1979 (3) TMI 184 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Rejection of assessee's accounts and best judgment assessment.
2. Justification of the purchase turnover estimate of paddy under Section 5A of the General Sales Tax Act.
3. Whether the milling of paddy into rice constitutes "manufacture" under Section 5A(1)(a) of the Act.
4. Commercial distinction between paddy and rice.

Issue-wise Detailed Analysis:

1. Rejection of Assessee's Accounts and Best Judgment Assessment:
The accounts of the assessee were rejected, and the assessment was made on a best judgment basis. The assessee was conducting a rice and flour mill called Dhanalakshmi Rice and Flour Mills, Ezhome, near Payangadi.

2. Justification of the Purchase Turnover Estimate of Paddy:
The main contention raised by the assessee was that the estimate of the purchase turnover of paddy, liable to tax under Section 5A of the General Sales Tax Act, made by the Sales Tax Officer and sustained by the Tribunal, was unjustified and unwarranted in law. The assessee argued that paddy purchased locally and milled into rice should not attract the provisions of Section 5A of the Act, rendering the dealer liable to levy of tax.

3. Whether Milling of Paddy into Rice Constitutes "Manufacture":
Section 5A(1)(a) of the General Sales Tax Act states that every dealer who purchases goods and consumes such goods in the manufacture of other goods for sale or otherwise is liable to purchase tax. The court examined whether the process of dehusking or milling paddy into rice constitutes "manufacture" and whether rice is a new or different product from paddy.

The court referred to the decision in Deputy Commissioner of Sales Tax v. Pio Food Packers, which discussed the transformation required for a process to be considered "manufacture." It was noted that while every manufacture involves a change, not every change is a manufacture. The court concluded that the dehusking of paddy or milling it into rice involves a manufacturing process and that paddy and rice are commercially two different commodities.

4. Commercial Distinction Between Paddy and Rice:
The court considered various judicial decisions and treatises to determine whether paddy and rice are commercially distinct commodities. The decision in State v. Raghurama Shetty by the Mysore High Court, which held that dehusking paddy into rice does not amount to "manufacture," was directly in favor of the assessee. However, the Supreme Court's decision in Ganesh Trading Co. v. State of Haryana held that paddy and rice are commercially different commodities, supporting the view that dehusking paddy constitutes a change in identity.

The court also referred to the decision in Sri Siddhi Vinayaka Coconut & Co. v. State of A.P., which emphasized that the same commodity at different stages can be treated as commercially different articles. The court concluded that rice produced by milling paddy represents "other goods" different and distinct from the paddy from which it was produced.

Conclusion:
The court affirmed the judgment of the Appellate Tribunal, holding that the process of milling paddy into rice constitutes a manufacturing process and that rice is commercially distinct from paddy. The tax revision cases were dismissed with no order as to costs.