PETITIONER:
TRAVANCORE TEA ESTATES CO. LTD.
Vs.
RESPONDENT:
STATE OF KERALA
DATE OF JUDGMENT11/10/1976
BENCH:
KHANNA, HANS RAJ
SINGH, JASWANT
CITATION:
1976 AIR 2469 1977 SCR (1) 755
1976 SCC (4) 470
ACT
Central Sales Tax Act (74 of 1956) s. 8(3)(b) and Cen-
tral Sales Tax (Registration and Turnover) Rules, 1957, r.
13---Goods used in the manufacture or processing of goods
for sale--Scope--Fertilisers used for growing tea plants,
if could be included in goods used in the manufacture of tea
for sale.
HEADNOTE
Section 8 of the Central Sales Tax Act, 1956, deals with
rates of tax on sales in the course of inter-State trade or
commerce. Section 8(1)(b) provides that every dealer, who
in the course of inter-State trade or commerce sells to a
registered dealer goods of the description referred to in
sub-s. (3) shall be liable to pay tax at 3% of his turnover.
Section 8(3)(b) refers, inter alia to goods of the class or
classes specified in the certificate of registration of the
registered dealer purchasing the goods as being intended for
re-sale by him, or subject to any rules made by the Central
Government in this behalf,, for use by him in the manufac-
ture or processing of goods for sale. Rule 13 of the Cen-
tral Sales Tax (Registration and Turnover) Rules, 1957,
framed under the Act, provides that the goods referred to in
s. 8(3)(b) which a registered dealer may purchase shall be
goods intended for use by him inter alia as raw materials
and processing materials in the manufacture or processing of
goods for sale.
The appellant owned tea estates in the respondent-State
and was also maintaining factories for the manufacture of
tea. It prayed for inclusion in its Certificate of regis-
tration, ( 1 ) fertilisers, chemicals, weedicides, insec-
ticides, fungicides and pesticides for use in tea cultiva-
tion; and (2) weighing and measuring and packing equip-
ments for use in tea estates. The Department refused to
include them and the Tribunal and the High Court confirmed
the orders.
In appeal to this Court it was contended that, (1)
cultivation and the growing of tea leaves was so integrally
connected with the manufacture of tea that it could be taken
to be a part of the process of manufacturing tea, and since
fertilisers etc. were needed for tea cultivation, the same
should be held to. be intended for use in the manufacture or
processing of tea for sale; and (2) since weighing equipment
used in the factories had been included in the certificate,
the weighing equipment used for the purpose of cultivation
should similarly be included.
Dismissing the appeal,
HELD: (1) The goods in item (1) are intended for use not
in the manufacturing process in respect of tea meant for
sale but are only needed for the cultivation and growth of
tea plants and leaves. There is no direct relationship
between the use of fertilisers etc. and the manufacturing
process and hence, they were rightly not included in the
registration certificate. [761 G]
(a) Cultivation and growth of tea plants result in the
production of raw material in the form of green tea leaves
which are ultimately processed into tea meant for sale. But
such cultivation and growth are, in the very nature of
things, prior to the manufacturing process and do not answer
to the description of manufacture and processing of tea
meant for sale. There is a vital difference between an
agricultural operation and a manufacturing process. What is
needed for use purely in an agricultural operation cannot be
held to be required for use in a manufacturing process. [762
D]
(b) The fact that the time lag between the plucking of
tea leaves and their being subjected to the manufacturing
process is very little would not detract
756
from the conclusion that the cultivation and growth of tea
plants is distinct and separate from the manufacturing
process. [761 C]
(c) Rule 24 of the Income Tax Rules, 1922, and r. 8 of
the Income Tax Rules, 1962, prescribe the formula which
should be adopted for apportioning the income realised as a
result of the sale of tea after it is grown and subjected
to the manufacturing process in the factory, thus recognis-
ing the difference between the agricultural income which is
yielded in the form of green leaves purely by the land over
which tea plants are grown, and the non-agricultural income
which is the result of subjecting the green leaves plucked
to a particular manufacturing process. [761 E]
(2) The same reasoning holds good in respect of weighing
machines used, not in the factories but, in the tea fields.
[762 E]
J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. The
Sales Tax Officer 16 STC 563. and Indian Copper Corporation
Ltd. v. Commission of Commercial Taxes 16 STC 259 fol-
lowed.
Tea Estate India (P) Ltd. v. Commissioner of Income-tax
103 ITR 785 referred to.
JUDGMENT
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1698 of 1971.
(Appeal by Special Leave from the Judgment and Order
dated 8-4-1971 of the Kerala High Court in T.R.C. No.
46/69).
S.T. Desai, A.G. Meneses, Markos Vellapilly and K.J.
John, for the Appellant.
K.T. Harindra Nath and K.M.K. Nair for the Respondent.
The Judgment of the Court was delivered by
KHANNA, J. This is an appeal by special leave against
the judgment of the Kerala Hight Court dismissing revision
petition of the petitioner against the order in appeal of
the Appellate Tribunal whereby the Tribunal refused to
include certain items in the sales tax registration certifi-
cate of the appellant.
The appellant, Travancore Tea Estates Co. Ltd., is a
company incorporated in England having its registered office
in London. The appellant carries on the business of tea
planting in India at Vandiperiyar in Peermade Taluk in
Kerala State. Eight tea estates are owned by the appel-
lant in Peermade Taluk. To manufacture tea grown in
those estates, the appellant maintains separate tea facto-
ries in each of those estates. On an application made by
the appellant for registration under. the Central Sales Tax
Act, 1956 (Act 74 of 1956) (hereinafter referred to as the
Act), the sales tax authorities granted registration certif-
icate to the appellant on January 9, 1963. Aggrieved by the
non-inclusion of certain items of goods in the registration-
certificate the appellant filed writ petition in the Kerala
High Court. The High Court directed the Sales Tax Officer
to decide the question regarding the inclusion of items in
the light of the decisions of this Court in 1. K. Cotton
Spinning & Weaving Mill3’ Co. Ltd. v.
757
The Sales Tax Officer (1) and Indian Copper Corporation
Ltd. v. Commissioner of Commercial Taxes.(2) The Sales Tax
Officer thereafter allowed the inclusion of some of the
items of goods asked for by the appellant in the registra-
tion certificate but refused to include certain other goods
in that certificate. The appellant thereupon preferred
appeal before‘ the Appellate Assistant Commissioner of
Sales Tax, Kottayam, who partly allowed the appeal by di-
recting further inclusion of certain items. The Appellate
Assistant Commissioner however, declined to include the
following items in the certificate in respect of which
prayer had been made by the appellant:
"1. Fertilisers, chemicals, weedicides, insecti-
cides, fungicides and pesticides for use in tea
cultivaton:
2. Cement and other building materials for
installing and housing tea machinery and equip-
ments:
3. Building materials, iron and hose-pipes,
sanitary fittings for use in estates and estate
factories ,’
4. Weighing and measuring and packing equipments
for use in tea estates; and
5. All other articles and things for use in
manufacture and processing of sale of tea."
The appellant then took the matter in further appeal before
the Appellate Tribunal and prayed for the inclusion in the
certificate of the above mentioned items. The Appellate
Tribunal did not accept the prayer of the appellant and
dismissed the appeal. Revision petition was thereupon filed
by the appellant before the Kerala High Court against the
order of the Tribunal.
In appeal before the High Court it was stated on behalf
of the appellant in respect of the first item relating to
fertilisers, chemicals, weedicides and insecticides, that
they were used for cultivation of tea leaves. The conten-
tion of the appellant was that the growing and manufacturing
of tea constituted one integrated process and therefore the
items of goods required for growing tea should be deemed to
be goods intended for use in the manufacture of tea within
the meaning of section 8(3)(b) of the Act. This contention
had also been advanced by the appellant earlier before
the Tribunal but the Tribunal rejected this contention as in
its view "the legislature has not included production by
agriculture as one of the operations for which goods can be
purchased under section 8 of the Central Sales Tax Act". The
Tribunal further held that merely because the agricultural,
process of the company is connected with the process of
manufacture, production of tea did not form part of the
manufacture and processing of tea. The High Court disa-
greed with this reasoning of the Tribunal and observed that
the expression "in the manufacture of goods" in section 8(3)
(b) of the Act normally encompasses the entire process
carried on by the dealer of converting the raw material into
finished goods. In the opinion of the High Court, the
growing of tea leaves
(1) 16 S.T.C. 563. (2) 16 S.T.C. 259.
758
was so integrally connected with the manufacture of tea that
it could reasonably be taken as a part of the process of
manufacturing tea. This circumstance, however, in the opin-
ion of the High Court, by itself was not sufficient to make
the goods eligible for inclusion in the registration certif-
icate. The High Court accordingly observed:
"Under rule 13 read with section 8(3) (b) the
use of the goods in the manufacture or processing
of goods for sale will not be a sufficient ground
for inclusion in the certificate. The further
requirement is that the goods must be for use as
raw materials or processing materials or machinery,
plant, equipment, tools, stores, spare parts,
accessories, fuel or lubricants. The first item,
namely, fertilisers, chemicals, insecticides, etc.
in our opinion cannot fall within the category of a
raw material or processing material or machinery
etc. The learned counsel for the company sought
to contend that fertilisers, chemicals etc. would
come within file category of stores mentioned in
section 8(3)(b) and that as such it is eligible for
specification in the certificate. We are unable to
agree with this submission. The word ’stores’ in
the context in which it appears in rule 13 has to
be necessarily goods intended for use in the manu-
facture or processing of goods for sale and it is
not possible to hold that fertilisers, chemicals,
weedicides, insecticides etc. can come within this
category. They are not in any way directly con-
nected with the manufacturing or processing of tea.
As pointed out earlier, the expression ’in the
manufacture’ can take within its compass only
processes which are directly related to the actual
production. As such the claim for inclusion of
this item in the Sales Tax Registration Certifi-
cate cannot be supported."
The prayer of the appellant regarding items (2), (3) and (4)
was also disallowed in the light of the observations of this
Court in the case of 1. K. Cotton Spinning & Weaving Mills
Co. Ltd. (supra). Item No. (5), in the opinion of the High
Court, was too vague and indefinite to deserve inclusion in
the certificate. In the result the revision petition was
dismissed.
Before dealing with the contentions advanced, it may be
useful to refer to the relevant provisions. Section 7 of
the Act makes provision for registration of dealers.
Section 8 of the Act deals with rates of tax on sales in the
course of inter-State trade or commerce. Clause (b) of
sub-section (1) of that section provides that every dealer,
who in the course of inter-State trade or commerce sells to
a registered dealer other than the Government goods of the
description referred to in sub-section (3) shall be liable
to pay tax under this Act which shall be 3 per cent, of his
turnover. The percentage before July 1, 1966 was two.
Sub-section 3(b) reads as under:
"(3) The goods referred to in clause (b) of sub-
section
(1)---
759
(b) are goods of the class or classes specified in
the certificate of registration of the registered
dealer purchasing the goods as being intended for
re-sale by him or subject to any rules made-by the
Central Government in this behalf, for use by him
in the manufacture or processing of goods for sale
or in mining or in the generation or distribution
of electricity or any other form of power;"
The Central Sales Tax (Registration and Turnover)
Rules, 1957 have been framed by the Central Govern-
ment.
Rule 13 of the rules reads as under:
"13. The goods referred to in clause (b) of sub-
section (3) of section 8 which a registered
dealer may purchase, shall be goods intended for
use by him as raw materials, processing materials,
machinery, plant, equipment tools stores, spare
parts, accessories, fuel or lubricants, in the
manufacture or processing of goods for sale, or in
mining, or in the generation of electricity or any
other form of power."
The question with which we are concerned in this appeal
is whether the items of goods in respect of which prayer of
the appellant for being included in the registration certif-
icate was refused, answer to the description of goods as
given in the above rule. Mr. Desai on behalf of the
appellant has not pressed the case of the appellant in
respect of item No. (5) which was found by the High Court to
be vagne and indefinite. He has also not made any sub-
missions in respect of items (2) and (3) relating to Cement
and building materials. The main contention of Mr. Desai has
related to item No. (1) pertaining to fertilisers, chemi-
cals, weedicides, insecticides, fungicides and pesticides
for use in tea cultivation. According to the learned coun-
sel, cultivation and the growing of tea leaves was so inte-
grally connected with the manufacture of tea that it could
be taken to be part of the process of manufacturing tea.
As fertilisers and othergoods mentioned in item (1) were
needed for tea clutivation, the same should, according to
the learned counsel, be held to be intended for use in the
manufacture or processing of tea for sale. Regarding item
(4), the case of the appellant is that though weighing
equipment used in the factories has been allowed to be
included in the certificate, the weighing equipment used for
the purpose of cultivation has not been included in the
certificate. The weighing equipment to be used for culti-
vation should also, it is urged, be included in the certifi-
cate.
The above contentions have been controverted by Mr.
Narendra Nath, and he has urged that neither the goods
mentioned in item No. (1) nor the weighing equipment needed
for cultivation are directly, connected with the process of
manufacturing tea.
After giving the matter our earnest consideration, we
are of view that the contention of Mr. Narendra Nath is
well-founded.
760
Rule 13 has been the subject matter of two. decisions of
this Court In the case of Indian Copper Corporation (supra),
the assessee was a dealer engaged both in mining operations
of copper and iron ore and the manufacturing of finished
products from the ore for sale. This Court held that the
two processes being inter-dependent, it would be impossible
to exclude vehicles which are used for removing from the
place where the mining operations were concluded to the
factory where the manufacturing process started, from the
registration certificate. The expression "goods intended for
use in the manufacturing or processing of goods for sale"
was held to include such vehicles as were intended to be
used for removal of processed goods from the factory to the
place of storage. The mere fact that there is a statutory
obligation imposed upon the owner of the factory or the mine
to maintain hospital facilities would not, in the opinion of
this Court, supply a connection between the goods and the
manufacturing or processing of goods or the mining opera-
tions so as to make them goods intended for use in those
operations. The expression "intended to be used". it was
further held, cannot be equated with "likely to facilitate"
the conduct of the business of manufacturing or of process-
ing goods or of mining.
In J. K. Cotton Spinning & Weaving Milis Co. Ltd.
(supra) the appellant manufactured for sale cotton tex-
tiles, tiles and other commodities. Certain items of goods
in the certificate of registration of the appellant were
deleted by the sales tax authorities on the ground that they
had been earlier erroneously included in the’ certificate.
This Court in that context dealt with the scope and ambit of
section 8(3) (b) of the Act read with rule 13. It was held
that the expression "in the manufacture of goods" in section
8(3)(b) should normally encompass the entire process car-
ried on by the dealer of converting raw materials into
finished good’s. Where any particular process is so inte-
grally connected with the ultimate production of goods that,
but for that process, manufacture or processing of goods
would be commercially inexpedient, goods required in that
process would fail within the expression "in the manufacture
of goods." It was further held that the process of design-
ing might be distinct from the actual process of turning out
finished goods. But there was no warrant for limiting the
meaning of the expression "in the manufacture of goods" to
the process of production of goods only. The expression
"in the manufacture" was held to take in within its compass
all processes which are directly related to the actual
production. Drawing and photographic materials directly
related to the actual production of goods were held to be
goods intended for use "in the manufacture of goods". Build-
ing materials, including lime and cement, not required in
the manufacture of tiles for sale was, however, held to be
not raw material in the manufacture or processing of goods
or even as "plant".
We may now turn to the present case. The question which
essentially arises for determination is whether fertilisers
and other goods mentioned in item No. (1) are intended for
use by the appellant as equipment or stores in the manufac-
ture or processing of tea meant for
761
sale, as urged on behalf of the appellant. The contro-
versy between the parties has centred round the point as to
whether fertilisers and other goods mentioned in item No.
(1) can be said to be goods intended for use in the manufac-
ture or processing of tea meant for sale. So far as this
question is concerned, we find that the growing and plucking
of tea leaves from the plants and the processing of those
leaves in the factories are parts of a continued activity.
The assertion of Mr. Desai that the tea leaves would lose
their value unless they are processed in the factory soon
after they are plucked is not being questioned. It does not,
however, follow from that that the cultivation of tea plants
and the growth of tea leaves is not something distinct from
the manufacturing process to which tea leaves are subjected
in the factories. The fact that the time lag between the
plucking of tea leaves and their being subjected to manufac-
turing process in the factories is very little would not
detract from the conclusion that the cultivation and growth
of tea plants and leaves is something distinct and separate
from the manufacturing process to which those leaves are
subjected in the factories for turning them into. tea meant
for sale. Income which is realised by sale of tea by a tea
company which grows tea on its land and thereafter subjects
it to manufacturing process in its factory is an integrated
income. Such income consists of elements or components.
One element or component consists of the agricultural income
which is yielded in the form of green leaves purely by the
land over which tea plants are grown. The second element or
component consists of non-agricultural income which is the
result of subjecting green leaves which are plucked from the
tea plants grown on the land to a particular manufacturing
process in the factory of the tea company. Rule 24 of the
Income-tax Rules, 1922 and rule 8 of the Income-tax Rules,
1962 prescribe the formula which should be adopted for
apportioning the income realised as a result of the sale of
tea after it is grown and subjected to the manufacturing
process in the factory. Sixty per cent. is taken to be
agricultural income and the same consists of the first
element or component, while 40 per cent represents non-
agricultural income and the same comprises the second ele-
ment or component (see Tea Estate India (p.) Ltd. v. Commis-
sioner of Income-tax(1).
Fertilisers and the other goods mentioned in item No.
(1) are intended for use not in the manufacturing process in
respect of tea meant for sale, they are essentially needed
for the cultivation and growth of tea plants and leaves.
There is no direct relationship between use of fertilisers
and other goods mentioned in item No. (1 ) and the manufac-
turing process in respect of tea meant for sale. What is
meant by manufacture of tea is clear from pages 863-4 of
Vol. 21 of Encyclopedia Britannica (1965 Edition) wherein it
is observed:
"Black and green teas result from different manufactur-
ing processes applied to the same kind of leaf. After
plucking, the leaf is withered by being spread on bamboo
trays in the sun, or on withering tats within doors. The
process takes 18 to 24 hours. Next it is rolled. by hand or
by machines. The object of rolling is to break
762
the leaf ceils and liberate the juices and enzymes sealed
within. The roll may last as long as three hours. Then it
is taken to the roll breaker and green leaf sifting machine
and after that fermented in baskets, on glass shelves or on
cool cement floors under damp cloth for 4 or 41/2 hours.
The firing process (drying) follows, in pans or baskets or
in firing machines. It takes 30 to 40 min. The difference
between black tea and green tea is the result of manipula-
tion. Green tea is manufactured by steaming without fermen-
tation in a perforated cylinder or boiler, thus retaining
some of the green colour. Black tea is allowed to ferment
after being rolled and before firing. In the case of black
tea the process of fermentation, or oxidation, reduces the
astringency of the leaf and, it is claimed, developes the
colour and aroma of the liquor. In making green tea, the
fermentation process is arrested by steaming the leaf while
it is green and by light rolling before drying."
The cultivation and growth of tea plants and leaves
cannot, in our opinion, be comprehended in the expression
"in the manufacture or processing of goods for sale".
Cultivation and growth of tea plants no ’doubt results in
the production of raw material in the form of green tea
leaves which are ultimately processed into tea meant for
Sale, but such cultivation and growth are in the very nature
of things prior to the manufacturing process and do not
answer to the description of manufacture and processing of
tea meant for sale. There is a vital difference between an
agricultural operation and a manufacturing process, and the
same should not be lost sight of. What is needed for being
used purely in an agricultural operation cannot be held to
be goods required for use in a manufacturing process. We
are, therefore, of the opinion that the appellant was not
entitled to get fertilisers and other goods mentioned in
item No. (1 ) included in the registration certificate.
The same reasoning would also hold good in respect of weigh-
ing machine used not in the factories but in the tea fields.
appeal consequently fails and is dismissed with coats.
V.P.S. Appeal
dismissed.
763