1994 (4) TMI 170 - SC - VAT and Sales Tax

Whether rubber sheets of various grades supplied by the State of Karnataka or the Karnataka Forest Plantation Corporation to the private limited companies were Forest Produce within the meaning of the Karnataka Forest Act 1963 and hence liable to payment of forest development tax under Section 98A thereof? Held that - Neither reasoning of High Court appears to be well founded. The meaning of the word caoutchouc has been discussed. Latex is the modern name for caoutchouc. It is nothing but natural rubber. Caoutchouc or latex means not only milky substance obtained from the trees but it included all milk substance processed till it is made marketable. Since the processing does not result in bringing out a new commodity but it preserves the same and renders it fit for being marketed it does not change its character. It was caoutchouc or latex when it was obtained from the trees it continued to be caoutchouc or latex when it was treated by sulphuric acid and continued to be so even after it is dried with smoke to obtain the shape of sheets. The test of commercial parlance while considering entries in Sales Tax Act was evolved as the tax under the Sales Tax enactments is normally either on sale or purchase or on manufacture or import etc. Therefore it is the understanding or the knowledge of the item by the common man or persons dealing in it in the market and not in the technical or botanical sense which was accepted by this Court as the deciding factor. But that test cannot be applied while considering the definition of forest produce. Appeals allowed. The order passed by the High Court is set aside.

Summary

Issues:
Interpretation of the term "forest produce" under the Karnataka Forest Act, 1963.

Analysis:
The main issue in this case pertains to whether rubber sheets supplied by the State of Karnataka to private limited companies qualify as "forest produce" under the Karnataka Forest Act, 1963, and are hence liable to forest development tax. The definition of "forest produce" was amended in 1989 to include rubber latex. The State argued that the term "caoutchouc" was broad enough to encompass rubber sheets. The dispute revolved around whether the processed rubber sheets could be considered as forest produce, given the amendments to the Act and the processing involved in obtaining the final product.

The respondent company had negotiated with the State for the supply of natural rubber sheets of various grades. The Chief Conservator of Forests fixed seigniorage on raw smoked rubber, leading to a legal challenge by the company. The Single Judge initially ruled in favor of the company, stating that the rubber sheets were not forest produce. Both parties appealed to the Division Bench, which upheld the Single Judge's decision, emphasizing that the processed rubber sheets were distinct from latex and, therefore, could not be taxed as forest produce.

The court delved into the definition of "caoutchouc" and "rubber" from various sources to understand the nature of natural rubber and its processing. It was established that latex obtained from rubber trees required processing to be marketable, including coagulation, drying, and grading into sheets. The court highlighted that the processing did not change the fundamental nature of the substance, which remained caoutchouc or latex throughout the manufacturing process.

The High Court's application of the commercial parlance test was scrutinized, with the Supreme Court emphasizing that the definition of forest produce should not be based on market understanding but on the botanical and technical aspects. The court rejected the High Court's reasoning that the processed rubber sheets were different from latex, asserting that the essence of caoutchouc or latex persisted through the processing stages.

Ultimately, the Supreme Court allowed the appeals, overturning the High Court's decision and dismissing the writ petitions filed by the respondents. The court concluded that the processed rubber sheets qualified as forest produce under the Karnataka Forest Act, thereby upholding the State's authority to levy forest development tax on the supplied rubber sheets.