2006 (9) TMI 511 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the extraction of soya bean oil through the solvent extraction process constitutes a manufacturing process and attracts tax under section 6 of the Karnataka Sales Tax Act, 1957.
2. Whether soya bean seeds and de-oiled soya bean cake are considered different commodities.
3. Whether tax is attracted on the sale of de-oiled soya bean cake obtained from soya bean seeds purchased from unregistered dealers under the provisions of the KST Act.

Issue-wise Detailed Analysis:

1. Manufacturing Process and Tax Liability:
The court examined whether the process of extracting soya bean oil via solvent extraction constitutes a manufacturing process, thus attracting tax under section 6 of the Karnataka Sales Tax Act, 1957. The Tribunal previously held that no manufacturing process occurred and thus no tax was applicable. However, the court referred to the Supreme Court's definition of "manufacture" in Aspinwall and Co. Ltd. v. Commissioner of Income-tax, which states that if the change in the article results in a new and different article, it constitutes manufacturing. The court concluded that the extraction process indeed results in a new product (de-oiled soya bean cake), thus constituting manufacturing and attracting tax under section 6.

2. Commodity Differentiation:
The court analyzed whether soya bean seeds and de-oiled soya bean cake are different commodities. The Tribunal had ruled that they are not different commodities, relying on the argument that the seeds and the cake are essentially the same. However, the court referred to the Madras High Court's ruling in Deputy Commissioner of Commercial Taxes v. R. Kuppuswamy Chettiar, which emphasized that a seed must retain its germinating property to be considered the same commodity. Since the extraction process alters the seeds to a point where they lose their original properties, the court concluded that soya bean seeds and de-oiled soya bean cake are indeed different commodities.

3. Tax on Sale of De-oiled Soya Bean Cake:
The court examined whether the sale of de-oiled soya bean cake, obtained from soya bean seeds purchased from unregistered dealers, attracts tax under the KST Act. The Tribunal had ruled against the tax imposition. However, the court referred to the definition of "consumption" and "manufacture" in previous judgments, including the Supreme Court's ruling in Berger Paints India Ltd. v. Commissioner of Income-tax, which clarified that consumption in manufacturing results in a new product. The court concluded that since the de-oiled soya bean cake is a new product resulting from the manufacturing process, it attracts tax under section 6 of the KST Act.

Conclusion:
The court found that the Tribunal erred in its judgment by not recognizing the manufacturing process and the differentiation between soya bean seeds and de-oiled soya bean cake. The court ruled in favor of the State, holding that the extraction process constitutes manufacturing, the commodities are different, and the sale of de-oiled soya bean cake attracts tax. The Tribunal's order was set aside, and the questions of law were answered in favor of the Revenue and against the assessee.