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CASE NO.: Appeal (civil)  6104-6106 of 2001

PETITIONER: M/s A.P. Products

RESPONDENT: State of Andhra Pradesh & Ors

DATE OF JUDGMENT: 09/07/2007

BENCH: Ashok Bhan & Dalveer Bhandari

JUDGMENT: J U D G M E N T

Dalveer Bhandari, J. 1.      These appeals are directed against the judgment  dated 8th May, 2001 passed by the High Court of  judicature, Andhra Pradesh at Hyderabad in Tax Revision  Case No.89/94, Tax Revision Case No.90/94 and Writ  Petition No. 32154 of 1998.  

2.      Brief facts which are necessary to dispose of these  appeals are recapitulated as under:- 3.      The appellant is engaged in the business of  purchasing various spices like Cumin Seed (Jeera),  Fenugreek Seeds (Methi), Cinnamon (Dalchini), Caraway  Seeds (Shahijeera) etc. from the registered dealers in the  State of Andhra Pradesh and the said items are subjected  to sales tax at the point of first sale under Entry No.182  of the First Schedule to the Andhra Pradesh General  Sales Tax Act, 1957 (hereinafter referred to as the  \023APGST Act, 1957\024).  All the said items are called \021spices\022.   The appellant by mixing and grinding all these spices  together produces \021masala powder\022 which is used for    enhancing the taste of food.

4.      The appellant filed income-tax returns for the  assessment years 1990-91, 1991-92, 1992-93 claiming  exemption on the ground that the ingredients used for  the preparation of \021masala powder\022 have already been  taxed under Entry 182 of the First Schedule to the  APGST Act, 1957 and as the said ingredients are  chargeable only at the first sale point, the \021masala  powder\022 is not further exigible to sales tax.   The  contention of the appellant was not accepted by the  Commercial Taxes Officer. Being aggrieved by the order of  the Commercial Taxes Officer, the appellant preferred an  appeal before the Appellate Deputy Commissioner, which  was rejected.  Thereafter, the appellant filed an appeal to  the Sales Tax Appellate Tribunal (for short \021the Tribunal\022).   The Tribunal also rejected the appeal.  The Tribunal held  that the \021masala powder\022 is not a mere mixture of some of  the spices specified in Entry 182.  According to the  Tribunal, some of the spices like Cumin Seeds (Jeera),  Caraway Seeds (Shahijeera) etc. along with other  materials like Salt, Coriander (Dhania) etc. which are not  specified in the Entry 182 are powdered and mixed in  specified and required proportion and after mixture,  these spices lose their original flavour and character and  as such cannot be considered as \021spices\022 falling under  Entry 182 of First Schedule.

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5.      The \021masala powder\022 prepared after grinding and  mixing of various ingredients is commercially a different  commodity liable to be taxed. Item 182 of the First  Schedule refers to \023Spices that is to say Cumin Seed  (Jeera), Fenugreek Seeds (Methi), Cloves, Cinnamon,  Caraway Seeds (Shahijeera), Cardamom, Dry Ginger,  Aniseed (Saunf), Nakesar (Kabab Chini), Bay Leaf (Tej  Patta), Poppy Seeds, Nutmeg and Mace (Javitri)\024.  \021Masala  powder\022 is not specified in the said exhaustive list of  goods mentioned in Entry 182.  It is the result of grinding  or powdering of several ingredients.  Some of these spices  are specified in Entry 182.  The Tribunal upheld the  order of the Deputy Commissioner and dismissed the  appeal.  On appeal, the High Court upheld the order of  the Tribunal.

6.      The appellant has preferred these appeals against  the impugned judgment of the High Court and submitted  that the Entry 182 of the First Schedule to the APGST  Act, 1957 should not be given a narrow interpretation.   The mixtures of spices mentioned in the Entry would also  amount to \021spices\022 within the definition of Entry 182.  The  appellant also submitted that under VIIth Schedule to  the Act, only those goods which are not specified in Ist to  VIth Schedules can be taxed.

7.      The appellant submitted that the Spices Board  constituted under the Spices Board Act has declared a  list of 52 items in any form including Curry Powder,  Spice Oil, Oleoresins and other mixtures where spices  content is pre-dominant as spices as per section 2(n) of  the Spices Board Act, 1996.  The appellant has set out a  list of spices in Annexure \021P5\022 along with these appeals.   It is not necessary to reproduce the names and details of  those spices for deciding these appeals.   

8.      The appellant has submitted that the APGST Act,  1957 does not define the term \021manufacture\022.  However, it  is submitted that there is no chemical or mechanical  process except simple grinding and mixing involved in  producing the \021masala powder\022.  The process does not  bring about a new commodity which is differently  identified in common and commercial parlance.  In  support of its contention, the appellant placed reliance  on the judgment of this Court in Deputy Commissioner  of Sales Tax (Law), Board of Revenue (Taxes),  Ernakulam v. M/s PIO Food Packers 1980 Supp (1)  SCC 174 and relied on the definition of \021manufacture\022 as  enumerated in the said judgment, which reads as under: \023\021Manufacture\022 implies a change, but every  change is not manufacture, and yet every  change in an article is the result of treatment,  labour and manipulation.  But something  more is necessary. \005 There must be  transformation; a new and different article  must emerge, \023having a distinctive name,  character or use.\024

9.      The Court in this case held that by cutting the  pineapple into slices and thereafter canning it, on adding  sugar to preserve it, did not change the identity nor did it  bring into existence different goods.   

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10.     The appellant on the basis of aforementioned  definition asserted that its activity does not amount to  manufacture of a commercially new and distinct  commodity liable for payment of tax. 11.     The appellant also placed reliance on the following  passage from the decision of Alladi Venkateswarlu &  Others v. Govt. of Andhra Pradesh & Another (1978) 2  SCC 552.  In this case, the Court observed thus: \023the only question before us is whether the  parched rice and the puffed rice are covered by  Item 66(b) which reads: \023rice obtained from  paddy that has met tax under the Act\024.   \021Paddy\022 is defined in the dictionary as \023rice in  the husk\024.  The question is : Does it cease to  be even \023rice\024 when it is converted into  parched rice and puffed rice?  It is true that it  is no longer rice grain as it emerges from the  husk.  To make it edible as parched rice and  puffed rice it has to go through further  processes.  These are only products obtained  by converting rice grain into a different form of  it by heating or parching.  If such rice is still  rice, even if we confine the term \023rice\024 to grain,  is it by going trough these processes of heating  or parching converted into separate items for  the purposes of Entry 66 in the First Schedule  of the Act?\024

12.     This Court answered the aforesaid question as  follows:         \023\022Atukulu\022 (parched rice), and  \021muramaralu\022 (puffed rice) are rice within the  meaning of Entry 66(b) of Schedule I of the  Andhra Pradesh General Sales Tax Act, 1957.\024

13.     Reliance has also been placed on the case of  Tungabhandra Industries Ltd. v. The Commercial  Tax Officer, Karnal (1961) 2 SCR 14.  In this case, the  Court rejected the argument based on an analysis of  chemical changes produced by absorption of hydrogen  atoms in the process of hardening and on the consequent  inter-molecular changes in the oil.  The Court observed  that neither mere absorption of other matter nor inter- molecular changes necessarily affect the identity of a  substance as ordinarily understood.            14.     The hydrogenated oil was from groundnut and in its  essential nature it remained an oil.  It continued to be  used for the same purposes as groundnut oil which had  not undergone the process.  A liquid state was not an  essential characteristic of a vegetable oil; the mere fact  that hydrogenation made it semisolid did not alter its  character as an oil.          15.     In the case of Commissioner of Sales Tax, U.P. v.  M/s Lal Kunwa Stone Crusher (P) Ltd. (2000) 3 SCC  525, the question arose for adjudication before the Court  was whether \021gitti\022, stone chips and dust continued to be  stone or on crushing stone boulders into gitti, stone  chips and dust different commercial goods emerged so as  to attract sales tax on their sale.   The Court opined that  the term \023stone\024 is wide enough to include the various  forms such as \021gitti\022, \021kankar\022 and stone ballast.   A

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similar view was taken by this Court in State of  Maharashtra v. Mahalaxmi Stores (2003) 1 SCC 70.

16.     Reliance has also been placed on M/s. Crane Betel  Nut Powder Works v Commissioner of Customs and  Central Excise, Tirupathi and Anr. (2007) 4 SCC 155.   In this case, the Court held that the process of  manufacture employed by the appellant did not change  the nature of the end product because the end product  remained the betel nut.  The process involved in  sweetening the betel nut does not result in manufacture  of a new product.   The end product continues to be of  original character though in a modified form.

17.     On the other hand, the learned counsel appearing  for the respondents also placed reliance on a number of  decisions to strengthen his arguments that mixing and  grinding of different spices along with other ingredients  brings about a commercially different products.  

18.     This Court in Babu Ram Jagdish Kumar & Co. v.  State of Punjab & Others (1979) 3 SCC 616 held that  although rice is produced out of paddy, they are different  things in ordinary parlance.  When paddy is dehusked  and rice produced there is a change in the identity of the  goods. Therefore, inclusion of both paddy and rice in  Schedule \021C\022 would not amount to imposition of double  taxation under the Act.          19.     The learned counsel appearing for the respondents  placed reliance on a Division Bench judgment of the  Madhya Pradesh High Court in the case of Sales Tax  Commissioner v. Dhameja Home Industries, Indore  (1983) 54 STC 217. This case was cited primarily because  the facts of this case are identical to the facts of the  present case.    In this case, the question which arose for  adjudication was whether the preparation of \023Garam  Masala\024 amounted to manufacture.   The Court came to  the conclusion that \023Garam Masala\024 is made by mixing  different condiments in certain proportions.  The mixing  may take place either before or after grinding of the  condiments which go to make the product \023Garam  Masala\024 but mixing of condiments has to take place  because the product \023Garam Masala\024 is not obtained  merely by grinding of condiments.   It is thus clear that  the process of obtaining the product \023Garam Masala\024 is  not confined to merely grinding of condiments.  It  involves something more than grinding to bring into  existence a product different from those which are mixed.   The conclusion is inescapable that the process of  obtaining the product \023Garam Masala\024 is not excluded by  the Rules from the definition of \023manufacture\024 contained  in Section 2(j) of the Act.          20.     The respondents have also placed reliance on a  Division Bench judgment of the Kerala High Court in the  case of Deputy Commissioner of Sales Tax v. Rani  Food Products (1988) 68 STC 446.  This case was also  cited because the facts of this case and the case in hand  are identical. The question that arose in this case was  whether sambar powder, meat masala, pickle powder etc.  are spices under Entry 27 of the First Schedule to the  Kerala General Sales Tax Act.   The Court in this case  observed that it is the original product which is intended  as spices and not any manufactured product.  The

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position may be different if there had been only the  mixture of coriander and chilly without any process  whatsoever. Where coriander and chilly are powdered  and mixed in certain proportion with or without other  items, the mixture loses its original flavour and no longer  retains the character as spices, even though the mixture  may be one which is used in the preparation of food and  for adding flavour.  Thus, the Court approved the  judgment of the Tribunal and held that the goods  specified do not come under Item 27 and could be taxed  only as general goods.

21.     The respondents placed heavy reliance on a decision  of this Court in Rajasthan Roller Flour Mills  Association & Another v. State of Rajasthan &  Others (1994) Supp (1) SCC 413.  In this case, there was  difference of opinion amongst the High Courts in the  country over the question whether wheat under Section  14(1)(iii) of The Central Sales Tax Act includes flour, Fine  Wheat Flour (\021maida\022) and Semolina (\021suji\022).   The  Karnataka and the Patna High Courts have held that it is  not included, while the Andhra Pradesh, Rajasthan and  the Madras High Courts have taken a contrary view.   This Court examined the entire case in great detail.  This  Court\022s specific findings are reflected in paragraphs 15  and 40 of the said judgment.  The relevant portion of  para 15 is reproduced as under:

\023It must also be remembered that wheat flour  \026 and similarly maida and suji \026 are different  commodities from wheat.\024

22.       Three decisions of this Court have held that rice (it  is also derived from paddy just as flour is derived from  wheat by the process of milling) is different from paddy\005\024

23.     This Court, in para 40 of the said judgment,  observed as under: \023For the above reasons, we hold that flour,  maida and suji derived from wheat are not  \021wheat\022 within the meaning of Section 14(i)(iii)  of the Central Sales Tax Act.  Flour, maida and  suji are different and distinct goods from  wheat.\024

24.     In Rajasthan Roller\022s case (supra), this Court  referred to a judgment of four-Judge Bench of this Court  in the case of State of Tamil Nadu v. Pyare Lal  Malhotra & Others (1976) 1 SCC 834. In para 18 of the  said judgment, the Court referred to the Statement of  Law which, in our opinion, is vital in deciding the present  case also, so we deem it appropriate to reproduce the  same as under: \023Sales tax law is intended to tax sales of  different commercial commodities and not to  tax the production or manufacture of  particular substances out of which these  commodities may have been made.  As soon as  separate commercial commodities emerge or  come into existence, they become separately  taxable goods or entities for purposes of sales  tax.  Where commercial goods, without change  of their identity as such goods, are merely

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subjected to some processing or finishing or  are merely joined together, they may remain  commercially the goods which cannot be taxed  again, in a series of sales, so long as they  retain their identity as goods of a particular  type.\024

25.     In this case, the Court also examined a Constitution  Bench judgment of this Court in Ishwari Khetan Sugar  Mills P. Ltd. & others v. State of U.P. & others (1980)  4 SCC 136 and other judgments, such as Ganesh  Trading Co., Karnal  v. State of Haryana & others   (1974) 3 SCC 620  and the State of Karnataka v. B.  Raghurama Shetty & others (1981) 2 SCC 564.  

26.     We deem it appropriate to reproduce the relevant  observations made by this Court in paras 8,9 and 11 at  pages 566-568 in Raghurama Shetty\022s case (supra): \023There is no merit in the submission made on  behalf of the assesses that they had not  consumed paddy when they produced rice  from it by merely carrying out the process of  dehusking at their mills.  Consumption in the  true economic sense does not mean only use of  goods in the production of consumers\022 goods  or final utilization of consumers\022 goods by  consumers involving activities like eating of  food, drinking or beverages, wearing of clothes  or using of an automobile by its owner for  domestic purposes.  A manufacturer also  consumes commodities which are ordinarily  called raw materials when he produces semi- finished goods which have to undergo further  processes of production before they can be  transformed into consumers\022 goods.  At every  such intermediate stage of production, some  utility or value is added to goods which are  used as raw materials and at every such stage  the raw materials are consumed.  Take the  case of bread.  It passes through the first stage  of production when wheat is grown by the  farmer, the second stage of production when  wheat is converted into flour by the miller and  the third stage of production when flour is  utilized by the baker to manufacture bread out  of it.  The miller and the baker have consumed  wheat and flour respectively in the course of  their business.  We have to understand the  word \021consumes\022 in Section 6(i) of the Act in  this economic sense.   \005 At every stage of  production, it is obvious there is consumption  of goods even though at the end of it there may  not be final consumption of goods but only  production of goods with higher utility which  may be used in further productive processes.  \005 Applying the above test, it has to be held  that the assessees had consumed the paddy  purchased by them when they converted it into  rice which is commercially a different  commodity.\024

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27.     In Ganesh Trading Co.\022s case (supra), this Court  in para 5 at page 623 observed as under: \023Now, 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.  Hence quite  clearly when paddy is dehusked and rice  produced, there has been a change in the  identity of the goods.\024

28.     We have heard the learned counsel for the parties at  length and carefully examined various judgments cited  by the appellant and the respondents.   It is an admitted  position that the ingredients which are used in  preparation of masala after grinding and mixing lose  their own identity and character and a new product  separately known to the commercial world comes into  existence. According to the ratio in Pyare Lal  Malhotra\022s case (supra) that the sales tax is intended to  tax sales of different commercial commodities and not to  tax the production or manufacture of particular  substances out of which these commodities may have  been made.  Since separate commercial commodities  emerge into existence, they become separately taxable  goods or entities for the purpose of sales tax.            29.     In view of the settled legal position as forcefully  articulated in Pyare Lal Malhotra and Rajasthan  Roller Flour Mills Association\022s cases (supra), the  \021masala powder\022 prepared after grinding and mixing of  various spices and condiments in certain proportion is  commercially a different commodity liable to be taxed.   

30.     In view of our clear conclusion, based on a series of  decisions of this Court, the appeals filed by the appellant,  being devoid of any merit, are accordingly dismissed. In  the facts and circumstances of the case, we direct the  parties to bear their own costs.