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Ram Chandra Badrinarayan v. State Of Orissa
Factual and Procedural Background
This is a reference under section 24(3) of the Orissa Sales Tax Act. The Tribunal was asked to state a case on the following question of law:
“Whether the proviso to section 5(2)(A)(a)(ii) has been violated by sale of mung and chana in the shape of mung dal and besan?”
The assessee is a registered dealer (No. CUI 1318). For the quarter ending 30 June 1963, the Sales Tax Officer found that the assessee had purchased mung, chana, biri and peas on the basis of statutory declarations that such goods would be resold in Orissa, and had been allowed deduction/exemption accordingly. Subsequently, the assessee converted some mung and biri into dal and converted chana and peas into besan. The assessing officer invoked the proviso to section 5(2)(A)(a)(ii) and raised a tax demand to the extent of the conversion. The assessee appealed; the Assistant Commissioner and the Sales Tax Tribunal upheld the assessment. Similar demands had been raised for four quarters (ending 30 June 1963, 30 September 1963, 31 December 1963, and 31 March 1964), but the assessee confined the challenge in this reference to the quarter ending 30 June 1963.
Legal Issues Presented
- Whether the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act is violated when goods purchased on the basis of declarations for resale in Orissa are converted and sold in a different form — specifically, whether sale of mung and biri as dal, and sale of chana and peas as besan, amounts to a breach of the declaration.
Arguments of the Parties
Assessee's Arguments (as represented by Mr. Mohanty)
- Biri and mung do not lose their identity when sold in the shape of dal; dal made from those pulses should be taken to be the same goods as the whole pulses that were purchased.
- Similarly, chana and peas sold as besan continue to be the same goods for the purposes of the declaration and thus do not amount to a violation.
- Counsel referred to a series of High Court and Supreme Court decisions in support of these contentions (the opinion records the references but states they do not throw direct light on the precise issue).
Respondent's Arguments (as represented by the learned standing counsel)
- The assessee has violated the terms of the declaration by not reselling the "same goods" as purchased; converting goods into something different (i.e., changing their form such that they are no longer the same commodity) brings the proviso into operation and makes the price of such goods includible in taxable turnover.
- Counsel also referred to multiple authorities and statutory provisions in support of this position (again, the opinion notes the referred cases but finds they are not directly determinative).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State Of Gujarat v. Sakarwala Brothers [1967] 19 S.T.C. 24 S.C. | Whether patasa or harda prepared out of sugar would still be sugar (i.e., whether a product remains the same commodity after processing). | The court noted this decision as an example of authorities considering whether a processed product remains the same commodity, but observed that such cases do not throw direct light on the present question. |
| Channulal Motilal v. Commissioner of Sales Tax [1965] 16 S.T.C. 297 | Decision on whether batasa, chiranji and mishri are to be treated as sugar. | Referred to as an instance where courts considered whether certain products should be classed as another commodity; the opinion records it but treats it as not directly decisive here. |
| State of Madras v. R.M. Krishnaswami Naidu [1970] 26 S.T.C. 42 S.C. | Consideration of correctness of assessee's claim to a lower rate under section 3(3) of the Madras General Sales Tax Act, 1959 (classification / rate issues). | Noted among authorities dealing with classification and rate issues; the court observed these precedents arise under different provisions and do not provide direct guidance for the precise issue before it. |
| Ghasi Ram Hari Ram v. Commissioner Of Sales Tax, Delhi [1972] 30 S.T.C. 88 | Consideration of what items would be covered by the expression "all forms of rice" (classification question). | Used as an example of judicial treatment of classification phrases; the opinion records it but finds it not directly determinative of the present issue. |
| State of Punjab v. Chandu Lal [1970] 25 S.T.C. 52 S.C. | Whether cotton seeds were a distinct commercial good different from ginned cotton (identity/classification question). | Cited as another authority addressing whether closely related products are distinct commodities; the court treated it as illustrative but not dispositive here. |
| Ganesh Trading Co. v. State of Haryana [1971] 27 S.T.C. 340 | Whether paddy and rice were two different commodities in the ordinary sense; the learned Judge was prepared to adopt the standard of "substantial identity". | The opinion highlights this decision's discussion of "substantial identity" as one possible test, but observes that the judge in that case treated paddy and rice as different. The present court considered such approaches but applied its own commercial/common-sense test. |
| Tilok Chand Prasan Kumar v. Sales Tax Officer (Allahabad High Court) | Treated whole pulses and dal (broken pulses) as the same commodity in the commercial sense. | The opinion relies on this authority as supporting the view that whole mung/biri and dal can be classed as the same goods in the popular and commercial sense; it informed the court's conclusion on mung/biri vs. dal. |
Court's Reasoning and Analysis
The court's analysis proceeded in these stages, closely following the text of the opinion:
- Statutory context: The court explained the relevant statutory framework. Section 5(2)(A) of the Orissa Sales Tax Act defines "taxable turnover" and permits deduction for sales to a registered dealer intended for resale in Orissa as shown in the dealer's certificate of registration. The proviso to section 5(2)(A)(a)(ii) provides that if such goods are used for purposes other than those specified in the certificate, the price of goods so utilised shall be included in taxable turnover.
- Procedural/formal requirement: Under rule 27(2) a statutory form has been prescribed; a claim for deduction must be evidenced by a declaration in that form. The factual dispute centers on whether the assessee violated the terms of that declaration.
- Purpose of the declaration: The court described the declaration and deduction scheme as part of a single point taxation system: declarations postpone the point of taxability until the goods ultimately pass to a consumer or unregistered dealer. If the dealer complies with the declaration terms, no liability arises; if the dealer contravenes the declaration (i.e., does not resell in Orissa in the manner declared), the proviso brings the price back into taxable turnover.
- Refinement of the question: The court reframed the question to include the other alleged conversions (biri to dal and peas to besan) because the record showed those conversions as well.
- Evaluation of identity: The court applied a "common sense" and "commercial" test to determine whether the converted product should be considered the same commodity as the purchased one. The decisive considerations were how the terms are understood in the commercial/popular sense and how the goods are commonly used:
- For mung and biri converted to dal: The court found that although some transformation occurs, whole mung/biri and dal are commonly put to the same uses and may be good substitutes; in the popular and commercial sense they may be classed as the same goods. The court cited Tilok Chand Prasan Kumar (Allahabad High Court) as treating the two as the same commodity. Accordingly, resale of dal in place of whole mung or biri did not amount to a violation of the declaration and would not attract liability under the proviso.
- For chana and peas converted to besan: The court held that besan stands on a different footing. Conversion to besan creates a commodity of very different use; besan would not be acceptable to one who needed chana or peas. Adopting the same commercial/common-sense test, besan cannot be accepted as the same commodity as chana or peas. Therefore, where the assessee purchased chana or peas on the undertaking of resale but converted them into besan and sold them, there was a violation of the declaration and tax liability arose under the proviso.
- Precedents: The court considered the cases cited by counsel (a mix of High Court and Supreme Court authorities), observed that the cited decisions addressed related but not identical issues (some dealing with manufacturing processes, others with classification like "cereals" or "pulses"), and concluded those authorities did not throw direct light on the precise question before the court. The court nonetheless drew on the reasoning of some authorities as illustrative of approaches to identity and classification (see table above).
- Conclusion and costs: Applying the statutory text and the commercial/uses test, the court reached its conclusions on the two species of conversion and directed that both parties bear their own costs of the reference.
Holding and Implications
Core Holding: The court held that there is no violation of the proviso to section 5(2)(A)(a)(ii) when mung and biri purchased for resale are sold in the shape of dal; but there is a violation when peas and chana purchased for resale are converted into besan and sold as such.
Implications:
- Direct effect on the parties: For the quarter in question (30 June 1963), the conversion of mung and biri into dal does not attract inclusion of the price in taxable turnover under the proviso; however, the conversion of chana and peas into besan does attract liability under the proviso, because it amounts to a violation of the declaration.
- Costs: The court directed that both parties shall bear their own costs of this reference.
- Precedential effect: The opinion does not assert or describe any broader legal rule beyond its reasoning applying the commercial/common-sense test to the facts; it resolves the factual-legal question for the present reference. The opinion did not state that it was setting any new general precedent beyond its holding on these facts.
Reference answered accordingly. (R.N. Misra, J.; B.K. Ray, J. agreed.)
R.N Misra, J.:— This is a reference under section 24(3) of the Orissa Sales Tax Act (hereinafter referred to as the Act). This court called upon the Tribunal to refer the following question of law and state a case for determination of the said question:
“Whether the proviso to section 5(2)(A)(a)(ii) has been violated by sale of mung and chana in the shape of mung dal and besan?”
2. The assessee is a registered dealer bearing No. CUI 1318. When he came to be assessed for the quarter ending 30th June, 1963, the Sales Tax Officer found that the petitioner had purchased mung, chana, bin and peas by giving declaration as required under the Act that he would resell such goods in the State of Orissa and had thus been exempted from payment of sales tax. Subsequently, he converted some mung and biri to dal. Similarly, he converted chana and peas to besan. To the extent the assessee converted the goods purchased on the basis of declarations into either dal or besan the assessing officer took action under the proviso to section 5(2)(A)(a)(ii) of the Act and raised demand. The assessee disputed the demand in appeal. From the appellate order it transpires that similar demands had been raised against the assessee for four quarters at a time being quarters ending 30th June, 1963, 30th September, 1963, 31st December, 1963, and 31st March, 1964. The assessee has, however, confined his challenge to the quarter ending 30th June, 1963, in this case.
3. The Assistant Commissioner as also the Sales Tax Tribunal upheld the assessment by holding that the assessee had attracted the liability under the proviso to section 5(2)(A)(a)(ii) of the Act and the demand was, therefore, justified. Section 5(2)(A) of the Act deals with “taxable turnover”. “Taxable turnover” is said to mean—
“A dealer's gross turnover during any period which remains after deducting therefrom:
(a) his turnover during that period on—
(i) the sale of any goods notified from time to time as tax-free under section 6 and of the packing materials, if any, in respect of such goods.
(ii) sales to a registered dealer of goods specified in the purchasing dealer's certificate of registration as being intended for resale by him in Orissa and on sales to a registered dealer of containers or other materials for the packing of such goods.”
4. The proviso is to the following effect:
“Provided that when such goods are used by the registered dealer for purposes other than those specified in his certificate of registration, the price of goods so utilised shall be included in his taxable turnover.”
5. Under rule 27(2) a statutory form has been prescribed. A claim laid for deduction has to be evidenced by a declaration in such form.
6. To answer the question called for all that is necessary to be determined is whether there has been a violation in the declaration of the assessee that the goods purchased by him for resale in Orissa have really been so resold. A single point taxation system has been adopted under the Orissa Sales Tax Act. The point of taxability is open to be fixed under section 8 of the Act. Ordinarily, that point is postponed until in a series of sales the goods ultimately passes to a consumer or to an unregistered dealer. The method of obtaining a declaration as referred to above and postponing the point of taxability is the method adopted under the Act to give effect to the single point of taxation. If the assessee, who has given the declaration and has become entitled to deduction in respect of the goods covered by the declaration from his taxable turnover, does not violate the terms of the declaration, no liability accrues against him in regard to the exempted turnover. If, however, there is a violation of the terms of declaration when such goods are not resold in Orissa, under the proviso the price of such goods so utilised (in violation) is to be added back to the taxable turnover.
7. Before we proceed further we think it appropriate to modify the question slightly because from the records of the case it transpires that the alleged violation was not only in respect of mung and chana, but also in respect of biri and peas. We shall, therefore, reframe the question in the following way:
It has now to be found out whether the goods which the assessee purchased on giving declarations that such goods would be resold in Orissa have been sold in the shape of such goods or not. Mr. Mohanty for the assessee contends that biri and mung have not lost their identity when) sold in the shape of dal and must be taken to be the same goods. Similarly chana and peas sold as besan continue to be the same goods and, therefore/, there has really been no violation of the conditions in the declarations. The learned standing counsel's contention is that the assessee has violated the conditions by not selling the same goods as he purchased by giving the declarations, but having converted the goods into something different from what it had been at the time of the assessee's purchase upon furnish ing of the declarations. The learned counsel for both sides have referred to us a series of cases of different High Courts and of the Supreme Court in support of their respective stands. These cases, however, do not throvy any direct light on the point. Particular provisions in different State laws of sales tax, Rules made under the Central Excise Act or other statutory orders led to disputes which came to be resolved in these decisions. In some of these decisions what was decided was whether there was any manufacturing process in converting one goods to another. In some other decisions, whether a particular commodity was covered by the term “cereals” or “pulses” was decided. Whether patasa or harda prepared out of sugar would still be sugar was decided by their Lordships of the Supreme Court, in State Of Gujarat v. Sakarwala Brothers [1967] 19 S.T.C 24 S.C.. In Channulal Motilal v. Commissioner of Sales Tax [1965] 16 S.T.C 297., batasa, chiranji and mishri were sugar was decided. In State of Madras v. R.M Krishnaswami Naidu [1970] 26 S.T.C 42 S.C., their Lordships of the Supreme Court were considering the correctness of the assessee's claim to the lower rate of taxation under section 3(3) of the Madras General Sales Tax Act, 1959. In Ghasi Ram Hari Ram v. Commissioner Of Sales Tax, Delhi [1972] 30 S.T.C 88., a Bench of the Delhi High Court was considering what items would be covered by the expression “all forms of rice”. In State of Punjab v. Chandu Lal [1970] 25 S.T.C 52 S.C, their Lordships were considering whether cotton seeds were a distinct com-mercial goods different from ginned cotton. In Ganesh Trading Co. v. State of Haryana [1971] 27 S.T.C 340, a learned single Judge of that court came to hold that paddy and rice were two different commodities in the ordinary sense of the term and one could not be equated with the other. The learned Judge was prepared to adopt the standard of substantial identity for testing the correctness of the contention as to whether paddy and rice form the same commodity.
8. What is necessary in the present case for determination is as to whether sale of mung dal and biri dal can be taken to be sale of mung and biri respectively, and sale of peas besan and chana besan can be taken to be sale of peas and chana respectively. One has ultimately to take a common sense view of the matter. The terms as understood in the commercial sense and with reference to their use must be kept in view in order that a correct conclusion may be reached. Would a man going to the market to buy biri or mung purchase dal of that commodity and, similarly, would a man going to the market to buy chana or peas be satisfied if besan of that commodity is offered? Dal or broken mung and biri may often form a good substitute for whole mung or whole biri and one may be a good substitute for the other.
9. The identity of the goods is often based upon the use of the commodity. Mung and biri as whole or broken ones may be available to be used for the same purpose and except in some instances be good substitute for one another. In Tilok Chand Prasan Kumar v. Sales Tax Officer, the Allahabad High Court has treated the two to be the same commodity. In the popular and commercial sense whole mung and biri and dal made out of it may really be classed as the same goods. True there is some transformation when the whole mung or biri is broken and by look the two commodities may be different, but in view of the fact that they are mostly put to the same use and in the popular and commercial sense not much difference is maintained between the one and the other, sale of mung and biri in the shape of dal may be taken as sale of such goods. As such, resale of dal in place of mung or biri would not give rise to a violation of the condition of the declaration and, as such, would not attract liability under the proviso to section 5(2)(A)(a)(ii) of the Act.
10. Besan, however, must stand on a very different footing. Not only is there a change in the form, but there is also brought into existence a commodity of very different use. Adopting the same test as indicated above, besan cannot be accepted in the popular and commercial sense to be the same commodity as peas or chana. Besan does not have the same use as chana or peas and one needing chana or peas would not be prepared to accept its besan in its place. When the assessee purchases chana or peas with the undertaking that he would resell them in Orissa, but converts the same into its besan and sells, there is really a violation of the condition in the declaration giving rise to the tax liability under the proviso. Our answer to the question, therefore, shall be that there is no violation of the declaration contemplated under section 5(2)(A)(a)(ii) of the Act by sale of biri and mung in the shape of dal, but there is such violation when peas and chana are converted into besan and sold as such. We direct both parties to bear their costs of this reference.
B.K Ray, J.:— I agree.
11. Reference answered accordingly.
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