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PETITIONER: TRAVANCORE TEA ESTATES CO. LTD.

       Vs.

RESPONDENT: STATE OF KERALA

DATE OF JUDGMENT11/10/1976

BENCH: KHANNA, HANS RAJ BENCH: KHANNA, HANS RAJ SINGH, JASWANT

CITATION:  1976 AIR 2469            1977 SCR  (1) 755  1976 SCC  (4) 470

ACT:             Central  Sales Tax Act (74 of 1956) s. 8(3)(b) and  Cen-         tral  Sales Tax (Registration and Turnover) Rules, 1957,  r.         13---Goods  used in the manufacture or processing  of  goods         for  sale--Scope--Fertilisers used for  growing tea  plants,         if could be included in goods used in the manufacture of tea         for sale.

HEADNOTE:              Section 8 of the Central Sales Tax Act, 1956, deals with         rates of tax on  sales in the course of inter-State trade or         commerce.   Section 8(1)(b) provides that every dealer,  who         in  the course of inter-State trade or commerce sells  to  a         registered  dealer goods of the description referred  to  in         sub-s. (3) shall be liable to pay tax at 3% of his turnover.         Section 8(3)(b) refers, inter alia to goods of the class  or         classes specified in the certificate of registration of  the         registered dealer purchasing the goods as being intended for         re-sale by him, or subject to any rules made by the  Central         Government  in this behalf,, for use by him in the  manufac-         ture  or processing of goods for sale.  Rule 13 of the  Cen-         tral  Sales  Tax (Registration and  Turnover)  Rules,  1957,         framed under the Act, provides that the goods referred to in         s.  8(3)(b) which a registered dealer may purchase shall  be         goods  intended for use by him inter alia as  raw  materials         and processing materials in the manufacture or processing of         goods for sale.             The appellant owned tea estates in the  respondent-State         and  was also maintaining factories for the  manufacture  of         tea.   It prayed for inclusion in its Certificate of  regis-         tration, ( 1 ) fertilisers,  chemicals,  weedicides,  insec-         ticides, fungicides and pesticides for use in tea   cultiva-         tion;  and  (2)  weighing  and measuring and packing  equip-         ments for  use in tea  estates.  The  Department refused  to         include  them and the Tribunal and the High Court  confirmed         the orders.             In  appeal  to  this Court it was  contended  that,  (1)         cultivation and the growing of tea leaves was so  integrally         connected with the manufacture of tea that it could be taken         to be a part of the process of manufacturing tea, and  since         fertilisers  etc. were needed for tea cultivation, the  same         should be held to. be intended for use in the manufacture or

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       processing of tea for sale; and (2) since weighing equipment         used in the factories had been included in the  certificate,         the  weighing equipment used for the purpose of  cultivation         should similarly be included.         Dismissing the appeal,             HELD: (1) The goods in item (1) are intended for use not         in  the  manufacturing process in respect of tea  meant  for         sale  but are only needed for the cultivation and growth  of         tea  plants  and leaves.  There is  no  direct  relationship         between  the use of fertilisers etc. and  the  manufacturing         process  and  hence, they were rightly not included  in  the         registration certificate. [761 G]             (a)  Cultivation and growth of tea plants result in  the         production  of raw material in the form of green tea  leaves         which are ultimately processed into tea meant for sale.  But         such  cultivation  and  growth are, in the  very  nature  of         things, prior to the manufacturing process and do not answer         to  the  description of manufacture and  processing  of  tea         meant  for  sale.  There is a vital  difference  between  an         agricultural operation and a manufacturing process.  What is         needed for use purely in an agricultural operation cannot be         held to be required for use in a manufacturing process. [762         D]             (b)  The fact that the time lag between the plucking  of         tea  leaves and their being subjected to  the  manufacturing         process is very little would not detract         756         from  the conclusion that the cultivation and growth of  tea         plants  is  distinct  and separate  from  the  manufacturing         process. [761 C]             (c)  Rule 24 of the Income Tax Rules, 1922, and r. 8  of         the  Income  Tax Rules, 1962, prescribe  the  formula  which         should be adopted for apportioning the income realised as  a         result  of the sale of tea after it is grown  and  subjected         to the manufacturing process in the factory, thus  recognis-         ing the difference between the agricultural income which  is         yielded in the form of green leaves purely by the land  over         which tea plants are grown, and the non-agricultural  income         which  is the result of subjecting the green leaves  plucked         to a particular manufacturing process. [761 E]             (2) The same reasoning holds good in respect of weighing         machines used, not in the factories but, in the tea  fields.         [762 E]             J.K.  Cotton  Spinning & Weaving Mills Co. Ltd.  v.  The         Sales Tax Officer 16 STC 563. and Indian Copper  Corporation         Ltd.   v.  Commission  of  Commercial Taxes 16 STC 259  fol-         lowed.             Tea Estate India (P) Ltd. v. Commissioner of  Income-tax         103  ITR  785 referred to.

JUDGMENT:         CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1698 of 1971.             (Appeal  by  Special Leave from the Judgment  and  Order         dated  8-4-1971  of  the Kerala High  Court  in  T.R.C.  No.         46/69).             S.T.  Desai,  A.G. Meneses, Markos Vellapilly  and  K.J.         John, for the Appellant.         K.T. Harindra Nath and K.M.K. Nair for the Respondent.         The Judgment of the Court was delivered by             KHANNA,  J. This is an appeal by special  leave  against         the  judgment of the Kerala Hight Court dismissing  revision         petition  of the petitioner against the order in  appeal  of         the  Appellate  Tribunal  whereby  the Tribunal  refused  to

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       include certain items in the sales tax registration certifi-         cate of the appellant.             The  appellant,  Travancore Tea Estates Co. Ltd.,  is  a         company incorporated in England having its registered office         in  London.   The appellant carries on the business  of  tea         planting  in  India  at Vandiperiyar in  Peermade  Taluk  in         Kerala  State.   Eight tea estates  are owned by the  appel-         lant  in   Peermade Taluk.  To  manufacture   tea  grown  in         those  estates, the appellant maintains separate tea  facto-         ries  in each of those estates.   On an application made  by         the appellant for registration under. the Central Sales  Tax         Act,  1956 (Act 74 of 1956) (hereinafter referred to as  the         Act), the sales tax authorities granted registration certif-         icate to the appellant on January 9, 1963. Aggrieved by  the         non-inclusion of certain items of goods in the registration-         certificate the appellant filed writ petition in the  Kerala         High  Court.  The High Court directed the Sales Tax  Officer         to  decide the question regarding the inclusion of items  in         the  light  of the decisions of this Court in 1.  K.  Cotton         Spinning & Weaving Mill3’ Co. Ltd.  v.         757         The  Sales Tax Officer (1) and Indian   Copper   Corporation         Ltd. v. Commissioner of Commercial Taxes.(2)  The Sales  Tax         Officer  thereafter  allowed the inclusion of  some  of  the         items of goods asked   for by the appellant in the registra-         tion certificate but refused to include certain other  goods         in  that  certificate.  The  appellant  thereupon  preferred         appeal  before‘  the  Appellate  Assistant  Commissioner  of         Sales  Tax, Kottayam, who partly allowed the appeal  by  di-         recting further inclusion of certain items.   The  Appellate         Assistant  Commissioner  however, declined  to  include  the         following  items  in  the certificate in  respect  of  which         prayer had been made by the appellant:                    "1. Fertilisers, chemicals, weedicides,  insecti-                  cides,  fungicides  and pesticides for use  in  tea                  cultivaton:                     2.  Cement  and other  building   materials  for                  installing  and  housing tea machinery  and  equip-                  ments:                     3.  Building materials, iron  and    hose-pipes,                  sanitary  fittings  for use in estates  and  estate                  factories ,’                     4. Weighing and measuring and packing equipments                  for use in tea estates; and                     5.  All  other articles and things  for  use  in                  manufacture and processing of sale of tea."         The appellant then took the matter in further appeal  before         the  Appellate Tribunal and prayed for the inclusion in  the         certificate  of  the above mentioned items.   The  Appellate         Tribunal  did  not accept the prayer of  the  appellant  and         dismissed the appeal.  Revision petition was thereupon filed         by  the appellant before the Kerala High Court  against  the         order of the Tribunal.             In appeal before the High Court it was stated  on behalf         of  the appellant in respect of the first item  relating  to         fertilisers,  chemicals, weedicides and  insecticides,  that         they were used for cultivation of tea leaves.   The  conten-         tion of the appellant was that the growing and manufacturing         of tea constituted one integrated process and therefore  the         items of goods required for growing tea should be deemed  to         be  goods intended for use in the manufacture of tea  within         the meaning of section 8(3)(b) of the Act.  This  contention         had   also  been advanced by the appellant   earlier  before         the Tribunal but the Tribunal rejected this contention as in         its  view  "the legislature has not included  production  by

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       agriculture as one of the operations for which goods can  be         purchased under section 8 of the Central Sales Tax Act". The         Tribunal further held that merely because the  agricultural,         process  of  the company is connected with  the  process  of         manufacture,  production  of tea did not form  part  of  the         manufacture   and processing of tea.   The High Court  disa-         greed with this reasoning of the Tribunal and observed  that         the expression "in the manufacture of goods" in section 8(3)         (b)  of  the  Act normally encompasses  the  entire  process         carried on by the dealer of converting the raw material into         finished  goods.   In  the opinion of the  High  Court,  the         growing of tea leaves         (1) 16 S.T.C. 563.        (2) 16 S.T.C. 259.         758         was so integrally connected with the manufacture of tea that         it  could  reasonably be taken as a part of the  process  of         manufacturing tea. This circumstance, however, in the  opin-         ion of the High Court, by itself was not sufficient to  make         the goods eligible for inclusion in the registration certif-         icate.   The High Court accordingly observed:                        "Under rule 13 read with section 8(3) (b) the                  use  of the goods in the manufacture or  processing                  of  goods for sale will not be a sufficient  ground                  for  inclusion  in  the  certificate.  The  further                  requirement  is that the goods must be for  use  as                  raw materials or processing materials or machinery,                  plant,  equipment,  tools,  stores,  spare   parts,                  accessories, fuel or lubricants.   The first  item,                  namely, fertilisers, chemicals, insecticides,  etc.                  in our opinion cannot fall within the category of a                  raw  material or processing material  or  machinery                  etc.    The learned counsel for the company  sought                  to contend that fertilisers, chemicals etc.   would                  come  within  file category of stores mentioned  in                  section 8(3)(b) and that as such it is eligible for                  specification in the certificate.  We are unable to                  agree with this submission.   The word ’stores’  in                  the  context in which it appears in rule 13 has  to                  be necessarily goods intended for use in the  manu-                  facture  or processing of goods for sale and it  is                  not  possible to hold that fertilisers,  chemicals,                  weedicides, insecticides etc. can come within  this                  category.   They are not in any  way directly  con-                  nected with the manufacturing or processing of tea.                  As  pointed  out earlier, the  expression  ’in  the                  manufacture’  can  take  within  its  compass  only                  processes which are  directly related to the actual                  production.    As such the  claim for  inclusion of                  this  item in the Sales  Tax Registration  Certifi-                  cate cannot be supported."         The prayer of the appellant regarding items (2), (3) and (4)         was also disallowed in the light of the observations of this         Court  in the case of 1. K. Cotton Spinning & Weaving  Mills         Co.  Ltd. (supra). Item No. (5), in the opinion of the  High         Court, was too vague and indefinite to deserve inclusion  in         the  certificate.  In the result the  revision petition  was         dismissed.             Before dealing with the contentions advanced, it may  be         useful  to refer to the relevant provisions.   Section 7  of         the  Act  makes  provision  for  registration  of   dealers.         Section 8 of the Act deals with rates of tax on sales in the         course  of  inter-State trade or commerce.   Clause  (b)  of         sub-section (1) of that section provides that every  dealer,         who in the course of inter-State trade or commerce  sells to         a  registered dealer other than the Government goods of  the

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       description  referred to in sub-section (3) shall be  liable         to pay tax under  this Act which shall be 3 per cent, of his         turnover.    The  percentage before July 1,  1966  was  two.         Sub-section 3(b) reads as under:                  "(3)  The goods referred to in clause  (b) of  sub-                  section                   (1)---         759                  (b) are goods of the class or classes specified  in                  the  certificate of registration of the  registered                  dealer  purchasing the goods as being intended  for                  re-sale by him or subject to any rules made-by  the                  Central  Government in this behalf, for use by  him                  in the manufacture or processing of goods for  sale                  or  in mining or in the generation or  distribution                  of electricity or any other form of power;"                  The  Central Sales Tax (Registration and  Turnover)                  Rules, 1957 have been framed by the Central Govern-                  ment.                  Rule 13 of the rules reads as under:                   "13.  The goods referred to in clause (b) of  sub-                  section  (3)      of section 8 which  a  registered                  dealer  may purchase, shall be goods  intended  for                  use by him as raw materials,  processing materials,                  machinery,   plant,  equipment tools stores,  spare                  parts,   accessories, fuel or  lubricants,  in  the                  manufacture or processing of goods for sale, or  in                  mining, or in the generation of electricity or  any                  other  form of power."             The question with which we are concerned in this  appeal         is whether the items of goods in respect of which prayer  of         the appellant for being included in the registration certif-         icate  was  refused, answer to the description of  goods  as         given  in  the  above rule.   Mr. Desai  on  behalf  of  the         appellant  has  not  pressed the case of  the  appellant  in         respect of item No. (5) which was found by the High Court to         be  vagne and indefinite.  He has also not  made  any   sub-         missions  in respect of items (2) and (3) relating to Cement         and building materials. The main contention of Mr. Desai has         related  to item No. (1) pertaining to  fertilisers,  chemi-         cals,  weedicides, insecticides,  fungicides and  pesticides         for use in tea cultivation.  According to the learned  coun-         sel, cultivation and the growing of tea leaves was so  inte-         grally  connected with the manufacture of tea that it  could         be  taken  to be part of the process of  manufacturing  tea.         As  fertilisers  and othergoods mentioned in item  (1)  were         needed  for tea clutivation,  the same should, according  to         the  learned counsel, be held to be intended for use in  the         manufacture or processing of tea for sale.   Regarding  item         (4),  the  case  of the appellant is  that  though  weighing         equipment     used in the factories has been allowed  to  be         included in the certificate, the weighing equipment used for         the  purpose  of cultivation has  not been included  in  the         certificate.   The weighing equipment to be used for  culti-         vation should also, it is urged, be included in the certifi-         cate.             The  above  contentions have been  controverted  by  Mr.         Narendra  Nath,  and  he has urged that  neither  the  goods         mentioned in item No. (1) nor the weighing equipment  needed         for cultivation are directly, connected with the process  of         manufacturing tea.             After  giving the matter our earnest  consideration,  we         are  of  view that the contention of Mr.  Narendra  Nath  is         well-founded.         760

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           Rule 13 has been the subject matter of two. decisions of         this Court In the case of Indian Copper Corporation (supra),         the assessee was a dealer engaged both in mining  operations         of  copper  and iron ore and the manufacturing  of  finished         products from the ore for sale.    This Court held that  the         two processes being inter-dependent, it would be  impossible         to  exclude  vehicles which are used for removing  from  the         place  where  the mining operations were  concluded  to  the         factory  where the manufacturing process started,  from  the         registration certificate. The expression "goods intended for         use  in the manufacturing or processing of goods  for  sale"         was  held  to include such vehicles as were intended  to  be         used for removal of processed goods from the factory to  the         place  of storage.  The mere fact that there is a  statutory         obligation imposed upon the owner of the factory or the mine         to maintain hospital facilities would not, in the opinion of         this  Court, supply a connection between the goods  and  the         manufacturing  or processing of goods or the  mining  opera-         tions  so  as to make them goods intended for use  in  those         operations.    The expression "intended to be used". it  was         further held, cannot be equated with "likely to  facilitate"         the conduct of the business of manufacturing or of  process-         ing goods or of mining.             In  J.  K.  Cotton Spinning &  Weaving  Milis  Co.  Ltd.         (supra)   the  appellant manufactured for sale  cotton  tex-         tiles, tiles and other commodities.   Certain items of goods         in  the  certificate of registration of the  appellant  were         deleted by the sales tax authorities on the ground that they         had been earlier erroneously  included in  the’ certificate.         This Court in that context dealt with the scope and ambit of         section 8(3) (b) of the Act read with rule 13.   It was held         that the expression "in the manufacture of goods" in section         8(3)(b)   should normally encompass the entire process  car-         ried  on  by  the dealer of converting  raw  materials  into         finished  good’s.  Where any particular process is so  inte-         grally connected with the ultimate production of goods that,         but  for  that process, manufacture or processing  of  goods         would  be commercially inexpedient, goods required  in  that         process would fail within the expression "in the manufacture         of goods."   It was further held that the process of design-         ing might be distinct from the actual process of turning out         finished goods.   But there was no warrant for limiting  the         meaning  of the expression "in the manufacture of goods"  to         the  process of production of goods only.    The  expression         "in the manufacture" was held to take in within its  compass         all  processes  which  are directly related  to  the  actual         production.    Drawing and photographic  materials  directly         related  to the actual production of goods were held  to  be         goods intended for use "in the manufacture of goods". Build-         ing  materials,  including lime and cement, not required  in         the  manufacture of tiles for sale was, however, held to  be         not  raw material in the manufacture or processing of  goods         or even as "plant".             We may now turn to the present case.  The question which         essentially arises for determination is whether  fertilisers         and  other goods mentioned in item No. (1) are intended  for         use by the appellant as equipment or stores in the  manufac-         ture or processing of tea meant for         761         sale,    as urged on behalf of the appellant.   The  contro-         versy between the parties has centred round the point as  to         whether  fertilisers and other goods mentioned in  item  No.         (1) can be said to be goods intended for use in the manufac-         ture  or processing of tea meant for sale.   So far as  this         question is concerned, we find that the growing and plucking

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       of  tea leaves from the plants and the processing  of  those         leaves  in the factories are parts of a continued  activity.         The  assertion of Mr. Desai that the tea leaves  would  lose         their  value unless they are processed in the  factory  soon         after they are plucked is not being questioned. It does not,         however, follow from that that the cultivation of tea plants         and the growth of tea leaves is not something distinct  from         the manufacturing process to which tea leaves are  subjected         in  the factories.   The fact that the time lag between  the         plucking of tea leaves and their being subjected to manufac-         turing  process  in the factories is very little  would  not         detract from the conclusion that the cultivation and  growth         of tea plants and leaves is  something distinct and separate         from  the  manufacturing process to which those  leaves  are         subjected in the factories for turning them into. tea  meant         for  sale. Income which is realised by sale of tea by a  tea         company which grows tea on its land and thereafter  subjects         it to manufacturing process in its factory is an  integrated         income.    Such income consists of elements  or  components.         One element or component consists of the agricultural income         which  is yielded in the form of green leaves purely by  the         land over which tea plants are grown.  The second element or         component  consists of non-agricultural income which is  the         result of subjecting green leaves which are plucked from the         tea  plants grown on the land to a particular  manufacturing         process in the factory  of the tea company.  Rule 24 of  the         Income-tax  Rules, 1922 and rule 8 of the Income-tax  Rules,         1962  prescribe  the  formula which should  be  adopted  for         apportioning the income realised as a result of the sale  of         tea  after  it is grown and subjected to  the  manufacturing         process  in the factory.   Sixty per cent.  is taken  to  be         agricultural  income  and  the same consists  of  the  first         element  or  component, while 40 per  cent  represents  non-         agricultural  income and the same comprises the second  ele-         ment or component (see Tea Estate India (p.) Ltd. v. Commis-         sioner of Income-tax(1).             Fertilisers  and the other goods mentioned in  item  No.         (1) are intended for use not in the manufacturing process in         respect  of tea meant for sale, they are essentially  needed         for   the cultivation and growth of tea plants  and  leaves.         There  is no direct relationship between use of  fertilisers         and other goods mentioned in item No. (1 ) and the  manufac-         turing  process in respect of tea meant for sale.   What  is         meant  by  manufacture of tea is clear from pages  863-4  of         Vol. 21 of Encyclopedia Britannica (1965 Edition) wherein it         is observed:             "Black and green teas result from different  manufactur-         ing  processes  applied to the same kind  of  leaf.    After         plucking,  the  leaf is withered by being spread  on  bamboo         trays  in the sun, or on withering tats within  doors.   The         process takes 18 to 24 hours.  Next it is rolled. by hand or         by machines.   The object of rolling is to break         762         the  leaf ceils and liberate the juices and  enzymes  sealed         within.  The roll may last as long as three hours.  Then  it         is taken to the roll breaker and green leaf sifting  machine         and after that fermented in baskets, on glass shelves or  on         cool  cement  floors under damp cloth for 4 or  41/2  hours.         The  firing process (drying) follows, in pans or baskets  or         in firing machines.   It takes 30 to 40 min.  The difference         between  black tea and green tea is the result of  manipula-         tion. Green tea is manufactured by steaming without  fermen-         tation  in a perforated cylinder or boiler,  thus  retaining         some of the green colour.   Black tea is allowed to  ferment         after being rolled and before firing.  In the case of  black

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       tea  the process of fermentation, or oxidation, reduces  the         astringency  of the leaf and, it is claimed,  developes  the         colour  and aroma of the liquor.   In making green tea,  the         fermentation process is arrested by steaming the leaf  while         it is green and by light rolling before drying."             The  cultivation  and growth of tea  plants  and  leaves         cannot,  in our opinion, be comprehended in  the  expression         "in  the  manufacture  or processing  of  goods  for  sale".         Cultivation  and growth of tea plants no ’doubt  results  in         the  production  of raw material in the form  of  green  tea         leaves  which  are ultimately processed into tea  meant  for         Sale, but such cultivation and growth are in the very nature         of  things  prior to the manufacturing process  and  do  not         answer  to the description of manufacture and processing  of         tea meant for sale.  There is a vital difference between  an         agricultural operation and a manufacturing process, and  the         same should not be lost sight of.  What is needed for  being         used  purely in an agricultural operation cannot be held  to         be  goods required for use in a manufacturing process.    We         are,  therefore, of the opinion that the appellant  was  not         entitled  to  get fertilisers and other goods  mentioned  in         item  No.  (1 ) included in  the  registration  certificate.         The same reasoning would also hold good in respect of weigh-         ing machine used not in the factories but in the tea fields.         appeal consequently fails and is dismissed with coats.         V.P.S.                                                Appeal         dismissed.         763