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The assessee is a manufacturer and dealer in tiles, terra-cotta wares and ceramic. It was assessed to tax under Section 5A of the Kerala General Sales Tax Act, 1963, hereinafter called 'the Act' for the assessment years 1974- 75, 1975-76 and 1976-77 among other things on the purchase turnover of cashew shells and consumed stores, lime shells etc., purchased by the assessee-Company. These are in abundant supply in that area. These are used, as it appears from the judgment of the High Court and from the facts found by the Tribunal, as fuel in the kiln in the factory of the assessee for the manufacture of tiles and others. It was sought to be assessed to tax. The assessee contended that cashew shells were used by them as fuel for (emphasis supplied) manufacturing products referred to above and, therefore, by virtue of notification S.R.O. 732/73 the purchase turnover of cashew shells were exempt from tax. In the alternative, it was contended by the assessee that the purchases in question were not liable for levy of tax since none of the conditions prescribed in clause (a), (b) or (c) of Section 5A of the Act were satisfied.

(b) disposes of such goods in any manner other than by way of sale in the state; or
(c) despatches them to any place outside the State except as a direct result of sale or purchase in the course of inter-state trade or commerce, shall, whatever be the quantum of the turnover relating to such purchase for a year, pay tax on the taxable turnover relating to such purchase for the year at the rates mentioned in section 5."

In second appeal the Tribunal also did not accept this case of the assessee regarding non-taxability of the purchase turnover of the cashew shells under the said Notification. The Tribunal, however, held that the cashew shells had been used only as fuel in the kiln for the manufacture of tiles and other goods and, hence, Clause (a) of Section 5A(1) of the Act, was not satisfied, there being no consumption of the cashew shells in the manufacture of other goods or otherwise. The Tribunal was of the opinion that these were used for the manufacture. The Tribunal also held that there was no disposal of the lime shells or the consumed stores which were used up for the maintenance of the factory and kiln and that there was also no consumption of those goods in the manufacture of other goods for sale or otherwise. In this view of the matter the Tribunal held that these items were not taxable under Section 5A of the Act.

The cashew shells in the instant case, had been used as fuel in the kiln. The cashew shells did not get transformed into the end product. These have not been used as raw- materials in the manufacture of the goods. These have been used only as an aid in the manufacture of the goods by the assessee. Consumption must be in the manufacture as raw- material or of other components which go into the making of the end product to come within the mischief of the section. Cashew shells do not tend to the making of the end product. Goods used for ancillary purposes like fuel in the process of the manufacture, do not fall within section 5A(1)(a) of the Act. Cashew shells, therefore, do not attract levy of tax under the said section. The same is the position with regard to the lime shell and consumed stores, which have been used only in the maintenance of the kiln and the factory and not used in the manufacture of the end product. The revenue, therefore, was wrong in its contention on this aspect Support was sought to be obtained from certain observations of this Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax.

368. Clause (b) of the section requires that the goods in question should be transferred to some person otherwise than by way of sale. In this case, there was no evidence of any transfer at all, therefore, there was no 'disposal' of the goods as known to law. The High Court records that admittedly there was no transfer of the cashew shells, the lime shells or the consumed stores in this case. These were used by the assessee himself as fuel in the case of cashew shells for the maintenance of kiln. Sub-clause (b) of section 5A(1) was, therefore, not applicable. In the background of the facts of this case, the High Court, in our opinion, was right.