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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 ..... i J. Sorabjee, Senior Advocate, (Garvesh Kabra, Pratesh Kapoor and Vishwa Pal Singh, Advocates with him) for the appellant. T.L.V. Iyer, Senior Advocate, (R. Sathish, Advocate with him) for the respondent. -------------------------------------------------- The judgment of the court was delivered by S.H. KAPADIA J. Leave granted. This civil appeal filed by the assessee raises the question relating to liability to pay "purchase tax" under section 5A of the Kerala General Sales Tax Act, 1963 ("1963 Act", for short). The appellant-assessee purchases "red oil" from unregistered dealers and converts such red oil into "sandalwood oil" by removing water content and other impurities. As regards the processing, there is no dispute between the parties. The case of the department, in short, is that the assessee is not selling red 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax for consumption/use. In this connection, learned counsel places reliance on the Amending Act 3 of 1990 by which section 5A stood amended to bring within the scope of purchase tax items purchased from unregistered dealer without payment of tax for "use". According to learned counsel, in the present case red oil is a raw material, that it has been purchased by the assessee and it has been consumed/used in the manufacture of sandal- wood oil (final product) and, therefore, the assessee is liable to pay purchase tax on purchase turnover of red oil under section 5A(1)(a) or (b) of the 1963 Act. We find merit in this civil appeal filed by the assessee. At the outset, it may be stated that process of purification is not in dispute. The entire process of purification has been discussed by the Tribunal in its judgment. The said process eliminates impurities. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d judgment in the case of Shyam Oil Cake Ltd. [2005] 1 SCC 264(3) which reads as follows(4): "18. Thus, this court has held that prior to refining, it was raw groundnut oil and after refining even though the characteristic colour, taste and odour may have changed it remained groundnut oil. In other words, this court held that there was no manufacture of a new and distinct commodity." Section 5A(1)(a) of the 1963 Act is similar to section 7A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959. That section 7A(1)(a) of the Tamil Nadu General Sales Tax Act, 1959 came for interpretation before the Madras High Court in the case of State of Tamil Nadu v. Subbaraj and Co. [1981] 47 STC 30 in which it was held that the very use of the word "consume" contemplates that the goods purchased should have been devoured or exhausted in the process of manufacture with the result, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The decision of the Tribunal is objective. It is based on the correct formulation of the test of irreversibility involved in the process of manufacture and, therefore, the High Court was not justified in observing that the finding of the Tribunal was patently absurd and perverse. We may, however, refer to the judgment of this court in the case of Burmah-Shell Oil Storage and Distributing Co. of India Ltd., Belgaum v. Belgaum Borough Municipality, Belgaum AIR 1963 SC 906 on which heavy reliance is placed by Shri T.L.V. Iyer, learned Senior Counsel appearing on behalf of the respondent-department. In that case proceedings commenced against the municipality under article 226 of the Constitution to prohibit the municipality from charging octroi from Burmah-Shell on its products brought inside the octroi limits for sale. The products were petroleum products. They were brought 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 am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be destroyed or used up. The word 'consumption' occurs in Explanation to sub-article (1) of article 286 of the Constitution. In explaining the ambit of that word this court observed in State of Bombay v. United Motors (India) Ltd. [1953] SCR 1069 See [1953] 4 STC 133 (SC) at page 146. at page 1084, as follows: 'The expression "for the purpose of consumption in that State" must, in our opinion, be understood as having reference not merely to the individual importer or purchaser but as contemplating distribution eventually to consumers in general within the State.' 20.. It is not the immediate person who brings the goods into a local area who must consume them himself, the act of consumption may be postponed or may be performed by someone else but so long as the goods have been brought into the local area for consumption in that sense, no matter by whom, they satisfy 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 expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot make us forget that in reaching the stage at which this final act of consumption takes place the commodity may pass through different stages of production and for such different stages, there would exist one or more intermediate acts of consumption . . . In the absence of any words to limit the connotation of the word "consumption" to the final act of consumption, it will be proper to think that the constitution-makers used the word to connote any kind of user which is ordinarily spoken of as consumption of the particular commodity'." We are of the view that the judgment of this court in Burmah-Shell AIR 1963 SC 906 has no application. Firstly, in that case the court was concerned with the interpretation of entries in the Legislative Lists. It is well-settled that entries in the Legislative Lists have to be read in the widest possible sense. The entries in the Legislative Lists 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Edition, 1976), at page 168 thus: 'A turnover tax simply taxes every transaction made: wheat, flour, dough, bread. VAT is different because it does not include in the tax on the miller's flour that part of its value which came from the wheat he bought from the farmer. Instead, it taxes him only on the wage and salary, cost of milling, and on the interest, rent, royalty, and profit cost of this milling stage of production. (That is, the raw material costs used from earlier stages are subtracted from the miller's selling price in calculating his "value added" and the VAT tax on value added . . . .)' 9.. At every stage of production, it is obvious there is consumption of goods even though at the end of it there may not be final consumption of goods but only production of goods with higher utility which may be used in further productive processes." In our view the said judgment has 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 differ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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