10. Entry in Schedule __ Whether the entry “Fish dried or fresh” includes “Baby fish”

Held : Yes

The question came before the Kerala High Court, in revision petition filed by the State. The respondent claimed exemption on sale of “baby fish” under entry 18 of Third Schedule of KGST Act 1963.

The respondent claimed exemption on sale of “Baby fish” to fish farm, being covered under entry 18 of the Third Schedule of KGST Act. The officer assessing the dealer took the view that the item referred to in entry 18 of the Third schedule, that is, fish whether dried or fresh, is a food commodity. Since baby fish is not used as food, it is not entitled to exemption and hence he assessed it under the residuary entry of the First Schedule. In First Appeal by the dealer claim was allowed. The appellate authority was of the opinion that baby fish is also fresh fish and hence it falls under this entry and entitled to exemption. Tribunal concurred with this view.

In revision petition it is argued by the State that dried fish and fresh fish falling under entry 18 are obviously food commodity, while baby fish cannot be used as food by virtue of its small size making it unworthy for human consumption. The respondent explained the entry that, all varieties of fish, however small or big, will fall under entry18 and hence exempt from sales tax.

Though the argument of state that entry 18 of the Third Schedule generally treat fish as food commodity was somewhat convincing, but not accepted by the High Court for the reasons that the 1) intention of the Legislature is not to tax baby fish hatched and sold to fish farms. Entry 37 of the Third Schedule provides for exemption of marine products such as prawns, lobsters, crustaceans, mollusis, etc. There is nothing in the entry to show that exemption is for the meat of these items or only when such items are sold for consumption and 2) Entry 39 of the Third Schedule provides for exemption of nursery plants, seedlings, suckers and other planting materials, including seeds used for raising crops. Even though many crops are taxable under the Act, their seeds and seedlings are granted exemption under general category which only shows the Legislature’s intention to encourage cultivation.

The court nowhere found that anything to indicate in the Schedules or elsewhere in the Act that the Legislature wanted a disincentive for fish farmers by taxing baby fish purchased by fish farms for rearing. Above all, there is no entry in the Schedules to the Act to levy tax on any other category of fish which are ordinarily not used as food such as ornamental fish kept in aquariums. Fish in all forms, whether baby, dried or fresh, will fall under entry 18 of the Third Schedule to the Act.

[State of Kerala vs. Rosen Industries 8 VST 209 (Ker)]

11. Entry in Schedule – What is timber – Whether khair wood is timber

Held : No khair wood is not timber

The assessing authority while assessing the dealer for the year

1983-84 taxed the inter-State sale of “Khair wood” not being “timber”. In appeal before the Tribunal the order of the assessing officer remained unaltered. Appellant came before the High Court in revision petition against this judgment.

The Tribunal examined the question whether the entry relating to “timber” included “khair” wood. It was held that in common parlance, “timber” was wood used in house construction as beams and pillars and could be used as planks like tables and chairs, while “khair” was not used for making material in construction of houses but was used for katha.

Assessee was of the opinion that the view taken by the authority was erroneous, as definition of “timber” under the Himachal Pradesh Private Forest Act, 1954 and meaning of the word “timber” in Webster Universal Dictionery, quoted in the order of the appellate authority, were wrongly brushed aside on the ground that “khair’ sold by the assessee was not used as ‘timber’ for building purposes but was sold for extraction of katha.

The appellant did not deny the fact that ‘khair’ wood is used for extraction of katha. He was also of the opinion that use of “khair” wood used by the assessee could not be conclusive. The appellant in support of his submission relied on the definition from the Himachal Pradesh Private Forest Act, 1954 and the dictionary meaning.

Himachal Pradesh Private Forest Act,1954

“Timber includes trees when they have fallen or have been fallen and all wood whether cut up or fashioned or followed out for any purpose or not”

Webster Universal Dictionary [page 1557]

“Timber, timber, a building, to build, wooden building; a wood cut up and prepared for building growing trees though of as wood with commercial value for building, a shaped, fitted piece of wood designed to form, or actually forming, a structural element in a building”.

The appellant also placed reliance on the Judgement of the hon'ble Supreme Court in the case of Mukesh Kumar Aggarwal & Co. vs. State of Madhya Pradesh [1988]/68 STC 324; wherein the question was whether subsidiary parts of eucalyptus trees could be called “timber”. It was held by the hon'ble Supreme Court that such wood heaps could not be called “timber” meant or fit for building purposes.

That “khair” was raw material for katha, which was used by the assessee as such and its use as such has been noticed in judicial decisions, which shows that in common parlance also katha was a different commercial commodity than timber. Court observed that to manufacture katha trunk khair trees is required. Only the central portion of the trunk of the tree is used for the manufacture of katha and the rest is of no use except perhaps as firewood”.

To determine the question referred, we have to go by common parlance test and for holding “khair” wood to be “timber” or otherwise, we have to ascertain whether in common parlance, “khair” to otherwise, we have to ascertain whether in common parlance, “khair” wood and “timber” are considered to be the same commodity. It has been concurrently held by the authorities in the present case that “khair” wood was a different commodity than timber. In common parlance, meaning of term “timber” has been noticed in the judgment of the hon'ble Supreme Court in Ramavatar’s case [1961] 12 STC 286. It has also been judicially noticed in the judgments relied upon by the learned counsel for the State that “khair” wood is a raw material for katha and it is used as such which supported the stand that in common parlance also, “khair” wood was not treated as same commodity as timber. Merely because “khair” wood could also be used for construction purposes, as contended by the learned counsel for the assessee or was described in the definition of “timber” in the Forest Rules for purposes of enforcing the provisions of Forest Act, would not be enough to say that in common parlance, “khair” wood was timber. Therefore court held that “khair”

wood has different from timber for purposes of the entry specifying lesser rate of tax.

[Panwar Timbers vs. State of Punjab 8 VST 211 (P & H)]

12. Manufacture – Whether mixing and grinding of spices results in separate commercial commodity

Held : Sales tax is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities may have been made. Since separate commercial commodities emerge into existence, they become separately taxable goods or entities for the purpose of sales tax.

The appellant is engaged in the business of purchasing various spices like cumin seed (jeera), fenugreek seeds (methi), cinnamon (dalchini), caraway seeds (shahijeera), etc., from the registered dealers in the State of Andhra Pradesh and the said items are subjected to sales tax at the point of first sale.

All the said items are called “spices”. The appellant by mixing and grinding all these spices together produces “masala powder” which is used for enhancing the taste of food.

The appellant filed sales tax returns for the assessment years 1990-91, 1991-92, 1992-93 claiming exemption on the ground that the ingredients used for the preparation of “masala powder” have already been taxed under entry 182 of the First Schedule to the APGST Act, 1957 and as the said ingredients are chargeable only at the first sale point, the “masala powder” is not further eligible to sales tax.

The contention of the appellant was not accepted by the Commercial Tax Officer. The appellant failed in appeals.
The Tribunal while rejecting the appellants contention held that the “masala powder” is not a mere mixture of some of the spices like cumin seeds, caraway seeds, etc., along with other materials like salt, coriander, etc., which are not specified in entry 182 are powdered and mixed in specified and required proportion and after mixture, these spices lose their original flavour and character and as such cannot be considered as “spices” falling under entry 182 of the First Schedule.

The “masala powder” prepared after grinding and mixing of various ingredients is commercially a different commodity liable to be taxed.

The appellant submitted that the Spices Board constituted under the Spices Board Act has declared a list of 52 items in any form including curry powder, spice oil, oleoresins and other mixtures where spices content is predominant as spices as per section 2(n) of the Spices Board Act, 1996. The appellant has set out a list of spices in annexure “P5” along with these appeals. It is not necessary to reproduce the names and details of those spices for deciding these appeals.

According to the appellant the term “manufacture” is not defined in the APGST Act, and there is no chemical or mechanical process except simple grinding and mixing involved in producing the “masala powder”. The process does not bring about a new commodity which is differently identified in common and commercial parlance. In support of its contention, the appellant placed reliance on the judgment in the case of Pio Food Packers and relied on the definition of “manufacture” as enumerated in the said judgment, which reads as;

“Manufacture” implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary... There must be transformation; a new and different article must emerge, having a distinctive name, character or use’”.

The court in this case held that by cutting the pineapple into slices and thereafter canning it, or adding sugar to preserve it, did not change the identity nor did it bring into existence different goods. The appellant on the basis of the aforementioned definition asserted that its activity does not amount to manufacture of a commercially new and distinct commodity liable for payment of tax.

The learned counsel appearing for the respondents placed reliance on a Division Bench judgment of the Madhya Pradesh High Court in the case of Sales Tax Commissioner vs. Dhameja Home Industries, Indore [1983] 54 STC 217. This case was cited primarily because the facts of this case are identical to the facts of the present case. In this case, the question which arose for adjunction was whether the preparation of “garam masala” amounted to manufacture. The court came to be conclusion that “garam masala” is made by mixing different condiments in certain proportions.

The mixing may take place either before or after grinding of the condiments which go to make the product “garam masala” but mixing of condiments has to take place because the product “garam masala” is not obtained merely by grinding of condiments. It is thus clear that the process of obtaining the product “garam masala” is not confined to merely grinding of condiments. It involves something more than grinding to bring into existence a product different from those which are mixed. The conclusion is not excluded by the process of obtaining the product “garam masala” is inescapable by the rules from the definition of manufacture contained in section 2(j) of the act.

It is an admitted position that the ingredients which are used in preparation of masala after grinding and mixing lose their own identity and character and a new product separately known to the commercial world comes into existence. According to the ratio in Pyare Lal Malhotra’s case sales tax is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities may have been made, since separate commercial commodities emerge into existence, they become separately taxable goods or entities for the purpose of sales tax.

[A.P. Products vs. State of Andhra Pradesh 8 VST 373 SC]