1990 (12) TMI 83 - SC - VAT and Sales Tax

Whether coconut fibre is a separate entity from the husk in the commercial parlance? Held that - the article that emerged, as a result of the process of manufacture, must be a distinct and new article recognised or known as such in the commercial parlance for sale or supply. In view of the admitted position that green husk is soaked into saltish sea water for days together and after decomposition, on being subjected to beating either by manual or mechanical process, fibre is produced in the process, which is a distinct commodity known in the commercial parlance. Accordingly, we hold that the coconut fibre is commercially a different identifiable commodity known as such in the commercial parlance. The value of sale or purchase of coconut husk would attract purchase tax under Section 5-A of the Act. Appeal allowed.

Summary

Issues:
1. Whether the process of converting coconut husk into coconut fiber involves a manufacturing process for the purpose of taxation under the Kerala General Sales Tax Act.
2. Whether coconut fiber is a separate entity from coconut husk in commercial terms.

Analysis:
1. The appeal before the Supreme Court challenged the assessment of purchase tax on coconut husks converted into fiber under the Kerala General Sales Tax Act. The respondent claimed that no manufacturing process was involved in the conversion and, therefore, the turnover should not be taxed. The Sales Tax Appellate Tribunal and the High Court had ruled in favor of the respondent based on the absence of a manufacturing process. The Supreme Court analyzed the definition of "manufacture" in commercial terms and previous case laws to determine if the conversion process constituted manufacturing under the Act. The Court emphasized that the resulting product must be a distinct commercial commodity to be considered manufactured.

2. The Supreme Court examined whether coconut fiber was a separate entity from the husk in commercial parlance. The Court considered the process of converting green husks into fiber through soaking, decomposition, and extraction. It referred to precedents that highlighted the requirement for the final product to be commercially different from the original material to constitute manufacturing. The Court concluded that coconut fiber was a distinct and identifiable commodity known in commercial terms, different from the husk. Therefore, the purchase or sale of coconut husk for fiber production attracted purchase tax under the Act.

The Supreme Court allowed the appeal, overturning the decisions of the lower courts. The Court held that coconut fiber was a commercially distinct commodity from the husk, subject to purchase tax under Section 5-A of the Kerala General Sales Tax Act.