1996 (11) TMI 433 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the standing rubber trees sold by the assessee are timber exigible to tax.
2. Whether the standing rubber trees will come within the expression of timber and thus be excluded from 'agricultural produce' under the Kerala General Sales Tax Act.

Issue-Wise Detailed Analysis:

Issue 1: Whether the standing rubber trees sold by the assessee are timber exigible to tax.
The primary contention revolves around whether standing rubber trees can be classified as timber and thus be subject to sales tax. The assessees argued that rubber trees are purely agricultural produce and not timber, as their wood is used only as fuel and not for construction purposes. The assessing authority, however, relied on the decision in George P. Mathew v. State of Kerala, which held that the sale of standing trees is the sale of goods or movable property, thus attracting tax under the Kerala General Sales Tax Act.

The first appellate authority and the Kerala Sales Tax Appellate Tribunal upheld this view, relying on the decision in Kanakapalam Estate v. State of Kerala, which classified rubber trees as timber. However, the Supreme Court in dismissing the special leave petition in Kanakapalam Estate's case allowed for the possibility of presenting evidence to show that rubber trees do not constitute timber.

Issue 2: Whether the standing rubber trees will come within the expression of timber and so excluded from 'agricultural produce' within the meaning of explanation 1(ii) of section 2(xxvii) of the Kerala General Sales Tax Act.
The statutory definition of "turnover" under section 2(xxvii) of the Kerala General Sales Tax Act excludes the proceeds from the sale of agricultural or horticultural produce grown by the seller. Explanation 1(ii) specifically excludes tea, coffee, rubber, cardamom, or timber from being considered as agricultural produce. Therefore, if rubber trees are classified as timber, they would not be exempt from sales tax.

The Tribunal and lower authorities relied on dictionary definitions and previous court decisions to classify rubber trees as timber. However, the Supreme Court in Shantabai v. State of Bombay, State of Orissa v. Titaghur Paper Mills Co. Ltd., and Mukesh Kumar Aggarwal & Co. v. State of Madhya Pradesh provided a nuanced understanding of timber, emphasizing that timber must be suitable for building purposes and not just any wood.

Comprehensive Analysis:
The High Court examined the statutory provisions and the definitions provided in previous Supreme Court decisions. The court noted that "timber" must be suitable for building and other structural purposes. The evidence presented by the assessees, including expert opinions and research publications, indicated that rubber wood is highly susceptible to fungal and insect attacks, making it unsuitable for long-term structural use without significant treatment.

The court found that the Tribunal did not adequately consider the Supreme Court's observations allowing the assessees to present evidence that rubber trees do not constitute timber. The material on record, including correspondence from the Director of Research, Rubber Research Institute of India, and other publications, supported the assessees' contention that rubber trees are not timber.

The agreements for the sale of rubber trees indicated that the trees were old and uneconomical, sold for replanting purposes, and not for use as timber. The court concluded that the standing rubber trees sold by the assessees do not meet the criteria for timber and are thus agricultural produce, exempt from sales tax under the Kerala General Sales Tax Act.

Conclusion:
The High Court held that the standing rubber trees sold by the assessees are not timber exigible to tax and are considered agricultural produce under the Kerala General Sales Tax Act. All the tax revision cases succeeded, and the petitions were allowed.

← Previous Next →