1972 (5) TMI 48 - HC - VAT and Sales Tax

Summary

Issues:
Whether tea produced by the assessee would be exigible to sales tax under the U.P. Sales Tax Act.

Analysis:
The judgment pertains to references under section 11(1) of the U.P. Sales Tax Act concerning the taxability of tea produced by the assessee. The primary question is whether the tea, grown in the assessee's gardens, should be considered agricultural produce exempt from sales tax. The definition of "turnover" under section 2(i) of the Act is crucial, excluding proceeds from the sale of agricultural produce from taxation. The department argues that the extensive processing of tea-leaves by the assessee transforms them into a different commercial commodity, no longer qualifying as agricultural produce.

The court delves into the concept of agricultural produce under the U.P. Sales Tax Act, emphasizing that the product must be in a salable state to qualify for exemption. While acknowledging that various agricultural products undergo processing before sale, the court highlights that such processing does not alter the nature of the produce if it remains fundamentally the same. In the case of tea-leaves, the process of drying, heating, and roasting is necessary to convert them into marketable tea, maintaining their essential character as agricultural produce.

The department contends that the additional processes, such as grading and roasting, conducted by the assessee exceed the minimum required, making the final product more commercial than agricultural. However, the court opines that these processes do not fundamentally change the nature of the commodity. Even after grading and roasting, the loose tea remains tea, eligible for the agricultural produce exemption. The court emphasizes that as long as the nature of the produce remains unaltered, sophisticated processes aimed at enhancing market value do not disqualify it from the exemption.

Moreover, the court addresses the argument that loose tea, produced after initial drying and heating, is marketable without further processing. While acknowledging this point, the absence of evidence regarding the marketability of loose tea in Uttar Pradesh leads the court to conclude that the subsequent grading and roasting are essential steps to make the tea market-ready. Consequently, the court rules in favor of the assessee, holding that the tea produced qualifies as agricultural produce exempt from sales tax under the U.P. Sales Tax Act.

In conclusion, the court answers the reference question in the negative, favoring the assessee and awarding costs. The judgment clarifies the interpretation of agricultural produce under the U.P. Sales Tax Act, emphasizing that processes enhancing market value do not disqualify a product from the agricultural produce exemption as long as its fundamental nature remains unchanged.