1995 (12) TMI 295 - SC - VAT and Sales Tax

Whether the cashew-nut kernels which were exported are those goods which were purchased by the assessee in the penultimate transaction? Held that - Appeal dismissed. Cashew-nut kernels are not the same goods as raw cashew-nuts. Since raw cashew-nuts can be used for so many purposes and the process of extracting the kernels so elaborate it cannot be said that the goods (raw cashew-nuts) purchased in the penultimate sale were the same goods (cashew-nut kernels) which were sold for export. It does not appear that either on facts found or in law the decision in Shanmugha Vilas case 1953 (5) TMI 8 - SUPREME COURT OF INDIA needs reconsideration.

Summary

Issues Involved:
1. Interpretation of Section 5(3) of the Central Sales Tax Act, 1956.
2. Distinction between raw cashew-nuts and cashew kernels for tax exemption purposes.
3. Relevance and applicability of the Shanmugha Vilas case.
4. Legal principles on the identity of goods in the context of export.

Detailed Analysis:

1. Interpretation of Section 5(3) of the Central Sales Tax Act, 1956:
The Central Sales Tax Act, 1956, was amended by the insertion of sub-section (3) of section 5 by Act No. 103 of 1976, effective from April 1, 1976. Section 5(3) states, "the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export." The appellants argued that the last sale or purchase of cashew preceding the export of cashew kernels should be deemed to be in the course of export and thus exempt from state sales tax.

2. Distinction between Raw Cashew-Nuts and Cashew Kernels for Tax Exemption Purposes:
The appellants contended that raw cashew-nuts and cashew kernels are not different commodities. They argued that the processing of cashew-nuts into kernels does not change the identity of the goods. However, the court held that the identity and character of the goods change due to processing, and thus, raw cashew-nuts and cashew kernels are distinct commodities. The court emphasized that to claim exemption under Section 5(3), the goods exported must be the same as those purchased in the penultimate transaction.

3. Relevance and Applicability of the Shanmugha Vilas Case:
The appellants argued that the judgment in the Shanmugha Vilas case, which dealt with Article 286 of the Constitution, should not apply to their case. They contended that the Shanmugha Vilas case was based on specific facts and that the perception of the court had changed in later decisions. However, the court found that the Shanmugha Vilas case was directly relevant, as it addressed the same issue of the identity of goods in the context of export. The court held that the principles laid down in the Shanmugha Vilas case apply to the interpretation of Section 5(3) of the Central Sales Tax Act.

4. Legal Principles on the Identity of Goods in the Context of Export:
The court reiterated that for goods to be exempt from state sales tax as per Section 5(3), the goods exported must be the same as those purchased in the penultimate sale. The court examined the process of converting raw cashew-nuts into cashew kernels and concluded that the transformation resulted in new commodities. The court referenced the Shanmugha Vilas case, where it was held that raw cashew-nuts and cashew kernels are distinct commodities. The court also discussed other relevant cases, such as Tungabhadra Industries Ltd. v. Commercial Tax Officer and Deputy Commissioner of Sales Tax (Law) v. Pio Food Packers, to support its conclusion that the identity of the goods changes through processing.

Conclusion:
The court dismissed the appeals, holding that cashew-nut kernels are not the same goods as raw cashew-nuts and thus do not qualify for exemption under Section 5(3) of the Central Sales Tax Act. The principles laid down in the Shanmugha Vilas case were found to be applicable, and the court concluded that the goods exported must be the same as those purchased to claim tax exemption. The appeals were dismissed with no order as to costs.