1979 (9) TMI 168 - SC - VAT and Sales Tax

Whether on the facts and circumstances of this case the article ceased to be an agricultural produce? Whether the tea produced by the assessee would be exigible to sales tax? Held that - Appeal dismissed. The tea-leaf was made fit for human consumption by subjecting it to those processes. At no stage did it change its essential substance. It remained a tea- leaf throughout. In its basic nature it continued to be agricultural produce.

Summary

Issues Involved:
1. Whether the processed tea-leaves sold by the assessee retained their character as agricultural produce.
2. Whether the sales of processed tea-leaves were exigible to sales tax under the U.P. Sales Tax Act, 1948.

Issue-wise Detailed Analysis:

1. Character of Processed Tea-leaves as Agricultural Produce:
The primary issue was whether the tea-leaves, after undergoing certain processing steps, retained their character as agricultural produce. The assessee argued that the tea-leaves sold were agricultural produce grown by himself and thus should be exempt from sales tax. The High Court had previously ruled in favor of the assessee, stating that the processed tea-leaves did not lose their character as agricultural produce.

The Supreme Court examined the processing steps involved:
- Withering: Tea-leaves were withered for about 14 hours.
- Crushing and Roasting: The leaves were crushed by hand or foot and roasted for about 15 minutes.
- Fermentation: The leaves were covered with wet sheets to generate fermentation, changing their color from green to yellowish.
- Grading: The leaves were graded using sieves and fanning machines.
- Final Roasting: The leaves were roasted with charcoal to obtain suitable flavor and color.

The Court noted that these processes were necessary to make the tea-leaves fit for consumption and marketable. It emphasized that minimal processing to prevent perishability and to make the produce marketable does not change the essential character of the agricultural produce. The analogy of wheat processing was used to illustrate that certain minimal processes are inherent in making agricultural produce marketable without changing its fundamental nature.

2. Exigibility to Sales Tax:
The second issue was whether the sales of these processed tea-leaves were subject to sales tax under the U.P. Sales Tax Act, 1948. The Act's proviso to Section 2(i) excluded the proceeds of the sale of agricultural produce grown by the seller from his turnover, thus exempting it from sales tax.

The Court considered whether the processes applied to the tea-leaves were minimal and necessary for making them marketable. It concluded that the processes of withering, crushing, roasting, fermentation, grading, and final roasting were minimal and essential to preserve the tea-leaves and make them fit for human consumption. Therefore, these processes did not alter the fundamental character of the tea-leaves as agricultural produce.

The Court also referred to similar cases from other High Courts, such as those involving arecanuts and sugarcane converted into jaggery, to support its conclusion. It found that the principles applied in those cases were consistent with the view that minimal processing to make agricultural produce marketable does not change its character.

Conclusion:
The Supreme Court upheld the High Court's decision, ruling that the processed tea-leaves retained their character as agricultural produce and were not exigible to sales tax under the U.P. Sales Tax Act, 1948. The appeals by the Commissioner of Sales Tax were dismissed with costs, affirming that the assessee's sales of processed tea-leaves were exempt from sales tax.