1960 (2) TMI 34 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether cocoanut fibre sold by the respondent constitutes agricultural or horticultural produce.

Analysis:
The High Court of Kerala heard a revision petition filed by the Deputy Commissioner of Agricultural Incometax and Sales Tax against the order of the Kerala Sales Tax Appellate Tribunal regarding the levy of sales tax on cocoanut fibre sold by a landlord. The respondent contended that the cocoanut fibre constituted agricultural or horticultural produce grown on his own land and was not liable to tax. The Assistant Commercial Tax Officer and the Commercial Tax Officer assessed the respondent, but the Appellate Tribunal reversed the decision, holding that cocoanut fibre fell within the exclusion of the proviso under section 2(i) of the Act. The only question before the court was whether cocoanut fibre was agricultural or horticultural produce. The Government Pleader argued that the fibre had changed its nature and was a manufactured article, citing previous Madras High Court decisions on jaggery. However, the respondent's counsel referenced a Bombay High Court decision on gur and Madras High Court decisions on arecanut to support the argument that the fibre remained agricultural produce even after processing. The court noted that the Madras General Sales Tax Act did not define "agricultural" or "horticultural" and considered the definition in the Indian Income-tax Act. The court concluded that the process applied to the husks was minimal and necessary to make them marketable, preserving their horticultural nature. Therefore, the court upheld the Tribunal's decision, dismissing the revision petition.

The court emphasized that the key issue was whether the processing of the cocoanut husks into fibre altered their character from agricultural to manufactured. The court relied on previous decisions regarding similar agricultural products to determine that minimal processing to make the produce marketable did not change its fundamental nature. The court distinguished between manufacturing processes that fundamentally alter the nature of the product and processes that are necessary to prepare the product for sale without changing its essential character. In this case, the court found that the conversion of cocoanut husks into fibre was minimal and aimed at preserving the value of the produce, making it marketable, and preventing deterioration. Therefore, the court held that the fibre retained its horticultural nature and was not transformed into a manufactured article, thus exempting it from sales tax.

The court considered the absence of a specific definition of "agricultural" or "horticultural" in the Madras General Sales Tax Act and looked to the definition in the Indian Income-tax Act for guidance. By analyzing previous court decisions on similar agricultural products, the court established a guiding principle that minimal processing required to make the produce marketable does not change its agricultural or horticultural nature. The court applied this principle to the present case, where the conversion of cocoanut husks into fibre was deemed necessary to maintain the value of the produce and make it suitable for the market. Consequently, the court concluded that the fibre retained its horticultural character, and the Tribunal's decision to exempt it from sales tax was upheld, leading to the dismissal of the revision petition.