TMI Blog1992 (7) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Division Bench of this Court in State of Kerala v. Sankaran Nair [1986] 63 STC 225 requires reconsideration inasmuch as it has overlooked two earlier Division Bench decisions of this Court. It is also stated that a new trend has been set by the Supreme Court in a catena of recent cases-in particular-Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63; AIR 1980 SC 1227, Sterling Foods v. State of Karnataka [1986] 63 STC 239 and other cases. The question also arises whether the decision of S.R. Das, J. (as he then was) in State of TravancoreCochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 (SC) holds the field in view of the trend in the recent decisions of the Supreme Court above referred to. 3.. The facts of the case in the writ petition, O.P. No. 10598 of 1989, are that the writ petitioner is a cashew exporter who exports cashewnuts (i.e., cashew kernels) mostly to U.S.A. He has, however, purchased cashewnuts with shell from the Kerala Cashew Workers Apex Industrial Co-operative Society Ltd., extracted kernels, cleaned and packed them for export. He claimed that no local sales tax was payable on the purchases of cashewnut with shell so purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shanmugha Vilas Cashew-nut Factory's case [1953] 4 STC 205 (SC), the prohibition contained in article 286(1)(b) restricting the power of the State to levy sales tax was applicable only to the particular export sale or import sale and did not extend, in the case of the export sale, to the penultimate sale of the goods to the exporter for the purpose of the export. It did not also extend, in the case of import sales, to the subsequent sale by the Indian importer, and therefore, the State could levy sales tax on the penultimate or subsequent sales. However, the Supreme Court in Shanmugha Vilas Cashew-nut Factory's case [1953] 4 STC 205-S.R. Das, J. (as he then was)-took a different view and held that the prohibition restricting the State's power to levy sales tax extended also to the penultimate sale to the Indian exporter and this was what was intended by article 286(1)(b) and such an interpretation would promote export trade. The learned Judge, however, held on facts, that the cashewnut with shell purchased by the exporter and the cashew kernel which was extracted and exported were commercially different goods and, therefore, on facts, the levy of sales tax by the State on the purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, J., observed that there were two competing public interests involved,-one relating to foreign exports and the other regarding the States' revenues and that section 5(3) can be construed neither liberally nor strictly. Obviously, the two public interests are to be balanced to the extent provided in section 5(3). Consolidated Coffee's case [1980] 46 STC 164 (SC) did not have to deal with the meaning of the words "any goods" and "those goods" in section 5(3). Such a question arose only in 1986, in the case of Sterling Foods [1986] 63 STC 239 (SC) wherein it was held that the purchases of shrimps, prawns and lobster locally meant for purposes of export were not liable to sales tax under the Karnataka Sales Tax Act, 1957, even though the heads and tails of those shrimps, prawns and lobster were cut and there was peeling, deveining, cleaning and freezing. It was held that there was, in the eyes of those who deal with these goods, no change in the identity or character of the goods purchased and hence the purchases would still not be liable to sales tax. In Sterling Foods' case [1986] 63 STC 239 (SC) the earlier decision in Pio Food Packers' case [1980] 46 STC 63 (SC); AIR 1980 SC 1227 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlooked Swasti Cashew Industries Private Ltd. v. State of Kerala [19611 12 STC 691 (Ker) and Deputy Commissioner of Sales Tax v. Neroth Oil Mills Co. Ltd. [1982] 49 STC 249 (Ker). 11.. In the light of the above submissions, the following points arise for consideration: "1. What are the different principles of construction applicable to words or entries in statutes dealing with sales tax? 2.. What is the appropriate test applicable for construing the words 'any goods' and 'those goods' in section 5(3) of the Central Sales Tax Act, 1956? 3.. Did S.R. Das, J. (as he then was) in his separate judgment in Shanmugha Vilas Cashew-nut Factory's case [1953] 4 STC 205 (SC) apply any test different from the one applied by the Supreme Court in Sterling Foods [1986] 63 STC 239, etc.. and can it be said that the judgment of S.R. Das, J., is no longer binding on this Court under article 141 of the Constitution of India?" 12.. Point No. 1: To attempt to review the various test laid down by the Supreme Court in the sales tax branch of the law in regard to construction of words or entries, is a difficult task. Some attempts in this direction have, however, been made by the Karnataka High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e "sugarcane" was held not to be a "green vegetable" in Motipur Zamindary Co. (Private) Ltd. v. State of Bihar [1962] 13 STC 1 (SC); AIR 1962 SC 660. Construing "sanitary fittings" in the popular sense, it was held in State of U.P. v. Indian Hume Pipe Co. Ltd. [1977] 39 STC 355 (SC) that heavy G.I. pipes intended to be laid underground for carrying water could not be treated as "sanitary fittings". "Rice" was held to include "parched rice" and "puffed rice" varieties as per the common sense test in Alladi Venkateswarlu v. Government of Andhra Pradesh [1978] 41 STC 394 (SC). "Bullion" in common parlance was held not to include "ornaments"-Deputy Commissioner of Sales Tax v. G.S. Pai Co. [1980] 45 STC 58 (SC). Only pliable felts could be treated as "cloth" in the popular sense-Filterco. v. Commissioner of Sales Tax [1986] 61 STC 318 (SC). "Dryer felts" made of cotton or woollen were "textiles" in common parlance-Porritts Spencer (Asia) Ltd. v. State of Haryana [1978] 42 STC 433 (SC). "Ammonia paper" and "ferro paper" could not be treated as "paper" in the popular sense having regard to the use to which each of them was put-Commissioner of Sales Tax v. Macneill Barry Ltd. [1986] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial parlance: Chiranjit Lal Anand v. State of Assam [1985] 60 STC 89 (SC). In Delhi Cloth General Mills Co. Ltd. v. State of Rajasthan [1980] 46 STC 256 (SC), it was laid down that "rayon tyre-cord fabric" was "rayon fabric". In that case, Pathak, J. (as he then was) observed: "In determining the meaning or connotation of words and expressions describing an article or commodity, the turnover of which is taxed in a sales tax enactment, if there is one principle fairly well-settled, it is that the words or expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer. It is they who are concerned with it and it is the sense in which they understand it that constitutes the definitive index of the legislative intention when the statute was enacted." 15.. Dictionary and scientific meanings are not to be resorted normally inasmuch as the "Legislature does not suppose our merchants to be naturalists or geologist or botanists" as stated by Story, J., in Two hundred Chests of Tea (1824) 9 Wheaton (US) 430 quoted in Porritts Spencer (Asia) Ltd. v. State of Haryana [19781 42 STC 433 (SC) and Mukesh Kumar Aggarwal Co. v. St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aying down, more or less, similar principles, even though the taxable event in sales tax is the sale of goods, and the taxable event in the excise law is the production or manufacture of excisable goods. This commonness in these two areas has been brought out in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319 (SC), which related to "declared goods" under section 14 of the Central Sales Tax Act, 1956. There, Beg, J. (as he then was) observed "It is true that the question whether goods to be taxed have been subjected to a manufacturing process so as to produce a new marketable commodity, is the decisive test in determining whether an excise duty is leviable or not in certain goods. No doubt, in the law dealing with the sales tax, the taxable event is the sale and not the manufacture of goods. Nevertheless, if the question is whether a new commercial commodity has come into existence or not, so that its sale is a new taxable event, in the sales tax law, it may also become necessary to consider whether a manufacturing process, which has altered the identity of the commercial commodity, has taken place. The law of sales tax is also concerned with 'goods' of various descr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... modity. The inclusion of several articles under the same heading may be for a reason other than that the articles constitute one and the same thing. Again, in Sri Siddhi Vinayaka Coconut Co. v. State of Andhra Pradesh [1974] 34 STC 103 (SC) "watery coconuts" and "dry coconuts" were held to be different commodities, commercially speaking. Watery coconuts are put to a variety of uses, e.g., for cooking purposes, for religious and social functions, whereas dried coconuts are used mainly for extracting oil. In Venkataraman v. State of Madras [1970] 25 STC 196 (SC) "cane jaggery" and "palm jaggery" were held to be different commodities, the former being produced from juice of sugarcane, while the latter is produced from juice of palm-tree. In State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319 (SC) it has been held that manufactured goods consisting of "steel rods, flats, angles, plates, bars, etc." could be taxed again even if the material out of which they were made had already been taxed once as "iron and steel scrap". Each subitem in the entry was treated as a separate taxable commodity and each separate species for each series of sales although they may all belong to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed: ".....neither mere absorption of other matter, nor inter-molecular changes necessarily affect the identity of a substance as ordinarily understood. .....It would undoubtedly be very bad groundnut oil but still it would be groundnut oil and if so, it does not seem to accord with logic that when the quality of the oil is improved in that its resistance to the natural processes of deterioration through oxidation is increased, it should be held not to be oil." (Emphasis supplied) "Sugar" was held to include within its ambit all forms of sugar called "patasa", "harda" and "alchinda " [State of Gujarat v. Sakarwala Brothers [1967] 19 STC 24 (SC)]. In Commissioner of Sales Tax v. Harbilas Rai and Sons [1968] 21 STC 17 (SC) bristles plucked from pigs, boiled, washed with soap and other chemicals and sorted out in bundles according to their size and colour, were regarded as remaining the same commercial commodity, namely, pigs-bristles. 21.. The principle came up for a more detailed discussion in a trend-setting judgment in the "pineapple slices" cases in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 (SC). The question, no doubt, arose under section 5A(1)(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was done by hand. Then the selected corks were put into a machine or "air-fan" (the unpatented invention of a man in the employ of the claimant) and all dust, neal, bugs and worms removed. They were then thoroughly cleansed by washing and steaming, removing the tannin and germs and making the cork soft and elastic, and they were next exposed to blasts of air in a machine, until they were absolutely dry. Then they were put for a few seconds into a bath of glycerin and alcohol, the proportions of which are a trade secret, then dried in a special system. This bath closes up all the seams, holes and crevices and then the corks are given a coating which prevents the beer (contained in the bottles which are corked with these corks) from acquiring a cork taste. The corks are finally dried by absorption of the chemicals that had covered them. The whole process would take one to three days. The cleaning and pasteurisation of corks make them soft, elastic, reliable and free from germs or foreign substance. The U.S. Supreme Court held that there was no "manufacture" of new goods. There could be no manufacture, unless there was transformation; "a new and different article must emerge, having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and distinct commercial commodity is produced. In State of Tamil Nadu v. Mahi Traders [1989] 73 STC 228 (SC), the Supreme Court held, while dealing with section 14(iii) and section 15(a) of the Central Sales Tax Act, 1956, that "leather splits" and "coloured leather" continue to be "hides and skins inasmuch as they are merely cut pieces of hides and skins. The entry was "hides and skins", whether in a raw or dressed state. No reference is found to Pio Food Packers' case [1980] 46 STC 63 (SC). In Gujarat Steel Tubes Ltd. v. State of Kerala [1989] 74 STC 176 (SC) it was held that "galvanised tubes" are steel tubes within the meaning of "steel tubes" in section 14(iv)(xi) of the Central Sales Tax Act, 1956. No reference was made to Pio Food Packers' case [1980] 46 STC 63 (SC). 23.. We now come to two cases decided by the Supreme Court directly under section 5(3) of the Central Sales Tax Act, 1956 with which we are presently concerned, and where Pio Food Packers' case [1980] 46 STC 63 (SC) decided in 1980 was directly applied for holding that the goods exported are "those goods" that was purchased by the Indian exporter and hence the goods so purchased earlier were not liable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 STC 239 (SC) were followed and reference was made to East Texas' case [1955] 351 US 49; 100 L Ed 917 also. 24.. The above discussion completes a general survey of the cases cited at the Bar in support of the rival pleas put forward before us. Goods may fall within the taxation entry or in the provision relating either to non-taxability or the notification relating to exemption. But, in either case, questions would arise whether the goods in question are the goods which fall within the taxation net or outside. The common parlance test is pressed into service if the article is one in daily household use or is used by the common man. The commercial parlance test is called in aid while dealing with the construction of goods known to the merchant community and the consumers of those goods. The question is as to how the "substantial identity" test is to be applied is seen discussed by the Gauhati High Court in Modern Candle Works v. Commissioner of Taxes [1988] 71 STC 362. 25.. Saikia, C.J. (as he then was) had occasion to consider this aspect in Modern Candle Works v. Commissioner of Taxes [1988] 71 STC 362. There the Division Bench of the Gauhati High Court was considering wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... water bringing it to the required temperature, even though it is composed entirely of water, it can be regarded as a new commodity. In case of earthern vessels, the new commodity is nothing but clay burnt at a certain temperature. Cups and saucers are produced out of china-clay; and bricks are produced out of suitable clay. The fact that nothing more has been added and the process is simple and manual, may not justify regarding the brick as only clay and nothing more. If gunny bags are woven out of jute, they do not remain jute but transformed into a new product. In all the above cases, the fact that the essential characteristics are not lost, would not be material. What is material is whether a distinct article as understood by the people who commonly deal with it, has come into being. In other words, whether in the market, it is regarded as a distinct article. On these principles, it was held that "wax is consumed in production of candle and (with) different form, utility and marketability added to it", is a different commercial commodity falling under the Assam Sales Tax Act. That is what the Gauhati High Court held. 26.. As stated earlier, in paragraph 5 of this judgment, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 63 STC 239 (SC) and East Texas' case [1955] 351 US 49; 100 L Ed 917 all dealing with "edible" goods are to be applied to "cashew with shell" purchased and the resultant "cashewnut" exported, it may be plausible to hold that the goods purchased and the goods exported are substantially the same in identity and are not different and distinct in character or use from the point of view of the man to whom the cashewnuts are served at the table. The goods would be "those goods" within section 5(3) and cashewnuts with shells purchased would be outside the taxable net going by Pio Food Packers' case [1980] 46 STC 63 (SC) as applied in Sterling Foods' case [1986] 63 STC 239 (SC). 29.. However, it is to be seen that in Shanmugha Vilas' case [1953] 4 STC 205 (SC) the High Court had submitted a finding that the cashew with shell have been subjected to different processes by different dealers and there is, in effect, a new and distinct commodity of cashewnut. The majority judgment say that this finding of the High Court was not questioned and also holds that the penultimate purchase by the exporter is not within article 286(1)(b) as it then stood in 1953. The majority judgment therefore does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C) or Sterling Foods' case [1986] 63 STC 239 (SC) or as stated by Saikia, C.J. (as he then was) and a process which goes beyond that, was not available in 1953 when Das, J. (as he then was) decided the case. Such a test became available only [after Tungabhadra's case [1960] 11 STC 827 (SC) in 1960] in 1980 when Pio Food Packers' case [1980] 46 STC 63 (SC) was decided. The process referred to by Das, J. (as he then was) may not, in the context of the new rulings, and specifically in relation to edible foods, today be treated as amounting to consumption of goods or manufacture. But inasmuch as Das, J. (as he then was) decided the matter specifically with regard to "cashew" and "cashewnut", it will be difficult for this Court not to follow that judgment and to prefer the general principles laid down in Pio Food Packers' case [1980] 46 STC 63 (SC) and Sterling Foods' case [1986] 63 STC 239 (SC). Nor can we say that Das, J. (as he then was) was dealing with the entry "cashew and its kernel", and that we are dealing with a different entry, viz., "cashewnut with shell", at the purchase point. In our view, it will, in fact, be a matter for the Supreme Court to reappraise the entire matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purchase occasioning the export must be for the purpose of exporting those goods out of the territory of India. Though various decisions were cited by counsel for the petitioners and the learned Special Government Pleader (Taxes) to find out the principle to decide as to whether goods purchased and goods exported are the same, the only cases where the question directly arose under section 5(3) of the Act before the Supreme Court are the cases reported in Sterling Foods v. State of Karnataka [1986] 63 STC 239 and Deputy Commissioner of Sales Tax v. Shiphy International [1988] 69 STC 325. In the former case it was held: "It is clear on a plain reading of sub-section (3) of section 5 of the Central Sales Tax Act, 1956, that in order to attract the applicability of that provision, it is necessary that the goods which are purchased by an assessee for the purpose of complying with the agreement or order for or in relation to export, must be the same goods which are exported out of the territory of India. The words "those goods" in this sub-section are clearly referable to "any goods" mentioned ill the preceding part of the sub-section and it is therefore obvious that the goods purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se [Sterling Foods v. State of Karnataka [1986] 63 STC 239 (SC)] was whether shrimps, prawns and lobsters subjected to processing like cutting of heads and tails, peeling, deveining, cleaning and freezing cease to be the same commodity and become a different commercial commodity for the purpose of the Central Sales Tax Act, 1956. After applying the test, their Lordships held that processed or frozen shrimps, prawns and lobsters are commercially regarded the same commodity as raw shrimps, prawns and lobsters. 36.. Pio Food Packers' case [1980] 46 STC 63 (SC) arose out of a case under section 5A(1)(a) of the Kerala General Sales Tax Act, where the question was as to whether any goods were consumed in the manufacture of other goods. In that case the assessee purchased pineapple which was washed and then the inedible portion, the end crown, the skin and the inner core were removed and thereafter the fruit was sliced and the slices were filled in cans, sugar was added as a preservative, the cans were scaled under temperature and then put in boiling water for sterilisation. The question arose as to whether pineapple fruit was consumed in the manufacture of pineapple slices and the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The question that arose for consideration was the interpretation of article 286 of the Constitution of India as it stood at that time. Patanjali Sastri, C.J., on behalf of four Judges of the Constitution Bench, though held that 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 of article 286(1)(b), further considered the question as to whether the cashewnut purchases made by the exporters in that case are within the exemption under article 286. After considering the question, it was held that the purchases are not covered by the exemption on the construction which was placed on clause (1)(b) of article 286 of the Constitution of India, even if the difference between the raw materials purchased and the manufactured goods (kernels) exported is to be ignored. But after that it was observed as follows: "It may, however, be mentioned here that the High Court has found that the raw cashew-nuts and the kernels manufactured out of them by various processes, partly mechanical and partly manual, are not commercially the same commodity. This finding, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilas Cashew-nut Factory) though his Lordship was interpreting article 286(1)(b) of the Constitution of India. Thus applying the very same test that is to be applied for deciding the question under section 5(3), the Supreme Court in [1953] 4 STC 205 (SC) (State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory) held that raw cashewnuts purchased and the cashew kernels exported are different commercial commodities and cannot be regarded as the same. It was contended by counsel for the petitioners that majority of the Judges in the aforesaid case did not consider the case on merits but proceeded only on the basis that the finding of the High Court on that question was not challenged before them so that it cannot be taken as a dictum or a binding dictum laid down by the Supreme Court. It was further contended that the question as to whether raw cashewnuts and cashew kernels are different commodities was not disputed in that case and so the observations made by Das, J. cannot be relied on for coming to the conclusion that they are commercially different and distinct commodities. I find it difficult to agree with this contention of the petitioners. The very question was consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodity is regarded in the trade by those who deal in it as distinct in identity from the original commodity or it is regarded, commercially and in the trade, the same as the original commodity. Ultimately it was held that "the test is whether in the eyes of those dealing in the commodity or in commercial parlance the processed commodity is regarded as distinct in character and identity from the original commodity". The most apt instances where the Supreme Court considered this aspect of the matter in respect of edible commodities are cases in which the question as to whether paddy and rice are identical goods came up for consideration in the context of certain State sales tax laws. It is well-known that rice is nothing but dehusked paddy and no other process is involved in the making of rice. In spite of that the Supreme Court has taken the view that they are different commodities, applying the commercial parlance test, in Ganesh Trading Co. v. State of Haryana [1973] 32 STC 623 (SC), Babu Ram v. State of Punjab AIR 1979 SC 1475 and State of Karnataka v. Raghurama Shetty [1981] 47 STC 369 (SC). In Ganesh Trading Co. v. State of Haryana [1973] 32 STC 623 it was observed: "This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hew-nut Factory [1953] 4 STC 205), the common parlance test or the user test which had been adopted by the Supreme Court in some cases, I have no hesitation to hold that raw cashewnuts and cashew kernels are entirely different commercial commodities. Commercially they are different, as raw cashewnuts and cashew kernels can be separately purchased. This test was applied by the Supreme Court in Anwarkhan Mehboob Co. v. State of Bombay [1960] 11 STC 698 at 702. Even in common parlance these two commodities have two distinct names, namely, thottandi* and andiparippu* and they are considered different by the common man. Even if we apply the user test, the purpose for which cashew kernels can be used, raw cashew cannot be used as such nor can cashewnuts be used for the purposes for which raw cashew is used. When raw cashew with shell is processed, three distinct commercial commodities emerge out of it, namely, (1) the shell, (2) cashewnut shell liquid (cashew oil) which has a separate commercial use in polymer based industries, paints and varnishes, resins and foundry chemicals and for water proofing and (3) cashew kernel which is used only as a food article. Looking at the matter from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Foods' case [1986] 63 STC 239 in the following manner: "The question whether raw shrimps, prawns and lobsters after suffering processing retain their original character or identity or become a new commodity has to be determined not on the basis of a distinction made by the State Legislature for the purpose of exigibility to State sales tax because even where the commodity is the same in the eyes of the persons dealing in it the State Legislature may make a classification for determining liability to sales tax. This question, for the purpose of the Central Sales Tax Act, has to be determined on the basis of what is commonly known or recognised in commercial parlance. If in commercial parlance and according to what is understood in the trade by the dealer and the consumer, processed or frozen shrimps, prawns and lobsters retain their original character and identity as shrimps, prawns and lobsters and do not become a new distinct commodity and are as much 'shrimps, prawns and lobsters', as raw shrimps, prawns and lobsters, sub-section (3) of section 5 of the Central Sales Tax Act would be attracted..............." Thus, there is no merit in this contention as well. 44.. In vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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