http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: VIJAYALAXMI CASHEW COMPANY AND ORS.

       Vs.

RESPONDENT: THE DEPUTY COMMERCIAL TAX OFFICER & ANR.

DATE OF JUDGMENT15/12/1995

BENCH: SEN, S.C. (J) BENCH: SEN, S.C. (J) AHMADI A.M. (CJ) HANSARIA B.L. (J)

CITATION:  1996 SCC  (1) 468        JT 1995 (9)     4  1995 SCALE  (7)239

ACT:

HEADNOTE:

JUDGMENT: [With Civil Appeals Nos. 2371-72 of 1991, 4212 of 1992, 5535                           of 1995]                       J U D G M E N T Sen, J.      The Central  Sales Tax  Act, 1956 (for short ‘the Act’) was amended  by insertion of sub-section (3) of Section 5 by Act No.  103 of  1976 with  effect from Ist April, 1976. The said Section 5(3) reads as under :      "5.When is  a sale  or purchase of goods      said to  take place  in  the  course  of      import or export.      (1).        .        .        .        .      (2).        .        .        .        .      (3) Notwithstanding  anything  contained      in sub-section  (1), the  last  sale  or      purchase of any goods preceding the sale      or purchase  occasioning the  export  of      those goods  out  of  the  territory  of      India shall  also be deemed to be in the      course of such export, if such last sale      or purchase  took place  after, and  was      for the  purpose of  complying with, the      agreement or order for or in relation to      such export."      The common  contention of  the appellants in this batch of appeals is that the judgment of this Court in the case of State of  Travancore-Cochin & Ors. v. Shanmugha Vilas Cashew Nut Factory  and Others.  (1954) SCR  53, deals with Article 286 of  the Constitution and does not conclude the questions raised in  these cases.  It has  been contended in the first place that  cashew bought  and sold by the appellants in the course of export trade is not different from cashew kernels. It has further been contended that the judgment in Shanmugha Vilas Case  (Supra) was  based on peculiar findings of facts

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

made in  that case. Moreover, the perception of the Court in this type of controversy has changed as will be evident from later decisions of this Court. Lastly, it was contended that sub-section (3)  of Section  5 of  the Act  did not fall for consideration by this Court in Shanmugha Vilas Case (supra). Therefore, in  any way,  that decision cannot cast any light on  the  controversy  raised  in  this  case.  It  has  been contended that  cashew cannot  be regarded  as  a  commodity different from the cashew kernels. The last sale or purchase of cashew  in this  case  took  place  before  the  sale  or purchase occasioning  the export of cashew kernel out of the territory of  India and, therefore, should also be deemed to be in  the course  of the  export trade.  There may  be some processing of the cashew purchased by the dealers before the cashew nuts were sold but that will not make the goods which were sold,  in any  way different  from the  goods that were purchased. Both were cashew or cashew nuts.      In our view, the distinction sought to be drawn between the provisions  of sub-section  (3) of  Section 5 of the Act and Article  286(1) of  the  Constitution  is  misconceived. Under Article  286(1), the  Court has to examine whether any tax is being imposed by the State Legislature on the sale or purchase of  goods "in the course of the import of the goods into or  export of the goods out of the territory of India". In order to resist imposition of sales tax by the State, the assessee will  have to  establish the  identity of the goods purchased with the goods to be exported out of the territory of India.  In order  to fulfill  an export obligation, if an exporter purchases goods and as a result of some processing, the identity and character of the goods change, then it will not be  a case  of export  of the  same goods.  There is  no dispute that  every change does not bring into existence new goods nor  can it  be said that however small the change may be due  to the processing, the identity of the goods will be completely lost.  It is  a question  of fact and degree. But the point to note is that the issue before the Supreme Court in Shanmugha  Vilas Case (supra) and the issue that has been raised in  the present case are the same. Therefore, it will be wrong to distinguish the judgment of the Supreme Court in Shanmugha Vilas  Case (supra)  as confined to Article 286 of the Constitution.  We are unable to uphold the argument that this judgment does not throw any light on the interpretation of sub-section  (3) of Section 5 of the Act. The controversy raised in  both the cases is about the identity of the goods purchased and  the identity  of the  goods sold. In the case before us,  the penultimate sale is in question. The Supreme Court considered  only the case of the actual export sale or the last  sale in  course of export under Article 286 of the Constitution. But  here, we have a case of a sale which took place immediately  before the actual sale for export. In the case of  Mohd. Serajuddin  v. State  of Orissa,  36 STC  136 (SC), it was held that under Article 286, the sale which was not liable to tax under the State Sales Tax Act was only the actual sale  by the exporter, but the benefit of export sale did not  extend  to  the  penultimate  sale  to  the  Indian exporter for the purpose of export. This led to insertion of sub-section (3)  of Section  5 of the Central Sales Tax Act, with effect  from 1st  April, 1976  whereby the last sale or purchase  of  any  goods  preceding  the  sale  or  purchase occasioning the  export  of  the  goods  were  also  granted exemption from  the  State  levy.  But  in  order  to  claim protection of  sub-section (3)  of Section  5, the  assessee will have to establish that the last sale or purchase before the sale  or purchase occasioning export were of those goods which were exported. The deeming section expands the concept

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

of export  sales to include the penultimate sale or purchase of goods  preceding sale or purchase occasioning the export. But the  penultimate sale  or purchase  of goods  must be of those goods which were actually exported.      The question  in this  case is  whether the  cashew nut kernels which  were exported  are ‘those  goods’ which  were purchased by the assessee in the penultimate transaction. In other  words,   whether  the  raw  cashew  nuts  which  were purchased were  ‘those goods’  which were exported? This was precisely the  question that was answered in the negative in Shanmugha Vilas Case. Therefore, on distinction can be drawn between the  cases now under appeal and the decision of this Court in  Shanmugha Vilas’s  Case on the plea that the scope of sub-section (3) of Section 5 of the Central Sales Tax Act was wider  than Article  286 of the Constitution. It is true that sub-section  (3) by  a legal  fiction has  widened  the scope of  export sale,  but the  basic concept  remains  the same. In  order to  get immunity  from taxation by the State legislature, the goods exported must be the same goods which were purchased.      The question  raised in  these appeals  is whether  the purchase of raw goods made by the appellants after which the cashew  kernels  were  extracted  and  exported  to  foreign countries could  be subjected  to the State Sales Tax Act in view of  the provisions of Section 5(3) of the Central Sales Tax Act.  In other words, the question is whether the export of cashew  kernels obtained  out of  raw cashew  nuts  would amount to  export of "those goods which had been purchased". The answer  will depend  on the nature of the cashew kernels that are  exported and  the  raw  cashew  purchased  by  the dealers. This aspect of the matter was gone into in depth in Shanmugha Vilas  Case (supra)  by S.R.Das,  J. (as  he  then was). It  has been  recorded in the judgment of das, J. that the case was heard at great length and over several days and ultimately the  High Court  was directed to investigate into the disputed  facts and  send a  report. On the basis of the report given  by the  High Court, the appeals were heard and finally disposed  of. It  will be  wrong to distinguish this case on  the ground of any special facts. It does not appear from the  judgment that  any special feature of cashew trade peculiar to  Shanmugha Vilas  was considered  by this Court. The appellants  have also  not been able to show any special fact in  this case  which is contrary to what has been found in the  judgment of  das, J.  In fact on endeavor has at all been made  to show  how cashew  kernels are extracted and in what way  the kernels  are basically  nothing but the fruits originally plucked.  The facts  noted in  the remand  report sent by the High Court have not been shown to be contrary to the facts found in the case of the appellants.      The facts which were noted by the Constitution Bench in that case  were recorded  by Das,  J. at  page  110  in  the following words:-      "The High Court has, on remand, enquired      into the  process of manufacture through      which the  raw  cashew-nuts  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

    shells  are  broken  and  the  nuts  are      obtained. The  poison is  eliminated  by      pealing off  the  inner  skin.  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 recognized  commercial commodities.      They are  separate articles  of commerce      quite distinct from the raw cashew-nuts.      Indeed,  it   is  significant  that  the      respondents  place  order  for  "cashew-      nuts" but  orders are  placed with  them      for "cashew-nut kernels".      On the  basis of these facts, Das, J. concluded at page 111 that -           "It the  circumstances, "the goods"      exported are  not the  same as the goods      purchased. The  goods purchased  locally      are not  exported. What are exported are      new commodities  brought into being as a      result  of   manufacture.  There   is  a      transformation of  the  goods.  The  raw      cashews are  consumed by the respondents      in the  sense that  a jute mill consumes      raw jute,  or a  textile  mill  consumes      cotton and yarn. The raw cashews are not      being actually  exported the purchase of      raw cashews  cannot be said to have been      made "in the course of " export so as to      be entitled  to  immunity  under  clause      (1)(b)."      It was  argued, and  some of  the High Courts have also taken the  view, that this judgment is confined to the facts of this case. But this, in our opinion, will be a wrong view to take.  By that  judgment as  many as  eight appeals  were disposed of.  The High  Court on remand had made a report on how the edible kernels are extracted from raw cashewnuts and having examined  minutely the  whole process, the Court came to the  conclusion that  the kernels were not the same goods as raw  cashew nuts  purchased  by  the  dealers.  What  was exported were  the edible kernels and what was purchased for the purpose  of export  were raw cashew nuts. This Court has taken the  view that after examining the facts in detail the final products were not the same goods as raw cashew nuts.      It  may  be  mentioned  that  Patanjali  Sastri,  C.J., speaking for  the majority,  was also  of the  view that raw cashew nuts  and kernels manufactured out of them by various processes, partly  mechanical and  partly manual,  were  not commercially the same commodity. It was held at page 70:-      "This finding,  which is  not  seriously      disputed  before   us,   would   be   an      additional  ground  for  rejecting-  the      claim to  exemption in  respect of these      purchases, .  .  ."      It has  not been shown how the facts of the cases under appeal are  different from  the facts  of that  case. It has also not  been shown  that the  kernels in  these cases have been extracted  from cashew  nuts by  a different process or the cashew  nuts were of some other variety. In that view of the  matter,  it  must  be  held  that  the  controversy  is concluded by  the judgment  of this Court in Shammugha Vilas case (supra).      We are  also  unable  to  uphold  the  contention  that perception of  this Court,  as will  appear from  the  later

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

judgments, has changed in this regard. A judgment of a Five- Judge Bench,  which  has  not  been  doubted  by  any  later judgment of  this Court,  cannot be  treated as overruled by implication. The  judgments on which the reliance was placed on behalf  of the  appellants do not support this contention in any  manner. In  the case  of M/s  Tungabhadra Industries Ltd. v.  The Commercial  Tax Officer,  Kurnool, (1961) 2 SCR 14, a  Bench of  five Judges  had  to  decide  the  question whether refined oil continues to be groundnut oil within the meaning of  Rules 5(1)(k)  and 18(2)  of the  Madras General Sales Tax  (Turnover and  Assessment) Rules,  1939.  It  was argued that  such oil  did not  possess  the  characteristic colour or  taste or  odour, etc,  of raw  groundnut oil. The Tribunal as  well as  the High Court had taken the view that hydrogenated oil  (Vanaspati) ceased  to be groundnut oil by reason  of  the  chemical  changes  which  resulted  in  the acquisition of  new properties  including the  loss  of  its fluidity. The  Tribunal as  well as the High Court had taken the view that Vanaspati was not groundnut oil, but a product of groundnut  oil, manufactured  out of  groundnut  oil  and therefore not entitled to the benefit of the deduction under Rule 18(2).  This Court upheld the contention made on behalf of the  appellant that  hydrogenated groundnut  oil  was  no lesser groundnut  oil than  either refined or even unrefined oil. The  fact that the quality of the oil had been improved did not  negative its continuing to be oil and the materials before the  departmental authorities and the Court held that it continued to be oil and was nothing more.      The Court took the view:-      "No doubt,  several  oils  are  normally      viscous fluids,  but they  do harden and      assume  semisolid   condition   on   the      lowering  of   the  temperature.  Though      groundnut oil is, at normal temperature,      a viscous  liquid, it  assumes  a  semi-      solid  condition  if  kept  for  a  long      enough time  in a  refrigerator.  It  is      therefore not  correct  to  say  that  a      liquid    state    is    an    essential      characteristic of  a vegetable  oil  and      that if the oil is not liquid, it ceases      to be  oil. Mowrah  oil and dhup oil are      instances where  vegetable oils assume a      semi-solid   state    even   at   normal      temperatures. Neither these, nor coconut      oil which  hardens naturally  on even  a      slight fall  in  temperature,  could  be      denied the name of oils because of their      not being  liquid. Other  fats like ghee      are instances  where the  physical state      does not  determine the  identity of the      commodity.      Both the  Tribunal as  well as  the High      Court have  pointed out  that except for      its  keeping  quality  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      it  there   any   use   to   which   the      hydrogenated oil  could be put for which      the raw oil could not he used. Similarly      we consider  that hydrogenated oil still

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

    continues   to    be   ‘groundnut   oil’      notwithstanding the  processing which is      merely for  the purpose of rendering the      oil  more   stable  thus  improving  its      keeping qualities  for those  who desire      to consume groundnut oil."      We fail to see how the principles laid down in the case of Tungabhadra  (supra) runs  counter to  the ration  of the judgment of  this Court  in  the  case  of  Shanmugha  Vilas (Supra). This  Court in  the Tungabhadra  case (supra)  laid down that  liquid state  was not an essential characteristic of a  vegetable oil.  If the  oil is  not liquid, it did not cease to  be  oil.  The  groundnut  oil  assumed  semi-solid condition if  kept for  long enough  time in a refrigerator. There was no use to which the groundnut oil could be put for which hydrogenated oil was not put.      As has  been noted  in the  judgment in Shanmugha Vilas Case, raw  cashew nut  cannot be  used as edible nut at all. Moreover, there  is no  dispute that it can be used for more than one purpose. Therefore, in our judgment, it will not be right to  say that the decision in Tungabhadra’s Case has in any way  whittled down the principles laid down in Shanmugha Vilas Case.      In the  case of  Deputy Commissioner of Sales Tax (Law) v. Pio  Food Packers  (46 STC  63 SC), it was held that when pineapple fruit  was processed into pineapple slices for the purpose  of   being  sold  in  sealed  cans,  there  was  no consumption of  the original pineapple fruit for the purpose of manufacturing  and the  case did  not fall within Section 5A(1)(a) of  the Kerala  General Sales  Tax Act,  1963.  The language of  clause (a)  of  Section  5A(1)  of  the  Kerala General Sales  Tax Act  was  "consumes  such  goods  in  the manufacture of other goods for sale or otherwise;". All that this Court  laid down was that when pineapple was sliced and canned for  sale, the  slices did not cease to be pineapple. It was  pointed out in that case that there was no essential difference between pineapple fruit and canned slices. It was held that  clause (a)  of Section 5A(1) truly spoke of goods consumed in  the manufacture  of other  goods for sale. This Court merely held that if pineapple is sliced and made ready for sale  in  the  market,  the  slices  did  not  lose  the character of being pineapple. There again it was a case of a fruit which  was merely  sliced and  made ready  for sale by adding preservatives and by canning. This case also does not in any  away affect  the principles laid down in the case of Shanmugha Vilas.  Furthermore, in that case, the problem was construction of  the word  ‘consume’ in  Section 5A(1)(a) of Kerala General Sales Tax Act.      In the  case of Delhi Cloth & General Mills Co. Ltd. v. State of  Rajasthan, 46  STC 256  (SC), it  was held by this Court that  "rayon tyre-cord  fabric" was "rayon fabric". It was observed  by Pathak,  J. (as his Lordship then was) that it was  fairly well-settled  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."      In the  instant case  also, if the common parlance test is applied,  cashew nuts  and cashew  kernels have different markets altogether. It is true that in the case of Shanmugha Vilas, it  was noted  that the finding of the High Court was not disputed  seriously before  this Court.  But nothing has been brought on record to contradict the finding of the High Court in that case in any one of the cases now before us.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

    Sterling Foods v. State of Karnataka (63 STC 239) was a case of  export of  lobsters. In  that case  the  appellants purchased shrimps, prawns and lobsters locally for complying with orders  for export  and they cut the heads and tails of the  shrimps,   prawns  and  lobsters  and  then  they  were subjected to  peeling, deveining  and cleaning  and freezing before being  exported in  cartons. The  appellants  claimed that no  local sales-tax  was payable  by them  in  view  of Section 5(3)  of the  Central  Sales  Tax  Act,  1956  which precluded levy  of sales-tax  on local purchase if they were made pursuant  to export  orders and  the sale was of ‘those goods’ purchased.  It was  held by this Court that by reason of processing  of the  goods after their purchase, there was no change  in their identity and that, in fact, commercially they were to be regarded as the original goods.      This case  does not  help the  appellants.  Even  if  a purchaser goes  to the  retail market  to buy  lobsters, the seller may,  if so required by the buyer, peel the shell and cut the  head and  tail of  the lobsters  according  to  the direction of  the customer.  But the sale will, nonetheless, be of  lobsters. If this is done on a big scale by a trader, the character  of the  goods sold will not change. The goods that were purchased were those goods which were exported.      In the  cases under  appeal, it  has been  noted in the order dated  15th April,  1982 by  the Deputy Commercial Tax Officer  that   cashew  nut  was  commercially  a  different commodity from  raw cashew  nut as  oil  was  extracted  and thereafter kernels  were exported  under separate contracts. It also appears from the said order of 15th April, 1982 that an amount  of Rs.18,419/-  has been  added back  to the turn over on  account  of  sale  of  cashew  husk.  Therefore,  a purchaser of  raw cashew  nut can extract oil and sell it in the domestic  market, he  can also sell the husk locally, he can  also   extract  the  kernels  after  going  through  an elaborate process  and sell  them with  or  without  further processing  to   the  exporter  for  fulfilling  his  export commitments. Since  raw cashew  nuts can be used for so many purposes and  the  process  of  extracting  the  kernels  so elaborate, it  cannot be  said that  the goods  (raw  cashew nuts) purchased  in the penultimate sale were the same goods (cashew nut kernels) which were sold for export.      We are  of the view that cashew nut kernels are not the same goods  as raw  cashew nuts.  It does  not  appear  that either on  facts found  or in law, the decision in Shanmugha Vilas Case needs reconsideration. The appeals therefore fail and are dismissed. There will be no order as to costs.