1991 (2) TMI 139 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the conversion of cream into butter by stirring amounts to a manufacturing process attracting the levy of purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959.
2. Whether the assessee suppressed the purchase of cream in its returns.
3. Whether the levy of penalty under Section 12(3) and Section 22(2) of the Act was justified.

Issue-wise Detailed Analysis:

1. Conversion of Cream into Butter as a Manufacturing Process:
The primary issue was whether the conversion of cream into butter by stirring constitutes a manufacturing process, thereby attracting the levy of purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959. The assessing authority held that butter and cream are separate commodities and that the conversion process involved manufacturing, thus warranting tax under Section 7A. However, the Appellate Assistant Commissioner and the Sales Tax Appellate Tribunal found that the conversion of cream into butter did not involve any manufacturing process. It was observed that cream, if left for a few days, would naturally turn into butter, and stirring merely quickened this natural process. Therefore, they held that no manufacturing process was involved, and Section 7A was not applicable. The High Court agreed with this finding, stating that cream and butter are not separate commodities but different forms of the same commodity. The court emphasized that unless the conversion results in a new commodity that is commercially distinct from the original, no manufacturing process is involved. Hence, the conversion of cream into butter did not attract tax under Section 7A.

2. Suppression of Purchase of Cream:
For the assessment year 1976-77, the assessee reported a taxable turnover of Rs. 43,611.75 but an inspection revealed the purchase of cream worth Rs. 68,701/- not covered by purchase bills, leading to an assessment under Section 7A and a total taxable turnover of Rs. 1,23,216.75. For the assessment year 1977-78, the assessee's returns showed sales turnover of butter and curd, but the assessing authority found suppressed purchases of cream amounting to Rs. 1,13,499/-. The appellate authority, however, found that the purchases of cream were accounted for as purchases of butter and that there was no suppression. The High Court upheld this finding, noting that the assessee had accounted for the purchase of cream as butter and that the conversion did not involve a manufacturing process.

3. Levy of Penalty under Section 12(3) and Section 22(2):
The assessing authority proposed a penalty under Section 12(3) for the assessment year 1976-77 and under both Section 12(3) and Section 22(2) for the assessment year 1977-78. The Appellate Assistant Commissioner set aside the penalty under Section 12(3) but maintained the penalty under Section 22(2). The assessee appealed against the penalty under Section 22(2), and the Tribunal dismissed the appeals and the Revenue's applications for enhancement. The High Court did not find it necessary to interfere with the Tribunal's order, thus upholding the decision to not levy penalties under Section 12(3) while maintaining the penalty under Section 22(2).

Conclusion:
The High Court concluded that the conversion of cream into butter did not involve a manufacturing process and hence did not attract tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959. The court also upheld the findings that there was no suppression of cream purchases and that the penalties were correctly adjudicated by the lower authorities. The revision petitions were dismissed without any order as to cost.