TMI Blog1984 (12) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... of cashewnuts ... 28,54,925.24 Inter-State purchase of cashewnut ... 5,19,687.00 2nd purchase of cashewnut ... 4,00,785.25 Sales turnover of cashew shell ... 18,418.62 ------------ ... 37,93,816.11 ------------ Before the Assessing Officer, namely, the Deputy Commercial Tax Officer, exemption was claimed by the assessee in respect of the entire cashewnut purchase turnover on the ground that the purchases were made to do export to foreign countries in accordance with the Central Sales Tax Act, hereinafter referred to as the Central Act. The assessing Officer found that the conditions of section 5(3) of the Central Act which was introduced with effect from 1st April, 1976 were satisfied and they were eligible for exemption claimed by them for the sale to foreign countries effected during the assessment year 1976-77. The taxable turnover under the said Sales Tax Act was computed only at Rs. 18,416 and this turnover was held taxable at the rate of 4 per cent under section 3(1) of the Act. The sales tax was computed at Rs. 737. This assessment order was made on 15th May, 1979. 4.. On 26th February, 1982, a notice was sent to the assessee that the assessing officer propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f them are directed at the assessment orders, as the one in W.P. No. 3968 of 1982. There are some petitions where the assessees are for the first time now sought to be made liable on the basis that the cashewnut and cashew kernel are commercially different commodities. In some cases for the assessment year 1976-77 to 1979-80 the appellate authority had accepted the contention of the assessees that the purchase of cashewnuts were not liable to tax having regard to the provisions of section 5(3) of the Central Act. Bat the revisional authority, namely, the joint Commissioner for Commercial Taxes, in exercise of his revisional jurisdiction under the said Act has issued notices requiring the assessees to show cause as to why the order of the appellate authority should not be set aside. There are yet some petitions in which the petitioners are challenging the notices issued under rule 18(ii) of the said rules where in the cases of the assessees who were allowed to file the monthly return the assessing officer declines to accept the return submitted by the assessees and has issued notices under rule 18(ii) of Tamil Nadu General Sales Tax Rules with the avowed purpose of requiring the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocess the bye-products obtained are cashew shells, cashew testa and cashew shell oil which are all items having a variety of uses and have a good local market." The process through which the raw cashewnuts are passed before the edible kernels are obtained has been judicially noticed in a decision of the Supreme Court in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 (SC). That was an appeal against the judgment of the then Travancore-Cochin High Court, which had gone into the nature of the process. Referring to the process as found by the High Court, Das, J., in his judgment at page 247 observed as follows: "The High Court has, on remand, enquired into the process of manufacture through which the raw cashewnuts are passed before the edible kernels are obtained. The High Court, in its judgment on remand, goes minutely into the different processes of baking or roasting, shelling, pressing, pealing, and so forth. Although most of the process is done by hand, part of it is also done mechanically by drums. Oil is extracted out of the outer shells as a result of roasting. After roasting the outer shells are broken and the nuts are obtained. The pois ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the cashewnut, the goods exported, i.e., cashew kernel, do not cease to be the same goods, i.e., the cashewnuts. The argument appears to be that the specific purpose of enacting section 5(3) was to avoid tax on exports and if that was the avowed object of introduction of section 5(3), then if it is permissible, the interpretation must be so given to section 5(3) that the exporter of cashew kernel is not deprived of the exemption from local sales tax, which is contemplated by section 5(3). The argument at first sight appears to be quite attractive because it is contended that cashewnut has two components, namely, the outer cover and the inner cashew kernel, and if one out of these two components, namely, the cashew kernel is exported, the cashew kernel does not become a different commodity as the kernel is already inside the cashewnut. The argument is that even after separating the cashew kernel from the outer cover, the cashew kernel remains in the same form, as it was before the cashewnut was subjected to the process of roasting and breaking up for taking the cashew kernel from the cashewnut, and therefore, the cashew kernel must be treated as goods having the same identity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(a) of the Kerala Act, which corresponds to section 7A of the Tamil Nadu General Sales Tax Act and pointed out that section 5A(1)(a) of the Kerala Act envisages the consumption of commodity in the manufacture of another commodity. Laying down the test for determining whether the commodity is consumed in the manufacture of another, the Supreme Court observed as follows: "There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt "on a total impression" the pineapple slices were held to possess the same identity as the original pineapple fruit. The test to decide whether one article has the same identity as the other even after subjecting the original article to a process is therefore well-settled. Indeed even on an earlier occasion, a similar test has been formulated by the Supreme Court in Ganesh Trading Co., Karnal v. State of Haryana [1973] 32 STC 623 (SC). That was a case where the question was whether paddy and rice were goods of the same identity and it was contended that merely because paddy was dehusked and rice produced, there is no change in the identity of the goods. While dealing with the question whether paddy and rice were identical goods, the Supreme Court observed as follows: "Now, the question for our decision is whether it could be said that when paddy was dehusked and rice produced, its identity remained. It was true that rice was produced out of paddy but it is not true to say that paddy continued to be paddy even after dehusking. It had changed its identity. Rice is not known as paddy. It is a misnomer to call rice as paddy. They are two different things in ordinary parlance. Hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntable quality. It can hardly be disputed that when the raw cashewnut is subjected to the necessary process for taking the cashew kernel out of it, the process leaves behind cashew shells and sometime even oil is manufactured out of these shells. It is therefore obvious that, when the petitioners purchase cashewnuts and export cashew kernels, they are not exporting the same goods which they had earlier purchased. 10.. In the State of Travancore-Cochin v. The Shanmugha Vilas Cashewnut Factory [1953] 4 STC 205 (SC) the question which fell for decision was, whether the cashewnut purchases made by the factory were within the exemption of article 286 of the Constitution of India. At page 217 of the report, the majority judgment of the Supreme Court contains the conclusions. These conclusions are as follows: "(1) Sales by export and purchases by import fall within the exemption under article 286(1)(b). This was held in the previous decision. (2) Purchases in the State by the exporter for the purpose of export as well as sales in the State by the importer after the goods have crossed the customs frontier are not within the exemption. (3) Sales in the State by the exporter or imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under article 286(1)(b) because the cashewnuts and the kernels were not commercially the same commodity. The mere fact that the finding recorded by the High Court was not disputed by the assessee does not detract from the fact that the view taken by the Supreme Court was that the two commodities being commercially different, the assessee was not entitled to the benefit of exemption under article 286(1)(b) of the Constitution of India. In the same judgment the question was considered by Das, J., in a separate but concurring judgment. We have reproduced earlier a part of the observations relating to the process to which the cashewnuts are subjected to before cashew kernels can be obtained. In that same paragraph referring to the effect of the process, Das, J., has observed (at page 247) as follows: "......By this process of manufacture the respondents really consume the raw cashew and produce new commodities. The resultant products, oil and edible kernels, are well-recognised commercial commodities. They are separate articles of commerce quite distinct from the raw cashewnuts. Indeed, it is significant that the respondents place orders for 'cashewnuts' but orders are placed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ators in the State of Bombay, the assessee subjected the raw tobacco so purchased to a process leading to its conversion into bidi pattis, for immediate use in the manufacture of bidis and that marketable value of raw tobacco and bidi pattis differs and that both these were commercially different articles. Holding that when tobacco was delivered in the State of Bombay for the purpose of changing into commercial article, namely, bidi patti, and the delivery was for the purpose of consumption and therefore, the sales must be held to have taken place inside the State of Bombay, the Supreme Court referred briefly to the observations of Das, J., in State of Travancore-Cochin v. The Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 (SC) and observed that the conversion of a commodity into a different commercial commodity by subjecting it to some processing, is consumption within the meaning of the Explanation to article 286 of the Constitution of India no less than the final act of user when no distinct commodity is being brought into existence but what was brought into existence is being used up. The Supreme Court pointed out that when a commodity is converted into a commercially di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was therefore not correct to say that the process of tanning brings about no change in the raw hides and skins and that therefore both types of hides and skins form one commodity. 12.. Undoubtedly, the decision of the Andhra Pradesh High Court supports the view which is canvassed before us by Mr. Ramachandran, learned counsel appearing on behalf of the petitioner. A Division Bench of the Andhra Pradesh High Court in Singh Trading Co. v. Commercial Tax Officer, Srikakulam [1979] 44 STC 1 has positively taken the view that though cashew kernel is taken out by drying out and breaking open the shell of the nut and that involves a certain process, still it cannot be said that cashewnut and kernel are two different commercial commodities. The view which the Division Bench took was that cashewnut is subjected to that kind of process only to make the kernel usable. While it cannot be disputed that the process to which the cashewnut is subjected is to make kernel usable, with respect, we are not inclined to agree with the view of the Division Bench that the cashewnut and kernel are not two different commercial commodities. The use to which a cashew kernel is put can be achieved only after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriously disputed before the Supreme Court. Thus the Division Bench took the view that it can be safely taken that the Supreme Court had not given a decision as to the respective nature of cashewnuts and its kernel. We have reproduced in extenso the relevant observations from the majority judgment as well as the observations of Das, J., (as he then was). Undoubtedly, the Supreme Court was concerned with the construction of article 286 of the Constitution, but the judgment of the Supreme Court shows that the finding of the High Court that cashewnuts and kernels were not commercially the same commodity was one of the grounds on which the Supreme Court held that the factory was not entitled to exemption under article 286, "as the language of clause (1)(b) clearly requires as a condition of the exemption that the export must be of the goods whose sale or purchase took place in the course of export". It would not therefore be correct to say that the question whether the two articles were commercially different did not directly fall for consideration before the Supreme Court. It would be wholly improper for us to ignore the observations of the Supreme Court that cashewnuts and kernels we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndment Act (61 of 1972)] was meant to enumerate separately taxable goods and not just to illustrate what was just one taxable substance, viz., "iron and steel". It was held that each sub-item in entry (iv) is a separate taxable commodity for purpose of sales tax and each of them forms a separate species for each series of sales although they may all belong to the genus "iron and steel", and therefore, manufactured goods consisting of "steel rounds, flats, angles, plates, bars" or similar goods in other forms and shapes could be taxed again even if the material out of which they were made had already been subjected to sales tax once as iron and steel scrap. 16.. In Commissioner of Sales Tax v. Bombay Traders [1976] 38 STC 286 it was held by the Division Bench of the Bombay High Court that the fried and salted cashewnuts prepared by the assessees could not be said to be a different commodity from plain cashewnuts and the finding of the Tribunal that even after the plain cashewnut was fried and salted by the assessees, they still continued to be the same commercial commodity, namely, cashewnuts and the process or activity applied on the cashewnuts could not be said as "manufacture" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, not necessary for us to discuss those cases in detail. Essentially the question whether two articles are commercially different will depend upon the facts of each particular case. Having considered the matter at length, we are of the view that the cashewnut and cashew kernel must be treated as commercially different articles. The petitioners would not, therefore, be entitled to the benefit of section 5(3) of the Central Act. 22.. Mr. Ramachandran has then contended that the notice for reopening the assessment and even revised assessment must be held to be bad because section 16 of the Tamil Nadu General Sales Tax Act, under which the power is sought to be exercised by the assessing authority goes beyond the purpose of the Act. It may be pointed out that the constitutional validity of section 16 of the Tamil Nadu General Sales Tax Act has not been challenged before us. The ground which is sought to be made out before us is that section 16 treats alike all cases of reopening of assessment, that is, where there is a concealment or non-furnishing of correct particulars by the assessee or where the assessment is sought to be reopened because of change of opinion on the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied that the escape from assessment is due to wilful non-disclosure of assessable turnover by the dealer, and in such a case there is discretion in the assessing authority to levy by way of penalty a sum which shall not be less than 50 per cent and which shall not be more than one hundred and fifty per cent of the tax so assessed. As we have already pointed out the constitutional validity of section 16 has not been challenged. The provision of reopening of assessment is a common feature in any tax legislation. In the case of Tamil Nadu General Sales Tax Act, the power under section 16(1)(a) can be exercised not "for any reason" if the whole or any part of the turnover of business of a dealer has escaped assessment to tax. Therefore, the only circumstance on which an assessment can be reopened is that the whole or any part of the turnover of business of a dealer has escaped assessment to tax. The power under section 16 is a wide power. The only condition is that the assessing officer must be satisfied that the turnover has escaped assessment. The scope of section 16 has been considered by this Court in Yercaud Coffee Curing Works Ltd. v. The State of Tamil Nadu [1977] 40 STC 531. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse, to a notice, and a reasonable opportunity being given to show cause against such assessment. The words "for any reason" are words of wide import. Similar terminology appears in the Bihar Agricultural Income-tax Act which fell for consideration before the Supreme Court in Maharajadhiraj Sir Kameshwar Singh v. The State of Bihar AIR 1959 SC 1303. Section 26 of the Bihar Agricultural Income-tax Act, 1938, reads as follows: "If for any reason any agricultural income chargeable.................................... escaped assessment for any financial year or has been assessed it too low a rate, the Agricultural Income-tax Officer may, at any time within one year of the end of that financial year, serve on the person liable to pay agricultural income-tax on such agricultural income or, ......a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 17, and may proceed to assess or reassess such income, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section." The argument before the Supreme Court was that section 26 was not applicable to a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well-known rules of interpretation of statutes. What impact this reopening of assessments will have on the petitioners' rights under some other Acts like the Income-tax Act will be foreign to the question of construction of validity of the assessment made under section 16 of the Act. 25.. Having regard to the view which we have taken, it must be held that the assessing authorities were justified in reopening the assessments on the ground that in the original assessments, the turnover in respect of cashew kernel has been exempted wrongly, and that, that turnover was liable to be taxed. Accordingly, W.P. No. 3968 of 1982 must stand dismissed. All the other petitions, namely, W.P. Nos. 4334 to 4337 of 1982, 4329 of 1983, 5579 of 1983, 5580 of 1983, 2236 of 1983, 4325 of 1983, 4330 of 1983, 4471 of 1983, 4472 of 1983, and 6310 of 1983 must also stand dismissed. 26.. In cases where the petitioners have challenged only the notice issued under section 16 of the local Act, the assessing authorities will be entitled to determine the assessment on merits. The following petitions have been challenging notices under section 16 of the local Act. W.P. Nos. 4663, 4332, 4333, 9857, 10026, 100 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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