Gauhati High Court
Assam Seeds Corporation Limited vs Commissioner Of Taxes And Ors. on 5 October, 2005
Equivalent citations: [2006]145STC274(GAUHATI)
Author: R.B. Misra
Bench: R.B. Misra
JUDGMENT R.B. Misra, J.
1. Heard Dr. Ashok Saraf, learned Senior Counsel assisted by Ms. Nitu Hawelia, Ms. Medhalila Gope, Mr. D. Baruah and Mr. S. Saikia for the petitioner and Mr. D. Saikia, Standing Counsel, Sales Tax Department.
2. The present civil rule has been preferred against both the order dated January 3, 1998 passed by the Superintendent of Taxes, Guwahati, (Unit-C) under the Assam General Sales Tax Act, 1993 (in short called "the Act 1993") for the assessment years 1994-95 and 1995-96, levying tax at the rate of 8 per cent on the sale of various types of seeds and further prayer has been made to quash both the orders dated May 12, 1998 passed by the Joint Commissioner of Taxes, Assam, Guwahati, dismissing the revision of petitioner above, upholding the orders of assessing officer for the above assessment years.
3. The issue to be adjudicated upon in the instant civil rule is whether seeds of wheat, pulses, paddy, mustard, etc., sold as seeds by the petitioner are "cereals or pulses" and are treated to be "cereals" in all its forms as provided in entry 6 of Schedule I or "pulses in all its forms" as provided in entry 48 of Schedule I respectively belonging to the list of exempted items for the purpose of exemption from sales tax in reference to Section 9(1) of "the Act 1993" or whether these wheat, paddy, mustard pulses sold by petitioner as seeds are to be taxed at 8 per cent treating these as seeds in entry "otherwise" covered by entry 2 of Schedule III of "the Act 1993"?
4. The facts necessary for adjudication of the present civil rule are that the petitioner, Assam Seeds Corporation Ltd. (in short called "the Corporation") is a public sector undertaking of State Government and registered under "the Act 1993" dealing in various kinds of "seeds" wheat, pulses, paddy" as seeds, mustard as seed, and in course of its business it purchases various seeds from the registered growers or from various corporations like West Bengal Seeds Corporation, National Seeds Corporation, State Firm Corporation of India, etc. The petitioner-corporation makes entire sales to the Agricultural Department of the State Government under various schemes.
5. Section 9(1) of "the Act 1993" provides as follows:
Subject to the conditions and exceptions, if any, set out in Schedule I, the sales of goods specified therein shall be exempted from tax under this Act.
6. The Schedule I of "the Act 1993" contains the list of items which are exempted from payment of sales tax as per Section 9(1) of "the Act 1993". Entry 6 of the said Schedule contains an entry namely, "cereals in all its forms except when sold as cooked food". Effective up to December 31, 1999 (and with effect from October 7, 1999 as per entry 6 as "cereals" in all its form except when sold as cooked food or when sold in packed containers). Similarly as per entry 48 of Schedule I "pulses in all forms excluding cooked pulses" (and with effect from October 7, 1999 as per entry 48 as "pulses in all its form except when sold as cooked, fried or processed form) are also exempted from payment of sales tax under "the Act 1993".
7. It appears on submissions of its quarterly returns for the assessment years 1994-95 and 1995-96 the assessment of petitioner-corporation was completed, vide orders dated January 3, 1998 (by the Superintendent of Taxes, Guwahati, Unit-C, the respondent No. 3, herein) of assessing officer levying tax on the sales of various types of seeds like paddy, wheat, pulses, mustard seeds, etc., and demand notice in pursuance thereof was issued accordingly. The assessment order and the demand notice are enclosed and marked respectively as annexure 1 (collectively) and annexure 1A (collectively) to the civil rule.
8. Being aggrieved the petitioner-corporation filed revision applications before the Commissioner of Taxes, Assam under Section 36(2) of "the Act 1993" which were delegated to the Joint Commissioner of Taxes, respondent No. 2, for disposal.
9. According to the learned Counsel for the petitioner-corporation, in the assessment order dated January 3, 1998 the assessing officer has levied tax on wheat, paddy, pulses, mustard oil seeds, etc., treating the same to be "other goods" taxable at the rate of 8 paise in a rupee without considering the fact that cereals and pulses in all its forms are exempted from payment of sales tax vide entries 6 and 48 of Schedule I of "the Act 1993", the Superintendent of Taxes failed to appreciate that the entries are very wide to cover the cereals and pulses in all its forms and the said items namely, seeds can be said to be one of the items of cereals and the same cannot be made taxable only on the basis of its use and nomenclature given to it. The revisional authority/Joint Commissioner of Taxes/respondent No. 2 herein has dismissed the revision application by the impugned order dated May 12, 1998 relying upon the decision of the Karnataka High Court in S.V. Halavapalli and Sons v. Commissioner of Commercial Taxes [1984] 57 STC 343, simply by observing that the issues involved in the present case are finally decided, i.e., seeds are not cereals and are liable to be taxed. According to learned Counsel for the petitioner the revisional authority has failed to consider that the above decision in Halavapalli and Sons , was dealing with the items of "cereals" and the issue before the Karnataka High Court was whether the various kinds of seeds like, Bajra, Jowar, etc., can be said to be cereals and whether the same will be exempted from payment of sales tax. The entry under interpretation before the Karnataka High Court was made restricted in term, inasmuch as the court was interpreting the items "cereals" only, whereas, for the entry, "cereals in all its forms and pulses in all its forms" of "the Act 1993" the aforesaid decision of Halavapalli and Sons , shall not be applicable to the facts of the present case. The petitioner-Corporation, however, had placed its reliance on Commissioner of Sales Tax v. Sultan Shev Co. [1977] 40 STC 583, wherein, the Bombay High Court interpreted the words "cereals and pulses in all its forms" to include shevaya or vermicelli. The revisional authority, however, held that the ratio decided of the said decision cannot be made applicable to the present case.
10. The different points/aspects emerging from the order dated May 12, 1998 of the revisional authority are given below:
(i) According to the State the seeds and cereals/pulses are completely different distinguishable items as such "seeds" are taxable under Schedule III of "the Act 1993". As an example National Seeds Corporation, a Government of India undertaking, has been regularly paying taxes on sales of seeds. Since petitioner-corporation, purchases seeds from National Seeds Corporation free of tax by issuing form "A" under "the Act 1993" obtainable from the Superintendent of Taxes for the purpose of resale within the State (since "seed" is a last point taxed item, the registered dealer can purchase the taxable items, i.e., seeds free of tax from other registered dealers within the State by issuing a form "A" and when a dealer sells the same to the customers he is liable to pay tax).
(ii) On the above analogy, the petitioner-Corporation was held to be liable to pay tax for its ultimate sales of seeds to the customers. In the facts and circumstances, if the petitioner felt that "seeds" are exempted items it should not have issued form "A" to the seller of seeds, i.e., National Seeds Corporation, Guwahati.
(iii) The popular meaning or the commercial understanding of a word should prevail in spite of the meaning that the word might secure by application of the principles of Geology, Physics and Chemistry. "Cereals" are grains that are edible or fit for human consumption. If the contentions of petitioner/corporation that all "seeds are cereals" are to be presumed as correct, then all seeds are edible; can jute seeds, cotton seeds be edible ?
11. While referring the decision Halavapalli and Sons , the revisional authority has observed as below:
terms 'cereals' and 'seeds' have to be interpreted not as understood according to strict dictionary, technical, scientific, botanical meaning but have to be understood and construed in its popular sense, i.e., the sense which people conversant with the subject-matter with which the statute is dealing would attribute to it. If so understood and interpreted and given the popular sense meaning, then it only means that 'cereals'...are grains that are edible or fit for human consumption. It may be, the cereals, if sown, produce sapplings but they are not used as seeds to raise a new crop. In the same way 'seeds' are to be interpreted as is understood in common parlance and given its popular sense meaning and if so understood, it only means seeds of a cereal grown or used for raising a new crop. Therefore, seeds are not cereals. It also held that if the identity is lost and a different commercial commodity is produced as a result of subjecting it to a process, then the resulting commercial commodity is not the same commodity and therefore the assessees cannot claim exemption. The court further held that 'seed' requires minimum period of germination and purity. The seeds are now not fit for human consumption being indisputable, they cannot be considered as grain fit for human consumption. The price of grain and seeds vary to a large extent. The grain may be sold in bulk. The seeds are sold in small sealed bags of not more than a few kgs. They are not sold in one and the same shop or place. The same person does not deal both in grains and seeds. In common parlance and commercially also 'grains' and 'seeds' are understood as two distinct commercial commodities.
12. According to Dr. A.K. Saraf, learned Counsel for the petitioner the Karnataka High Court in Halavapalli and Sons [1984] 57 STC 343, had considered the decision of the Bombay High Court in Sultan Shev Co. [1977] 40 STC 583, which arrived at the conclusion on the basis of the entry which were cereals and pulses in all forms, whereas, the entry under consideration by the Karnataka High Court was cereals only. According to the learned Counsel for the petitioner Dr. A.K. Saraf, the revisional authority while disposing of the revision application by order dated May 12, 1998 has failed to differentiate both the decisions and has acted most mechanically relying on the decision of the Karnataka High Court in Halavapalli and Sons [1984] 57 STC 343, and dismissed illegally the revision application on the plea that the issue has been finally settled.
According to Dr. A.K. Saraf entry in Sales Tax Act should not be given restricted meaning rather to be given wide meaning. According to him it is well-settled that user test cannot be applied for interpreting any item under the Sales Tax Act and it is the common parlance meaning which is to be used for interpreting a particular item. Then wheat, paddy, pulses, etc., when used as seeds do not loose their character as wheat, paddy and pulses and the same fall within the exempted entry, namely, cereals, in all its forms and pulses in all its forms and thereby the same is not taxable under "the Act 1993."
13. The affidavit-in-opposition has been filed on behalf of the State Government contending that Schedule I of "the Act 1993" contains list of exempted goods, as per entries 6 and 48, viz., "cereals" and "pulses" in all its forms as exempted items but the petitioner/corporation deals in "seeds" and not "cereals" and "pulses" and "seeds" are taxable at 8 per cent under entry 2 of Schedule III of "the Act 1993". In support thereof, reliance has been made on the meaning of cereals as found in Oxford Dictionary, as any kind of grain used as food and for "pulses" as "edible seeds, peas, beans, lentils, etc.". According to the State the petitioner/corporation, deals in "seeds" which is meant for the purposes of germination, leading to reproduction through cultivation and not for the purpose of use as food. In fact such seeds cannot be used as food as they are treated with chemicals in most cases.
Revision petition was dismissed on the ground that seeds are not "cereals" or "pulses" to be exempted from payment of tax. Moreover, the very activity of the petitioner/corporation is confined to procurement of seeds, plantation of seeds and sale of seeds only for the purpose of reproducing from the seeds. All the sales made by the petitioner are not at all for consumption as food by the purchasers. Seeds dealt by the petitioner/corporation also undergo certain special processes for preservation, for saving them from insects, by using medicines and chemicals for handling transportation and packaging, etc., and these are completely not meant for human and animal consumption. Nobody goes to the petitioner to buy seeds as food items besides the prices of seed are above the prices of the general commodities. Thus, difference between "cereals/pulses" and "seeds" is clearly understood in the common parlance.
The petitioner received declaration form "A" from respondent No. 3 at the time of purchase within the State and furnished the same to the selling dealer and, therefore, thereby own the liability to pay tax on the strength of declaration form "A" therefore when the liability for payment of tax arose, the petitioner/corporation claimed that seeds were exempted goods. It is a fact that the petitioner thoroughly knew the utility/applicability of declaration form "A". The responsibility of collection of tax on seeds definitely lies on the petitioner/corporation. It cannot claim any concession or relaxation on the ground that no tax was collected on sale of seeds by it, and as such, the State of Assam would suffer huge loss of revenue if the instant petition is allowed.
14. In Sultan Shev Co. [1977] 40 STC 583, the Bombay High Court, construing entry 10 of Schedule A to the Bombay Sales Tax Act, 1959, which exempted from tax "cereals and pulses in all forms" and flour including atta, maida, besan, suji and bran prepared therefrom, but excluding maize flour except when sold in sealed containers, held that : maida is a form of cereal within the meaning of entry 10 of Schedule A. Shevaya or vermicelli is also maida in the form of slender threads and is therefore a form of cereal. Both maida and shevaya are therefore exempt from sales tax under entry 10 of Schedule A to the Act.
The relevant portion of Sultan Shev Co. [1977] 40 STC 583 (Bom), as relied by learned Counsel for the petitioner is:
We are also unable to accept Mr. Cooper's submission that the expression 'in all forms' only means cereals and pulses with husks or without husks, separated or unseparated, broken or unbroken and different kinds or varieties of cereals and pulses. If the Legislature had intended to use the phrase 'in all forms' in the narrow sense canvassed before us by Mr. Cooper, it would have used the expression 'in all varieties or of all kinds'. The expression 'in all forms' also occurs in the sales tax legislation of other States, and different High Courts which had to construe that expression have rejected similar arguments advanced before them. In Kapildeoram Baijnath Prosad v. J.K. Das [1954] 5 STC 365, the Assam High Court had to construe entry 1 of Schedule 3 to the Assam Sales Tax Act, 1947, which exempted from taxation 'all cereals and pulses including all forms of rice'. The question before the Assam High Court was whether chira, which is beaten rice, and muri, which is parched rice, could be classified as rice in all forms. The stand taken by the Revenue was that a product of an article could not be said to be the same as the article itself, and what was exempted being a form of rice, chira and muri were not exempted. The Assam High Court rejected this contention. It held that the word 'forms' could not be confined to mere varieties of rice, as that would be putting a construction upon the language of the entry which unwarrantably narrowed its meaning. It further held that the idea behind the said entry was to exclude all cereals from taxation and that chira and muri, to all intents and purposes, were cereals and had not lost their character of cereals by any process of transformation so as to be called by any other name. In Ghasi Ram Hari Ram v. Commissioner of Sales Tax, Delhi [1972] 30 STC 88 at page 90-91 the Delhi High Court had to construe entry 1 of Schedule II to the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi, which exempted from taxes 'all cereals and pulses including all forms of rice (except when sold in sealed containers)'. The Delhi High Court repelled the contention of the Revenue that cereals, pulses and rice in raw forms alone were covered by the exemption.
It held:
The word "raw" is completely missing from this entry and the exemption is given, on the other hand, to "all cereals and pulses" and which is said to include "all forms of rice".
Dealing with the expression 'all forms of rice', the Delhi High Court observed as follows:
The learned Counsel for the Revenue contended that "all forms of rice" would cover all varieties of rice, superior, inferior and others and broken rice and other short varieties of rice. But then the language used would have been "all varieties and sizes of rice". "Form" of rice is different from its varieties or sizes. Dictionary meaning of the word "form" includes shape or mode of being of an object. The expression "all forms of rice" would thus embrace within its fold, rice in all its forms, as distinguished from its mere varieties or sizes. It would include rice in various shapes and conditions as for example rice in its raw form, fried form, or parched form. Different varieties of rice and different sizes of rice may be covered by the word "rice" itself. But here the exemption is given to "all forms of rice". So rice in all its forms, even in the form of "murmura" would be included in the exemption'.
15. In S.V. Halavapalli and Sons [1984] 57 STC 343, the question arose for consideration before the Karnataka High Court was "whether the term 'cereals' in Second and Fourth Schedules to the Karnataka Sales Tax Act, 1957 takes within its meaning 'seeds'". If seeds of paddy, ragi, jowar, maize, etc., are "cereals" then these are goods in respect of which single point tax was leviable and these were not "cereals", then these are goods in respect of which a multipoint tax is leviable.
Shorter Oxford English Dictionary defines the term as : "cereals" pertaining to ceres ...or pertaining to corn or edible grain. Any grasses which are cultivated for their seed as human food; commonly comprised under the name of corn or grain. Words and phrases defines the term "cereal" as a prepared foodstuff or grain as oatmeal or flaked corn used as a breakfast food. Webster's Third New International Dictionary defines the term " 'cereals' relating to grain or to the plants that produce it : made of grain... a plant (as a grass) yielding farinaceous seeds suitable for food (as wheat, maize, rice); also, the seeds or grains so produced either in their original state or commercially prepared; a prepared foodstuff of grain (as oatmeal or corn flakes) used specially as a breakfast food.
Encyclopaedia Britannica (Volume 5 at page 203) explains cereals thus:
Cereals, or grains, are members of the grass family that are cultivated primarily for their starchy seeds (technically dry fruits), which are used for human food, feed for livestock, and as a source of industrial starch. Wheat, rice, maize (called corn in the U.S. and Canada), rye, oats, barley, sorghum, and some of the millets are the common cereals.
...
Wheat, rice, and rye are grown primarily for consumption as human food, while much of the maize, barley, oats and sorghum grown in North America, Europe and Australia is fed to livestock to produce meat, dairy, and poultry products.
According to the dictionary meaning "cereals" mean a grain or a plant of the grass family (like wheat, rice, maize, ragi, jowar, etc.) yielding starchy seeds-technically known as dry fruits-suitable for and used as, food for man and livestock. They are also used as a source of industrial starch. Wheat, rice, maize, ragi, jowar, etc., are primarily grown as human food and are known as food grains; prepared foodstuffs of grains (as oatmeal or cornflake) used as breakfast food is also cereal. In North America, Europe and Australia, much of the maize, barley, oats and sorghum are fed to the livestock to produce meat, diary and poultry products. The dictionaries give all shades of meaning of the word "cereals".
16. In Porritts & Spencer (Asia) Ltd. v. State of Haryana [1978] 42 STC 433, the Supreme Court considered whether "dryer felts" manufactured by the assessee fell within the category of "all varieties of cotton, woollen or silken textiles" specified in item 30 of Schedule B to the Punjab General Sales Tax Act, 1948. The word "textiles" is not defined in the Punjab Act. The Supreme Court adopted the principle "that in a taxing statute, words of everyday use must be construed not in their scientific or technical sense but as understood in common parlance or in its popular sense" following Ramavatar's case . Motipur Zamindary's case and Wasi Ahmed's case and has explained the term "popular sense" as "that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it" and held that "whatever be the mode of weaving employed woven fabric would be 'textile'. What is necessary is no more than weaving of yarn and weaving would mean blending or putting together by some process so as to form a fabric" and further held that "dryer felts" are textiles within the meaning of that expression in item 30 of Schedule B. The dryer felts are woven fabrics and are therefore held to come within the meaning of textiles.
17. In Alladi Venkateswarlu v. Government of Andhra Pradesh [1978] 41 STC 394, the Supreme Court while considering whether atukulu (parched rice) and muramaralu (puffed rice) are "rice" within the meaning of entry 66(b) of the Andhra Pradesh General Sales Tax Act, 1957, gave a broad enough interpretation of the term "rice" in accordance with the common sense rule of interpretation and held that the term "rice" as ordinarily understood is wide enough to include both parched rice and puffed rice and therefore "atukulu" (parched rice) and "muramaralu" (puffed rice) are rice within the meaning of entry 66(b).
18. In Kapildeoram Baijnath Prosad [1954] 5 STC 365, the Assam High Court, interpreting entry 1 of the Third Schedule to the Assam Sales Tax Act, 1947, which exempted from taxation "all cereals and pulses including all forms of rice" had to consider whether chira, which is beaten rice, and muri, which is parched rice could be classified as rice "in all forms" and held that the word "forms" could not be confined to mere varieties of rice, as that would be putting a construction upon the language of the entry which unwarrantably narrowed its meaning and the idea behind that entry was to exclude all cereals from taxation and that chira and muri, to all intents and purposes, were cereals and had not lost their character of cereals by any process of transformation so as to be called by any other name and are therefore exempt from sales tax.
19. In Ghasi Ram Hari Ram [1972] 30 STC 88, the Delhi High Court construing entry 1 of the Second Schedule to the Bengal Finance (Sales Tax) Act, 1941, as extended to Delhi, which exempted from taxes all cereals including all forms of rice (except when sold in sealed containers), held that the expression "all forms of rice"
would... embrace within its fold, rice in all its forms, as distinguished from its mere varieties or sizes. It would include rice in its various shapes and conditions as for example rice in its raw form, fried form or parched form. Different varieties of rice and different sizes of rice may be covered by the word "rice" itself. But here the exemption is given to "all forms of rice". So rice in all its forms even in the form of "murmura" would be included in the exemption.
20. In Commissioner of Commercial Taxes v. India Sewai Co. [1980] 45 STC 28, the Patna High Court interpreted the words "cereals and pulses including all forms of ...wheat... and flour including atta, maida, suji and bran" to include sewai and held "so long as the forms which the cereals and pulses take retain their character of being edible items and identifiable as having been formed out of 'cereals' and 'pulses',-it is immaterial what form the cereals and pulses may take-they would continue to be classified as cereals.
21. In Tilok Chand Prasan Kumar v. Sales Tax Officer , the petitioner-assessee was carrying on business in cereals and pulses. He was assessed to purchase tax under Section 3-D(1) of the U.P. Sales Tax Act, 1948, on the turnover of dal purchased by him from dal mills. The dal mills cleaned arhar dal purchased by them and after removing the husk and outer covering, the dal itself was put through a process which resulted in its breaking down into particles of different sizes which were sold under different names according to their sizes. The only distinctions were or change between them is their different size. There was also no material to show that broken dal was commercially regarded as different from dal. The Allahabad High Court held that the broken dal cannot be considered as a commodity essentially different from the grain, i.e., arhar dal purchased by the dal mills and is therefore not a new and different article and therefore not liable to be taxed under Section 3-D(1).
22. Whether hydrogenated oil called "vanaspati" was still groundnut oil or a product of groundnut oil came up for consideration before the Supreme Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool [1960] 11 STC 827, adopted the "common sense" rule of interpretation.
23. The Supreme Court in Alladi Venkateswarlu's case [1978] 41 STC 394, interpreted the word "rice" to include "atukulu" (parched rice) and "muramaralu" (puffed rice), the Assam High Court in Kapildeoram Baijnath Prosad's case [1954] 5 STC 365, and the Delhi High Court in Ghasi Ram Hari Ram's case [1972] 30 STC 88, have interpreted the words "all forms of rice" to include beaten rice and parched rice, the Bombay High Court in Sultan Shev's case [1977] 40 STC 583, and the Patna High Court in India Sewai's case [1980] 45 STC 28 have interpreted the words "cereals and pulses in all forms" to include shevaya or vermicelli. But in all those cases, the goods or articles in question were only in a new form or appearance without any addition of ingredients or any changes in their character. The goods had not so changed their identity as not to be discernible as "cereals" fit for human consumption as articles of food. The conclusions in those cases were based on the language of the entries and the use of the words "all forms" was decisive in construing them.
24. In the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers [1980] 46 STC 63, the Supreme Court has applied the test for determining a commodity when the same is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kinds of processing at each stage. With each process suffered, the original commodity experiences a change but a manufacture can be said to take place only when the change, or a series of changes, take the commodity to the point where commercially it is recognised as a new and distinct article different from the original commodity. Where there is no essential difference in identity between the original commodity and the processed article, it is not possible to say that one commodity has been consumed in the manufacture of another. In such a case it must be regarded as still retaining its original identity. It was held by the Supreme Court that there is no essential difference between pineapple fruit and the canned pineapple slices. The dealer and the consumer regard both as pineapple. The only difference is that the sliced pineapple is a presentation of fruit in a more convenient form and by reasons of being canned it is capable of storage without spoiling.
25. In the case of Shri Chitta Ranjan Saha v. State of Tripura [1990] 79 STC 51 : (1989) 2 GLR 101, a division Bench of this Court (Agartala Bench) after considering several earlier decisions of the Supreme Court and other High Courts, e.g., Collector of Central Excise v. Krishna Carbon Paper Co. , Kali Kumar Sharma v. Sales Tax Tribunal [1991] 80 STC 330 (Gauhati); (1989) 1 GLR 91, Collector of Customs v. Swastik Woolens (P) Ltd. , Mukesh Kumar Aggarwal & Co. v. State of M.P. , Nagar Mahapalika, Bareilly v. State of U.P. , Assam Cotton Mills v. Commissioner of Taxes [1990] 76 STC 6 (Gauhati) : (1988) 2 GLR 398, Indian Aluminium Cables Ltd. v. Union of India [1987] 64 STC 180 (SC), Shri Nalini Ranjan Sirkar v. Superintendent of Taxes [1986] 62 STC 21 (Gauhati) [FB] : (1986) 1 GLR 186 [FB], Commissioner of Sales Tax v. Macneil & Barry Ltd. , Filterco v. Commissioner of Sales Tax , Thillai Chidambara Nadar v. Additional Appellate Assistant Commissioner , Chiranjit Lal Anand v. State of Assam , Indo International Industries v. Commissioner of Sales Tax and Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan [1980] 46 STC 256 (SC), has observed as below:
...In a taxing statute, words of every day use must be construed not in the scientific or technical sense but as understood in common parlance. If a statute contains language, which is capable of being construed in a popular sense such a statute should not be construed, according to the strict or technical meaning of the language contained in it but it should be construed in its popular sense, meaning of course by the words 'popular sense' that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it. If any term or expression has been defined in the enactment then it must be understood in the sense in which it is so defined. But in the absence of any definition being given in the enactment, the meaning of the term in common parlance or commercial parlance has to be adopted. The words of every day use are to be construed according to their popular sense. When a word has scientific or technical meaning and has also ordinary meaning according to common parlance it is the latter sense in which in a taxing statute the word should be held to have been used unless contrary intention is clearly expressed by the Legislature.
26. On behalf of the State the reliance has been upon the case of Ramavatar Budhaiprasad v. Assistant Sales Tax Officer, Akola , where on the question whether betel leaves are vegetable, the Supreme Court held that betel leaves could not be regarded as vegetables because vegetables are grown in a kitchen garden or in a farm and are used for the table and as such the term vegetables do not include "betel leaves" although from the botanical and technical point of view "betel leaves" may come from the same family as vegetables.
27. In the case of State of U.P. v. Indian Hume Pipe Co. Ltd. , it was observed by honourable Supreme Court as below:
It is well-settled that when we are dealing with the articles used for business purposes, the terms must be interpreted in a purely commercial sense. In Ramavatar Budhaiprasad , while construing the import of the word 'vegetables', observed as follows:
But this word must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance. It has not been defined in the Act and being a word of every day use it must be construed in its popular sense meaning "that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it". It is to be construed as understood in common language.(para 3) To the same effect is a decision of the Exchequer Court of Canada in The King v. Planters Nut and Chocolate Company Limited (1951) Ganada LR Ex. Court 122, where the court observed as follows:
The words "fruit" and "vegetable" are not defined in the Act and so far as I am aware they are not defined in any other Act in pari materia. They are ordinary words in every day use and are therefore to be construed according to their popular sense'.
28. In Mukesh Kumar Aggarwal & Co. v. State of Madhya Pradesh [, the Supreme Court has observed as below:
In a taxing statute words which are not technical expressions or words of art, but are words of everyday use, must be understood and given a meaning, not in their technical or scientific sense, but in a sense as understood in common parlance, i.e., 'that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it'. Such words must be understood in their 'popular sense'. The particular terms used by the Legislature in the denomination of articles are to be understood according to the common, commercial understanding of those terms used and not in their scientific and technical sense 'for the Legislature does not suppose our merchants to be naturalists or geologists or botanists'.
The expression 'timber', it seems to us, has an accepted and well-recognised legal connotation and is nomen juris. It has also a popular meaning as a word of everyday use. In this case, the two meanings of 'timber', the legal and the popular, coalesce and are broadly subsumed in each other.
29. In State of Rajasthan v. Rajasthan Agricultural Input Dealers Association , the honourable Supreme Court has observed as below:
It is undoubtedly true that foodgrains per se could be used as seeds for being sown and achieving germination, but in that form they retain the dual utility of being foodgrains as well as seeds. By process of coating and applying insecticides, other chemicals and poisonous substances to the foodgrain meant to be utilised as seeds, one of its basic character, i.e., its consumption as food by human beings or animals or for extraction for the like purpose, gets irretrievably lost and such processed seeds become a commodity distinct from foodgrains as commonly understood. That distinction was borne in mind by the High Court in allowing the writ petition of the respondents, and in our view rightly. (para 7).
30. In S.S.E. Private Ltd. v. State of Assam (2005) 2 GLR 468, this High Court has observed that if a particular item is defined by the statute in specific terms there will be little problem. In preference to the common parlance or the trade test or even the common sense approach, the meaning as ascribed by the definition clause must be adopted. The question of judicial interpretation would really arise when a particular product/item or commodity is not defined by the statute. In such a situation the law for the last several decades has been that it is the common parlance test that must be adopted and to the extent possible the technical or scientific meaning or even the dictionary meaning must be avoided. In Ramavatar Budhaiprasad [1961] 12 STC 286, the honourable Supreme Court had laid down the law to the above effect while being confronted with a question whether betel leaves are vegetables. The above law has been reiterated in a subsequent decision by the Supreme Court in case of Motipur Zamindary Co. (Private) Ltd. [1962] 13 STC 1, where the question was whether sugarcane would be a vegetable. In State of West Bengal v. Washi Ahmed , the honourable Supreme Court was in seisin of the question as to whether ginger is an item of vegetable. Reiterating the law laid down in the case of Ramavatar Budhaiprasad [1961] 12 STC 286, the Supreme Court held that the word "vegetable" as appearing in the particular statute under consideration must be construed as understood in common parlance and it must be given its popular sense meaning "that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it". Proceeding further the Supreme Court took the view that ginger is a vegetable grown in a kitchen garden or in a farm and is used for the table and though it is not a principal item of the meal, it certainly forms a part of the meal as a subsidiary item. The Supreme Court further took the view that ginger is ordinarily sold by the vegetable vender as a vegetable and is purchased by the house-wife as a vegetable item, therefore, ginger was held to be more appropriately classifiable as a vegetable item.
31. In Alpine Industries v. Collector of Central Excise, New Delhi , the Supreme Court has observed as below:
It is well-established that in interpreting tariff entries in taxation statute like the Excise Act where the primary object is to raise revenue and for that purpose various products are differently classified, the entries are not to be understood in their scientific and technical meaning. The terms and expressions used in tariff have to be understood by their popular meaning, that is the meaning that is attached to them by those using the product. See the decision of the Supreme Court on the dispute regarding classification for excise duty, the product-Dant Manjan Lal manufactured by Shree Baidyanath Ayurved Bhavan Ltd., reported in the case of Shree Baidyanath Ayurved Bhavan Ltd. v. Collector of Central Excise, Nagpur . The manufacturer claimed the product to be an ayurvedic medicinal preparation product for dental care. The view of the Tribunal was upheld by this Court by holding (at SCC pages 404-405, para 3) that 'ordinarily a medicine is prescribed by a medical practitioner and it is used for a limited time and not every day unless it is so prescribed to deal with a specific disease like diabetes'.
32. From the decision of Krishi Utpadan Mandi Samiti v. Pilibhit Pantnagar Beej Ltd. , the following aspects have emerged, for consideration-
11 (iii) Whether there is any difference in wheat and wheat seed before it is chemically treated and converted into certified seed and thus becomes unfit for human consumption ?
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17. At the time of hearing, our attention was drawn to a note on method and process of seed production submitted by the first respondent. The principle and method of production, as submitted in the note, are as under:
1. Reasons for seed production.
All high-yielding seeds are made by scientists by changing the composition of genes in the seeds so that the seed gives high yields. However, nature's force has a tendency to change the seeds over a period of time and, therefore, it is necessary to produce pure seed year after year.
2. Laws governing seeds business.
2.1 The seed industry for production and sale is regulated under the Seeds Act, 1966 and Rules and the Seeds Control Order, 1983. Under the Seeds Act, the Government has made State Seed Certification Agencies who are responsible to certify seeds and monitor their production and sales.
2.2 The Indian Minimum Seed Standards" lay down the minimum seed standards required for each crop which can be certified.
3. Method of seed production.
3.1 The company purchases breeder seeds from the agricultural universities and then produces the next stage, i.e., foundation seeds. These foundation seeds are given to contract farmers for further production of certified seed. This certified seed is sold to traders and subsequently to farmers. Foundation seed is the progeny of breeder seed and certified seed the progeny of foundation seed.
4. Procedure of production.
4.1 Purchase of breeder seeds from universities [rule 14(a)] 4.2 Classification of foundation seed from breeder seed, [rule 14(a)] 4.3 Giving foundation seed to contract farmers [rule 14(c)] 4.4 Registration of the contract farmers with the State Seeds Certification Agency and payment of registration and inspection charges to the agency. [rule 6(d) and form I] 4.5 Sowing the foundation seed by the contract farmer in his field.
4.6 Inspection of the farmer's field by an Inspector of all the State Seeds Certification Agency, at least two times during the growth of the crop. [rule 6(k)] 4.7 Submission of final field report by the State Seeds Certification Agency Inspector stating that the crop meets the standards or rejecting the crop if it does not meet the standards. The final field report also states the estimated quantity of produce of every field and farmer which the company can purchase. [rules 6(k) and 23(e)] 4.8 If the farmer's seed crop has been found satisfactory and is indicated as such in the final field report prepared by the State Seeds Certification Agency Inspector it is purchased by the company and the seed stored in company godowns.
4.9 The seed is then processed under the supervision of an Inspector of the State Seeds Certification Agency who takes samples and sends them to the Government Seed Testing Laboratory. [rules 6(g) and 6(e)] 4.10 After testing, the Government Seed Testing Laboratory gives a report which shows that either the seed meets the "minimum seed standards" or it does not. [rule 21(3)] 4.11 If the seed meets the "minimum seed standards", the chemical treatment and bagging of the seeds is made under the supervision of an Inspector of the State Seeds Certification Agency. (Rule 17-A) 4.12 After the seed is put in a bag the Inspector of the Seeds Certification Agency will seal and tag each bag and this seed and bag is called certified seed which goes to the market. (Rule 17-H) 4.13 The Seed Inspector will also give a certificate to the company stating that the seed has been found above the "minimum seed standards" and has been certified as such by the State Seeds Certification Agency. (Rule 17)' ...
20. Learned Senior Counsel appearing for the parties also drew our attention to the relevant provisions of the Seeds Act, 1966 (Act 54 of 1966) and the Seeds Rules, 1968 (hereinafter referred to as 'the Rules'). We have also perused the Schedule [sections 2(a) and (4-A)] to the Adhiniyam in which under Heading A-Agriculture, wheat is included as item 1 in the sub-heading 'cereals'. In the statement of objects and reasons, it is stated that in the interest of increased agricultural production in the country, it is considered necessary to regulate the quality of certain seeds, such as seeds of food crops, cotton seeds, etc., to be sold for purposes of agriculture including horticulture.
21. Section 2 of the Act deals with definitions of 'agricultural produce', 'certification agency' and 'seed', etc. Section 2(11) defines seed which means any of the following classes of seeds used for sowing or planting,-
(i) seeds of food crops including edible oil-seeds and seeds of fruits and vegetables ;
(ii) Cotton seeds;
(iii) Seeds of cattle fodder;
(iv) Jute seeds, and includes seedlings, and tubers, bulbs, rhizomes, roots, cuttings, all types of grafts and other vegetatively propagated materials, of food crops or cattle fodder.'
25. We have already referred to the essential conditions incorporated in the certificate of registration. One of the essential conditions incorporated in the certificate of registration is that the certificate-holder shall not carry on any business such as dealing in food-grains, other than the business of sale of certified seeds. Under the terms and conditions of such certificate, the first respondent is not carrying on any other business except the business of certified seeds and it is also not in dispute that the respondent does not hold any other licence for dealing in foodgrains including wheat.
26. It was also argued by Mr. Dushyant A. Dave that the Market Committee has completely failed to appreciate the declaration of law in the case of State of Rajasthan v. Rajasthan Agricultural Input Dealers Association affirmed by this Court on August 21, 1996. In these orders, two reasonings were adopted to hold that the transactions of seeds do not attract market fee, namely : (a) that the definition of agricultural produce includes items specified in the Schedule and that wherever it was intended to separate cerealised seeds, they have been distinctly found mentioned in the Schedule and that wherever the Schedule does not include seeds specifically in the serialised item such seeds are not specified agricultural produce, and (b) on the process of coating and applying insecticides, other chemicals and poisonous substances the basic character, i.e., its consumption as food by human beings or animals is irretrievably lost and that such commodity is distinct from foodgrains.
...
33. It is also very useful to refer hereunder the process by which the seed is manufactured under the Seeds Act and the Seeds Rules:
(i) Seeds developed in laboratories are classified as breeder seeds and are sold through the Ministry of Agriculture or notified Agricultural Universities to producing agencies, companies and farmers. Foundation seeds (Stages I and II) are developed as progenies of breeder seeds and are required to obtain a certificate from the Seeds Certification Agency.
(ii) The production of foundation seeds is supervised and approved by the Certification Agency to maintain specific genetic identity and genetic purity and are required to conform to certification standards specified for the crop/variety being certified.
(iii) The foundation seed is then grown by the farmer in a land earmarked specifically for the sowing of the foundation seed. The offsprings of these seeds are termed as certified seeds, which too are required to meet the minimum standards of genetic purity and genetic identity.
(iv) It is only if the seeds meet the minimum standards are they subsequently categorised as certified seeds and can be purchased by the respondent for further processing.
(v) The processing done by the respondent is done under the aegis of an Inspector of the State Seeds Certification Agency and thereafter the samples are taken for testing to notified Government seed testing laboratories.
(vi) It is only after meeting the minimum standards of genetic purity and genetic identity that the seed is put in a bag that is sealed and tagged by the Inspector of the Seeds Certification Agency. It is this seed which is allowed to be sold in the market and a certificate is issued by the Agency stating the standards of the seed and other particulars.
34. It was submitted by the first respondent that all the abovementioned stages of certification are as per the provisions of the Rules and that right from the inception to the time when the seed is sold in the market, it is done under regulation issued to govern each and every stage of seed production and certificates are only issued after the seed is found to achieve the minimum standards of genetic identity and genetic purity. It was also pointed out that no such certification standards exist for foodgrains sold by farmers to the Mandi Samiti. Thus the production of seeds is an integrated process and needs to be regulated at every stage, right from the inception, in order to maintain genetic identity and genetic purity.
...
36. We are, therefore, of the view that the seeds are not specified agricultural produce under the provisions of the Act and, therefore, the business of purchase and sale of seeds under the supervision of the Seeds Certification Agency established under the Act is not a business of sale and purchase of specified agricultural produce and as such the first respondent is not required to pay the market fee or take out a licence.
37. We are also of the view that the respondents have grossly erred in ignoring the law settled by this Court in the case of State of Rajasthan v. Rajasthan Agricultural Input Dealers Association under Article 141 of the Constitution in demanding market fee on seeds. Since the processing of wheat results in loss of its basic characteristics of being cereal, it cannot be subjected to levy as agricultural produce. Since the purchase by the respondent is for the purpose of growing seeds, no levy is permissible and, therefore, market fee cannot be imposed on seeds which are unfit for human consumption.
...
40. Wheat seed converted into certified seed is unfit for human consumption and, therefore, market fee levy is impermissible.
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53. The Act contains both penal and fiscal provisions. A trader within the meaning of the said Act would be a person who carries on business, inter alia, in agricultural produce. The question is as to whether in the aforementioned situation the respondent would be a trader of agricultural produce within the meaning of the provisions of the said Act. It is not disputed that 'seed' as purchased and 'sold' is not meant to be used as a cereal. The respondent buys only certified seeds and sells the same as seeds after processing the same. 'Seeds' which are sold by the respondent admittedly are not consumable. It is furthermore not disputed that in terms of the licences granted in their favour under the 1966 Act, they are not permitted to deal in the commodities for any other purpose.
...
67. As the purpose for which the respondents purchase the 'seeds' is not meant to be used as a 'cereal' which is an agricultural produce within the meaning of the provisions of the said Act, the High Court, in our opinion, has rightly held that the respondents are not liable to pay any market fee.
33. I have heard learned Counsel for the parties. The petitioner-corporation purchases seeds of wheat, paddy, pulses, mustard oil, etc., from the registered traders or from various corporations like West Bengal Seeds Corporation, National Seeds Corporation, State Firm Corporation of India, etc., free of tax by issuing form "A" under the Act 1993 [the form "A" obtainable from Superintendent of Taxes for the purpose of resale within State (since seed is last point taxed item, the registered dealer can purchase the taxable items, i.e., seeds free of tax from other registered dealers within State by issuing a form "A" and when the dealer sells the same to the customers he is liable to pay tax)]. The petitioner-corporation is not sure, when it felt that "seeds" are exempted items, it should not have issued form "A" to the seller of seeds, i.e., National Seeds Corporation, Gauhati.
The detail analysis was made in Krishi Utpadan Mandi Samiti , to specify whether wheat is different from "wheat seed" before it is chemically treated and converted into certified seed after undergoing multiple processes in seed industries regulated under the Seeds Act, 1996, Rules and Seeds Control Order, 1983. The Government has made the State certification agencies responsible to certify seeds and monitor their production, and sales prescribing minimum seed standards required for each crop which can be certified. Once the seeds meet the "minimum seed standards" the chemical treatment and bagging "of seeds" is made under the supervision of an Inspector of State Seeds Certification Agency. Seeds developed in laboratories are classified as "breeder seeds" and are sold through the Ministry of Agriculture of notified Agriculture Universities. The production seeds are developed as progenies of breeders and are required to obtain a certificate from the Seeds Certification Agency. The production of foundation seeds is supervised and approved by the Certificate Agency to maintain specific genetic identity and genetic purity and are required to conform to certification standards specified for the crop/variety being certified. The foundation seed is then grown by the farmer in a land ear-marked specifically for the sowing. The offspring of these seeds are termed as "certified seeds" which too are required to meet the minimum standard and to be categorised as certified "seeds" can be purchased for further processing to be done under the aegis of an inspector and it is after meeting required standards of genetic purity and identity that seed is put in bag and sealed and tagged by inspector of Seeds Certification Agency. It is this seed which is allowed to be sold in market and seed converted into certified seed is unfit for human consumption. Undisputedly the "seed" as purchased and "sold" is not meant to be used as a cereal.
It is true that cereals, pulses, as foodgrains could be used for being sown as in that form as these retain dual utility of being food-grains as well as seeds but by process of coating and applying insecticides, other chemicals and poisonous substances to these foodgrains meant to be utilised as seeds, then one of its basic character to be consumed as food by human beings or animals gets irretrievably lost and such processed "seeds" become a commodity distinct from foodgrains as commonly understood as observed by the Supreme Court in Rajasthan Agricultural Input Dealers Association . Therefore in a taxing statute words of every day use have to be understood in common parlance and not to be construed in the scientific or technical sense. If any term or expression has been defined in an enactment then it must be understood in the sense in which it is so defined but in absence of any definition the meaning of term or word is to be understood in commercial parlance or common parlance or "popular sense" that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it.
I am also of opinion as taken by the Karnataka High Court in Halavapalli and Sons case [1984] 57 STC 343:
A grower now with the advancement of science, technology and in the method of cultivation, etc., will generally buy seeds for sowing and raising good crops. He will not and is not required to keep apart a portion of the grain he grows, for sowing. He knows that the grain he raises is not the seeds for him and the 'seeds' for sowing is something other than the grain he grows. The seeds are sold, not by the grain merchants but by the 'certified seed dealers'. The seeds are sold in bags or packets sealed, containing a label giving the particulars as to the weight, etc., of the seeds, and that the seeds conform to the minimum limits of germination and purity specified by Government. In fact the learned Counsel for the assessees produced before us, one or two sealed bags of seeds when we noticed that in addition to labels referred to above, the word 'poison' in bold letters printed on the bags, which is a clear warning that the seeds are unfit for human consumption. No one will mistake the grain for the seed or the seed for the grain. No one who wants to buy grain will go to a certified seed dealer and purchase seed and no one who wants to buy seed will go and buy grain from a grain merchant. No one will use grain as a seed and the seed as grain. That apart, the 'dry fruits' will be subjected to a processing and treated with chemicals and poison thereby making it unfit for human consumption and improving it as a seed. Even if these seeds could be made fit for human consumption by subjecting the same to another process as argued on behalf of the assessees, the resulting commodity, it cannot be forgotten, will be another new commercial commodity. That apart, what we are concerned with is the article or goods the assessees are dealing at the relevant time and not what it could be at a future date and what use it could be put to then. The seeds are now not fit for human consumption being indisputable, they are and cannot be considered as grain fit for human consumption. The price of grain and seeds vary to a large extent. The grain may be sold in bulk. The seeds are sold in small sealed bags of not more than a few kgs. They are not sold in one and the same shop or place. The same person does not deal both in grains and seeds. In common parlance and commercially also 'grains' and 'seeds' are understood as two distinct commercial commodities. (para 27) ...
The terms 'cereals' and 'seeds' have therefore to be interpreted not as understood according to strict dictionary, technical, scientific, botanical meaning but has to be understood or construed in its popular sense, i.e., sense with which people conversant with the subject-matter with which the statute is dealing would attribute to it. If so understood and interpreted and given the popular sense meaning, then it only means 'cereals' are grains that are edible or fit for human consumption. It may be, the cereals, if sown produce sapplings but they are not used as seeds to raise a new crop. In the same way 'seeds' are to be interpreted as is understood in common parlance and given its popular sense meaning and if so understood, it only means seeds of a cereal grown or used for raising a new crop.
34. In view of the foregoing analysis "seeds" of cereals, wheat, pulses, paddy, mustard sold as seeds by the petitioner are not to be exempted under entry 6 or entry 48 of Schedule I and cannot be treated as "cereals in all its forms" or "pulses in all its forms", however, these seeds are to be taxed as an entry "otherwise" in entry 2 of Schedule III of "the Act 1993". I do not find force in the contentions of the petitioner, therefore, the "civil rule" preferred in respect of both the orders dated May 12, 1998 passed by revisional authority for the assessment years 1994-95 and 1995-96 is dismissed.