9911796707
TMI Blog1997 (3) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... inistry of Finance, Department of Revenue (respondent No. 1) on January 10, 1996, holding that the provision of section 206C(1) shall be applicable in the case of kendu leaves traders as the exception carved out in the proviso to sub-section (1) of section 206C is not applicable in their case. The petitioners' case is that they purchase the kendu leaves from the forest department or from the Bihar State Forest Development Corporation (hereinafter referred to as " the Corporation ") and after processing the same they sell them to manufacturers of bidis. The Corporation invites tenders for advance sale of kendu leaves on lump sum basis every year in accordance with the terms and conditions of the tender notice read with the relevant rules. The successful tenderers have to take delivery of the kendu leaves within 48 hours after the same are plucked from the bushes or brought to the collection centre. If delivery is not taken within the aforesaid period there is every chance of deterioration of the leaves. After taking delivery they dry the leaves for a period of five days. The drying process is to be skillfully done so that the whole kendu leaves may be dried from all the sides. Aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment of India, Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, by letter dated January 23, 1989, informed the president of the aforesaid Association that the operations of drying and sprinkling of water, etc., on the kendu leaves purchased by the traders would constitute processing. No tax would be collectible at source in respect of the purchases made by such traders and their profit and loss would be computed in accordance with the provisions of the Income-tax Act. A copy of the said letter has been annexed as annexure-1 to the writ application. Accordingly, the petitioners used to apply for grant of certificate of exemption under the provisions of rule 37C of the Rules and the authorities used to issue necessary exemption certificate in Form No. 27C. They applied for the exemption certificate for the year 1966-67 (sic), but no exemption certificate was granted and thereafter they approached the higher authority but no relief was, granted on the ground that the Central Board of Direct Taxes issued another letter dated January 10, 1996, withdrawing the clarification dated January 23, 1989, and has opined that the operations carried out by the kendu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en it is an admitted position that the tax has to be collected at source by the seller from the buyers of leaves at the rate mentioned in sub-section (1) of section 206C. However, if the goods purchased by the petitioners are utilised for the purposes of processing then the proviso will be applicable and the petitioners are entitled to certificates of exemption. The answer to this question depends upon the determination of the question as to whether the activities of the petitioners, namely, drying, sprinkling, sorting out, bundling of kendu leaves, etc., amount to processing of the bidi leaves or not. To consider the rival contentions of the parties it will be apt to refer to the relevant provisions having a bearing on the question in controversy. Section 206C of the Act runs as follows :--- " (1) Every person, being a seller shall, at the time of debiting of the amount payable by the buyer to the account of the buyer or at the time of receipt of such amount from the said buyer in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, collect from the buyer of any goods of the nature specified in column (2) of the Table below, a sum equal to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d specifying the sum so collected, the rate at which the tax has been collected and such other particulars as may be prescribed. (5A) Every person collecting tax in accordance with the provisions of this section shall prepare half yearly returns for the period ending on 30th September and 31st March in each financial year, and deliver or cause to be delivered to the prescribed income-tax authority such returns in such form and verified in such manner and setting forth such particulars and within such time as may be prescribed. (6) Any person responsible for collecting the tax who fails to collect the tax in accordance with the provisions of this section, shall, notwithstanding such failure, be liable to pay the tax to the credit of the Central Government in accordance with the provisions of sub-section (3). (7) Without prejudice to the provisions of sub-section (6), if the seller does not collect the tax or after collecting the tax fails to pay it as required under this section, he shall be liable to pay simple interest at the rate of two per cent. per month or part thereof on the amount of such tax from the date on which such tax was collectible to the date on which the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tendu leaf-traders do not change the nature and character of the leaves and these are performed only to maintain the leaves in a saleable and marketable condition. Further, such operations do not result in any change in the product. Therefore, mere drying, sprinkling of water, bundling of tendu leaves, etc., cannot be equated with processing. Various judicial pronouncements, available abuses subsequent to be issue of the aforesaid clarification, dated January 23, 1989, through our F. No. 150/165 of 1988-TPL support the above position, making it incumbent to withdraw the view expressed earlier and to clarify that the provisions of section 206C, shall be applicable to the case of tendu leaf-traders as the exception carved out in the proviso to sub-section (1) of section 206C is not applicable in such cases. A copy of the letter withdrawing the clarification issued earlier, vide letter dated 23rd January, 1989, is enclosed." The word " processing " has been used in different contexts in different Acts. The said word is of wide amplitude. It has various shades of meaning and it has been interpreted in different ways under various enactments. The word " processing " has not been def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some operation performed on it or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material. It may be that camphor powder may just be compressed into camphor cubes by application of mechanical force or pressure without addition or admixture of any other material and yet the operation would amount to processing of camphor powder as held by the Calcutta High Court in Sri Om Prakas Gupta v. CCT [1965] 16 STC 935. What is necessary in order to characterise an operation as ' processing ' is that the commodity must, as a result of the operation, experience some change. Here, in the present case, diverse quantities of ore possessing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical compositions demanded by the foreign purchaser and obviously as a result of this blending, the quantities of ore mixed together in the course of loading through the mechanical ore handling plant experience change in their respective chemical and physical compositions, because what is produced by such blending is ore of a different chemical and physical composition. When ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or processing of goods or in mining. The assessee was running a cold storage. Its assertion was that the activities carried out by it for preventing the goods from their natural decay would amount to processing of goods. The apex court after relying upon the observations made in Chowgule's case [1981] 47 STC 124 (SC) held that processing is a word of wide amplitude and it is has different meanings in different contexts and it involves bringing into existence a different substance from what the material was at the commencement of the process. It further held that the storing of goods in the cold storage is not sufficient for holding that the stored articles had undergone a process within the meaning of section 2(7)(c) of the Finance Act. The observation of the Supreme Court is as follows : " In common parlance, ' processing ' is understood as an action which brings forth some change or alteration of the goods or material which is subjected to the act of processing. The dictionary meaning of the term is not very different from this meaning in one sense, while various other meanings of wider amplitude are also available. The view taken by the Allahabad and Calcutta High Courts did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the meaning of the word " processing " in the context of the Income-tax and Sales Tax Acts is to bring out a different substance from what the material was at the commencement of the process. In other words, when a commodity under goes a change by virtue of operation or operations, then such operation or operations would amount to processing of the goods or commodity. Learned counsel for the petitioners has relied upon several judgments of the High Courts regarding the meaning of the word " processing ". In my view, the cases which were decided prior to Chowgule and Co. P. Ltd. [1981] 47 STC 124 (SC), are not to be discussed as after the rendering of the aforesaid judgments the word " processing " has been interpreted by the apex court. However, I will refer to those cases which were decided subsequent to Chowgule's case [1981] 47 STC 124 (SC) as according to learned counsel for the petitioners in the aforesaid judgments, activities similar to the activities carried out by the petitioners have been held to be processing of goods after relying upon the law laid down by the apex court in the case of Chowgule and Co. P. Ltd. [1981] 47 STC 124. In the case of G. A. Renderian Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [1993] 200 ITR 514 (Delhi), the assessee industrial company under the Finance (No. 2) Act was engaged in purchasing of moulds from manufacturers and after reshaping and polishing them sold the same to other parties. It was held that as a result of reshaping and polishing, the original shape of the moulds was not retained and accordingly that amounted to processing of the goods. Taking into consideration the nature of the activities carried out by the assessee it was found that as a result of carrying out of the different activities a different substance from what was at the commencement of the process was brought into existence. In this case according to the petitioners after purchasing the kendu leaves they carried out the activities of drying, sprinkling of water for maintaining requisite moisture, sorting out and screening of the leaves, keeping it in the godown for one month for preserving the quality and colour of the kendu leaves/bidi patties, and whether as a result of these activities it can be said that some change or alteration in the kendu leaves has taken place as a result of which a different substance has come into existence. There is no dispute that the kendu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st [1979] 44 STC 392. In that case the question for consideration was as to whether the tea leaves grown by the assessee in his own garden and sold after processing and packing them is an agricultural produce or ceased to be so and was liable to sales tax under the provision of section 2(i) of the U. P. Sales Tax Act. As a matter of fact it was found that the tea leaves were first of all subjected to withering in shadow in rooms on a wooden floor for 14 hours. Then they were crushed by hand or foot and were then roasted for 15 minutes. Later on they were roasted on mats for about 15 minutes. Then they were covered by wet sheets for generating fermentation. During this process the colour of leaves was changed. The leaves were then subjected to grading with sieves of various sizes and then the produce was finally roasted with charcoal for obtaining suitable flavour and colours and then it was sold by the assessee. The apex court held that in spite of those activities or operations having been carried out by the assessee the leaves retained the character of being an agricultural produce and their sale is not liable to sales tax. It was held that if as a result of processing the leaves ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
