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TMI Blog1965 (4) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... such goods, whatever may be the quantum of turnover in that year. This is in the nature of an exception to section 3(1). Subsection (3) states: "Notwithstanding anything contained in sub-section (1) or subsection (2), the tax payable by a dealer in respect of any sale of goods mentioned in the First Schedule by such dealer to another for use by the latter as component part of any other goods mentioned in that Schedule which he intends to manufacture inside the State for sale, shall be at the rate of only one per cent. of the turnover relating to such sale." In order to understand this provision, we may refer in some detail to the First Schedule. The First Schedule contains a list of goods and specifies the single point of the levy of tax as well as the rate of tax at that point. While the general provisions of section 3(1) fixes the rate of tax at 2 per cent. on the turnover at the stage of every sale, even successive sales, in the case of all goods, subsection (2) makes an exception and states that in the case of goods listed in the First Schedule, the tax shall be at a single point only, the point being specified, and further the rate of tax shall be as indicated, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans an article which forms an identifiable constituent of the finished product and which along with others goes to make up the finished product." It is the interpretation of this explanation that is called for in these cases. We may refer in detail to the facts of one of these cases-T.C. 136 of 1963. In that case, the assessee claimed that it had sold oil to the value of Rs. 3,73,229 to Messrs Hindustan Lever for the purpose of being used in the manufacture of vanaspati. Relief was sought under section 3(3) of the Act. Before the assessing authority, the declaration form could not be filed, admittedly for the reason that forms were not available to the purchasers who had to supply the necessary certificate to the petitioners, the sellers. The assessing authority held that the concessional rate under section 3(3) could be granted only if the original of the declaration had been filed along with the return of the dealer for the month in which the oil was sold. The assessing authority, though it did not decide the question, was of the further view that the groundnut oil cannot be termed a component part of vanaspati and purported to distinguish the expression "component part" from o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as justifying the interpretation sought to be placed upon the expression "component part" by the assessee. It said that when the groundnut oil is mixed with any other oil, whatever shall be the quantity of the other oil, for the manufacture of vanaspati, it will not be the same groundnut oil coming within the scope of the concessional levy. It is this conclusion of the Tribunal that is challenged as incorrect in the present cases. The question is not free from difficulty. But, before dealing with this principal question, the initial objection against the grant of concessional rate, on the ground that the necessary forms were not attached to the returns of the dealer may be dealt with. It has been stated that section 3(3) of the Act by its proviso requires that the selling dealer has to furnish to the assessing authority in the prescribed manner a declaration containing the prescribed particulars in a prescribed form obtained from the prescribed authority. That the forms of declaration were in the prescribed form obtained from the prescribed authority and contained the prescribed particulars is not in dispute. But what is contended is that it was not furnished to the assessing aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be rejected. The department has taken the view that whether or not the declaration forms are attached to the returns, these are not cases where the groundnut oil can be regarded as a component part of the manufactured product, that is, vanaspati, and that, therefore, section 3(3) would not at all apply. We may refer to a decision of this Court in W.A. Nos. 291 and 292 of 1963*, which has a bearing upon the question regarding the delay in the furnishing of the declaration forms by the dealers. It has already been stated that according to the rules these forms have to be obtained from the appropriate authority and they have to be filled in by the purchasing dealer, two of the triplicates to be furnished to the selling dealer with the Since reported as Commercial Tax Officer, Salem and Others v. Mettur Chemical and Industrial Corporation and Another [1964] (15 S.T.C. 734) and [1965] (16 S.T.C. 281). appropriate details of the transaction in question. It is one of these triplicate forms that has to be attached to the return of the selling dealer. Now, it appears that the purchasing dealers sought to obtain the supply of these prescribed forms from the assessing authority. That author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter was brought before Veeraswami, J., in the writ petitions challenging the propriety of the refusal to supply the forms, it was not necessary for this Court to decide whether groundnut oil figured as a component part of vanaspati within the meaning of the explanation to section 3(3). The determination of that question was accordingly left open. It will be seen therefore that the petitioners in these cases and other dealers of like description were prevented from obtaining the necessary declaration forms at the appropriate time by the refusal of the assessing authority to supply the forms. To that extent it would follow that any delay in furnishing the declaration forms would have to be condoned. We have now to deal with the principal question that is before us, viz., whether groundnut oil is a component part of the manufactured product, vanaspati. There is no dispute about the first requirement that both of these goods figure in the First Schedule to the Act. Till 1963, all vegetable oils stood included in this Schedule in serial No. 20. Another entry is serial No. 45 of this Schedule which refers to vegetable products, which, whether by themselves or in admixture with any oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of groundnut or kernel. What happened in the case of the assessee before the Supreme Court was that he, after expressing the oil from the groundnut, converted the oil, firstly, into refined oil and thereafter, by a process of hydrogenation, into vanaspati. The assessee succeeded in its claim in respect of the sales of refined oil, that is to say, the purchase turnover of the groundnut appropriate to that quantity of refined oil sold by it was permitted as a deduction, but its claim in so far as it related to the sales of hydrogenated oil, that is, vanaspati, was rejected. The question which their Lordships had to decide was whether hardening by the use of chemical process rendered the groundnut oil or the refined oil anything other than groundnut oil. That was the contention advanced by the State in support of the refusal to grant the deduction, and their Lordships set themselves to examine the question whether even after hydrogenation the groundnut oil continued to be oil. Their Lordships discounted the fact that there was a molecular change in the substance and held that neither mere absorption of other matter nor inter-molecular changes necessarily affected the identity of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... despite that change, the question which their Lordships had to consider was whether the sale of that product amounted to sale of oil within the meaning of the rule granting deduction of the purchase price of the groundnut. We are not satisfied that the above decision supports the argument of Mr. Ramanujam that since vanaspati retained many of the properties of groundnut oil which went into its composition, no question of manufacture at all arises and for that reason section 3, sub-section (3), has no application at all. There is another decision which bears on the point whether or not in producing vanaspati from groundnut oil, a process of manufacture is involved. It is Union of India v. Delhi Cloth and General MillsA.I.R. 1963 S.C. 791. In this case, the question arose whether, under the provisions of the Central Excises and Salt Act, I of 1944, when the raw groundnut oil is refined and purified and a product known as refined oil comes into existence at an intermediate stage in the process of the manufacture of vanaspati, excise duty could be levied on the production of the refined oil. In that case, the legality of the imposition of excise duty on the manufacture of refined oil a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omething more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use." Though the point was not directly in issue, the several observations of their Lordships clearly indicate that in producing vanaspati from a mixture of groundnut oil and til oil as has been done by the petitioners in these cases, a process of manufacture is indeed involved. In order to be eligible for the lower rate of tax under section 3(3) of the Act, two conditions are required: one is that some item of goods contained in the First Schedule of the Act must be used as a component part of some other item of goods also mentioned in that Schedule; and the other is that a process of manufacture must be involved in the use of one item for the production of the other. It seems to us that both of these conditions are satisfied in the present case. Serial No. 20 of the First Schedule, as it stood at the relevant time, reads "all vegetable oils" and serial No. 45 reads "vegetable products, that is to say, any vegetable oil or fat which by itself or in admixture with any other substance has, by hydrogenation or by any other process, been hardened ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion "identifiable" does not merely connote visual identity. When one says that it is identifiable, it expresses a knowledge of the existence of the thing whereby it becomes identifiable. No clear reason has been advanced before us to enable us to hold that if the presence of one substance in another is identifiable by other than visual means, such identity is not contemplated by the explanation. In this regard, on behalf of the petitioners affidavits have been filed to show that the presence of groundnut oil in vanaspati can be chemically identified and even quantitatively estimated. The State does not dispute this proposition. As far as we can appreciate the purpose underlying section 3(3) in so far as the production of vanaspati is concerned, we must take note of the well-recognised fact that groundnut oil either exclusively or mixed with a very small quantity of til oil and cotton-seed oil is processed into refined oil and hardened by a process of hydrogenation into vanaspati. In the market, vanaspati is in fact identified with groundnut oil, and as their Lordships of the Supreme Court pointed out in Tungabhadra Industries Limited. v. Commercial Tax Officer[1960] 11 S.T.C. 827 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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