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TMI Blog1991 (6) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The assessee-company has got a factory at Jamnagar and a number of depots at various business centres in Gujarat. The assessee is registered as a dealer under the Gujarat Sales Tax Act, 1969 and under the Central Sales Tax Act, 1956, in respect of both the principal office at Ahmedabad and factory at Jamnagar and the depots situated at various business centres in Gujarat. The assessee-company has been permitted to file a consolidated periodical return before the Sales Tax Officer at Ahmedabad, and has been assessed by the Sales Tax Officer, Ahmedabad, for the periods from June 1, 1973 to June 30, 1974; July 1, 1974 to June 30, 1975 and July 1, 1975 to June 30, 1976, under both the Acts. It appears that in the course of the business, the assessee-company had entered into agreements with certain farmers in Jamnagar district for the purpose of growing and supplying the chicory roots to the company. The assessee-company turns the chicory roots into chicory powder at its factory at Jamnagar and thereafter sends the chicory powder, obtained in the abovesaid fashion to the factories of the assessee-company at Ghatkesar (Andhra Pradesh) and Coimbatore (State of Tamil Nadu) for the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of two other appeals. Thus all the three appeals came to be dismissed by the learned Assistant Commissioner, Sales Tax. Therefore the assessee-company had carried the matter before the Sales Tax Tribunal by filing three separate appeals, which came to be decided and disposed of by the common orders dated November 3, 1981. The Tribunal had also reached the conclusion that the contentions raised by the assessee-company could not be recognised, thus the three appeals filed by the assessee-company came to be dismissed by the Tribunal, vide orders dated November 3, 1981. Thereafter three reference applications were submitted along with a common statement of the said order. The Tribunal has ordered the reference of the abovesaid two questions to this Court by the orders dated November 3, 1981. It is in these facts and circumstances, that the abovesaid two questions have been referred to us for our reply and answer. Mr. R.D. Pathak, the learned counsel appears on behalf of the assessee-company, while the Revenue have been represented by the learned counsel Mr. K.M. Mehta. Mr. Pathak, the learned counsel who appears on behalf of the assessee-company, has urged that, admittedly, ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Revenue. Before proceeding further to examine the rival contentions raised by the learned counsel for the assessee and the Revenue, a reference requires to be made to the relevant entries in Schedule I under the local Act, that is the Gujarat Sales Tax Act, 1969. Entry No. 8 under the abovesaid Schedule talks of "fresh vegetables and edible tubers". No tax whatsoever is payable on the abovesaid commodities. Entry No. 23 is in respect of "flower, fruit, vegetable seed; seeds of lucerne grass and of sann hemp; bulbs, tubers and plants other than orchids." It is on the basis of the abovesaid two entries that the contention has been advanced on behalf of the assessee that the chicory roots purchased by the assessee-company would fall within the purview of the abovesaid two entries. It is vehemently urged by the learned counsel Mr. Pathak appearing on behalf of the assessee-company that chicory roots would be edible tubers falling within entry No. 8. It is also urged that at any rate chicory roots would fall within entry No. 23 because they are tubers as described under entry 23. The same contentions were raised by the assessee-company before the Tribunal but it has not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the subject-matter of transaction could not said to be an edible tuber, which principally or normally could be used in the like manner as fresh vegetables. The Tribunal has also taken a view that it cannot be said that dried chicory roots would be a tuber fit for growing fresh plant therefrom. The agreement between the assessee-company and the growers which has been provided to us at annexure V requires to be perused at this juncture. Clause 23 of the abovesaid agreement clearly speaks of the commodity, namely, "dried roots" to be delivered to the company according to the standards at its Jamnagar godown. Clause 23(c) also speaks very clearly that the company shall have to purchase the entire yield from the acreage cultivated in terms of the agreement. Therefore if we look to the intent and the form, both of the abovesaid agreement, annexure V, it becomes clear that the transaction envisaged by the parties was in respect of the sale and purchase of the dried chicory roots. It also requires to be pertinently noticed that, what the assessee-company had agreed to purchase, was not the tuber but the dried roots of chicory. This position becomes clear from clauses Nos. 8, 9 and 11 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstrued in a strictly scientific manner along with the other possible construction based upon the meaning ascribed to it by the people conversant with it in the area in which the said legislation is to be applied, the latter has been recognised with favour. It has been emphasised that even though the term in a fiscal statute is capable of two constructions, one under a particular branch of science and the other one according to the ordinary meaning ascribed to it in "common parlance" the latter meaning should be adopted in the process of construction of that term. The meaning in which a particular term is being understood by the people conversant with it has been always accepted as a guide. The frame of the question always is "what is the meaning in which a term in a fiscal statute has been understood by the people in general, the growers, cultivators, consumers, dealers and suppliers of a particular commodity?". The courts of law after having framed such a question prefer to embark upon the requisite enquiry into the examination of the facts and circumstances of each case with a view to find out the correct answer. But while in the process of such an exercise the courts have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rajasthan [1980] 46 STC 256, the Supreme Court has said that..........if there is one principle, fairly well-settled, it is that the words or expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer. It is they who are concerned with it, and it is the sense in which they understand it that constitutes the definitive index of the legislative intention when the statute was enacted". While dealing with the relevant rules under the Central Excise Rules, 1944, and certain notifications thereunder in Collector of Central Excise v. Parle Exports (P.) Ltd. [1989] 75 STC 105 (SC); (1988) 4 JT 454, the Supreme Court has said that "the words used in the provision, imposing taxes or granting exemption should be understood in the same way in which they are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them". In Collector of Central Excise v. Krishna Carbon Paper Co. [1989] 72 STC 280 (SC); AIR 1988 SC 2223, while speaking on the question of the interpretation of taxing statutes and words used thereunder, the Supreme Court has categorised the position by saying tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of refining. But merely because of this, the hydrogenated oil cannot be said not to be the ground-nut oil, and therefore, the quantity of ground-nuts which had the relation with the abovesaid hydrogenated oil would be the same. The second decision on which Mr. Pathak has placed reliance is also the Supreme Court decision in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319. The Supreme Court was considering certain entries in section 14 of the Central Sales Tax Act, 1956. The question was as to whether certain steel articles like steel rounds, etc., can be taxed again even if the material out of which they were made, was already subjected to sales tax, once as iron and steel scrap. On the facts and circumstances of the case, the Supreme Court had taken the view that the sales tax law is intended to tax sales of different commercial commodities and as soon as a separate commercial commodity emerge or comes into existence they become separately taxable goods. While reaching to the abovesaid conclusion the Supreme Court has indeed stated as under: "Where commercial goods, without change of their identity as such goods, are merely subjected to some processing or finishing or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were made ready for the delivery to the customers. The Supreme Court has said that the tea-leaves sold by the assessee, substantially retained the character of an agricultural produce and that the sales effected by the assessee would not be exigible to sales tax. The question therefore was as to whether the tea-leaves which were subjected to a small process would remain an agricultural produce and whether the abovesaid process would be said to be a manufacturing process. As the facts go to show elaborately, we are not concerned with such a case and, therefore, the abovesaid principle which is in fact in respect of an agricultural produce undergoing some small process, would not render any assistance to us in deciding the question referred to us. Mr. Pathak has also invited our attention to this High Court decision in State of Gujarat v. Push Colour Chemical Co. [1982] 49 STC 158. In that case, there was addition of gobar salt, etc., to the dyes of diverse quality and concentration. It was pointed out that the abovesaid addition of gobar salt, etc., was not an act of manufacturing. Again here we are not concerned with the question of manufacturing something from some other commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut taking upon one's shoulders the necessary exercise of making an intelligent probe into the real meaning of the relationship between the parties, one is likely to be heading towards a wrong track which may ultimately land one in a precarious situation. It is precisely for the abovesaid reasons that the courts of law even while sitting as a tax court have sent clear messages ordaining 'look to covenants and look to the form too". The Tribunal making a reference to certain Supreme Court decisions has pointed out that, when there is the written contract it will be necessary for the court to find out therefrom, the intention of the parties executing a particular contract. After saying so, the Tribunal has proceeded further to analyse various clauses of the agreement, one by one, with a view to come to the conclusion that the transaction was never in the nature of the works contract. But as pointed out, the submission made by the learned counsel Mr. Mehta appearing on behalf of the Revenue is that in a taxing statute the form of the transaction is also determinative of its taxability. While invoking the principle that the intention of the parties executing a particular contract is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of the agreement, we would like to point out at once, that the form of the agreement is clearly of a transaction of buying and selling or of purchasing and vending. The agreement at annexure V says very clearly that the company have agreed to buy the chicory so grown on the terms and conditions which are set out in the agreement. Moreover, clause 23 of the agreement also says that the company purchases dried chicory roots to its standard to be delivered at company's Jamnagar godown. Clause 23(c) further says that the company will purchase the entire yield from the acreage cultivated in terms of the agreement. Therefore so far as the question of the form of agreement or transaction is concerned we feel no difficulty in coming to the conclusion that the transaction between the parties, is in the nature of the purchase and sale and not in the form of a works contract. Even if, looking to the abovesaid Supreme Court decisions, the intention of the parties is to be carved out from the reading of the agreement, then also, it is clear that the transaction can never be said to be a works contract. On the other hand it appears that the transaction is for the sale and purchase of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of delivering them to the company in the manner and in terms of the agreement and the cultivator shall take proper care and keep safe custody thereof until it is delivered to the company as per the company's direction". The abovesaid words would go to signify, without any manner of doubt, that the property in the commodity would be the property of the company only for the purpose of delivering the same to the company. Moreover, this part of clause 16 also makes it abundantly clear that the cultivator is required to take proper care and keep safe custody thereof until the same is delivered to the company. Moreover clause 16 further says in express terms that the company has reserved the one-sided right under the agreement and the corresponding right to the grower has not been given by which he would say that he would not sell the prepared commodity to the assessee-company. This would also go to show very clearly that the property in the commodity in question remained with the grower and it passes to the assessee-company only when the dried prepared roots were supplied to the assessee-company. If the agreement is read in its entirety and if clause 16 is read in proper context, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion is not always easy and had for all time vexed jurists all over. To quote the words of the Supreme Court, it has been said thus: "It can be treated as well-settled that there is no standard formula by which one can distinguish a contract of sale from a contract for work and labour. There may be many common features in both the contracts, some neutral in particular context, and yet certain clinching terms in a given case may fortify a conclusion one way or the other. It will depend upon the facts and circumstances of each case. The question is not always easy and has for all time vexed jurists all over." In the abovesaid case the Supreme Court in the light of the abovesaid principle had proceeded further to examine the agreement, clause by clause, but ultimately the clauses also came to be examined in view of what has been stated in Halsbury's Laws of England, Third Edition, Volume 34, at page 6, which is with regard to the distinction between a contract of sale and a contract for work and labour. The Supreme Court decision reproduces the relevant passage from the Halsbury's Laws of England, thus: "A contract of sale of goods must be distinguished from a contract for wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the job would not render the contract as one of sale. The nature and type of the transactions are important and determinative factors. What is necessary to find out, in our opinion, is the dominant object." Examining the agreement between the assessee-company and the growers in the instant case it becomes abundantly clear that the main object of the parties was to transfer the property in the goods, namely, the dried chicory roots and it would be a transfer of a chattel as a chattel to the buyer. It cannot be said that it was a contract in substance, one for work, against the price to be paid at a deferred juncture. Moreover, in the instant case the thing produced, namely, the dried chicory roots, had remained the sole property of the growers, who produced it some time before the delivery of the same to the company. Merely because the seeds were to be supplied by the assessee-company and merely because the supervision, etc., were to be provided by the assessee-company it cannot be said that the property in the commodity, namely, the dried chicory roots, had passed into the assessee-company at the time of entering into the agreement between the assessee-company and the growers. ..... 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