1980 (7) TMI 237 - HC - VAT and Sales Tax

Issues Involved:

1. Whether conversion of logs into sized logs and timber involved a manufacturing process and resulted in a different commercial commodity.
2. Whether the purchase of round logs and timber after processing in the saw mill constituted a contravention of the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947.

Issue-wise Detailed Analysis:

Issue 1: Conversion of Logs into Sized Logs and Timber as a Manufacturing Process

The primary question was whether the conversion of logs into sized logs and timber constituted a manufacturing process resulting in a different commercial commodity. The Tribunal's statement of facts indicated that there was no clear picture of the different sizes and shapes to which the logs were transformed. It was noted that the logs were merely cut into different sizes, possibly for convenience in transport or storage, without any specific intention to create a new commodity. The burden was on the revenue to establish that a new commercial commodity had been produced, which they failed to do. Consequently, the court concluded that there was no material to support a finding that a different commercial commodity had been produced and sold. Thus, the conversion did not constitute a manufacturing process resulting in a new commercial commodity.

Issue 2: Contravention of Proviso to Section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947

The second issue was whether the purchase and subsequent processing of round logs into timber constituted a contravention of the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947. The relevant provision allowed deductions from the gross turnover for sales to registered dealers, provided the purchasing dealer declared that the goods would be resold within Orissa. If the goods were used for any other purpose, the price of the goods was to be included in the taxable turnover of the purchasing dealer. The court examined the scheme under section 5(2)(A)(a)(ii), which deferred the taxable event as long as the goods passed from one registered dealer to another under the stipulated declaration. However, if the goods were not resold, the liability to pay tax accrued in the hands of the last purchasing dealer who contravened the declaration.

The court reviewed previous decisions, including the cases of State of Orissa v. Rajani Timber Traders, Krupasindhu Sahu & Sons v. State of Orissa, and State of Orissa v. Patel Saw Mills. In Rajani Timber Traders, it was held that converting round timber logs into sized timber constituted a new commodity, triggering the proviso. In Krupasindhu Sahu & Sons, the court observed that timber cut into smaller sizes for convenience did not necessarily constitute a new commodity if the cut pieces retained their generic quality. In Patel Saw Mills, the conversion of logs into planks and railway sleepers was deemed to create different commodities, thus violating the proviso.

The court concluded that each case must be decided based on its specific facts, and no rigid guideline could be laid down. The discretion must be left to the officers to apply the proviso, keeping acceptable principles in view. As long as the identity of the goods was maintained and the goods in their different forms were substantially the same, the proviso should not be applied. In the present case, the court found no material to support a finding that a different commercial commodity had been produced, and thus, there was no contravention of the proviso to section 5(2)(A)(a)(ii).

Judgment:

The court answered the questions referred to it by stating that, on the facts and in the circumstances of the case, there was no material to support a finding that a different commercial commodity had been produced and sold. Consequently, the assessee did not become liable in terms of the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947. The reference was answered accordingly, with no order for costs.

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