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PETITIONER: DEPUTY COMMISSIONER OF SALES-TAX (LAW), BOARD OF REVENUE(TAX

       Vs.

RESPONDENT: SHIPHY INTERNATIONAL, ALLEPPEY

DATE OF JUDGMENT07/03/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1988 AIR  992            1988 SCR  (3)  98  1988 SCC  Supl.  439     JT 1988 (1)   566  1988 SCALE  (1)531

ACT:      Central Sales  Tax  Act,  1956-Section  5(3)-Export  of fresh frog  legs after  freezing to  avoid decomposition and decay-Whether assessee  entitled to  benefit of the Section- Test  to   be  applied  in  determination  of  character  of commodity.

HEADNOTE: %      The respondent-assessee  had purchased  fresh frog legs and after  removing the skin, washing and removing dirt etc. and freezing  it for  the purpose  of avoiding decomposition and  decay   exported  the   said  frog   legs  and  claimed entitlement to  benefit of  s. 5(3) of the Central Sales Tax Act, 1956.      It was  contended on  behalf of the State that what was purchased as  fresh legs  was not  exported as such, without freezing them  and, therefore, the assessee was not entitled to the benefit of the section.      The Sales  Tax Tribunal  held that  the fresh frog legs purchased by  the assessee  and exported  after freezing for the purpose  of avoiding  decomposition and  decay, were one and the  same commodity  and the frozen legs did not undergo any material  change in  character and  the identity  of the frog legs  remained unchanged  as such,  and, therefore, the assessee was  entitled to the benefit of s. 5(3) of the Act. The High Court upheld the view of the Tribunal.       Dismissing the State’s appeal, ^      HELD: Every processing does not bring about a change in the character  and identity of the commodity. The nature and extent of  processing may  vary from one case to another and indeed there may be several stages of processing and perhaps different kinds  of processing  at  each  stage.  With  each process suffered, the original commodity experiences 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 commodity but, instead, is recognised as a new and distinct commodity that it can be said that a new commodity, 99

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distinct from the original, has come into being. 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.      In the  instant case,  the  High  Court  was  right  in holding, on  the facts  found by  the Tribunal,  that frozen frog legs  are same  as fresh frog legs, and the process was only to prevent decomposition.      M/s. Sterling foods. v. State of Karnataka and another, [1986] SCC  469 and  Deputy Commissioner of Sales Tax v. Pio Food Packers, [1980] 3 SCR 1271 . relied on.      East Texas  Motor Freight Lines v. Frozen Food Express, (100 L Ed. 917 at 923) referred to.      Deputy Commissioner  of Sales  Tax and  others v.  A.B. lsmail and others, [1986] Suppl. SCC 218 distinguished.

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 904 (NT) of 1988      From the  Judgment and  Order dated  10.11.1986 of  the Kerala High Court in T.R.C. No. 162 of 1986      V.J. Francis for the Appellant.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI, J. Special leave granted.      This is an appeal against the judgment and order of the High Court  of Kerala  dated 10th  of November, 1986. By the impugned judgment  the High  Court  has  dismissed  the  Tax Revision  Case  filed  at  the  instance  of  the  Sales-tax authority.  The  assessee-respondent  herein  had  purchased fresh frog  legs and  after removing  the skin,  washing and removing dirt  etc. and  freezing  it  for  the  purpose  of avoiding decomposition  and decay,  the said  frog legs were exported. The  assessee claimed  that they  were entitled to the benefit  of section  5(3) of  the Central Sales-tax Act, 1956.      In order  to appreciate the question it is necessary to refer to  the findings  of the  Tribunal. The Tribunal found that what was purchased 100 by the  assessee was  fresh frog legs and, after freezing it for the  purpose of avoiding decomposition and decay, it was exported. It  was, therefore, held by the Tribunal that what was purchased  as  fresh  frog  legs  was  exported  by  the assessee. It  was contended on behalf of the State that what was purchased  was fresh  frog legs  and the  same  was  not exported as such without freezing it. The tribunal held that only frozen  frog legs were exported. Therefore, if followed that what  was purchased  and exported  was one and the same commodity.  The  frozen  frog  legs  did  not  undergo,  any material change  in character. The identity of the frog legs remained unchanged  as such.  In that view of the matter the Tribunal held  that the assessee was entitled to the benefit of section  5(3)  of  the  aforesaid  Act.  The  High  Court accepted this view.      In our  opinion the question is concluded by a decision of this  Court in  M/s. Sterling Foods v. State of Karnataka and another,  [1986] 3  S.C.C. 469. That was a decision of a Bench of  three learned  Judges rendered on 21st July, 1986. There the  Court was  concerned  with  Shrimps,  prawns  and lobsters locally  purchased for complying with export orders and after  the process  of cutting  their heads  and  tails, peeling, deveining, cleaning, freezing and packing, exported

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these outside  India-under prior  contract of  sale. It  was held  that   after  such  processing,  shrimps,  prawns  and lobsters retained their original identity and did not become different commodities.  It was,  therefore,  held  that  the assessee was  entitled to  exemption from  tax under section 5(3) of  the Central  Sales Tax  Act,  1956  in  respect  of purchase turnover  of  shrimps,  prawns  and  lobsters,  the purchases being of the same commodities which were exported. There, the question was whether shrimps, prawns and lobsters subjected to  processing like  cutting of  heads and  tails, peeling, deveining,  cleaning and  freezing ceased to be the same commodity or become different commodity for the purpose of the  Central Sales Tax Act. This Court expressed the view that the test applied for the purpose of determining whether a commodity  subjected to  processing retained  its original character and  identity  is  as  to  whether  the  processed 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  as  same  as  the original commodity.      Every processing  does not  bring about a change in the character and  identity of  the commodity.  The  nature  and extent of  processing may  vary from one case to another and indeed there may be several stages of processing and perhaps different kinds of processing at each 101 stage. With  each process  suffered, the  original commodity experiences 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 commodity but  instead is  recognised as  a new and distinct commodity that it can be said that a new commodity, distinct from the  original, has come into being. 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. See  in this  connection the observations of this Court in  Deputy Commissioner  of  Sales  Tax  v.  Pio  Food Packers, [1980] 3 S.C.R. 1271.      Applying that  test in  M/s. Sterling Foods v. State of Karnataka &  Anr. (supra) the Court had found that processed or frozen  shrimps, prawns  and lobsters  were  commercially regarded as  the same  commodity as raw shrimps,. prawns and lobsters. These  are in  common parlance  known as  shrimps, prawns and  lobsters.  There  was  no  essential  difference between raw  shrimps, prawns  and lobsters  and processed or frozen shrimps, prawns and lobsters. The only difference was that processed  shrimps, prawns  and lobsters were ready for the table  while raw  shrimps, prawns and lobsters were not, but still  both are, in commercial parlance, shrimps, prawns and lobsters.      The aforesaid  view also  finds ample  support from the decision of  the Supreme  Court of the United States in East Texas Motor  Freight Lines  v. Frozen Food Express 100 L Ed. 917 at  923, where  the question  was  whether  dressed  and frozen chicken  was a commercially distinct article from the original chicken.  The United States Supreme Court held that it  was   not  a   commercially  distinct  article  but  was commercially and  in common  parlance the  same  article  as chicken. The  United States Supreme Court held that killing, dressing and freezing a chicken is certainly a change in the commodity. But  it is  no more  drastic a  change  than  the change  which   takes  place   in  milk  from  pasteurising, homogenizing, adding vitamin concentrates, standardising and bottling.

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    Applying the aforesaid tests to the facts of this case, we are  clearly of the opinion that the High Court was right on the  facts found by the Tribunal in this case that frozen frog legs  is same  as fresh frog legs, the process was only to prevent decomposition.      Reliance was  placed on  behalf of  the  revenue  on  a decision of  the same  Bench of three learned Judges of this Court in the case of Deputy 102 Commissioner of  Sales Tax  and another  v. A.B.  Ismail and others, [1986]  Suppl. S.C.C. 218. This was a decision prior to the  decision in Sterling Foods, (supra) which as we have mentioned before  was rendered  on 21st  July, 1986 and this decision was rendered on 15th April, 1986. In the subsequent decision no  reference was  made to the previous one because the facts  were entirely different. There it was the sale of meat, hides and skin, got after slaughtering goat and sheep. It was  held that  it was  taxable under section 5A(l)(a) of the Kerala  General Sales  Tax Act. It was further held that goats and  sheeps are  distinct from  meat, hides and skins. The process  of conversion  from goat and sheep into mutton, hides  and   skin  involves   consumption  and   manufacture resulting in production of goods different from the original goods. It  was held  that consumption  was a  word  of  wide import. It  denoted the  taking in  of something, to convert that something  into another. In that case, goats and sheeps underwent a  process viz.,  slaughtering, and then came into existence meat, hides and skin. The slaughter of the animals and their  conversion  into  meat  was  the  consequence  of consumption of goats in a legal sense. In such conversion, a process of  manufacture could  also be  inferred. There  the Court considered  the goat  and sheep  different from mutton from commercial  circle and common parlance. But that is not as in  the case  of frozen frog legs and fresh frog legs and these are essentially the same commodity.      In the  aforesaid view  of the  matter, we  are of  the opinion that  the High  Court was right in the view it took. The appeal  is accordingly dismissed. There will be no order as to costs. N.P.V.                                Appeal dismissed. 103