Sales Tax Board v. Pio Food Packers

1271 DEPUTY COMMISSIONER, SALES TAX (LAW) BOARD OF A, REVENUE (TAXES) ERNAKULAM _v._ PIO FOOD PACKERS _May_ 9, 1980 [P. N. BHAGWATI, V· D. TuLZAPURKAR AND R. S. PATHAK, JJ.] _Kera/a_ _General_ _Sales_ _Tax Act,_ _Section_ _5-A(l)(a)_ _"conmmes_ _such_ _goods_ _in_ _**the**_ _**malrufacture**_ _**of**_ _**other**_ _**goods**_ _**for**_ _**sale**_ _**or**_ _**otherwise",**_ _**meaning**_ _**of-ExigibiliJy**_ _**to**_ _**tax**_ _**of**_ _**pineapple**_ _**ffuit.**_ _**when**_ _**processed**_ _**into**_ _**slices**_ _**for**_ _**the**_ _**purpose**_ _**of**_ _**being**_ _**IO!d**_ _**in**_ _**sealed**_ _**cans.**_ ·-..; Tho respondent assessee, Pio Food Packers carries on the business of manu. facturing and selling canned fruit besides other products. The Pineapple pur chased by the assessee is washed and then the inedible portion, tbe end crown, skin· and inner core are removed, thereafter the fruit is, sliced and the slices **are** **filled** **in** **cans,** **sugar** **is** **added** **as a preservative, the cans are sealed** **under** temperature and then put in boiling water for sterilisation. In its return for the year 1973-74 under the Kerala General Sales Tax Act, 1963 the assessee claimed that a turnover of Rs. 3,84,138-89 representing the purchase of pineapple fruit was not covered by Section 5-A(l)(b) of the Act. It was asserted that the pineapple was converted into pineapple slices, pineapple **jam,** **pineapple** **squash** **and** **pineapple juice. The assessee** **maintained** **that** **by** **the** **conversion** **·Of** **pineapple** **fruit** **into** **its** **products** **no** **new commodity** **was** created and it was erroneous to say that there was a consumption of pineapple **E** _K_ fruit "in the manufacture of" these goods. The Sales Tax Officer did not accept the contention and completed the assessment on the finding that a manufacturing process was involved and that, therefore, the case fell within s. _5-A_ (t):(a). In revision before tbe Sales Ta:ii Appellate Tribunal, the assessee c0nceded that pineapple jam and pineapple squash would · be covered by s. 5-A(l)(a), and in regard to pineapple juice the Tribunal found that s. S-l(a) was attracted. The only question which remained was whether the prepara- F lion of pineapple slices fall within s. 5-A(l) (a). On that question two mem' bers of the Tribunal. found in favour of the assessee, and the third member fDund. in favour of the Revenue. The Revenue then applied in revision to the High Court and the High Court, has by its judgment dated 24th January, 1978, .maintained the order of the Tribunal. Dismissing the appeal, by special leave, the court HEID : 1. Wiien pineapple fruit is processed into pineapple slices for. the purpose of being sold in sealed cans, there is no .<:onsumption of the original pineapple fruit for the purpose of manufacture within the meaning of Section 5A(l)(a) of the Kerala General Sales Tax Act, 1963 [1277 E-FJ 2. Section 5-A(l)(a) of the Kerala General· Sales Tax Act envisages the consumption of a commodity in the manufacture of another commodity. ·The goods purchased should be consumed, the consumption should be in the proceos !>f !llllluf&cture, and the result must be the manufacture of other goods. - :,;.. 1272 SUPREME COURT REPORTS (1980] 3 S.C.R. There are several criteria for determining whether a commo<lity is consumed in the manufacture of another .. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Co1LI1monly, manufacture is the end result of one or more processes through which the original commodity is madf', to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commcxlity experience a c:h.an.ge. But it is only when the change, or a series of changes, take the commodity to the point where commercially it coo no longer be. regarded as the original comm°9ity but instead is recognised 1l8 a new and distinct article that a manufacture can bei said .to take place. Where there is no essential difference in identity between the original commcxlity and the processed article, it is not possible to say that one· commodity bM been consumed in the manufacture of another. Although it has. undergone a degree of processing, it must be regarded as still retaining its orfginal identity. [1274 F-H, 1275 A-BJ In the present oase, there is no essential difference between pineapple fruit and the canned pineapple slices. The dealer and the consumer regard both as pineapple. The only difference is that the sliced pineapple is a presentation of fruit in a more convenient form 'and by reason of being canned it :is capable of storage withont spoiling. The additional sweetness in the canned pineapple arises from the sugar added as a preservative. The pineapple slices continue to possess the same identity as· the original pineapple fruit. [1275 G-H, 1276-A] _Tunghabhadr.a Industr:ies Ltd., Kurnool_ v. _Commercial Tax_ _Offecer,_ J~urnool, [1960J 10 S.T.C. 827 (SC); _Commissioner_ _of_ _Sales Tax, U.P.,_ _Lucknow_ v . _Harbilas Ral_ & _Sons,_ [1968J 21 S.T.C. 17 (SC); followed. _East Texas Motor Freight Lines_ v. _Frozen Food Express,_ 100 L.ed. 917; _Anheuser-Busch Brelving Association_ v. _United States,_ 52 L. ed. 336~338; quoted with approval. _Anwarkhan Mahboob Co._ v. _The State_ _of Bombay and Ors.,_ [1960J 11 STC 698, _A Hajee Abdul Shukoor_ _and_ _Co._ v. _The State_ _of_ _Madras,_ [1964J 15 STO 719; _The State_ _of_ _Madras_ v. _Swasthik Tobacco Factory,_ [1966J 17 STC 316 and _Ganesh Trading Co. Karna/_ v. _State_ _of Haryana and Anr.,_ [1973J 32 STC 623; _J._ held inapplicable. ' 3. The fact that the pineapple slices have a higher price in the market than ·' I the original fruit does not imply that the slices constitute a diffd'ent commercial commodity. The higher price, is occasioned only because of the labour put into making the fruit more readily consumable and because of the can employed to contain it. It is not as if the higher price is claimed because it a different commercial commodity. [1277 A-BJ 4. The faot that the pineapple slices appeal to a different sector of the trade and that when a customer asks for a can of pineapple slices he has in mind something very different from fresh pineapple fruit does not give to the canned pineapple slices a sep<>rate identity either. The distinction in the mind of the consumer arises nOt from any difference in tho essential identity of the two, but is derived from the mere fOim in which the fruit is desired. (1277 II-CJ / ·C .D . E ·.G .H #### I ,J CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2398 of 1978. Appeal by Special, Leave from the Judgment and Order dated 24-1-1978 of the Kerala High Court at Emalrulam in T.R.C. No. 2 of 1976. I SALES TAX BOARD _v._ PIO FOOD PACKEfS _(Pathak,_ /.) 1273 _$._ Claiise (l)(a) of Section 5-A of the Kerala General Sales Tax Act, •peaj<s of goods consumed in the manufacture of other goods for sale or goods consum~ in the manufacture of other goods for purposes other than,sale. ' [1277 C-D] A B ; _M. M. Abdul Khader, V._ J. _Francis_ and _M.A._ _Firoz_ for the Appellant. _"'.1.-:-_ _S._ _T. Desai, P._ _A._ _Francis_ and _Mrs._ _S._ Gopalakri~hnan for the c _, _J'_ Respondent. _"'.1.-:-_ _S._ _T. Desai, P._ _A._ _Francis_ and _Mrs._ _S._ Gopalakri~hnan for the The Judgment of the Court was delivered by PATHAK, J. This appeal by special leave is directed against the judgment of th~ Kerala High Court holding that the turnover of pineapple fruit purchased for preparing pineapple slices for sale in sealed cans is not covered by s. 5-A(l)(a) of the Kenila General Sales Tax Act, 1963. D The respondent, Messrs. Pio Food Packers ("the assessee"), carries on the business of manufacturing and selling canned fruit besides other products. In its return for the year 1973-74 under Ii. the Kerala General Sales Tax Act, 1963 the assessee claimed that a turnover of Rs. 3,64,138-89 representing the purchase of pineapple fruit was not covered by s. 5-A(l)(a) of the Act. It was asserted that the pineapple was converted into pineapple slices, pineapple jam; pineapple squash and pineapple juice. Section 5-A(l) {a) of the Act provides : F "5-A Levy of purchase tax Jl , # ... _f_ { I) Every dealer who, in the course of his business, purchases from a registered dealer or from any other person any goods the sale or purchase of which is liable to tax under this Act, in circumstances in which no tax is payable under section 5, and ,either (a) consumes such goods in the manufacture of ,other goods for sale or otherwise; or ' ~ ##### . . . shall, whatever be the quantum of the turnover relating to such purcllase for a year, pay tax 22-610SCI/80 G H A B ###### c D "in the manufacture of" those goods. The Sales Tax Offirer did not accept the contention and completed the assessment on the ' finding that a manufacturing process was involved and that, therefore, the case fell within s. 5-A(l )(a). In revision before the Sales Tax Appellate Tribunal, the assessee conceded that pineapple jam and pine-apple squash would be covered by s. 5-A(l)(a), and in regard to pineapple juice the Tribunal found that s. 5-1 (a) was ## Y attracted. The only question which remained was whether the preparation of pineapple slices fell within s. 5-A(l) (a). On that question two members of the Tribunal found in favour of the assessee, and the third member found in favour of the Revenue. 'Ibe Revenue then applied in revision to the ·High Court and the High Court has, by its judgment dated 24th January, 1978, maintained the order of the Tribunal. 1274 SUPREME CO~T REPORTS (1980] 3 S.C.R. on the taxable turnover relating to such purchase for the year at the rates mentioned in section 5." The assessee maintained that by the conversion of pineapple -{ fruit into its products no new commodity was created and it was erroneous to say that there was a consumption of pineapple fruit ###### r It appears that the pineapple purchased by the assessee is washed - and then the inedible portion, the end crown, skin and inner core E are removed, thereafter the fruit ii; sliced and the slices are filled in cans, sugar is added as a preservative, the cans are sealed under temperature and then put in boiling water for sterilisation. Is the pineapple fruit consumed in the manufacture of pineapple slices ? Section 5"A(l )(a) of the Kerala General Sales Tax Act envisagF es the consumption of a commodity in the manufacture of another G H es the consumption of a commodity in the manufacture of another commodity. The goods purchased should be consumed, the oon- ### sumption should be in the process of manufacture, and the resnlt i must be the manufacture of other goOds. There are several criteria ., for determining whether a commodity is consumthl in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and lll:deed there may be several stages of processing and perhaps a different kind of pro 1 cessing at each stage. With each process suffered, the :»igina! cOS11111odity experiences a change. But it is only when the change, er a series of changes, take the_ commodity to the point wbeJe _I_ ····. l A B c D F G H .,_,,,,.;.;'~ ... . . SALl.S TAX BOARD _v._ PIO FOOi> PACKERS _(P11thak,_ _!.)_ 12 7 5 ,, commerciiilly it can no longer be regarded as the original commo dity but instead is recognised as a new and distjnct article that a maa1$cture can be said to take place. Where there is no ·essential differelJCll in identity between the original commodity and ' the processed article it is not possible to say that one commodity has been COllSUIIled in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining i1S original identity . A Jarge number of cases has been placed before us . by the parties, and in each of them the same principle has been applied : ~ r1Joes the processing of the Original commodity bring into existence ###### . 'j a commercially different and distinct article ? Some of the cases - where it was held by this Court that a different commercial article had come into existence include _Anwarkhan Mehboob_ _Co._ _v._ The _State_ _of_ _Bombay_ _and_ _Others(')_ (where raw tobacco was manufactured into bidi patti), _A Hajee Abdul Shukoor and Co._ v. _The_ _State_ _of_ _Madras(')_ (raw hides and skins constituted a different commodity from dressed hides and skins with different physical properties), _The State_ _of_ _Madras_ v. _Swasthik Tobacco Factory(')_ (raw tobacco manufactured into chewing tobacco) and _Ganesh Trading_ _Co._ _Kamal_ v. _State_ _of_ _Haryana and Another,(')_ (paddy dehusked into rice). On the other side, cases where this Caurt has held that although the original commodity has undergone a degree of process_)(_ ing it has not lost its original identity include _Tungabhadra Indus-_ _tril!s_ _Ltd., Kurnool_ v. _Commercial Tax Officer, Kurnoo/(_ _[5 ]_ _)_ (where hydrogenated groundnut oil was regarded as groundnut oil) and _Commissioner_ _of_ _Sales Tax,_ _U.P.;_ _Lucknow_ v. _Harbilas_ _Rai and_ _sons(_ _[6 ]_ _)_ (where bristles plucked from pigs, boiled, washed with soap and other chemicals and sorted out in bundles according. to their , size and colour were regarded as remaining the same commercial \commodity, pigs bristles). In the present case, there is no essential difference ~tween pineapple fruit and the canned pineapple slices. The dealer and the consumer regard both as pineapple. The only difference is that the sliced pineapple is .!I presentation of fruit in a more convenient form and by reason of being canned it is capable of storage without (!) (1960) II S. :r· C· 698. (2) (1964) 15 S. T. C. 719· (3) (1966) 17 S. T. C. 316. (4) (1973) 32 S. T. C. 623, _(S)_ (1960) 11 S. T. C. 827. (6) (1968) 21 S. T. C. 17. ~. '.Jft.i:-~~4 'tt 1276 **SUPREME** **C(1t1RT REPORTS** [1980) 3 S.C.R. A spoiling. The additional sweetness in the canned pineapple arises from the sugar added as a preservative. On a total impression, it seems to us, the pineapple slices must be held to possess the same identity as the original pineapple fruit. While on the point, we may refer to _East Texas Motor Freight_ _Lines_ v. _Frozen Food Express,(!)_ where the U.S. Supreme Court held that dressed and frozen chicken was not a commercially distinct article from the original chicken. It was pointed out : "Killing, dressed and freezing a chicken is certainly a change in the commodity. But it is no more drastic a change than the chang6 which takes place in milk from pasturising, homogenizing, adding vitamin concentrates, standardising and '""\ _r_ bottling." ". It was also observed: T **D** " .................. there is hardly less difference between cotton in the field and cotton at the gin or in the bale 01 between cottonseed in the field and cottons~ at the gin, than between a chicken in the pen and one that is dressed. The ginned and baled cotton and the cottonseed, as well as the dressed chicken, have gone through a processing stage But neither has been "manufactured" in the normal sense of the word." Referring to _/ifntheusercBusch_ _Brewing_ _Association_ v. _United_ _States(_ _[2 ]_ _)_ the Court said: \ "Manufacture implies a change but every change is not manufacture and yet every change in an article is the result · F of treatment, labour and manipulation. But something more is neci,ssary. . . . . . . . . . . . . . . . . . There must be transfor### mation; a new and different article must emerge, having a l distinctive name, character or use." And further: ·G "At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through tJhe processingj stage we cannot say that it **has** **been** **"manufactured"."** ~~ The comment applies fully in the case before us. Although a ### ft degree of processing is involved in preparing pineapple slices from r (!) 100 L. Ed. 917. (2) 52 L. Ed. 336-338. \ SALES TAX BOARD _v,_ PIO FOOD PACKERS _(Pathak,!.)_ 1277 the original fruit, the commodity continues . to possess its original identity, notwitibstanding the removal of inedible portions, the slicing .... and thereafter canning it on adding sugar to preserve it. It is conten ded fur the Revenue that pineapple slices have a higher price in the - madet than the original fruit and that implies that the slices constitute a different commercial commodjty. The higher price, it seems to us, is occasioned only because of the labour put into making the fruit more .,. "" readily consumable and because of the can employed . to contain it. It _I_ . is notl as if the higher price is claimed because it is a different commer cial commodity. It is said that pineapple slices appeal to a different sector of the trade and that when a customer asks for a can of pineapple 'Jsf"Ces he has in mind something very different from fresh pineapple fruit Here again, the distinction in the mind of the consumer arises not from any difference in the essential identity of the two, bnt is derived from the mere form in which the fruit is desired. Learned counsel for the Revenue contends that even if no · manufacturing process is involved, the case still falls within .s. 5~ A( 1) (a) of the Kerala General Sales Tax Act, because the statutory provision speaks not only of goods consumed in the manufacture of other goods for slile bnt also goods consumed otherwise. There is a fallacy in the Learned counsel for the Revenue contends that even if no · manufacturing process is involved, the case still falls within .s. 5~ A( 1) (a) of the Kerala General Sales Tax Act, because the statutory provision speaks not only of goods consumed in the manufacture of other goods for slile bnt also goods consumed otherwise. There is a fallacy in the subuiission. The clause, truly read, speaks of goods consumed in the m8nufacture of other goods for sale or goods consumed in the manu_)(_ facture of other goods for purposes other than sale. In the result, we hold that when pineapple fruit is processed into pineapple slices for the purpose of being sold in sealed cans there is no consumption of the original pineapple fruit for the purpose of manufacture. The case does not fall within s. 5-A(l)(a) of the Kerala General Sales Tax Act. The High Court is right in the view ta ken -~~ F \ The appeal fails and is dismissed with costs. S.R. _Appeal dismissed._ _)(