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

       Vs.

RESPONDENT: THOMAS STEPHEN & CO . LTD. QUILON.

DATE OF JUDGMENT14/03/1988

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

CITATION:  1988 AIR  997            1988 SCR  (3) 248  1988 SCC  (2) 264        JT 1988 (1)   631  1988 SCALE  (1)569  CITATOR INFO :  RF         1988 SC1133  (5)  D          1990 SC 196  (3,6)  F          1990 SC 781  (47)

ACT:      Kerala General  Sales Tax  Act, 1963:  s.  5A(I)-Cashew Shells and  consumed stores  used as  fuel in  the Kiln  and maintenance Whether  exempt from  Tax-Consumption in process of manufacture resulting in other goods-Essentiality of.

HEADNOTE: %      Section 5A(1)  of the  Kerala General  Sales  Tax  Act, 1963, requires  a dealer  to pay purchase tax on the taxable goods purchased in circumstances in which no tax is payable, if he  (a) consumes  such goods  in the manufacture of other goods for  sale or  otherwise, or (b) disposes of such goods in any manner other than by way of sale in the State, or (c) despatches them  to any  place outside the State except as a direct result  of sale  or purchase  in the course of inter- state trade or commerce.      The assessee-company,  a  manufacturer  and  dealer  in ceramics was sought to be assessed to tax under s. 5A of the Act for  the assessment  years 1974-75,  1975-76 and 1976-77 among other  things for  the  purchase  turnover  of  cashew shells and  consumed stores,  lime shells etc., purchased by it. The  assessee contended  that cashew shells were used by them as  fuel for  manufacturing products and, therefore, by virtue of  notification S.R.O.  732/73 the purchase turnover of cashew shells was exempt from tax. In the alternative, it was contended that the purchases in question were not liable for levy  of tax  since none of the conditions prescribed in clause (a),  (b)  or  (c)  of  s.  5A(1)  of  the  Act  were satisfied, and  that lime shells and certain consumed stores had been  used in  the  maintenance  of  the  kiln  and  the factory, and  were not  taxable in  view of  the  conditions prescribed in s. 5A.      The  assessing   authority  and   the  First  Appellate Authority brought  these purchases  to tax under s. 5A(l) of the Act.  The Tribunal  rejected  the  assessee’s  claim  of exemption under the said notification. However, it held that

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these items were not taxable under s. 5A of the Act. It took the view  that the  cashew shells had been used only as fuel in the  kiln for  the manufacture  of tiles  and other goods and, hence,  clause (a)  of s.  5A(1) of  the  Act  was  not satisfied, there being no consumption of the 249 cashew  shells   in  the   manufacture  of  other  goods  or otherwise, that  there was no disposal of lime shells or the consumed stores  which were  used up  for the maintenance of the factory  and kiln and that there was also no consumption of those goods in the manufacture of other goods for sale or otherwise.  The  High  Court  upheld  the  decision  of  the Tribunal.      Dismissing the special leave petitions by the Revenue, ^      HELD: l.  Goods used for ancillary purpose like fuel in the process  of manufacture,  do not fall within s. 5A(1)(a) of the  Act. Consumption  must be in the manufacture as raw- material or  of other components which go into the making of the end product, to come within the mischief of the section. Cashew shells  do not tend to the making of the end product. These had  been used  as fuel  in the  kiln and  did not get transformed into the end product. These had not been used as raw material in the manufacture of the goods but only as aid in the  manufacture of goods by the assessee. Cashew shells, therefore, do  not  attract  levy  of  tax  under  the  said section. The  same is  the position  with regard to the lime shells and consumed stores, which have been used only in the maintenance of  the kiln and the factory and not used in the manufacture of the end product. [252E-G]      2. Disposal means transfer of title in the goods to any other person.  The expression "dispose" means to transfer or alienate. Clause  (b) of  section 5A(1)  requires  that  the goods in  question should  be  transferred  to  some  person otherwise than  by way  of sale.  In the instant case, there was no  evidence of  transfer of  cashew  shells,  the  lime shells or the consumed stores at all. These were used by the assessee himself  as fuel  in the  case of cashew shells for maintenance of kiln. Therefore, there was no disposal of the goods as  known to  law. Sub  clause (b)  of s.  5A(I)  was, therefore, not applicable. [253G-H; 254A-B]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Special  Leave  Petition (Civil) Nos. 8747-49 of 1987.      From the  Judgment and  order dated  9.12.1986  of  the Kerala High Court in TRC Nos. 152 to 154 of 1986      V.J. Francis for the Petitioner.      The Judgment of the Court was delivered by 250      SABYASACHI MUKHARJI, J. This is a petition for leave to appeal under  Article 136  of the Constitution of India from the Judgment  and order  of the  High Court of Kerala, dated December 9,  1986. The  High Court  by the impugned judgment dismissed the  revision cases,  which were  brought  at  the instance of the revenue.      The assessee  is a  manufacturer and  dealer in  tiles, terra-cotta wares  and ceramic. It was assessed to tax under Section 5A  of the  Kerala  General  Sales  Tax  Act,  1963, hereinafter called  ’the Act’ for the assessment years 1974- 75, 1975-76  and 1976-77  among other things on the purchase turnover of  cashew shells  and consumed stores, lime shells etc.,  purchased  by  the  assessee-Company.  These  are  in

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abundant supply  in that area. These are used, as it appears from the judgment of the High Court and from the facts found by the  Tribunal, as  fuel in the kiln in the factory of the assessee for  the manufacture  of tiles  and others.  It was sought to  be assessed  to tax.  The assessee contended that cashew shells  were used  by  them  as  fuel  for  (emphasis supplied) manufacturing  products  referred  to  above  and, therefore, by  virtue  of  notification  S.R.O.  732/73  the purchase turnover  of cashew shells were exempt from tax. In the alternative,  it was  contended by the assessee that the purchases in  question were not liable for levy of tax since none of  the conditions prescribed in clause (a), (b) or (c) of Section 5A of the Act were satisfied.      The assessee  had also  purchased during  the  relevant years in  question, lime  shell and certain stores described as consumed  which had  been used  in the maintenance of the kiln and  the factory.  These purchases were also claimed as non-taxable in  view of  the conditions prescribed in Clause (a), (b)  or (c)  of  Section  5A  of  the  Act,  being  not satisfied. The  assessing authority  and the First Appellate Authority overruled  the contentions  of  the  assessee  and brought these  purchases to  tax under Section 5A (1) of the Act.      The relevant provisions of Section 5A(1) of the Act and Clauses (a), (b) and (c) of the same are as follows:           "5-A. Levy  of purchase  tax-(1) Every dealer who,           in the  course of  his business,  purchases from a           registered dealer  or from  any other  person  any           goods the  sale or  purchase of which is liable to           tax under  this Act  in circumstances  in which no           tax is payable under Section 5, and either- 251           (a)   consumes such  goods in  the manufacture  of                other goods for sale or otherwise; or           (b)   disposes of  such goods  in any manner other                than by way of sale in the state; or           (c)  despatches them  to  any  place  outside  the                State except  as a  direct result  of sale or                purchase in  the course  of inter-state trade                or commerce,           shall, whatever  be the  quantum of  the  turnover           relating to  such purchase  for a year, pay tax on           the taxable turnover relating to such purchase for           the year at the rates mentioned in section 5."      In second  appeal the Tribunal also did not accept this case  of   the  assessee  regarding  non-taxability  of  the purchase turnover  of  the  cashew  shells  under  the  said Notification. The  Tribunal, however,  held that  the cashew shells had  been used  only as  fuel in  the  kiln  for  the manufacture of  tiles and other goods and, hence, Clause (a) of Section  5A(1) of the Act, was not satisfied, there being no consumption  of the  cashew shells  in the manufacture of other goods  or otherwise.  The Tribunal  was of the opinion that these  were used for the manufacture. The Tribunal also held that  there was  no disposal  of the lime shells or the consumed stores  which were  used up  for the maintenance of the factory  and kiln and that there was also no consumption of those goods in the manufacture of other goods for sale or otherwise. In this view of the matter the Tribunal held that these items were not taxable under Section 5A of the Act.      The revenue being aggrieved went to the High Court. The High Court  upheld the decision of the Tribunal and rejected the revenue’s contention.      The construction  of Section 5A of the Act, came-up for consideration before  this Court  in Deputy  Commissioner of

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Sales Tax  (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers, [1980] Vol. 46 STC 63. That was a case dealing with pineapples sliced for being sold in sealed cans. It was held that there was no consumption of the original pineapple fruit for  the purpose  of manufacture  and the case did not fall under Section 5A(1)(a) of the Act. It was further 252 observed that  although a  degree of processing was involved in preparing  pineapple slices  from the original fruit, the commodity  continued   to  possess  its  original  identity, notwithstanding  the   removal  of  inedible  portions,  the slicing  and  thereafter  canning  it  on  adding  sugar  to preserve it.      On the construction of the section, this Court observed that section  5A(1)(a) of  the Act envisaged the consumption of a  commodity in  the  manufacture  of  another  commodity (emphasis supplied). The goods purchased should be consumed, the consumption should be in the process of manufacture, and the result  must be manufacture of other goods. Pathak, J as the learned Chief Justice then was, at page 67 of the report observed as follows:           "The learned counsel for the revenue contends that           even if  no manufacturing process is involved, the           case still  falls within  section 5A(1)(a)  of the           Kerala  General   Sales  Tax   Act,  because   the           statutory  provision  speaks  not  only  of  goods           consumed in  the manufacture  of other  goods  for           sale but also goods consumed otherwise. There is a           fallacy in  the submission The clause, truly read,           speaks of  goods consumed  in the  manufacture  of           other goods  for sale  or goods  consumed  in  the           manufacture of other goods for purposes other than           sale."      The cashew shells in the instant case, had been used as fuel in  the kiln. The cashew shells did not get transformed into the  end product.  These have  not been  used  as  raw- materials in  the manufacture  of the goods. These have been used only  as an  aid in the manufacture of the goods by the assessee. Consumption  must be  in the  manufacture as  raw- material or  of other components which go into the making of the end  product to come within the mischief of the section. Cashew shells  do not tend to the making of the end product. Goods used  for ancillary  purposes like fuel in the process of the  manufacture, do  not fall within section 5A(1)(a) of the Act.  Cashew shells,  therefore, do  not attract levy of tax under  the said  section. The  same is the position with regard to  the lime  shell and  consumed stores,  which have been used  only in  the maintenance  of  the  kiln  and  the factory and  not used in the manufacture of the end product. The revenue,  therefore, was wrong in its contention on this aspect      Support  was   sought  to   be  obtained  from  certain observations  of  this  Court  in  Ganesh  Prasad  Dixit  v. Commissioner of Sales Tax. 253 Madhya Pradesh, [1969]3 SCR 490 at page 491 where this Court was dealing  with the  provisions of  Madhya Pradesh General Sales Tax  Act, 1959.  There the expression used was ’either consumes such goods in the manufacture of the goods for sale or otherwise’.  At page  495 of the report Shah, J. speaking for this Court observed as under:           "Mr. Chagla  for the  appellants  urged  that  the           expression or  otherwise" is  intended to denote a           conjunctive introducing  a specific alternative to           the words  for  sale  immediately  preceding.  The

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         clause in  which it occurs means, says Mr. Chagla,           that by  s. 7  the price  paid  for  buying  goods           consumed  in   the  manufacture  of  other  goods,           intended to  be sold  or  otherwise  disposed  of,           alone is  taxable. We  do not think that that is a           reasonable  interpretation   of   the   expression           "either consumes  such goods in the manufacture of           other goods for sale or otherwise". It is intended           by  the  Legislature  that  consumption  of  goods           renders the price paid for their purchase taxable,           if the  goods are used in the manufacture of other           goods for  sale  or  if  the  goods  are  consumed           otherwise."      These observations,  in our  opinion, have no relevance to  the  present  facts  of  the  case.  Further  this  very contention was negatived, though without reference to Ganesh Prasad’s case (supra) in the passage set out hereinbefore in Deputy Commissioner  of  Sales  Tax  v.  Pio  Food  Products (supra). The  expression consumption  otherwise must  in the context mean  consumption of  other goods for purposes other than sale.      Another contention  raised before  the High  Court  was that the goods had been disposed of otherwise than by way of sale within the State and, hence, liable to tax by virtue of section 5A(1)(b)  of the  Act The  question,  therefore,  is whether there  is any  disposal of these goods in any manner otherwise than  by way  of sale  within the  State. Disposal means transfer  of title  in the  goods to any other person. The expression  "dispose" means  to transfer or alienate. It was formerly  an essential  word in  any conveyance of land. See Jowitt  "The Dictionary of English Law" and also Webster Comprehensive Dictionary  (International Edn.)-Vol.  1, page 368. Clause  (b) of  the section  requires that the goods in question should be transferred to some person otherwise than by way  of sale.  In this case, there was no evidence of any transfer at  all, therefore,  there was no ’disposal’ of the goods as 254 known to  law. The  High Court records that admittedly there was no transfer of the cashew shells, the lime shells or the consumed stores  in  this  case.  These  were  used  by  the assessee himself  as fuel  in the  case of cashew shells for the maintenance  of kiln.  Sub-clause (b)  of section  5A(1) was, therefore,  not applicable.  In the  background of  the facts of  this case,  the High  Court, in  our opinion,  was right.      The petition for leave must fail and is rejected. P.S.S.                             Petitions dismissed. 255