1993 (7) TMI 325 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Manufacturing Activity: Whether cutting timber into logs, planks, etc., involves manufacturing.
2. Consumption of Timber: Whether timber is consumed in the process of cutting.
3. Emergence of New Product: Whether a new product emerges from the process.

Summary:
1. Manufacturing Activity:
The Court examined if cutting timber into logs, planks, etc., constitutes a manufacturing activity. Referring to Supreme Court decisions (State of Orissa v. Titaghur Paper Mills Co. Ltd. and Collector of Central Excise v. Kutty Flush Doors & Furniture Co. (P.) Ltd.), it was held that there is no manufacturing activity involved in merely cutting timber into different forms. The Supreme Court had clarified that timber and logs are the same commercial commodity, and beams, rafters, and planks would also be considered timber.

2. Consumption of Timber:
The Court considered whether timber is consumed in the process of cutting it into various forms. The explanation to Section 6 of the Karnataka Sales Tax Act, 1957, was discussed, which includes goods consumed for ancillary purposes in or for such manufacture. However, the Court concluded that the cutting or sawing of timber does not amount to consumption in the manufacture of another article. The process is merely to make the timber presentable in the market or change its form for convenience, without altering its substance and character.

3. Emergence of New Product:
The Court evaluated if a new product emerges from the cutting of timber. It was determined that no new product emerges from this process, as the timber retains its original identity. The Court referenced multiple cases, including Sterling Foods v. State of Karnataka, where it was held that processed items retain their original character and identity. The distinction in the form of timber, as recognized in the Second Schedule of the Act, does not imply a new product has been manufactured.

Additional Points:
- The Court rejected the State's contention that different forms of timber should be treated as distinct commodities for tax purposes.
- The Court emphasized that Section 6 is a charging section and should be interpreted strictly, without inferring taxation by analogy or implication.
- The Court noted the principle of contemporanea expositio, highlighting the importance of the initial understanding and interpretation of the law by the Commissioner, which did not consider the cutting of timber as manufacturing.

Conclusion:
The petitions were allowed, restraining the respondents from levying tax u/s 6 of the Karnataka Sales Tax Act on the ground that timber, when sawn into various forms, attracts purchase tax. The Court directed that any assessment or reassessment orders contrary to this judgment be modified accordingly.