1986 (3) TMI 309 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether raw cashew-nuts and cashew kernels are the same goods for the purpose of section 5(3) of the Central Sales Tax Act, 1956.
2. Exigibility to sales tax on the purchase turnover of raw cashew-nuts purchased locally for export of its kernels.
3. Interpretation and application of section 5(3) of the Central Sales Tax Act, 1956.
4. Validity of the Tribunal's reliance on the Andhra Pradesh High Court decision.
5. Applicability of Article 286(1)(b) of the Constitution regarding sales tax exemption.

Detailed Analysis:

1. Whether raw cashew-nuts and cashew kernels are the same goods for the purpose of section 5(3) of the Central Sales Tax Act, 1956:

The primary issue revolves around whether raw cashew-nuts and cashew kernels are considered the same goods under section 5(3) of the Central Sales Tax Act, 1956. The judgment references the Supreme Court decision in *State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 (SC)*, which determined that raw cashew-nuts and cashew kernels are not commercially the same commodity. The process of manufacturing cashew kernels from raw cashew-nuts involves several steps, including baking, roasting, shelling, pressing, and peeling, which transform the raw cashew-nuts into a different commercial product. Therefore, the raw cashew-nuts and cashew kernels are distinct for the purposes of section 5(3).

2. Exigibility to sales tax on the purchase turnover of raw cashew-nuts purchased locally for export of its kernels:

The assessees argued that their purchases of raw cashew-nuts for the purpose of exporting cashew kernels should be exempt from sales tax under section 5(3) of the Central Sales Tax Act. However, the court concluded that since raw cashew-nuts and cashew kernels are commercially different commodities, the purchase of raw cashew-nuts cannot be considered as being "in the course of export" under section 5(3). Consequently, the purchase turnover of raw cashew-nuts is exigible to tax under the Kerala General Sales Tax Act.

3. Interpretation and application of section 5(3) of the Central Sales Tax Act, 1956:

Section 5(3) of the Central Sales Tax Act, 1956, states that the last sale or purchase preceding the export of goods shall be deemed to be in the course of such export if it took place after and for the purpose of complying with an agreement or order for export. The Tribunal's interpretation that the purchase of raw cashew-nuts falls under this provision was rejected. The court emphasized that for section 5(3) to apply, the goods exported must be the same as those purchased, which is not the case here.

4. Validity of the Tribunal's reliance on the Andhra Pradesh High Court decision:

The Tribunal had relied on the Andhra Pradesh High Court decision in *Singh Trading Company v. Commercial Tax Officer, Srikakulam [1979] 44 STC 1*, which held that raw cashew-nuts and cashew kernels are not different commodities. The Kerala High Court found this reliance misplaced, as the Andhra Pradesh High Court's decision did not consider the detailed observations of the Supreme Court in the *Shanmugha Vilas Cashew-nut Factory* case. The Kerala High Court also noted that other High Courts, including Madras and Karnataka, have dissented from the Andhra Pradesh High Court's view.

5. Applicability of Article 286(1)(b) of the Constitution regarding sales tax exemption:

Article 286(1)(b) of the Constitution prohibits the imposition of sales tax on transactions that take place in the course of import or export. The court reiterated the Supreme Court's position that the exemption applies only to sales or purchases that are directly linked to the export or import of the same goods. Since raw cashew-nuts and cashew kernels are different commodities, the exemption under Article 286(1)(b) does not apply to the purchase of raw cashew-nuts.

Conclusion:
The court concluded that the Tribunal was incorrect in holding that the purchase turnover of raw cashew-nuts is not exigible to tax under the Kerala General Sales Tax Act due to the exemption under section 5(3) of the Central Sales Tax Act. The orders of the Tribunal were set aside, and the purchase turnover of raw cashew-nuts was directed to be added to the taxable turnover of the respective assessees. The tax revision cases were allowed, with no order as to costs.