1974 (11) TMI 88 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the conversion of logs into different sizes and shapes amounts to manufacture and production of a different commodity.
2. Whether there is a contravention of the provisions contained in the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act when the opponent converted logs and timbers into different sizes and sold the same inside the State of Orissa.

Issue-wise Detailed Analysis:

1. Conversion of Logs into Different Sizes and Shapes as Manufacture:

The Tribunal had initially held that the conversion of logs into different sizes and shapes did not amount to the manufacture and production of different commodities. The logs were merely sawn and converted into different sizes for convenience of marketing and use. The Tribunal relied on the interpretation of "manufacture" by the Supreme Court in Union of India v. Delhi Cloth and General Mills Co. Ltd., and the Madhya Pradesh High Court decision in Mohanlal Vishram v. Commissioner of Sales Tax.

However, the High Court disagreed with the Tribunal's view. It emphasized that in common parlance and commercial circles, the process of converting logs into planks, beams, rafters, etc., results in a different commodity. The Court referred to the Supreme Court's decision in Ganesh Trading Co., Karnal v. State of Haryana, which held that rice produced from paddy is a different commodity. Similarly, the conversion of timber into different forms like planks and beams constitutes a change in the identity of the goods. The Court concluded that the process of converting logs into different sizes and shapes amounts to manufacture, resulting in different commodities.

2. Contravention of Provisions of Section 5(2)(A)(a)(ii):

The Tribunal had also held that there was no contravention of the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act. The assessee had purchased logs and timbers from registered dealers free of tax and converted them into different shapes before selling them in Orissa.

The High Court, however, found this interpretation incorrect. Section 5(2)(A)(a)(ii) allows tax-free purchases of goods intended for resale in their original form. The proviso mandates that if such goods are used for purposes other than those specified in the registration certificate, their price must be included in the taxable turnover. The Court noted that the assessee had purchased timber for resale but converted it into different commodities like beams, rafters, and railway sleepers, which are distinct from timber in commercial parlance. Thus, the conversion violated the conditions of the registration certificate, attracting the proviso to section 5(2)(A)(a)(ii).

The Court further clarified that the essential characteristic of timber as a commercial commodity is lost after conversion into different forms. It cited the Supreme Court's ruling in Ganesh Trading Co., which emphasized that the identity of goods changes when they undergo a manufacturing process. Therefore, the conversion of timber into planks, beams, and other forms constituted a different commercial commodity, necessitating the inclusion of their price in the taxable turnover.

Conclusion:

The High Court allowed the references, answering the questions in the affirmative in favor of the revenue and against the assessee. It held that the conversion of logs into different sizes and shapes amounts to manufacture, resulting in different commodities. Additionally, the conversion violated the conditions of the registration certificate, attracting the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act. The hearing fee was set at Rs. 100.

References Answered Accordingly.