2009 (1) TMI 803 - HC - VAT and Sales Tax

Whether rubber plantation company is entitled to exemption from sales tax on the sale of old and unyielding rubber trees? Held that - The trees or the timber extracted on cutting of such trees cannot be called as agricultural produce and as held by the Supreme Court the income obtained on sale of the tree is capital receipt. Therefore the petitioner s main contention that old and unyielding rubber trees is agricultural produce entitled to exemption from turnover under section 2(xxvii) of the Act is untenable and the same is rejected. If sale includes agreement for cutting and removal of trees spontaneously grown, we do not know why agreement for cutting and sale of planted trees is not sale within the meaning of the Act. In fact, when timber sale by planters is visualised under Explanation 1 to section 2(xxvii), the same will take in sale of standing trees as well. In this view of the matter, we hold that consideration received under agreement for cutting and removal of standing trees is for sale of goods. Thus even though rubber wood is not hard wood as such which cannot be used for construction purpose or for making furniture except after chemical treatment for it s durability, it is timber covered by the definition clause. However, we are of the view that this finding has no significance for deciding the petitioner s claim for exemption which will be available only if old and unyielding rubber trees sold by the petitioner is agricultural produce which issue is already held against the petitioner.

Summary

Issues Involved:
1. Whether the sale of old and unyielding rubber trees by the petitioner is exempt from sales tax as "agricultural produce".
2. Whether the agreement to sell standing rubber trees amounts to the sale of goods.
3. Whether standing rubber trees constitute timber for the purpose of sales tax under the Kerala General Sales Tax Act, 1963.
4. The legality and validity of the impugned assessment order passed by the assessing authority.

Issue-wise Detailed Analysis:

1. Exemption from Sales Tax as "Agricultural Produce":
The central question was whether the old standing rubber trees sold by the petitioner qualify as "agricultural produce" for exemption from sales tax. The definition of "turnover" under Section 2(xxvii) of the Kerala General Sales Tax Act, 1963, excludes agricultural produce from sales tax, but the explanation specifically excludes tea, coffee, rubber, cardamom, and timber from this exemption. The court noted that agricultural produce refers to the crop received from the tree, such as latex from rubber trees, and not the tree itself. The court relied on the Supreme Court's decision in Commissioner of Agricultural Income-tax, Kerala v. Kailas Rubber & Co. Ltd., which held that the sale proceeds of old and unyielding rubber trees are capital receipts and not agricultural income. Therefore, the court concluded that the old rubber trees sold by the petitioner do not qualify as "agricultural produce" and are not exempt from sales tax.

2. Agreement to Sell Standing Rubber Trees as Sale of Goods:
The court examined whether the sale of standing rubber trees under a contract for cutting and removal constitutes a sale of goods. According to Section 2(xii) of the Act, "goods" include things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Explanation 1 to Section 2(xxi) deems the transfer of property in trees, including rubber, to be a sale for the purposes of the Act. The court held that the consideration received for the agreement to cut and remove standing trees is for the sale of goods and is taxable under the Act.

3. Standing Rubber Trees as Timber:
The court considered whether old and unyielding rubber trees fall under the category of "timber" as per the exclusion clause in the definition of "turnover". The court observed that while rubber wood is not hard wood suitable for construction or furniture making without chemical treatment, the term "timber" in the context of the Act includes all kinds of trees planted and sold after becoming unyielding. Therefore, the court concluded that rubber trees are considered timber for the purposes of the Act, but emphasized that this finding is secondary to the primary issue of whether the trees are "agricultural produce".

4. Legality and Validity of the Assessment Order:
The court upheld the legality and validity of the assessment order passed by the assessing authority. The court agreed with the Tribunal's decision that the sale of old rubber trees is taxable and does not qualify for exemption as agricultural produce. The court found that the Tribunal acted within its jurisdiction and correctly interpreted the relevant provisions of the Act.

Conclusion:
The court dismissed the revision cases, affirming the Tribunal's decision that the sale of old and unyielding rubber trees by the petitioner is subject to sales tax and does not qualify for exemption as "agricultural produce". The court also held that the agreement to sell standing rubber trees constitutes a sale of goods and that the trees are considered timber under the Act.