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CASE NO.: Appeal (civil)  4408 of 2001

PETITIONER: M/s. Falcon Tyres Limited

RESPONDENT: State of Karnataka and Others

DATE OF JUDGMENT: 20/07/2006

BENCH: ASHOK BHAN & MARKANDEY KATJU

JUDGMENT: J U D G M E N T

BHAN, J.

The appellant is a public limited company and a  dealer registered under the Karnataka Tax on Entry  of Goods Act, 1979 (hereinafter referred to as "the  Entry Tax Act").  It is engaged in the manufacture  of tyres of two wheeler motor vehicles. Appellant  is located in Metagalli in Mysore and Metagalli is  a local area within the definition of ’Local area’  in Section 2 (A) (5) of the Entry Tax Act.  The  main input in the manufacture of tyres is rubber  which the appellant procures from the neighbouring  State of Kerala.

       Sub-section (1) of section 3 of Entry Tax Act  prescribes that there shall be levied and collected  tax on entry of any goods specified in the First  Schedule into a local area for consumption, use or  sale therein, at such rates not exceeding 5% of the  value of the goods, as may be specified  retrospectively or prospectively, by the State  Government by issuance of Notifications.        Section  2 of the Entry Tax Act defines the various  expressions used in the Act.  The expression  ’Agriculture produce or horticulture produce’ is  defined in section 2 (A) (1).  In substance, it  includes all agriculture or horticulture produce  excluding tea, coffee, rubber, cashew, cardamom,  pepper and cotton and such agricultural or  horticultural produce which has been subjected to  any physical, chemical or other process for being  made fit for consumption except merely cleaning,  grading, sorting or drying.  

       Sub-section (6) of Section 3 provides for total  exemption from entry tax on the goods specified in  the Second Schedule to the Entry Tax Act.  The  exemption Schedule, i.e., Second Schedule in Sl.  No. 2, specifies agricultural produce including  tea, coffee and cotton (whether ginned or unginned)  as exempt from the Entry Tax.   

Appellant claimed exemption from entry tax  before the assessing authority on the value of  rubber brought into the local area for the  assessment year 1996-97 in terms of the definition

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of agricultural produce or horticultural produce  read with Sl. No. 2 of the Second Schedule to the  Entry Tax Act.  The assessing authority held that  rubber is not one of the agricultural produce  included in Sl. No. 2   in the Second Schedule  and  consequently, disallowed the claim.  Appellant  contested the assessment order before the first  appellate authority, i.e., Joint Commissioner of  Commercial Taxes (Appeals) Bangalore City Division.    The first appellate authority held that rubber  purchased by the appellant from outside the State  of Karnataka was subjected to treatment by  sulphuric acide and smoke to make it into sheets  and therefore such rubber sheets do not fit the  definition of agricultural produce under Section  2(A)(1)  of the Entry Tax Act.   The first  appellate authority held that Sl. No. 2 of Second  Schedule to the Act also clearly excluded rubber  from the purview of agricultural produce.   Consequently, the appeal was dismissed.  

The appellant being aggrieved carried the  matter in second appeal before the Karnataka  Appellate Tribunal (for short "the Tribunal").  The  Tribunal applied the judgment of this Court in the  case of M/s Karnataka Forest Development  Corporation Ltd., Vs. Cantreads Pvt. Ltd. , 1994  (4) SCC 455, and allowing the appeal held, that  latex is a modern name for caoutchouc.  It is  nothing but natural rubber.  Caoutchouc or latex  means not only the milky substance obtained from  the trees but it included all milk substance  processed, till it is made marketable.  Since the  processing does not result in bringing out a new  commodity but it preserves the same and renders it  fit for being marketed, it does not change its  character.  It continues to be caoutchouc or latex  when it is treated by sulphuric acide and continued  to be so even after it is dried with smoke  to  obtain the shape of sheets.

State of Karnataka being aggrieved by the  judgment of the Tribunal filed statutory civil  revision petition in the High Court of Karnataka.   By the impugned judgment the High Court has allowed  the civil revision petition and quashed and set  aside the judgment of the Tribunal.  The High Court  conceded that raw rubber is an agricultural produce  but held that in view of the definition of  ’agricultural produce or horticultural produce’ in  section 2(A)(1) of the Entry Tax Act, which clearly  excludes rubber, rubber brought in the local area  by the appellant could not be considered as   agricultural produce for the purposes of the Entry  Tax Act.   That Sl. No. 2 of the Second Schedule  specified agricultural produce, does not exempt  rubber from payment of entry tax and therefore when  the definition of agriculture produce in Section  2(A)(1) and enumeration of agriculture produce in  Sl. No. 2 of the Second Schedule are taken together  and construed, there could be no ambiguity that raw  rubber is not an agriculture produce for the  purposes of the Act.  In repelling this contention,  the High Court held that it will have to be guided  by the provisions of the definition under Section

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2(A)(1) which clearly excludes rubber and not by  the enumeration in Sl. No. 2  of the Second  Schedule.

Aggrieved against the aforesaid order the  present appeal has been filed.  Shri Dhruv Mehta,  learned counsel appearing for the appellant  strenuously contended that the High Court erred in  construing the definition of ’agricultural produce  or horticultural produce’ in Section 2 (A) (1) of  the Entry Tax Act as excluding rubber, whereas the  definition properly construed makes it clear that  what is excluded is only such tea, coffee, rubber  etc. which are subjected to any physical, chemical  or other process for making them fit for  consumption.  It is submitted that the semicolon  after the word cotton does not mean that the first  part of the Section is disjunctive from ’such  produce’ as has been subjected to any physical,  chemical or other process.  It is further submitted  that punctuation is not a safe tool in construction  of statute and if the first part of the Section is  read as disjunctive from the other part it  conflicts with Sl. No. 2 in the Second Schedule.   It is also submitted that definition Section which  is the interpretation clause to the statute begins  with the expression "unless the context otherwise  requires".  That reading of Section 3 (6) read with  Sl. No. 2 in the Second Schedule before and after  the amendment in 1992 would lead to the conclusion  that rubber which is an agricultural produce is  exempt from Entry Tax.  Assuming for the sake of  argument that agricultural produce excludes rubber  which is not subjected to any chemical process,  does not necessarily mean that it is not an  agricultural produce if the context requires  otherwise.  

As against this Shri Sanjay Hegde, counsel  appearing for the   State of Karnataka submitted  that the clear cut decision as emerges in Section  2(A)(1) of the Entry Tax Act unequivocally excludes  rubber from all other items that come under the  head of ’agriculture produce’  along with a few of  the others that are enumerated therein.  It is his  submission that for all intent and purposes as far  as the present Act is concerned, it is this  definition that will govern the expression  ’agriculture produce’.  He, therefore, contends  that while reading Entry No. 2 of the Second  Schedule to the Entry Tax Act there is absolutely  no scope to include in the entry ’rubber’ which has  been specifically excluded in the defining section.   That the Tribunal appears to have been influenced  by some of the earlier judicial decisions which  relate to the definition of ’agriculture produce’  under the Karnataka  Sales Tax Act.  It was pointed  out by him that as far as the present Act is  concerned, the Legislature has deliberately  included and excluded certain items and therefore  while interpreting the provisions of the present  Act, the legislative intention will have to be  given effect to inconsonance with the definition as  contained in the statute.

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Definition of the expression ’agricultural  produce or horticultural produce’ in Section  2(A)(1), sub-section (6) of Section 3 providing for  exemption in respect of goods specified in the  Second Schedule and Sl. No. 2  of Second Schedule  specifying "Agricultural produce including tea,  coffee and cotton (whether ginned or unginned)" as  relevant are extracted below:

Section 2(A)(1): "’agricultural produce or  horticultural produce’  shall not  include tea, coffee, rubber,  cashew, cardamom, pepper and  cotton; and such produce as has  been subjected to any physical,  chemical or other process for  being made fit for consumption,  save mere cleaning, grading,  sorting or drying."

Sub-section (6) of Section 3:

"6).  No  tax shall be levied  under this Act on any goods  specified in the Second Schedule  on its entry into a local area for  consumption, use or sale therein."

Sl. No. 2 of Second Schedule:  

"2.  agriculture produce including  tea, coffee and cotton (whether  ginned or un-ginned).

We would have readily accepted the submissions  advanced by the learned counsel for the appellant  without any difficulty under normal circumstances  but for the fact that in the present Act as  indicated by us earlier, term ’agricultural  produce’ as defined by the legislature specifically  excludes rubber from agricultural produce.  Under  the law governing the principles of interpretation  of a statute, this Court is necessarily restricted  while construing the expression ’agricultural  produce’ in relation to the present Act by the  definition that is incorporated in the Act itself.   Under these circumstances it is not possible to  accept the submission of the learned counsel for  the appellant. The expression ’agricultural  produce’ as it appears in the Second Schedule has  to given its normal and ordinary interpretation.   Sl. No. 2 of the Second Schedule which reads  "Agricultural produce including tea, coffee and  cotton is an inclusive definition and not an  exhaustive definition.  What is excluded from the  definition of the ’agricultural produce’ in the Act  cannot be held to be an agricultural produce unless  the same find mentions in the Second Schedule.   Since the legislature provided tea, coffee and  cotton in Sl. No. 2 of the Second Schedule and not  the rubber, rubber cannot be taken to be  agricultural produce within the meaning of

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’agricultural produce’ as defined under the Act.

We do not find any substance in the submission  of the learned counsel for the appellant that the  semicolon after the word cotton does not mean that  the first part of the Section is disjunctive from  ’such produce’ as has been subjected to any  physical, chemical or other process.   Section 2  (A) (1) is in two parts, it excludes two types of  food from agricultural produce.    According to us,  the definition of the agriculture and horticulture  produce does not say as to what would be included  in the agriculture or horticulture produce, in  substance it includes all agriculture or  horticulture produce but excludes, (1) tea, coffee,  rubber, cashew, cardamom, pepper and cotton from  the definition of the agriculture or horticulture  produce though all these products as per dictionary  meaning or in common parlance would be understood  as agricultural produce and (2) "such produce as  has been subject to any physical, chemical or other  process for being made fit for consumption",  meaning thereby that the agricultural produce other  than what has been excluded, which has been  subjected to any physical, chemical or other  process for making it fit for consumption would  also be excluded from the definition of the  agriculture or horticulture produce except where  such agricultural produce is merely cleaned,  graded, sorted or dried.  For example, if the  potatoes are cleaned, graded, sorted or dried, they  will remain agricultural produce but in case raw  potato is   subjected to a process and converted  into chips for human consumption it would cease to  be agricultural produce for the purposes of the  Entry Tax Act.  The words "such produce" in the  second part does not refer to the produce which has  already been excluded from the agricultural or  horticulture produce but refers to such other  agricultural produce which has been subjected to  any physical, chemical or other process for being  made fit for human consumption.

We do not agree with the submission of the  learned counsel for the appellant that what is  excluded is only such tea, coffee, rubber etc.,  which are subjected to any physical, chemical or  other process for making them fit for consumption.    In our opinion, the definition of the agriculture  and horticulture produce does not say as to what  would be included in the agriculture or  horticulture produce, in substance it includes all  agriculture or horticulture produce but excludes  tea, coffee, rubber, cashew, cardamom, pepper and  cotton from the definition of the agriculture or  horticulture produce though all these products as  per dictionary meaning or in common parlance would  be understood as agricultural produce.   

From the reading of the definition under  Section 2 (A) (1), it unequivocally emerges that  rubber and few other items enumerated therein are  excluded from being agricultural produce or

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horticulture produce.  For all intent and purposes  as far as the present Act is concerned, it is the  definition given in the Act which will govern the  expression ’agricultural produce’.  While reading  Entry 2 in the Second Schedule to the Act there is  no scope to include rubber from being exempt from  payment of entry tax.  Entry 2 of Second Schedule  creates exceptions regarding few of the excluded  items from payment of Entry Tax but not all  excluded items.  The items for which an exception  has been created in Entry 2 of the Second Schedule  would only be exempt from payment of entry tax and  not all the items, which have been excluded from  being agricultural produce in the definition  clause.  While interpreting the provisions of  present Act the legislative intention will have to  be given effect to inconsonance with the definition  as contained in the statute.

In the definition clause of Section 2 (A) (1)  rubber is excluded form the agricultural produce,  sub-section (6)  of Section 3 provides for  exemption in respect of goods specified in the  Second Schedule.  At Sl. No. 2 of the Second  Schedule, only tea, coffee and cotton (whether  ginned or un-ginned) have been given exemption from  payment of Entry Tax and not other items such as  rubber, cashew, cardamom and pepper and such other  agricultural produce which has been subjected to  any process for making it fit for human  consumption.  Intention of the legislature is that  though tea, coffee and cotton have been excluded in  the definition clause from the agricultural produce  but for the purposes of the Entry Tax Act tea,  coffee and cotton are exempted from payment of  Entry Tax.  This is an exception created by the  legislature.  If the legislature intended to create  exception for rubber also it could have done it but  it chose not to do it.  Simply because the  legislature has included tea, coffee and cotton in  the Second Schedule exempting it from payment of  Entry Tax does not mean that all other agricultural  produce items which have been excluded from the  definition of the agricultural produce would stand  included in the Second Schedule to the Act  exempting them from payment of Entry Tax.  This  would be doing violation to the Act as well as  acting contrary to the intent of the legislature.   

Learned counsel for the appellant relied upon  Karnataka Forest Development Corporation Ltd. Vs.  Cantreads Private Limited and Others, 1994 (4) SCC  455, to contend that rubber is an agricultural  produce.  This was a case under the Karnataka  Forest Act, 1963 for the purposes of levy of the  Forest Development Tax.  The meaning assigned to  the agricultural produce in the present Act is  different from what was assigned to it in the  Karnataka Forest Act, 1963.   The same is not  relevant.  Similarly, he cited two other judgments  which are not germane to the point and need not  even be noticed.  

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The Legislature has deliberately excluded  certain items from being agricultural produce and  therefore while interpreting the provisions of the  present Act, the legislative intention will have to  be given effect to in consonance with the  definition as contained in the statute.

For the reasons stated above, we do not find  any merit in this appeal and dismiss the same with  costs.  27866