1986 (7) TMI 109 - SC - VAT and Sales Tax

Whether shrimps, prawns and lobsters subjected to processing like cutting of heads and tails, peeling, deveining, cleaning and freezing cease to be the same commodity and become a different commodity for the purpose of the Central Sales Tax Act, 1956? Held that - The shrimps, prawns and lobsters purchased by the appellants did not lose their original character and identity when they were subjected to processing for the purpose of export. So far as commercial parlance or popular usage is concerned, they remained the same goods and hence the purchases of raw shrimps, prawns and lobsters by the appellants must be held to be purchases in the course of export and hence exempt from liability to tax under the Karnataka Sales Tax Act. Allow the appeal, set aside the judgment of the High Court as also the Orders made by the Assistant Commissioner of Commercial Taxes and direct that the purchases of raw shrimps, prawns and lobsters made by the appellants for the purpose of fulfilling the existing contacts for export shall not be included in the taxable turnover of the appellants.

Summary

Issues Involved:

1. Whether processed and frozen shrimps, prawns, and lobsters retain their original character and identity for the purpose of the Central Sales Tax Act, 1956.
2. Applicability of sub-section (3) of Section 5 of the Central Sales Tax Act, 1956.
3. Interpretation of Entry 13a of the Karnataka Sales Tax Act, 1957.
4. Determination of the taxable turnover of the appellants.

Issue-Wise Detailed Analysis:

1. Whether processed and frozen shrimps, prawns, and lobsters retain their original character and identity for the purpose of the Central Sales Tax Act, 1956:

The central question was whether shrimps, prawns, and lobsters subjected to processing such as cutting of heads and tails, peeling, deveining, cleaning, and freezing cease to be the same commodity and become a different commodity. The judgment concluded that processed or frozen shrimps, prawns, and lobsters are commercially regarded as the same commodity as raw shrimps, prawns, and lobsters. The Court emphasized that the processed shrimps, prawns, and lobsters do not lose their original character and identity and remain the same in commercial parlance. The Court cited the Supreme Court of the United States in East Texas Motor Freight Lines v. Frozen Food Express, which held that dressed and frozen chicken was not a commercially distinct article from the original chicken.

2. Applicability of sub-section (3) of Section 5 of the Central Sales Tax Act, 1956:

Sub-section (3) of Section 5 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 export if it took place for the purpose of complying with the export agreement or order. The Court determined that the goods purchased by the appellants and the goods exported must be the same. Since processed and frozen shrimps, prawns, and lobsters retain their original identity, the purchases of raw shrimps, prawns, and lobsters by the appellants for export purposes fall under this provision and are deemed to be in the course of export, thus exempt from tax.

3. Interpretation of Entry 13a of the Karnataka Sales Tax Act, 1957:

Entry 13a of the Karnataka Sales Tax Act, 1957, initially included "shrimps, prawns, and lobsters" in the Third Schedule, making them subject to a single-point tax. Amendments in 1973 and 1978 introduced distinctions between raw and processed or frozen shrimps, prawns, and lobsters, with the latter being excluded from the scope of taxation under Entry 13a. The Court clarified that this legislative distinction was for determining tax liability and did not imply that processed or frozen shrimps, prawns, and lobsters were commercially distinct from raw ones. The Court held that the amendment supported the argument that processed or frozen shrimps, prawns, and lobsters are known commercially as the same commodity.

4. Determination of the taxable turnover of the appellants:

The appellants argued that their purchases of shrimps, prawns, and lobsters for export should be exempt from tax under the Karnataka Sales Tax Act, 1957. The Assistant Commissioner of Commercial Taxes had assessed the appellants to purchase-tax for April and May 1982, which the High Court upheld. However, the Supreme Court found that since the purchases were made for fulfilling export orders and the processed shrimps, prawns, and lobsters retained their original identity, these purchases should be deemed in the course of export. Consequently, the purchases were exempt from tax, and the taxable turnover of the appellants should not include these purchases.

Conclusion:

The Supreme Court allowed the appeal, set aside the High Court's judgment and the Assistant Commissioner of Commercial Taxes' orders, and directed that the purchases of raw shrimps, prawns, and lobsters made by the appellants for export should not be included in the taxable turnover. The respondents were ordered to pay the costs of the appeal to the appellants.