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TMI Blog1991 (2) TMI 139X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 1976-77 while the assessment in T.C.R. No. 857 of 1981 relates to the assessment year 1977-78. 3. The assessee had reported its taxable turnover for 1976-77 as Rs. 43,611.75 in the Al return filed by it. The accounts were called and checked. An inspection by the Special Deputy Commercial Tax Officer (ST), Erode, at the business premises led to the recovery of two exercise note books and two pocket note books. Investigation revealed that for the assessment year 1976-77, there was purchase of cream for Rs. 68,701/-, which was not covered by purchase bills. According to the Revenue, the assessee had suppressed the purchase of cream in its returns. Consequently, assessment under Section 7A of the Act was made and the total and taxable turnover of the assessee was worked out at Rs. 1,23,216.75. Penalty under Section 12(3) of the Act was also proposed. 4. For the assessment year 1977-78, the assessee had filed the Al return showing sales turnover of butter and curd from April 1,1977 to July 24,1977, at Rs. 4,710/- and from July 25, 1977 to March 31, 1978, as Rs. 34,593. According to the assessing authority, the purchase of cream amounting to Rs. 1,13,499/-, which was not supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the loss due to the process of conversion of cream into butter, has got force. The purchase of cream as reflected in the records recovered are found to be accounted for purchases, as the appellants have straightway accounted for the purchases of cream as the purchases of butter." 6. The Appellate Assistant Commissioner, after recording the above finding of fact, proceeded to examine the process by which cream is converted into butter. He opined that if cream, taken out of milk, is left as such, it would turn into butter after a few days by itself and if, for commercial convenience, stirring -is done to quicken the process of conversion of cream into butter it could not be said that there was any manufacturing process involved in the conversion of cream into butter. The appellate authority, accordingly, held that there was no liability on the assesee to tax under Section 7A of the Act and consequently, the turnover assessed under Section 7A of the Act was set aside. The penalty under Section 12(3) was also set aside. The addition made by the assessing authority at 33 per cent for "omissions and defects" was not interfered with, but was assessed at 20 per cent of the sales tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersion by stirring or churning into butter does not involve any manufacturing process. 10. Faced with this situation and since the Revenue had not filed any appeal against the findings recorded by the Appellate Assistant Commissioner, the learned Additional Government Pleader (Taxes) argued that since cream and butter, as found by the assessing authority, are two separate commodities, levy of purchase tax under Section 7A of the Act was attracted, as the new commodity butter, had come into existence by the consumption of cream by the process of stirring. We cannot agree. Section 7A is both a charging as well as a remedial provision and has, as its main object, to plug leakage and prevent evasion of tax. It would come into operation, inter alia, if it is shown that the goods purchased by a dealer, in the course of his business, whether from a registered dealer or from any other person, which have not suffered tax under Section 3,4 or 5 of the Act, as the case may be, have been (a) consumed in the manufacture of other goods for sale or otherwise, or (b) disposed of in any manner other than by way of sale in the State, or (c) have been despatched to a place outside the State, except ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existence a different commercial commodity. The identity of cream does not get devoured or exhausted by its conversion into butter, which is only the next stage of cream. The Legislature consciously used the expression "consumes" in Section 7A(l)(a) of the Act in contradistinction to the expression "use", implying loss of original identity. 11. In State of Tamil Nadu v. Indodan Milk Products - 1980 (45) S.T.C. 498, a Division Bench of this Court accepted the submission that condensed milk, obtained by a process of dehydrating the milk or taking the water out of the milk, so that the milk could, with added preservatives, stand for a long time, would continue to be only milk and thus exempt from tax under the Act. The court negatived the contra submission that merely because some process was employed to convert milk into condensed milk, it would bring into effect a different commercial commodity. 12. In Deputy Commissioner, Sales Tax v. Pio Food Packers - A.I.R. 1980 (S.C.) 1227 = 1980 (6) E.L.T. 343 (S.C.), the Supreme Court found that if there is no essential difference in identity between the original commodity and the processed article, it would not be possible to say that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodity to the point where 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." 14. Applying the test, as enunciated by the Apex Court, to the facts of the present case, the conclusion becomes irresistible that cream, when converted into butter, cannot be said to so charge its identity that commercially it can no longer be regarded as the original article. There is indeed, no essential difference between cream and butter. The process of stirring cream to quicken the process of conversion into butter, does not bring into existence any different commercial commodity than the original one. Since no manufacturing process at all is involved in the conversion of cream into butter, as has also been found by all the authorities below, it follows that there is no consumption of "cream" in the process of converting it into "butter" an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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