TMI Blog1980 (2) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... ible to tax under the Central Act. All these cases were heard together and are being disposed of by this common judgment as the same question of law arises for consideration in all these cases, which is as follows: Whether the assessees, who had effected inter-State sales of desiccated coconut prepared by them out of the coconuts purchased by them within the State, were not liable to pay Central sales tax on the sales turnover of such desiccated coconut, under section 8 of the Central Act, on the ground that they had paid purchase tax on the coconuts as prescribed under section 5(4) read with entry 5 of the Fourth Schedule to the Act and that desiccated coconut is the same as coconut, which is one of the 'declared goods" under section 14 of the Central Act? 2.. The relevant statutory provisions on the interpretation of which these cases have got to be decided and the facts of the case which have given rise to these appeals and revision petitions, are as follows: (1) Section 14 of the Central Act specifies certain goods which are of special importance in inter-State trade and commerce defined as "declared goods" under section 2(c) of the Central Act. Declared goods specified i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of local tax paid by them as provided under the proviso to sub-section (4) of section 5 of the Act read with section 15(b) of the Cental Act, the assessing authority exempted their sales turnover of desiccated coconut from tax. In doing so, the assessing authority took into consideration a Government notification dated 31st March, 1973, which gave the assessee in such cases the option of getting exemption on inter-State sales subject to the condition that they would not claim reimbursement of tax paid under the Act. The Commissioner considered that the view taken by the Commercial Tax Officer was erroneous and prejudicial to the revenue. He, therefore, issued notice under section 22-A of the Act to the appellants proposing to revise the order of the assessing authority and to bring the sales turnover of desiccated coconut to tax. The appellants replied that the desiccated coconut was not a different commodity than coconut and, therefore, the view taken by the assessing authority was correct. The Commissioner, however, disagreed with the assessee's reply and held as follows: "..........The desiccated coconut powder is being manufactured by scraping the kernel of coconut and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir claim that the desiccated coconut and coconut are one and the same commodity and consequently they are entitled to exemption from payment of tax under the Central Act as they had paid tax under the Act on the coconut out of which desiccated coconut was prepared. Further on the ground that the assessee had failed to produce C forms in respect of the said turnover to be eligible for lower rate under section 8(1) of the Central Act he levied tax at the rate of 10 per cent under section 8(2) of the Central Act. (5) The respondent-assessee preferred appeals before the Deputy Commissioner of Commercial Taxes, but without any success. Aggrieved by the order of the appellate authority the assessee appealed before the Karnataka Appellate Tribunal. The Tribunal reversed the view taken by the lower authorities. In doing so, the Tribunal mainly relied on the decision of the Supreme Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool[1960] 11 S.T.C. 827 (S.C.). The Tribunal also referred to the decision of the Kerala High Court in T.R.C. No. 67 of 1971 in which the said High Court affirmed the view that desiccated coconut falls within the term "coconut" which is one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that according to the view taken by the State also both coconut (excluding tender coconut) and copra are declared goods. Therefore, we proceed on the basis that coconut and copra are declared goods under section 14 of the Central Act and that both are included in entry 5 of the Fourth Schedule to the Act. 4.. On the factual position, namely, as to what is "desiccated coconut", there is no dispute between the parties. It is common ground that "desiccated coconut" is only the grated white kernel or meat of coconut, desiccated or dehydrated for preservation. Such dehydrated kernel of coconut is put in the plastic or polythene covers and sealed. It is sold in the market as desiccated coconut. 5.. Sriyuths Indra Kumar, S.P. Bhat and A.R. Srinivasa Rao, the learned counsel appearing for the assessees, raised the following contentions: (i) Desiccated coconut is prepared by the assessees out of the coconut purchased by them on which they have paid tax under the Act and it is nothing else than the coconut meat or kernel except that the same is grated and dried and thereby made ready for use in the preparation of articles of food and confectionery items and, therefore, desiccated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kateswarlu[1978] 41 S.T.C. 394 (S.C.). arose under the provisions of the Andhra Pradesh General Sales Tax Act. Under section 5 of the Andhra Pradesh Act read with entry 66 of the First Schedule to that Act, a tax at the rate of one paisa per rupee was payable at the point of first wholesale sale of rice if the rice produced from paddy was already subject to tax under that Act, but if the paddy from which the rice was produced, had not been subjected to tax, the rate of tax payable was six paise per rupee. The assessee in this case had produced atukulu (parched rice) and muramaralu (puffed rice) instead of rice from out of paddy which had already suffered tax under the Act. The controversy was whether the assessee was liable to pay tax on the sales turnover of parched rice and puffed rice at the rate of one paisa in a rupee on the ground that parched rice and puffed rice also fell within the word "rice" as used in entry 66 of the First Schedule to that Act, or was liable to pay tax as if they were separate kinds of goods falling under the general and unspecified category. The department took the view that parched rice and puffed rice being different items of goods produced out of ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l within the description of the word "soap" and cannot be taxed separately as a toilet article. (iv) Porritts Spencer (Asia) Ltd. v. State of Haryana[1978] 42 S.T.C. 433 (S.C.).-The Supreme Court in this case considered whether dryer felts made out of cotton or woollen yarn by process of weaving according to the warp and woof pattern and commonly used as absorbents of moisture in the paper manufacturing units fell within the meaning of the word "textiles" as used in item 30 of Schedule B to the Punjab General Sales Tax Act, 1948, and consequently exempt from tax. The Supreme Court held that though it may sound a little strange to regard "dryer felts" as "textiles" in reality it is "textiles" as they are prepared from yarn by the process of weaving and consequently exempted from the payment of tax. (v) Commissioner of Sales Tax, Lucknow v. D.S. Bist[1979] 44 S.T.C. 392 (S.C.). The question for consideration before the Supreme Court in this case was whether tea-leaves ceased to be agricultural produce after they were subjected to certain processes for the purpose of making tea-leaves fit for transporting and marketing. Notwithstanding the process of withering, crushing and roas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .). and (iii) Anwarkhan Mehboob Co. v. State of Bombay[1960] 11 S.T.C. 698 (S.C.). (1) In the S.V.C. Factory's case(4), the Supreme Court held that the kernel produced or manufactured out of raw cashew-nut was commercially a different commodity. The High Court of Travancore-Cochin had recorded a finding of fact to the effect that raw cashew-nuts and kernels manufactured out of them by various processes, partly mechanical and partly manual, were not commercially the same commodity. This finding was also not seriously disputed before the Supreme Court and this was taken as an additional ground to reject the claim in respect of the purchase of raw cashew-nuts (vide page 217). (2) The case of Ganesh Trading Co.(5) arose under the provisions of the Punjab General Sales Tax Act. The question for decision was whether the assessee was entitled to deduction of the value of paddy purchased and converted into rice and sold as such from the total purchase turnover of paddy. The Supreme Court held that, in ordinary parlance. paddy and rice were two different goods and there was also change in the identity of the goods. On these grounds, the Tungabhadra Industries' case(3) was distinguished. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent from tamarind seed. 8.. The learned counsel for the State urged that just as cashew-nut and kernel separated from it, tobacco and bidi Patti produced therefrom, paddy and rice produced out of it, and tamarind seed and pappu taken out of its husk, are considered as separate commodities, desiccated coconut prepared out of coconut must also be held to be a different commodity and the view taken by the Commissioner should be upheld and that of the Appellate Tribunal reversed. 9.. Having set out the rival contentions of the assessees and the department, we shall now proceed to consider the question arising for decision in these cases. 10.. As stated earlier, it is common ground that coconut and copra are declared goods and in view of section 5(4) of the Act read with entry 5 of the Fourth Schedule, tax is leviable at 3 per cent and that too only once at the first purchase point of these goods in the State. Therefore, it is clear that if coconut which has suffered tax under the Act and the desiccated coconut prepared out of it sold in the course of inter-State trade and commerce are treated as same commercial commodity or, in other words, if desiccated coconut is also cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ched to the inner part of the bony shell and in the cavity or the inner part of the drupe lies the sweet juice called coconut milk. Coconut, as an agricultural produce, enters the market after the removal of the outer cover of fibre and is commercially called "coconut" or "watery coconut". The kernel taken out of watery coconut is used profusely for culinary purposes. It is one of the important ingredients used in the preparation of articles of food. It is also used in the preparation of confectionery items such as several kinds of sweets, coconut burfi, coconut biscuits, etc. The sweet juice within watery coconut is a delicious drink though tender coconuts are generally and mainly used for this purpose. When coconut is fully matured and it is allowed to dry along with its outer fibre cover, the sweet juice within it gets dried up and thereafter the kernel also gets dried up and shrinks and gets detached from the bony inner cover. The whole kernel after it has reached this stage would be in the shape of hollow sphere and is called "copra". Copra is also used in the preparation of food articles. While both kernel of watery coconut and copra are used in the preparation of food articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orld commerce as copra. The less common drying of the intact whole nut kernel produces ball, edible or whole copra. Shredding of the fresh meal, followed by thorough drying, results in a food item, desiccated coconut, in which the moisture content is somewhat lower and the oil content higher than that of cobra. Copra, as known in trade, is seldom used directly as human food, but is processed to extract the coconut oil of commerce. leaving a coconut oil cake, also called copra cake, poonac and boengkil, mostly utilized for livestock feed." There can be no doubt that coconut kernel does not lose its oil content by grating and dehydration. In view of dehydration the desiccated coconut contains less moisture and is suitable for extracting oil. The learned counsel for the assessees submitted that actually desiccated coconut is also being used for the manufacture of coconut oil. Thus it may be seen for all the purposes for which watery coconut is used, desiccated coconut could also be used and similarly for all purposes for which desiccated coconut is used, watery coconut could be used. 13.. Having regard to the aforesaid facts and reasons, it appears to us that the view taken by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch contains as many as 138 items, includes a number of separate fairly detailed entries. Entry 58 is for 'bran or husk of rice' and entry 59 is for 'deoiled bran of rice'. It appears, therefore, that 'rice in husk' is 'paddy'. When it is removed from husk, the husk and rice become separately taxable. But, there are no separate entries for rice and rice reduced into an edible form by heating or parching without any addition of ingredients or appreciable changes in chemical composition. The term 'rice' is wide enough to include rice in its various forms whether edible or inedible. Rice in the form of grain is not edible. Parched rice and puffed rice are edible. But the entry 'rice' seems to us to cover both forms of rice. At any rate, it is wide enough to cover them. * * * In the Tungabhadra Industries' case[1960] 11 S.T.C. 827 at 834 (S.C.)., this court rejected the argument based on an analysis of chemical changes produced by the absorption of hydrogen atoms in the process of hardening and on the consequent intermolecular changes in the oil. It said: 'But neither mere absorption of other matter nor intermolecular changes necessarily affect the identity of a substance as ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dnut oil are one and the same on the ground that one could be a substitute for the other in respect of all the uses. He referred to the following observations in the judgment: "Both the Tribunal as well as the High Court have pointed out that except for its keeping quality without rancidity and ease of packing and transport without leakage, hydrogenated oil serves the same purpose as a cooking medium and has identical food value as refined groundnut oil. There is no use to which the groundnut oil can be put for which the hydrogenated oil could not be used, nor is there any use to which the hydrogenated oil could be put for which the raw oil could not be used." (underlining* by me), and in particular on the underlined* sentence. Relying on the above sentence, the learned counsel argued that there are certain purposes for which watery coconut alone could be used and not desiccated coconut and, therefore, the ratio in the Tungabhadra Industries' case[1960] 11 S.T.C. 827 (S.C.). is not applicable to these cases. In support of this submission he relied on the decision of the Supreme Court in Sri Siddhi Vinayaka Coconut Co. v. State of A.P.[1974] 34 S.T.C. 103 (S.C.). and pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the customer by improving its quality would render the oil a commodity other than 'groundnut oil' within the meaning of the rule. For instance, if the oil as extracted were kept still in a vessel for a period of time, the sediment normally present in the oil would settle at the bottom leaving a clear liquid to be drawn out. The *Here italicised. learned Advocate-General cannot go so far as to say that if this physical process was gone through, the oil that was decanted from the sediment, which it contained when it issues out of the expresser, ceased to be 'groundnut oil' for the purposes of the rule. If the removal of impurities by a process of sedimentation does not render groundnut oil any the less so, it follows that even the process of refining, by the application of chemical methods for removing impurities in the oil, would not detract from the resulting oil being 'groundnut oil' for the purpose of the rule. It may be mentioned that processes have been discovered by which even on extraction from the oil mill, the oil issues without any trace of free fatty acids. It could hardly be contended that if such processes were adopted what comes out of the expresser is not groundnut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne prefers rice only and does not prefer to eat parched rice or puffed rice, which are generally used only for tiffin, unless it becomes inevitable, as a result of non-availability of the rice. This does not mean that, in substance, the three articles are different. In the Alladi Venkateswarlu's case[1978] 41 S.T.C. 394 (S.C.)., the Supreme Court held that parched rice is rice though parched and puffed rice is still rice though puffed. 17.. The learned counsel for the State next tried to make out a point by referring to section 14 of the Central Act. He submitted that the goods declared under the relevant clause goes under the heading "oil-seeds" and therefore desiccated coconut cannot be treated as falling within the entry as it can by no stretch of imagination be considered as seed. We do not see any force in the submission either. The entry "oil-seeds" used in section 14 is only to indicate commodities produced out of seeds out of which oil can be extracted and not in the sense that the particular commodity mentioned is seed in its technical sense out of which oil could be extracted. According to its botanical meaning a seed is one which is capable of producing a plant which p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Court in the Alladi Venkateswarlu's case(1), in the interpretation of taxing statutes, if two views are possible, the one in favour of the assessee should be preferred. The relevant portion of the judgment at page 398 of the Reports reads: "...And, in any case, if two interpretations of a provision are possible, we think that we ought to, in such a case, apply the principle that the interpretation which favours the assessee should be preferred." Applying the above test also the contention urged for the assessee should be preferred. The construction suggested for the assessee on the interpretation of the word "coconut" used in entry 5 of the Fourth Schedule to the Act and section 14 of the Central Act to the effect that it includes desiccated coconut is plausible on the analogy of, groundnut oil and hydrogenated groundnut oil in the cases of Tungabhadra Industries[1960] 11 S.T.C. 827 (S.C.). Court)., rice, parched rice and pulled rice in Alladi Venkateswarlu[1978] 41 S.T.C. 394 at 398 (S.C.)., coal and charcoal as in Jaswant Singhs, iron and steel and bars, flats and plates as in Hiralal[1966] 17 S.T.C. 313 (S.C.)., shampoo and soap in Prakash Trading Co.[1972] 30 S.T.C. 348 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same and, therefore, he should have given an opportunity to the appellants to produce C forms, as was done by the Deputy Commissioner in his appellate order in the case of the respondent in the revision petition filed by the State. The learned counsel for the State, however, submitted that as desiccated coconut was not one of the declared goods, it was for the appellants to have produced C forms and to claim that the levy of tax should be at the lower rate of 4 per cent under section 8(1) and (3) of the Central Act. 22.. In our view, the alternative contention urged for the appellants is also well-founded. In their cases, the assessing authority had taken the view that desiccated coconut and coconut were one and the same and, therefore, the appellants were not liable to pay tax under the Central Act as they had paid tax under the Act at the purchase point on the coconut out of which desiccated coconut was produced. It is also clear from the order of the Deputy Commissioner made in the appeal in the case of the respondent in the revision petition filed by the State that the Commissioner himself had earlier issued an endorsement to the effect that desiccated coconut and co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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