1974 (7) TMI 111 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947 regarding the conversion of logs into sized wood for resale in Orissa.

Analysis:
The case involved a question regarding the application of the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947, where the petitioner purchased logs free of tax for resale in Orissa, but converted them into sized wood before reselling. The authorities held that this conversion contravened the Act. The critical issue was whether the conversion of logs into sized wood changed their identity as "timber" specified in the petitioner's registration certificate for tax purposes.

The court analyzed the common parlance understanding of the term "timber" in commercial circles. It explained that while all timber is wood, not all wood is timber. Timber typically refers to long logs used for construction purposes like beams and pillars. The court provided examples to illustrate when sized wood retains its identity as timber and when it loses that identity, emphasizing that the essential characteristic of timber is lost after certain conversions.

Referring to previous judgments, the court distinguished between timber logs and sized timbers as different commodities catering to distinct commercial needs. It criticized a previous decision for not providing clear guidance on when sized timbers cease to be considered timber. The court also disagreed with a judgment from another High Court, stating that the interpretation of "timber" should align with common parlance understanding and commercial usage.

The court highlighted the lack of clarity from the taxing authorities on how the original timbers were sized and whether this changed their essential character. It concluded that without a clear finding on the nature of the conversion, it was not possible to determine if the proviso to section 5(2)(A)(a)(ii) applied. The court directed the Tribunal to gather more facts on the sizing process to assess if it altered the essential character of the timber.

Ultimately, the court modified the question referred to it and held that based on the Tribunal's findings, it could not definitively determine if the conversion of timbers into sized wood constituted a different commercial commodity. The reference was accepted, and each party was to bear their own costs, with the petitioner's reference fee refunded.

In a concurring opinion, Justice B.K. Ray agreed with the analysis and the outcome of the reference.