Citation Codes

Equivalent Citations

citation codes

Case Number

Tax Revn. Cases Nos. 65 and 125 of 1966

Advocates

For the Appellant: Government Pleader

Judges

K.K Mathew
T.S Krishnamoorthy Iyer
V. Balakrishna Eradi, JJ.

Acts

Section 203(b)(6) of the Federal Motor Carrier Act, Motor veiicles
Section 5(vii) of the General Sales Tax act 1125 (Act 11/1125)
M.P General Sales Tax Act, 1958
Madras General Sales Tax Act.

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Smart Summary

Structured Summary of the Opinion — Balakrishna Eradi, J.

Factual and Procedural Background

These two Tax Revision Cases were heard together as they raised a common question. The revision petitioners are registered dealers trading in articles of footwear made of rubber. The petitioner in T.R.C. 65/66 had his place of business at "Koftiayam" and the petitioner in T.R.C. 125/86 conducted trade in "Eraf iitulam" (spellings as in the provided opinion).

Both petitioners were assessed to sales tax by their respective Sales Tax Officers in respect of turnover from sales of rubber chappals. It was common ground that the petitioners purchased two component parts — foam rubber soles and strap mouldings — from manufacturers within the State, and sales tax had been levied on those sales by the manufacturers.

The assessments treating the petitioners' sales of chappals as taxable were confirmed by the Appellate Assistant Commissioners and by the Sales Tax Appellate Tribunal. The petitioners challenged the legality of those assessments in these Tax Revision Cases before this Court.

Legal Issues Presented

Whether the sales of rubber chappals by the petitioners constituted taxable "first sales" within the State under Section 5(vii) of the General Sales Tax Act (Act 11/1125) read with Item No. 5 of Schedule I and the Government notification (S.F.O. No. 100/62) specifying the taxable point as the point of first sale.
Whether the assembly of pre-taxed component parts (foam rubber soles and strap mouldings) into finished chappals changes the commercial identity of the goods so as to render the petitioners' sales "first sales" of a different commodity, thereby attracting tax.

Arguments of the Parties

Petitioners' (Appellants') Arguments

The chappals sold by the petitioners are rubber products covered by Item No. 5 of Schedule I and thus, since the components (soles and straps) had already been sold by manufacturers in the State and taxed at the point of first sale, further sales should not be treated as taxable first sales.
The chappal simply consists of the rubber sole and the rubber strap moulding purchased by the petitioners; assembling these components into a chappal is not a substantive transformation. The assembly required no elaborate manufacturing process — only the application of a little physical pressure to attach the strap to the sole — and therefore did not change the identity of the rubber product.
Counsel relied on East Texas Lines v. Frozen Food Express (U.S. Supreme Court) to argue that processing which does not change the substantial identity of a product should not exclude it from exemption or classification as the original commodity.

Respondents' (Assessing Authorities') Arguments / Position

The finished product sold by the petitioners — the chappal — has a distinct commercial identity different from the separate soles and strap mouldings purchased from manufacturers.
Because the chappal is a distinct commodity when assembled and sold, the sales by the petitioners constituted first sales of that commodity within the State and were therefore correctly assessed to tax.
The Assessing Officers, Appellate Assistant Commissioners and the Sales Tax Appellate Tribunal consistently held that the assembled chappal is not the same commodity as the separately sold components and so the petitioners' turnover was properly taxable.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
East Texas Lines v. Frozen Food Express, (1956) 351 US 49 : 100 Law Ed. 7	That processing which renders a commodity marketable without changing its substantial identity does not convert it into a "manufactured" commodity (example: dressed poultry remains recognisably chicken).	The Court observed this decision, but held it would only support the limited proposition that soles, straps and chappals are all rubber products; it does not resolve whether the assembled chappal is the same identical commodity as the separately sold components. The Court found the authority not helpful on the precise identity issue before it.
Raghbir Chand Som Chand v. Excise and Tax Officer, (1960) 11 STC 149 (Punjab)	Interpretation and scope of statutory words (in that case, "Cotton").	The Court said this decision merely interprets the scope of a word in its statute and is not of assistance to the petitioners on the identity question in the present cases.
Iyanar Coffee and Tea Co. v. State of Madras, (1962) 13 STC 290 (Mad)	Interpretation and scope of statutory words (in that case, "Coffee").	The Court treated it similarly to Raghbir Chand: it interprets the scope of the statutory word and does not assist the petitioners' argument on whether an assembled article is the same commodity as pre-taxed components.
State of Madhya Bharat v. Hiralal, (1966) 17 STC 313 : AIR 1966 SC 1546	Interpretation of statutory descriptions of goods ("Iron and Steel" context in cited decision).	The Court regarded it as another illustrative decision on statutory word-meaning which did not advance the petitioners' case on the identity of the assembled chappal versus its parts.
Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool, (1960) 11 STC 827 : AIR 1961 SC 412	Held that hydrogenated groundnut oil continued to be "groundnut oil" after processing when processing only improved keeping quality without changing essential nature; applied the "test of user" (use and purpose remain identical).	The Court extracted the "test of user" from this decision and applied it: since foam soles and strap mouldings cannot, by themselves, be used for the purposes for which a chappal is used, the test supports treating a chappal as a different commodity from its parts.
Hajee Abdul Shukoor and Co. v. State of Madras, (1964) 15 STC 719 : AIR 1964 SC 1729	Considered whether tanned hides and skins are different commodities from raw hides and skins; answered in the affirmative because they are different as articles of merchandise.	The Court relied on this authority as supporting the proposition that commercially recognized differences arising from processing can result in a different commodity — a principle applied to hold that chappals are commercially distinct from soles and straps.
State of Travancore-Cochin v. S.V.C. Factory, (1953) 4 STC 205 : AIR 1953 SC 333	Held that raw cashewnuts become a different commodity commercially after being processed into edible kernels.	Used as analogous authority to show that application of a process (even relatively simple) can convert components into a commercially distinct product (applied to chappal).
Commissioner of Sales Tax v. Jaswant Singh Charan Singh, (1967) 19 STC 469 : AIR 1967 SC 1454	On construing the word "coal": the appropriate test is the meaning persons dealing with or purchasing the commodity would ordinarily attach; emphasises ordinary commercial parlance.	The Court cited this to support using ordinary commercial sense and the viewpoint of dealers/consumers in determining whether an assembled article (chappal) is the same commodity as its parts; applied to conclude chappal has a distinct commercial identity.

Court's Reasoning and Analysis

The Court began by identifying the relevant statutory provision: Section 5(vii) of the General Sales Tax Act (Act 11/1125) and Item No. 5 of Schedule I (rubber products other than specified exclusions), together with the Government notification S.F.O. No. 100/62 specifying the taxable point as the point of first sale in the State by a dealer not exempt under the Act.

The principal legal question was whether the petitioners' sales of assembled chappals were sales of the same goods as the soles and strap mouldings previously sold (and taxed) by manufacturers, or whether the assembled chappal was a different commodity whose sale amounted to a first sale within the State.

The Court considered petitioners' submissions, including reliance on foreign authority (East Texas Lines) and the contention that assembling straps and soles did not change the identity of the rubber product because the operation was simple and did not amount to substantive manufacture.

The Court found East Texas Lines inapposite to the specific identity issue: while that case supports the broader proposition that some processing does not alter a commodity's identity, it does not address whether an assembled article (chappal) is the same as separately sold component parts.

The Court then examined Indian authorities which address the question of when processing or combination yields a different commodity. It distilled a controlling approach from those decisions: (a) apply the "test of user" — whether the processed/assembled article can be used for the same purposes as the original product; and (b) apply a commercial-meaning test — how dealers and consumers would ordinarily understand the commodity in common parlance and commerce.

Applying these tests, the Court observed that neither the foam rubber sole nor the strap moulding by themselves can be used for the purpose for which a chappal is used. Therefore, under the "test of user," the components are not identical in use to the finished chappal.

The Court also noted that straps and soles are separately saleable commodities in the market (one petitioner had himself sold cut-soles and straps and had the relevant turnover exempted on the ground that he was not the first seller in respect of those articles). This demonstrated that the components have independent commercial existence, and when combined they produce a well-known variety of footwear with its own commercial identity.

On these foundations — the test of user, ordinary commercial meaning, and the marketability and separate existence of components — the Court concluded that the assembled chappal is a different commodity from the separately sold soles and straps, and that sales of the assembled chappal by the petitioners constituted first sales within the State liable to tax.

Holding and Implications

HOLDING: The Court held that the sales of chappals by the petitioners were first sales of a distinct commodity within the State and were properly assessed to sales tax. The Revision Petitions failed and were dismissed with costs. (Final line in the opinion: "Petitions dismissed.")

Implications: - Direct effect on the parties: The tax assessments on the petitioners' turnover from sales of chappals are affirmed; the revision petitions were dismissed and the petitioners must bear costs. - Broader legal implication: The Court applied established tests (the "test of user" and ordinary commercial meaning) to determine when assembled or processed goods constitute a new commodity for sales tax purposes. The opinion applies existing precedents to the facts but does not purport to lay down a novel rule beyond those applications. The opinion does not discuss any broader policy changes or the creation of a new legal precedent beyond its application to these facts.

Note: All summaries and citations in this document are drawn exclusively from the provided opinion text. No information not present in the source material has been added.

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Mrs. Achamma Sebastian And Another, v. The State Of Kerala .

The Judgment of the Court was delivered by

Balakrishna Eradi, J.:— These two Tax Revision Cases raise a common question and have, therefore, been heard together.

2. The revision petitioners are registered dealers conducting trade in articles of forotwear made of rubber. The petitioner in T.R.C 65/66 has her place of business at Koftiayam while the petitioner in T.R.C 125/86 conducts his trade in Eraf iitulam. Theywere assessed to tax by the respective Sales tax Officers in respect of the turnover relating to the sale of rubber chap pals and it is the legality of the assessment of such turnover that is questioned before us in these two revision cases. It is common ground that the petitioners purchased the two component parts which went to make the chappals, namely, the foam rubber soles and the strap mouldings from manufacturers within the State and that Sales Tax had been levied on the sales of such parts effected by the manufacturers to the … Petitioners;

3. Under Section 5(vii) of the General Sales Tax act 1125 (Act 11/1125) which is the relevant statute governing these cases, the sale of goods specified in column (2) of Schedule I Shall be liable to tax only at such single ??? the series of sales by successive dealer Mas may be specified by the Government but notification in the Gazette; and, where the ??? point so specified is a point of ??? the seller shall be liable for the tax one turnover for which the goods are sold ??? at such point. The following goods ??? mentioned as Item No. 5 in Schedule I “Rubber products other than cycle ??? tubes and rubber accessories of cycles”. in the rate of tax in respect of them is spoiled as 7 per cent By Notification S.F.O No. 100/62 the Government have specified the taxable point in respect of such good as the point of first sale in the State by a ??? who is not exempt from taxation under sub-section 3(3) of the Act.

4. The ??? on of the petitioners is that what ??? sold by them as chappal is a rubber ??? on which tax has been already ??? point of first sale within the State namely the sales to them of the soles and state ??? by the manufacturers and that therefore the further sales effected by ??? rubber products are not ??? taxed in other words, their ??? that what has been sold by them as ??? is the same rubber product which has ??? been subjected to tax at the point ??? sale within the State. The ??? rites rejected this contention ??? even though the chappals sold by ??? Petitioners were undoubtedly rubber ??? they were not the same as the rubber ??? which had been previously subjected to tax at the point of first sale by the manufacturers. In the view of the assessing authorities, the finished product ??? the chappal, sold by the petitioners had a distinct commercial identity of its own, different from that of the soles and all was mouldings purchased by the petitioners and that therefore, it could not be said that he disputed turnover relating to sales of the same rubber product which had been purchased by the petitioners from the manufacturers under sales already subjected to tax the assessing officers accordingly held that the sales of chappals effected by the petitioners were the first sales within the, State of that particular commodity and were/therefore, liable to be taxed. The assessments were confirmed by the Appellate Assistant Commissioners and also by the Sales Tax Appellate Tribunal whereupon the petitioners have approached this court by these Tax Revision Cases

5. The learned counsel for the petitioners contended that the chappals sold by his clients being admittedly rubber products, they are covered by item 5 of the first schedule to the Act and that therefore the turnover relating to the sales of chappals by his clients should not have been ??? to taxation since the sales effected his clients were not the first sales of ??? particular goods within the State. The ??? is that the chappal consists of ??? component parts, namely, the rubber See and the rubber strap moulding, both oil which had been purchased by his clients ??? sales which had been subjected to ??? and that the mere fact that they fixed it strap on to the sole and sold the ??? as chappal would not in any way, ??? identity of the articles so as to attract ??? to tax. Counsel laid considerable ??? the fact that for attaching the strap ??? sole no elaborate process of manufactireyas necessary and that all that was ??? in assembling the two parts was ??? Application of a little physical pressure. I was, therefore, urged that the assess ??? and the appellate authorities were ??? justified in holding that what was ??? the petitioners as chappal was a rubber product different from what had been Purchased by them as soles and strap ???

6. Reliance was placed by counsel on the decision of the U.S.S upon Court in East Texas Lines v. Frozer food Express, (1956) 351 US 49 : 100 Law Ed. 7 in support of his contention that the sols and straps purchased by his clients cannot be regarded as having ceased to be the same rubber products even after they we sembled into chappals. Under Section 203(b)(6) of the Federal Motor Carrier Act, Motor veiicles used in carrying property consist) agricultural commodities (not induce manufactured products thereof) were ??? from the scope of the Regulatory ??? of Part II of the said Act subject to certain conditions. Construing this provision, the U.S Supreme Court held that the exemption extends to vehicles carrying fresh or frozen dressed poultry. The court expressed the view that a chicken that has been killed and ??? still remains a chicken and that the removal of its feathers and entrails only made it ready for the market. On this ground, it was held that the processing which made a chicken marketable without changing its substantial identity did not turn it into a “manufactured” commodity. In our view, this decision would, if at all, only help the petitioners to contend that the straps, the soles as well as the chappal are all rubber products, and would not advance their case any further. In fact, it is not disputed by the respondents that ‘chappal’ falls within the category of ‘rubber products’ and what is contended is only that it is not a rubber product in respect of which there has been an anterior transaction of sale by any dealer within the State liable to be assessed to Sales Tax. We find nothing in the aforesaid decision which would throw any light on the question as to whether the product sold by the petitioners as chappal can be said to be the same or identical commodity which they purchased separately as straps and soles from the manufacturers of these component parts.

7. The petitioners' counsel cited before us the rulings reported in Raghbir Chand Som Chand v. Excise and fax Officer, (1960) 11 STC 149 (Punj.), Iyanar Coffee and Tea Co. v. State of Madras, (1962) 13 STC 290 (Mad) and State of Madhya Bharat v. Hiralal, (1966) 17 STC 313 : (AIR 1966 SC 1546). These decisions merely interpret and explain the scope and ambit of the words “Cotton”, “Coffee” and “Iron and Steel” occurring in the concerned statutes governing those cases and they are not therefore of any assistance to the petitioners.

8. Another decision relied on by the learned counsel for the petitioners is the ruling of our Supreme Court reported in Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool, (1960) 11 STC 827-(AIR 1961 SC 412) wherein it was held by their Lordships that hydrogenated groundnut oil continued to be “groundnut oil” notwithstanding the processing which was done merely for the purpose of rendering the oil more stable. Their Lordships pointed out that the hydrogenated oil was extracted from groundnut and that even after hydrogenation no change had occurred in its essential nature and it remained an oil in repelling the contention that by reason of the absorption of hydrogen atoms in the process of hardening involved in hydrogenation and the consequent inter-molecular changes, the identity of the substance was necessarily affected, their Lordships have observed thus at p. 835 (of STC) — (at p. 417 of AIR):

“Both the Tribunal as well as the High Court have pointed out that except for its keeping quality without rancidity and case of packing and transport without leakage, hydrogenated oil serves the same purpose as a cooking medium and has identical food value as refined groundnut oil. There is no use to which the groundnut oil can be put for which the hydrogenated oil could not be used, nor is there any use to which the hydrogenated oil could be put for which the raw oil could not be used. Similarly we consider that hydrogenated oil still continues to be ‘groundnut oil’ notwithstanding the processing which is merely for the purpose of rendering the oil more stable thus improving its keeping qualities for those who desire to consume groundnut oil.”

9. If the test of user indicated by their Lordships is to be applied to the present case, it does not admit of doubt that the foam rubber sole or the strap moulding cannot by itself be used for the purpose for which ‘chappal’ is normally used. Going by this test therefore, the petitioners' contention that the commodity purchased by them as soles or straps and that sold by them as chappal are identical cannot stand.

10. In Hajee Abdul Shukoor and Co. v. State of Madras, (1964) 15 STC 719 : (AIR 1964 SC 1729) the Supreme Court had to consider the question whether tanned hides and skins are different commodities from raw hides and skins and whether they could be validly treated as different goods for the purposes of the Madras General Sales Tax Act. Their Lordships answered the question in the affirmative on the ground that “hides and skins in the untanned condition are undoubtedly different as articles of merchandise than tanned hides and skins.” Reference may also be made to State of Travancore-Cochin v. S.V.C Factory, (1953) 4 STC 205 : (AIR 1953 SC 333) in which the Supreme Court held that raw cashewnuts become a different commodity commercially after the application of certain process as a result of which they are converted into edible kernels. In Commissioner of Sales Tax v. Jaswant Singh Charan Singh. (1967) 19 STC 469 : (AIR 1967 SC 1454) the Supreme Court, while affirming the decision of the Madhya Pradesh High Court that the word “coal” occurring in entry 1 of Part III of Schedule II to the M.P General Sales Tax Act, 1958 would include ‘charcoal’ has observed as follows at p. 473 (of STC) at p. 1457 of AIR

“The result emerging from these decisions is that while construing the word ‘coal’ in entry 1 of Part III of Schedule II, the test that would be applied is what would be the meaning which persons dealing with coal and consumers purchasing it as fuel would give to that word A sales tax statute, being one levying a tax on goods, must, in the absence of a technical term or a term of science or art, be presumed to have used an ordinary crib? as coal according to the meaning as ??? common parlance. Viewed coal a ??? 181 an koth a merchant dealing in would ??? a consumer wanting to purchase it but in the ??? not ??? sense include sense as ordinarily understood and it is one ??? term ‘coal’, variety ??? kind or would be ??? arise that a distinction otherwise ??? between coal and charcoal; parlance as also of ??? would in ordinary their commercial sense be spoken as coal.”

11. Thus any other test to be applied for determining whether the commodity purchased by the pettier is the same as what dealing in the ??? a consumer purchasing such goods would understand the word ‘chappal’ to me ??? a sole or the strap by itself ??? the chappal is an article consisting of a ??? of the strap moulding and the ??? sole it is commercially distinct ??? these parts or ingredients and has ??? identity of its own as a well-known variety of fotwear when the strap and the sole ??? conpined and sold as chappal, the produced is a different entity and has a new identity.

12. There is also the further fact that the straps as well as he soles are commodities saleable as such in the market. The petitioner in TRC No. 125 of 1966 has himself effected several sales of cut-soles and straps as such during the assessment year in question and the relative turnover has been exempted from ??? on the ground that he is not the first seller in respect of those articles. It would thus be clear that the straps and the sole, have a separate commercial identity of there own quite distinct from that of a chappal.

13. We are therefore of the view that the turnover in dispute does not represent sales by the petitioners of the very same commodities which they had purchased from the manufacturers as soles or straps. The sales of chappals efftected by the petitioners were first sales of the said goods within the State and were therefore rightly assessed to tax. The Revision Petitions, therefore, fail and are according dismissed with costs.

RSK/D.V.C

14. Petitions dismissed.

Mrs. Achamma Sebastian And Another, v. The State Of Kerala .

Structured Summary of the Opinion — Balakrishna Eradi, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' (Appellants') Arguments

Respondents' (Assessing Authorities') Arguments / Position

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Mrs. Achamma Sebastian And Another, v. The State Of Kerala .

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