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TMI Blog2006 (11) TMI 587X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents contend, inter alia, that (i) sandalwood is a taxable item, falling in Fifth Schedule of the KGST Act and it is a condition of the tender that tax at the prescribed rate will be applicable to all successful bids, irrespective of the destination of the goods; (ii) though after the bid, the petitioner informed that the purchase of sandalwood was to fulfil export commitments under subsisting agreements or orders, the sales by the Forest Department to the petitioner were not for the purpose of complying with any export order; (iii) export of sandalwood, a restricted item, can be only under licence issued by the Director General of Foreign Trade ( DGFT , for short) and therefore, there cannot be any sale by the Forest Department in the course of export; (iv) the goods purchased from the Forest Department are different from the goods mentioned in the export orders as well as the goods that could be exported under the law governing exports; (v) the goods purchased are not exported in the same form, without losing their identity and (vi) that therefore, exemption under section 5(3) of the CST Act is not available. W.P. (C) No. 6210 of 2005, with counter-affidavit and an add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ptions contained either in the export licence issued to the petitioner by the DGFT or as described in the export orders shown to have been issued by the foreign buyers; (iv) sandalwood, as sold by the department cannot be exported under the law governing exports; and (v) since the goods purchased from the department were not exported in the same form, but were manipulated to make them export-worthy, because they were not so originally, the exported goods had lost their identity, characteristics and nature as the goods purchased from the department and therefore, exemption under section 5(3) of the CST Act is not available. In cases where the questions involved were as to the appropriate entry into which particular goods may fall, under the different sales tax and other fiscal laws, it has been held by the apex court that sales tax law is intended to tax sale or supply of different commercial commodities and as soon as a separate commercial commodity comes into existence or emerges from the production or manufacture, it becomes a separately taxable entity of goods for the purpose of sales tax. See State of Andhra Pradesh v. Modern Proteins Ltd. [1994] 95 STC 181 (SC); [1994] Supp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be regarded as glassware. In Deputy Commissioner of Sales Tax v. Coco Fibres [1991] 80 STC 249 (SC); [1992] Supp 1 SCC 290, the question was whether coconut fibre is a separate entity from the coconut husk. Laying down the test to be applied, the apex court stated that the essential point to remember is that something is brought into existence which is different from that of the original, existing in the sense that the thing produced is by itself a commercial commodity and is capable, of being sold or supplied, as such. It is not necessary that the stuff or the material or the original article must lose its character or identity or it should become transformed in basic and essential properties. In G.R. Kulkarni v. State [1957] 8 STC 294 (MP), the Division Bench of the Madhya Pradesh High Court considered the question whether breaking boulders into stone is manufacture within the meaning of section 2(i) of the M.P. Sales Tax Act. It was held that after quarrying if an attempt is made to break them (stone), may be by manual labour, into sizes for sales or gitti, the stone is shaped into an object of different size. It was noticed that the word manufacture has got various shad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC 468 or one involving only a simple process as was the case in Sterling Foods v. State of Karnataka [1986] 63 STC 239 (SC); [1986] 3 SCC 469, not affecting the identity of the goods (raw material). Dealing with a case where the exporter had purchased fresh frog legs and after removing the skin, washing and removing dirt, etc., and freezing it for the purpose of avoiding decomposition, exported it, the apex court, in Deputy Commissioner of Sales Tax v. Shiphy International [1988] 69 STC 325; [1988] Supp SCC 439, held that section 5(3) of the CST Act applied. In doing so, reliance was placed on Sterling Foods [1986] 63 STC 239 (SC); [1986] 3 SCC 469, in which the Supreme Court considered the situation where shrimps, prawns and lobsters, locally purchased for complying with prior export orders were exported after the process of cutting their heads and tails, peeling, cleaning, freezing and packing. It was held in Sterling Foods [1986] 63 STC 239 (SC); [1986] 3 SCC 469 that after such processing, shrimps, prawns and lobsters retained their original identity and did not become different commodities. In Shafeeq Shameel and Company v. Asst. Commissioner, Commercial Taxes [2003] 129 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing at each stage. With each process suffered, the original commodity experiences change. But it is only when the change or a series of changes take the commodity to the point were commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct commodity that it can be said that a new commodity, distinct from the original, has come into being. The test is whether in the eyes of those dealing in the commodity or in commercial parlance the processed commodity is regarded as distinct in character and identity from the original commodity. (emphasis(1) supplied) (1)Here italicised. Considering the question whether raw shrimps, prawns and lobsters, after suffering processing, retain their original character or identity, or became a new commodity, in the context of section 5(3) of the CST Act, it was held in Sterling Foods [1986] 63 STC 239; [1986] 3 SCC 469 that such an issue has to be determined not on the basis of any distinction made by the State Legislature for the purpose of exigibility to State sales tax, but has to be determined on the basis of what is commonly known or recognised in commercial parlance. It was held in that ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andalwood can be only in such forms permitted by the DGFT, there can be no export of sandalwood in any other form. Any export of sandalwood except in the forms permitted by the DGFT would be an illegal export contravening the provisions of the FTDR Act and the Customs Act. Exhibit R3(a) addressed by the Zonal Joint DGFT to the Conservator of Forests, High Range Circle, Kottayam and exhibit R3(b) public notice issued by the DGFT in exercise of powers under exim policy show that sandalwood is not covered by open general licence, but one falling under the restricted list for which an exporter has to make specific request for licence to DGFT, who releases quota from time to time and that the categories of sandalwood allowed for export are sandalwood chip class in the form of heart wood chips up to 50 grams, mixed chips up to 50 grams, flakes up to 20 grams of the sandalwood classes (Jajpokal I class, Jajpokal II class, Antibagar, Cheria Milvathilta, Basolabjukni, saw dust, charred billets), sandalwood chips/powder, sandalwood dust obtained as waste after the manufacturing process and sandalwood in any other form as approved by the Exim Facilitation Committee in the Directorate Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lograms and above in weight. Bagradad are billets weighing approximately less than five kilograms. First, second and third class roots, are to weigh approximately not less than 7 kilograms, approximately not less than 2 kilograms and approximately less than 2 kilograms, respectively. All side roots also fall under the third class of roots. Jajpokal are hollow and ragged pieces, first class, weighing approximately not less than 3 kilograms while the second class, not less than one kilogram. Ain Chilta are chips and small pieces of pure heartwood weighing below 200 grams. Hatheri Chilta are very small chips and small piece of heartwood obtained in plaining Vilayat Budh, China Budh, Panjam and Chotla which are the first four classes, going by exhibit P17. Mulva Chilta are the largest chips of mixed heart and sap wood and Basola Bakni are small chips of mixed heart and sap wood. The classification of sandalwood as per exhibit P17 when juxtaposed with the documents evidencing the items bid by the petitioner, as evidenced by different documents, would show the following: The export orders of foreign buyers, produced by the petitioner evidence that they were only for sandalwood ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the Forest Department and therefore, the claim of the petitioner for exemption under section 5(3) of the CST Act, necessarily fails. It is in this context that the decision of the Madras High Court in W.A. Nos. 94 to 96 of 2000(1) (exhibit P12) needs consideration. I am in complete (1)Reported as Lavanya Enterprises v. Secretary to Government of Tamil Nadu, Environment and Forest Department [2006] 145 STC 442. agreement with the finding therein, following the decision of the apex court in Consolidated Coffee Ltd. v. Coffee Board, Bangalore [1980] 46 STC 164; AIR 1980 SC 1468, that merely on the basis of the condition of sale notice, one could not be compelled to pay tax provided the exemption applies. However, the said judgment does not provide much support to the petitioner on the issue as to the identity of the goods to be found among those purchased and those exported. This is so because, a reference to paragraph No. 20 of the said judgment would show that though an attempt was made to the effect that the goods purchased by the appellant in that case (the petitioner herein) are different from the goods they sought to export, the same was not pursued by the learned coun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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