TMI Blog1993 (7) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... siness purchases any taxable goods in circumstances in which no tax under section 5 is leviable on the sale price of such goods, and (i) either consumes such goods in the manufacture of other goods for sale or otherwise or consumes otherwise, or disposes of such goods in any manner other than by way of sale in the State." (other clauses omitted) "Explanation.-For the purpose of this section 'consumes such goods in the manufacture' shall include goods consumed for ancillary purposes in or for such manufacture." As rightly submitted by Mr. Dinesh Rao, the learned counsel for some of the petitioners, the question has three aspects: (i) whether there is any manufacturing activity involved in the cutting of timber into logs, planks, etc.; (ii) whether timber is consumed in the said process; and (iii) whether any new product emerges out of the said process. All these aspects involved in the main question are no more unclear in view of the two decisions of the Supreme Court, viz., (1) State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213; AIR 1985 SC 1293 and (2) Collector of Central Excise v. Kutty Flush Doors Furniture Co. (P.) Ltd. [1988] 70 STC 314; AI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in Shorter Oxford English Dictionary as 'a long flat piece of smoothed timber, thicker than a board, specially a length of timber sawn to a thickness of from two to six inches, a width of nine inches or more, and eight feet or upwards in the length'. According to the Concise Oxford Dictionary it is a 'long wide piece of timber, a few inches thick' and according to Webster's Third New International Dictionary, it is 'a heavy thick board that in technical specifications usually has a thickness of 2 to 4 inches and width of at least 8 inches'. The exact thickness and width of a plank may be of importance in technical specifications but in ordinary parlance planks would be flattened and smoothed timber. Such flatness and smoothness can only be achieved by using a saw and other implements required for that purpose. The same would be the case when timber is rounded or shaped." One of the conclusions as summarised at page 294 of STC (1350 of AIR) is: "Timber and sized or dressed logs are one and the same commercial commodity. Beams, rafters and planks would also be timber." In Collector of Central Excise v. Kutty Flush Doors Furniture Co. (P.) Ltd. [1988] 70 STC 314; AIR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n shrimps, prawns and lobsters are frozen for the purpose of preservation and transfer to other places including far off countries in the world. There can therefore be no doubt that processed or frozen shrimps, prawns and lobsters are not a new and distinct commodity but they retain the same character and identity as the original shrimps, prawns and lobsters." The Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 (SC); AIR 1980 SC 1227 was a case of pineapple slices; question was whether slicing the pineapple fruit for sale in sealed cans, attracts the provisions of section 5-A of the Kerala General Sales Tax Act, language of which is similar to section 6 of the Act with which we are dealing in these cases. At page 65 of STC (1228 of AIR), the court reiterated the principle: "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 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier Second Schedule entry 45(b) was introduced by the Karnataka Act 10 of 1983. While entry 45(a) referred to "Timber, rosewood and sandalwood in log form", sub-item (b) referred to "Timber, rosewood and sandalwood in cut or manufactured form of all sizes and shapes,-(i) obtained from out of material which has already suffered tax; (ii) in other cases". In the present Second Schedule serial No. 9 of part T covers: "Timber excluding casurina, bamboo, eucalyptus but including rosewood and sandalwood; (i) in log form; (ii) in cut or manufactured form of all sizes and shapes; (a) obtained from out of material which has suffered tax under item (i) above; (b) in other cases." Different rates are prescribed depending upon the form of the timber or the fact that the form is obtained from out of tax-paid timber. The State contended, that the Legislature itself has recognised that timber undergoes transformation into a different commodity by levying different rates of taxes, as above and therefore, same idea should govern the change in the form of timber, while applying section 6. There is a basic misconception underlying this contention. State Legislature is competent to im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly referable to 'any goods' mentioned in the preceding part of the sub-section and it is therefore obvious that the goods purchased by the assessee and the goods exported by him must be the same." The State contended that entry 13(a) in the Third Schedule made a distinction between frozen and unfrozen shrimps, etc., and therefore they are different goods; this contention was negatived. At page 245 of STC (1813 of AIR), the court held: "..... The State Legislature was not at all concerned with the question as to whether processed or frozen shrimps, prawns, and lobsters are commercially the same commodity as raw shrimps, prawns and lobsters or are a different commodity and merely because the State Legislature made a distinction between the two for the purpose of determining exigibility to State sales tax, it cannot be said that in commercial parlance or according to popular sense, processed or frozen shrimps, prawns and lobsters are recognised as different commodity distinct from raw shrimps, prawns and lobsters. 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 det ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting or sawing of timber involved in these cases, is not directly connected with the manufacture of any new goods. The purpose is to make the timber presentable in the market or change its form for the sake of convenience. The substance and character of the timber, in no way undergoes any change. Explanation to section 6 was relied which reads "for the purpose of this section 'consumes such goods in the manufacture' shall include goods consumed for ancillary purposes in or for such manufacture". It was contended that sawing of timber into logs, planks, etc., is done as ancillary in or for manufacture of other goods and, therefore, timber is consumed "in the manufacture of other goods". Purpose of this explanation to section 6 is not to rope in a possible ultimate use of the several forms of timber. None can with certainty say that sawn timber would necessarily be used in the manufacture of another article. Planks and logs are likely to be used just as they are in some cases. Further, the consumption "referred in section 6(i) shall have to be by the dealer who purchased the goods; if so the consumption for ancillary purposes in or for such manufacture" also shall have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f "door, window frames and shutters" would be a different commercial commodity having a distinct character and utility as against "timber" and the change of "timber" into door, window frames and shutters would be the result of a manufacturing, activity. For the purpose of the Second Schedule, this concept of manufacture is irrelevant because, Legislature is always competent to recognise even a formal difference or distinction in a commodity to treat it as a different taxable commodity, so long as such a difference or distinction is normally recognised in commercial world; therefore object of the aforesaid explanation IX(ii) is to bring in doors, window frames and shutters within serial No. 45, since, these articles, normally would not be considered as a mere changed forms of timber. At the same time, these articles are required to be considered differently from "furniture", treated elsewhere for taxation. (Vide entry 58 of the old Second Schedule and new Part F, serial No. 12). Serial No. 45 clearly envisages the idea that division of the subject-matter of the taxable goods falling within its sweep, is mainly based on the "form " of timber. From this it cannot be inferred that ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... give way where the language of the statute is plain and unambiguous. This rule has been succinctly and felicitously expressed in Crawford on Statutory Construction, 1940 Edn., where it is stated in para 219 that 'Administrative construction (i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly, referred to as practical construction, although noncontrolling, is nevertheless entitled to considerable weight, it is highly persuasive'." Since the circular was issued by the highest authority entrusted with the execution of the provisions of the Act, the circular was accepted as conveying the true import of the provisions of the Act. Thereafter the Supreme Court pointed out that the circular issued by the Central Board was administratively binding on the Revenue under the Income-tax Act. Situation is not different under the Karnataka Sales Tax Act; here as per section 3A of the Act instructions issued by the Commissioner binds all subordinate authorities in the enforcement of the provisions of the Act. The relevancy of the circular issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he revenue is concerned. But, this interpretation would have a far-reaching impact on the traders who are to pay the purchase tax now for the earlier years. They would have already paid 13 per cent on the sales of sawn-timber (various forms of timber); asking them to pay again another 13 per cent on the earlier purchase value shall have to be borne by the dealer without any opportunity to pass on the burden to the consumers. It is certainly true that such a likely hardship to the assessees is not always relevant while construing the fiscal legislation; it is said equity and taxation do not travel together, though they are not sworn enemies. But this aspect should have weighed with the Commissioner while changing his view and issuing the subsequent circular; another circular dated February 5, 1990, was issued by the Commissioner reiterating the view expressed in the second circular (referred by us already). Mr. Dattu relied on a decision of this Court in Popular Bone Mills v. State of Karnataka (S.T.R.P. No. 22 decided on 3rd June, 1993* in support of his proposition that when the Legislature has made a distinction between two types of commodities and treated them differently fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufactured" out of "rice" and therefore, section 6 of the Act is attracted. Actually much argument is not needed to hold that "puffed rice" is a commodity different from rice, having a distinct character and use of its own. No doubt, there is an observation to the following effect: "Under the scheme of the Karnataka Act, however, the entries are separately given in that entry 138 of the Second Schedule covers parched rice or beaten rice and entry 9 of Fourth Schedule covers rice as such. It is permissible for the Legislature to classify goods in any manner it likes and this position is clear in view of the fact that after the manufacturing process a new commodity comes into existence." (underlining* is by us) In fact, the observations of the Supreme Court in Pyare Lal Malhotra's case [1976] 37 STC 319 referred to therein itself says,"....... 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 descriptions. It therefore, becomes necessary to determine when they ceased to be goods of one taxable description and become t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t section 6(i) is attracted only when there is consumption of goods, in the manufacture of some other goods. There, this Court held that process of breaking boulders into jelly cannot be described as a manufacturing process. To the same effect is the view taken by a Bench of the Andhra Pradesh High Court in Nandanam Construction Company v. Assistant Commissioner (Intelligence) [1983] 53 STC 42. The basic question is: whether the timber is "consumed" when it is sawn into various forms? The scope of the word "consumed" has to be understood in the manner laid down by the Supreme Court. Only because there was a change of the "form" of an article, can it be said the "article" was consumed, when substance of the "article" is not altered. When an "article" is dressed up for marketing purposes, can it be said, it is consumed; every kind of process, is not a process of utilising the article; process of preparing an article for sale, is nothing but effecting cosmetic change in the article. It cannot be said that in such a situation, article is "consumed" for any purpose. The test stated by the Supreme Court in Pio Food Packers case [1980] 46 STC 63; AIR 1980 SC 1227 is, "where there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al or full exemption from payment of tax on the happening of certain contingencies will have nothing to do with the question whether raw materials, etc., were utilised for manufacturing such goods. Measure of tax or ultimate liability to pay tax either wholly or partially on manufactured goods cannot have any impact on the question whether purchased raw materials were used or utilised in the manufacturing process for producing such manufactured goods." The Bench did not equate all taxable goods to manufactured goods. At page 305, it was observed: ".......that the phrase 'uses them as raw material or processing materials or consumable stores in the manufacture of taxable goods' as employed by section 15B would mean user of such raw material in the manufacturing process for manufacturing generally taxable goods under the Act and ultimately, in given circumstances, such manufactured goods may not attract tax under the charging provision and still they would remain taxable goods. It is, therefore, not possible to agree with the contention of the petitioners that charging event under section 15B would be manufacture of taxable goods." Even if the above observations are removed o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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