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TMI Blog2008 (4) TMI 485X X X X Extracts X X X X X X X X Extracts X X X X ..... ed oil as such; that the commodity purchased, (i.e., red oil) by the assessee has undergone manufacture when it is heated to a specified degree and the same is filtered by which impurities are removed and, therefore, according to the department, conversion of red oil into sandalwood oil attracts levy under section 5A of the 1963 Act. For the sake of convenience we quote section 5A of the 1963 Act which reads as follows: "5A. Levy of purchase tax.-(1) Every dealer who, in the course of his business, purchases from a registered dealer or from any other person any goods, the sale or purchase of which is liable to tax under this Act, in circumstances in which no tax is payable under sub- section (1), (2), (3), (4) or (5) of section 5 and either,- (a) consumes such goods in the manufacture of other goods for sale or otherwise; or (b) uses or disposes of such goods in any manner other than by way of sale in the State;" A short question which arises for determination in this civil appeal is: whether the above process amounts to consumption/use of red oil in the manufacture of sandalwood oil as contended on behalf of the respondent- department. Shri Soli J. Sorabjee, learned Senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the present case we are required to consider the words "consumes such goods (red oil) in the manufacture of other goods for sale or otherwise (sandalwood oil)". These words find place in section 5A(1)(a) of the 1963 Act. When raw material is converted into a final product one of the important tests to be applied to ascertain whether the process of conversion amounts to manufacture is: whether the raw material is subsumed into the final product. In this case, the highest fact-finding body is the Appellate Tribunal under the 1963 Act. After examining the process, it has come to the conclusion that the sandalwood oil (final product) can be brought back to the original state, namely, red oil by adding impurities, therefore, the process is reversible. Therefore, red oil is not subsumed into sandalwood oil. Keeping in mind this basic test, it is clear that red oil is not consumed/used in the manufacture of sandalwood oil. Hence, section 5A(1)(a) or (b) of the 1963 Act has no application. In the case of Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool [1961] 2 SCR 14, the question which arose for determination was: whether hydrogenated groundnut oil continues to be g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult, its identity must have been completely lost. The "test of irreversibility" is an important criterion to ascertain as to when a given process amounts to manufacture. In the present case that test is not satisfied. In the present case, the Tribunal has examined the process and has come to the conclusion that by adding impurities to the sandal- wood oil the product could become red oil once again. In the circumstances, it cannot be said that red oil and sandalwood oil are two separate and distinct products as held by the High Court overruling the judgment of the Tribunal. One more aspect needs to be mentioned. According to the impugned judgment of the High Court, even assuming for the sake of argument that section 5A(1)(a) of the 1963 Act is not applicable still in any event alternatively section 5A(1)(b) stood attracted. The said reasoning in the impugned judgment is erroneous. Section 5A(1)(b) is quoted hereinabove. In that section the words used are "uses or disposes of such goods in any manner other than by way of sale in the State". The said words "uses or disposes of" signify the test of irreversibility. However, as stated above, the Tribunal is the highest fact-finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght inside the municipality area for use or consumption by itself or for sale to its dealers. The said company had paid octroi on its products brought within the octroi limits of the municipality including the goods not consumed by itself but sold to others. At this stage, it may be mentioned that by the impugned amendment the Municipality Act stood amended to include the word "sale" in the description of octroi. The company contended that the tax could not be collected on goods which were merely sold but not consumed inside the octroi limits. It was urged on behalf of the company that the words "consumption or use" must be contrasted with the word "sale". In support of this contention, the company referred to entry 49 of List II of the Government of India Act, 1935, and also to entry 52 of the State List in the Constitution. It is in this context that this court examined the word "consumption" vide paras 19 and 20 which are quoted hereinbelow: "19. The history of these two taxes clearly shows that while terminal taxes were a kind of octroi which were concerned only with the entry of goods in a local area irrespective of whether they would be used there or not; octrois were taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the requirements of the Boroughs Act and octroi is payable. Added to the word 'consumption' is the word 'use' also. There may be certain commodities which though put to use are not 'used up' in the process. A motor car brought into an area for use is not used up in the same sense as food-stuffs. The two expressions use and consumption together therefore, connote the bringing in of goods and animals not with a view to taking them out again but with a view to their retention either for use without using them up or for consumption in a manner which destroys, wastes, or uses them up. In this context, the word 'consumption', as has been shown above, must receive a larger meaning than merely the act of consuming in the generally understood sense. Recently, in Anwarkhan Mahboob Co. v. State of Bombay [1961] 1 SCR 709 at page 715; AIR 1961 SC 213 at page 216 See [1960] 11 STC 698 (SC) at page 702., while dealing with the Explanation to article 286(1), this court observed as follows: '. . . In answering that question it is unnecessary and indeed inexpedient to attempt an exhaustive definition of the word "consumption" as used in the Explanation to article 286 of the Constitution. The act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ists demarcates an area/field within which the competent Legislature is entitled to enact laws. We are not concerned with interpretation of entries in the Legislative Lists, therefore, the said judgment has no application to the facts of the present case. Secondly, as can be seen from para 20, this court has itself clarified that the word "consumption" in the Explanation to article 286 of the Constitution as it stood before the Constitution (Sixth Amendment) Act, 1956 has to be read in a manner different from the act of consumption in the generally understood sense. For both the aforestated reasons, the judgment of this court in Burmah-Shell AIR 1963 SC 906 has no application to the present case. Shri T.L.V. Iyer, learned counsel, also places heavy reliance on the judgment of this court in the case of State of Karnataka v. B. Raghurama Shetty [1981] 2 SCC 564. He places reliance on paragraphs 8 and 9 which are quoted hereinbelow: "8. There is no merit in the submission made on behalf of the assessees that they had not consumed paddy when they produced rice from it by merely carrying out the process of dehusking at their mills. Consumption in the true economic sense does not mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no application as in that case this court came to the conclusion that paddy and rice are two different commodities. It was further held on facts that the assessee had consumed paddy in the manufacture of rice. It is in this context that after coming to the conclusion that paddy and rice are two different commodities that this court has examined the word "consumption" in the economic sense. In the present case, as stated hereinabove, by adding of impurities sandalwood oil becomes red oil. Therefore, there was no consumption of red oil in the manufacture of sandalwood oil. Further, it may be noted that the Explanation to article 286(1)(a) of the Constitution, as it stood prior to the Constitution (Sixth Amendment) Act, 1956, used the word "consumption" in the Explanation to the said article. However, after the Constitution (Sixth Amendment) Act, 1956 with effect from September 11, 1956 the said Explanation to article 286(1)(a) of the Constitution is omitted. For the aforestated reasons, the judgment of this court in the case of State of Karnataka v. B. Raghurama Shetty [1981] 2 SCC 564 has no application. Accordingly, the civil appeal filed by the assessee stands allowed and the im ..... X X X X Extracts X X X X X X X X Extracts X X X X
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