose of blending. What is material to consider is whether the different quantities of ore which are blended together in the course of loading through the mechanical ore handling plant undergo any change in their physical and chemical compositions as a result of blending and so far as this aspect of the question is concerned, it is impossible to argue that they do not suffer any change in their respective chemical and physical compositions."
16. It was further held that whatever be the means employed for the purpose of carrying out the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes processing. Thus, according to the aforesaid judgment, when any commodity or goods is subjected to a process as a result of which it undergoes a change the said operation or activities would amount to processing of the commodity. It was held that there is a difference between processing and manufacturing as in manufacturing the original commodity can no longer be regarded as the original commodity and becomes a new distinct commodity.
17. The meaning of the word "processing" was again considered by the apex court in the case of Delhi Cold Storage Pvt. Ltd. v. CIT [1991] 191 ITR 656. In that case the question for consideration was whether the assessee, a private limited company, was an industrial company as defined under Section 2(7)(c) of the Finance Act for the purpose of the First Schedule to that Act so that it is entitled to concession in the matter of taxation. The industrial company as defined under Section 2(7)(c) of the Finance Act was a company which was mainly engaged in the business of generation or distribution of electricity or any other form of power or in the construction of ships or in the manufacture or processing of goods or in mining. The assessee was running a cold storage. Its assertion was that the activities carried out by it for preventing the goods from their natural decay would amount to processing of goods. The apex court after relying upon the observations made in Chowgule's case [1981] 47 STC 124 (SC) held that processing is a word of wide amplitude and it has different meanings in different contexts and it involves bringing into existence a different substance from what the material was at the commencement of the process. It further held that the storing of goods in the cold storage is not sufficient for holding that the stored articles had undergone a process within the meaning of Section 2(7)(c) of the Finance Act. The observation of the Supreme Court is as follows (page 660) :
"In common parlance, 'processing' is understood as an action which brings forth some change or alteration of the goods or material which is subjected to the act of processing. The dictionary meaning of the term is not very different from this meaning in one sense, while various other meanings of wider amplitude are also available. The view taken by the Allahabad and Calcutta High Courts did not find favour with the three-judge Bench of this court and, in clear terms, the judgment indicates that processing involves bringing into existence a different substance from what the material was at the commencement of the process."
18. As stated above, the word processing has different shades of meaning and it has been given different meanings while interpreting the word in a welfare legislation. In this connection reference may be made to the case of Regional Executive, Kerala Fishermen's Welfare Fund Board v. Fancy Food [1995] 87 FJR 257 ; AIR 1995 SC 1620. In that case for the welfare of the fishermen of the State of Kerala, the Fishermen's Welfare Fund Act, 1985, was enacted. Different agencies had to make contributions to the said fund. The dealer was defined under Section 2(d) of the Act, according to which any person carrying on within the State of Kerala, the business of buying or selling fish or processing fish for export or domestic marketing was a dealer. The petitioners of that case were exporters of finished fish and their case was that they after obtaining the finished fish had to do several other processes to make the fish export-worthy. They are not dealers within the meaning of the definition. Dealing with the said matter, the apex court held that as it is a welfare legislation the word "processing" has to be interpreted in such a manner as to include within its meaning the finished fish for export also. It was also held that the words "processing of fish for export" are quite wide and processing of fish for export would also cover in it. The word "processing" has been used in different Acts for different purposes. In cases arising under the Excise Act or the Sales Tax Acts it has normally been interpreted to mean bringing out a new commodity. But that meaning would be out of context for interpreting the word in this Act for the simple reason that where a word has not been defined in the Act, its meaning has to be gathered from the context in which it has been used. The expression used in the definition "processing fish for export" does not mean bringing out a new commodity or making it marketable but rendering it suitable for export. Delhi Cold Storage's case [1991] 191 ITR 656 (SC) was also considered and it was held that the word "processing" was used in a different context.
19. Thus, according to the decision of the apex court, the meaning of the word "processing" in the context of the Income-tax and Sales Tax Acts is to bring out a different substance from what the material was at the commencement of the process. In other words, when a commodity undergoes a change by virtue of operation or operations, then such operation or operations would amount to processing of the goods or commodity.
20. Learned counsel for the petitioners has relied upon several judgments of the High Courts regarding the meaning of the word "processing". In my view, the cases which were decided prior to Chowgule and Co. P. Ltd. [1981] 47 STC 124 (SC), are not to be discussed as after the rendering of the aforesaid judgments the word "processing" has been interpreted by the apex court. However, I will refer to those cases which were decided subsequent to Chowgule's case [1981] 47 STC 124 (SC) as according to learned counsel for the petitioners in the aforesaid judgments, activities similar to the activities carried out by the petitioners have been held to be processing of goods after relying upon the law laid down by the apex court in the case of Chowgule and Co. P. Ltd. [1981] 47 STC 124. In the case of G.A. Renderian Ltd. v. CIT [1984] 145 ITR 387 (Cal) the question for consideration before the Calcutta High Court was whether the assessee-company was an industrial company within the meaning of Section 2(7)(c) of the Finance Act, entitled to the concessional rate of tax. The industrial company included even a company engaged in the manufacture or processing of goods. It was found that the assessee was carrying on the business of purchasing tea of different qualities in auctions, blending the same by mixing one type of tea with another. In that context, the Calcutta High Court relied upon the judgment in Chowgule's case [1981] 47 STC 124 (SC) and held that the aforesaid act amounted to processing of the goods. The said case is clearly distinguishable as in that case because of mixing or blending of different types of tea, a new type of tea was brought into existence and as such a new substance was brought from what was at the commencement of the process.
21. In Shree Mulchand Co. Ltd. v. CIT [1986] 162 ITR 764, the question before the Bombay High Court was whether the assessee was an industrial company within the meaning of Section 2(6)(c) of the Finance Act entitled to the concessional rate of tax. The assessee was a company engaged in export of wool to foreign countries. The assessee after purchasing the mixed clipped glazed raw wool in heaps of various colour fibres and different staple lengths, sorted out the same in different qualities, colours and staple lengths. Thereafter, the assessee had the wool hand-washed to eliminate dirt, grease and other vegetable matter. Then the wool was dried in the sun on open ground and thereafter it was opened by the opener so that lots were blended uniformly to get average export type quality. These activities carried out by the assessee were claimed as processing of the goods. The Bombay High Court relying upon Chowgule's case [1981] 47 STC 124 (SC) held that the aforesaid activities on the raw wool carried out by the assessee after purchase must be regarded as processing of goods. In that case, the court found that the wool sold by the assessee after carrying out the activities after purchase was a commercial commodity different from the raw wool purchased by the assessee. On the facts of that case it was held that the activities amounted to processing in the light of the law laid down by the apex court.
22. In CIT v. Industrial Ancillaries P. Ltd. [1993] 200 ITR 514 (Delhi), the assessee industrial company under the Finance (No. 2) Act was engaged in purchasing of moulds from manufacturers and after reshaping and polishing them sold the same to other parties. It was held that as a result of reshaping and polishing, the original shape of the moulds was not retained and accordingly that amounted to processing of the goods. Taking into consideration the nature of the activities carried out by the assessee it was found that as a result of carrying out of the different activities a different substance from what was at the commencement of the process was brought into existence.
23. In this case according to the petitioners after purchasing the kendu leaves they carried out the activities of drying, sprinkling of water for maintaining requisite moisture, sorting out and screening of the leaves, keeping it in the godown for one month for preserving the quality and colour of the kendu leaves/bidi patties, and whether as a result of these activities it can be said that some change or alteration in the kendu leaves has taken place as a result of which a different substance has come into existence. There is no dispute that the kendu leaves are used only for manufacturing of bidis and for no other purpose. There is also no dispute that if kendu leaves after purchase are not preserved by adopting the aforesaid operations or activities the same will become unfit for bidi manufacturing.
24. Learned counsel for the petitioners has relied upon the judgment of the Supreme Court, in Anwarkhan Mehboob Co. v. State of Bombay [1960] 11 STC 698, to show that kendu leaves and bidi patties are commercially two different articles. In that case the question for consideration was as to whether the assessee was liable to pay sales tax under the Bombay Sales Act, 1953. The assessee was carrying on business of manufacturing of bidis at its head office in the State of Madhya Pradesh and the assessee had its branch in the State of Bombay which made the purchases. Before the despatch of the tobacco to the State of Madhya Pradesh it was subjected to process leading to its conversion into bidi patti. It was asserted on behalf of the assessee that as the purchase was made outside the State of Bombay it was not liable to pay the sales tax. It was held that the tobacco was delivered in the State of Bombay for the purpose of changing it into a commercially different article, bidi patti, and as such the delivery was for the purpose of consumption and, therefore, the purchases fell within the Explanation to Article 286(1)(a) of the Constitution of India and must be said to have taken place inside the State of Bombay. In my view the said case has no relevancy to decide the question in controversy. There on the basis of an affidavit that both are different commodities it was held that as tobacco is converted into bidi patti, a commercially different article, after receiving the same in the State of Bombay, as such the same amounted to sale within the State of Bombay.
25. The case relied upon by the petitioners in the case of State of Madras v. Bell Mark Tobacco Co. [1967] 19 STC 129 (SC), is also irrelevant as in that case the raw tobacco was converted into chewing tobacco after going through the several processes. It was held that the various processes to which the raw tobacco was subjected amounted to a manufacturing process, and, therefore, the chewing tobacco was not the same commodity as raw tobacco.
26. Learned counsel appearing for the Revenue referred to the decision of the apex court in the case of CST v. D.S. Bist [1979] 44 STC 392. In that case the question for consideration was as to whether the tea leaves grown by the assessee in his own garden and sold after processing and packing them is an agricultural produce or ceased to be so and was liable to sales tax under the provision of Section 2(i) of the U. P. Sales Tax Act. As a matter of fact it was found that the tea leaves were first of all subjected to withering in shadow in rooms on a wooden floor for 14 hours. Then they were crushed by hand or foot and were then roasted for 15 minutes. Later on they were roasted on mats for about 15 minutes. Then they were covered by wet sheets for generating fermentation. During this process the colour of leaves was changed. The leaves were then subjected to grading with sieves of various sizes and then the produce was finally roasted with charcoal for obtaining suitable flavour and colours and then it was sold by the assessee. The apex court held that in spite of those activities or operations having been carried out by the assessee the leaves retained the character of being an agricultural produce and their sale is not liable to sales tax. It was held that if as a result of processing the leaves had lost their character as an agricultural produce and became a different commodity then in that case the provisions of the Sales Tax Act will be applicable. The aforesaid case also, in my view, cannot be held to be of any assistance as in that case also the question for consideration was as to whether as a result of processing done by the assessee before the sale of tea leaves, the agricultural produce lost its character and has become a different commodity attracting the provisions of the Sales Tax Act.
27. In that case as stated above the question is as to whether the activities carried out by the petitioners amount to processing. In my considered view by the process or activities carried out by the petitioners no different substance is brought into existence from what it was at the commencement of the process. The aforesaid activities are carried out by the petitioners for preserving the kendu leaves for their use as bidi patti and as a result of the aforesaid activities, namely, drying, sprinkling of water, bundling of kendu leaves, etc., the kendu leaves do not undergo change resulting in the existence of a different substance. The activities carried out by the petitioners amounts to only to preserving the kendu leaves in saleable and marketable condition and as such the view taken by the Central Government as contained in annexure-2 and quoted in paragraph 13 of the judgment is the correct one. The object of Section 206C is to collect tax at source at the time of sale of the goods as specified in the Table when the goods obtained by sale are used for trading purposes. The proviso to the said section is attracted only when the goods sold are utilised for the purposes of processing, etc. The proviso will be attracted only when the goods as stated in table are purchased for being utilised for the said purposes. In this case in view of the discussion made above it is clear that the goods sold are used for trading purposes and not for processing purposes. Thus, the proviso to Section 206C of the Act is not attracted in this case.
28. Accordingly, there is no merit in these applications and the same are dismissed. In the facts and circumstances, there shall be no order as to costs.
S.K. Chattopadhyay, J.
29. I agree.