1979 (3) TMI 197 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Liability to pay tax on the purchase price u/s 6 of the Karnataka Sales Tax Act, 1957.
2. Interpretation of the term "disposed of" in the context of tax liability.
3. Interpretation of the term "consumption" in the context of tax liability.
4. Applicability of the decision in Raghurama Shetty's case.

Summary:

1. Liability to pay tax on the purchase price u/s 6 of the Karnataka Sales Tax Act, 1957:
The appellants, dealers who purchased sheep and goats and slaughtered them to produce mutton, hides, and skins, were assessed for tax on the purchase price of these animals for the assessment years 1970-71 and 1971-72. The Additional Commercial Tax Officer held them liable to pay tax u/s 6 of the Act. However, the Deputy Commissioner of Commercial Taxes (Appeals) set aside the assessment orders, stating that the conditions specified in section 6 did not exist. The Commissioner of Commercial Taxes, invoking his suo motu powers u/s 22A, reversed the Deputy Commissioner's decision, holding the appellants liable to pay tax.

2. Interpretation of the term "disposed of" in the context of tax liability:
The appellants argued that "disposed of" should mean a transfer of title to the goods by any mode other than sale. The Court referred to the decision in State v. Raghurama Shetty, which held that "disposed of" means transfer of title in the goods to another otherwise than by sale. The Court rejected the respondent's argument that "disposed of" means "to finish with," thus not supporting the Commissioner's view that slaughtering the sheep and goats amounted to disposing of the goods otherwise than by sale.

3. Interpretation of the term "consumption" in the context of tax liability:
The Court analyzed the meaning of "consumption" and concluded that it includes the use of one article to produce another article, even if not by a process of manufacture. The Court referred to the Supreme Court's decision in Anwarkhan Mehboob Co. v. State of Bombay, which held that converting one type of goods into another commercially different article amounts to consumption. The Court held that the appellants consumed the sheep and goats to produce mutton, hides, and skins, which are commercially different commodities, thus attracting tax liability u/s 6 of the Act.

4. Applicability of the decision in Raghurama Shetty's case:
The appellants contended that the decision in Raghurama Shetty's case, which held that conversion of paddy into rice does not attract tax liability u/s 6, should apply. The Court distinguished the present case, stating that by slaughtering sheep and goats, different commercial articles (mutton, hides, and skins) are produced, unlike in Raghurama Shetty's case where no new and different article emerged.

Conclusion:
The Court upheld the orders of the Commissioner, interpreting section 6 of the Act to mean that a dealer is liable to pay tax on the purchase price if the goods are consumed either in the manufacture of other goods for sale or otherwise to produce other goods. The appeals were dismissed, and the appellants were held liable to pay tax on the purchase price of sheep and goats for the relevant assessment years.