1973 (4) TMI 80 - SC - VAT and Sales Tax

Whether appellants when they sold the rice produced out of the paddy purchased, they were entitled to exclude the turnover relating to the paddy purchased? Held that - Appeal dismissed. 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. Rice and paddy are treated differently. It is true that the entries in question were brought on the statutes by notifications issued by the respective Governments, as authorised under the respective Acts. But the Acts authorised the Governments in question to either include or delete items in Schedules C and D of those Acts and it further provided that once an inclusion or deletion was made, it became a part of the law. The fact that these Acts make distinction between rice and paddy is a circumstance of great significance. Those Acts proceed on the basis that paddy is something different from rice for the purpose of sales tax.

Summary

Issues:
Whether paddy and rice can be considered as identical goods for the purpose of sales tax imposition.

Analysis:
The appellants, engaged in buying paddy, husking it, and selling the rice, questioned the exclusion of turnover related to purchased paddy when calculating sales tax. The High Court initially ruled against them, stating that paddy and rice are not identical goods. The appellants argued that paddy and rice are the same, and therefore, the exemption for paddy should apply to rice transactions as well.

The Supreme Court emphasized that for sales tax purposes, the common commercial understanding of goods is crucial. Referring to past judgments, the court highlighted that goods must retain their identity to be considered the same. The appellants' reliance on a case involving iron and steel was dismissed as it did not apply to the paddy-rice scenario.

The court reiterated that the identity of goods is vital in determining tax implications. Citing previous cases involving groundnut oil and sugar derivatives, the court emphasized that the essential characteristics of goods must remain unchanged. In the case of paddy and rice, the court concluded that rice is distinct from paddy, and their identities differ in commercial circles.

Moreover, the court noted that both the Punjab and Haryana Sales Tax Acts distinguish between rice and paddy, indicating a legislative intent to treat them differently for tax purposes. The Acts' provisions and notifications underscore the separate treatment of rice and paddy, reinforcing the conclusion that they are distinct goods under the sales tax laws.

Ultimately, the Supreme Court found no merit in the appeals and dismissed them with costs, emphasizing the fundamental difference in identity between paddy and rice for sales tax assessment purposes.