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Krupasindhu Sahu & Sons v. State Of Orissa
Concise Analytical Summary of the Opinion
Factual and Procedural Background
The Tribunal, by its appellate order dated 26th December 1970, referred a question of law to the High Court under section 24(1) of the Orissa Sales Tax Act, 1947. The referred question arose from a factual matrix in which the petitioner (a registered purchasing dealer) bought round logs (timber) from registered dealers free of tax—on the basis of an entry in his certificate of registration and a declaration in Form XXXIV under rule 27(2)—with the intention of resale in Orissa. Before resale, the logs were cut into sizes at saw mills and thereafter resold in Orissa. All taxing authorities (Sales Tax Officer, Assistant Commissioner of Sales Tax and the Tribunal) concluded that the petitioner had contravened the proviso to section 5(2)(A)(a)(ii) of the Act by converting the purchased logs into sized wood and thereby invoked the proviso to include the price in taxable turnover.
The High Court was therefore asked to determine whether the Tribunal was correct in holding that conversion of the purchased round logs into sized wood constituted contravention of the proviso to section 5(2)(A)(a)(ii). The Court accepted the reference, modified the question, and directed further inquiry by the Tribunal into the factual nature of the sizing/conversion.
Legal Issues Presented
- Whether, on the facts and circumstances of the case, the Tribunal was right in holding that there was contravention of the proviso to section 5(2)(A)(a)(ii) because the assessee purchased round logs free of tax for resale in Orissa but converted them into sized wood and then resold the same.
- More precisely framed by the Court: whether the act of sizing original timber logs had the effect of changing their essential commercial character such that they ceased to be the same commodity ("timber") as entered in the dealer's certificate of registration, thereby bringing the transaction within the proviso to section 5(2)(A)(a)(ii).
Arguments of the Parties
Petitioner's Position
- The petitioner purchased timber logs from registered dealers free of tax relying on his certificate of registration (timber being specified as intended for resale) and on the declaration in Form XXXIV under rule 27(2).
- The petitioner relied on a Bench decision of the Andhra Pradesh High Court (G. Ramaswamy v. State of Andhra Pradesh) which, according to that decision, treats planks, rafters, cut sizes, etc., obtained from logs as "timber" in commercial usage; the petitioner cited that decision in support of his contention that sized wood may still be "timber".
Taxing Authorities' Position
- The Sales Tax Officer, the Assistant Commissioner of Sales Tax and the Tribunal held that by cutting logs into sizes at saw mills, the petitioner converted the purchased timber into a different commodity and thereby contravened the proviso to section 5(2)(A)(a)(ii), so that the price of goods utilised must be included in taxable turnover.
- The record before the Court, as noted by the opinion, contained only brief statements (for example that timbers were "cut into sizes by saw mills") and lacked any clear description of how the timbers were sized or the nature of the conversion relied upon by the taxing authorities.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Ganesh Trading Co., Karnal v. State of Haryana [1973] 33 S.T.C. 623 S.C. | Principle: In interpreting entries in a Sales Tax Act, the relevant test is common parlance/commercial understanding rather than strict dictionary meaning. | The Court relied on this Supreme Court dictum to adopt an approach that asks how "timber" is understood in commercial/parlance usage when deciding whether sized wood remains the same commodity as the purchased logs. |
| Shaw Bros. & Co. v. State of West Bengal (Calcutta High Court, single Judge) | Held that planks made from logs or damaged wood constitute a new kind of commodity; plank made out of timber is not timber in its nascent state. | The High Court in this opinion observed that on the test adopted by it the Calcutta decision was correctly decided and consistent with the commercial-usage test used by this Court to determine when conversion produces a different commodity. |
| Bachha Tewari v. Divisional Forest Officer [1963] 14 S.T.C. 1067 | Held that timber chopped and converted into firewood would not be treated as timber. | The Court regarded this decision as correctly decided under the commercial-usage test: conversion into firewood removes the commodity from the category of "timber" in common parlance. |
| State of Orissa v. Rajani Timber Traders [1974] 34 S.T.C. 374 (Orissa High Court Bench) | Observed that timber logs and sized timbers are different commodities in the commercial sense. | The present Court criticized that dictum as too widely stated and not sufficiently precise; it held that the Rajani Timber Traders decision does not supply clear guidance as to the circumstances in which sizing will or will not alter the essential commercial character of timber. |
| G. Ramaswamy v. State of Andhra Pradesh [1973] 32 S.T.C. 309 (Andhra Pradesh High Court) | Held (as interpreted by that Court) that planks, rafters, cut sizes, etc., obtained from logs of wood are "timber" in the commercial usage prevailing in Andhra Pradesh. | The High Court in the present opinion declined to follow that conclusion insofar as it treats all sized products as timber; it distinguished that decision on the ground that the Andhra decision involved affidavits asserting local commercial usage which the Government did not convincingly deny. |
Court's Reasoning and Analysis
The Court proceeded from the controlling interpretive principle (from Ganesh Trading Co.) that the correct test for meaning of entries in a Sales Tax Act is social/commercial usage rather than dictionary definition. Applying that approach, the Court conducted a fact-sensitive commercial-usage analysis of the word "timber."
The Court emphasized that although all timber is wood, not all wood is timber. In common parlance (especially in commercial circles and in Orissa), "timber" ordinarily denotes long, large-sized logs suitable for use as beams, pillars and similar structural purposes. The Court gave illustrations to show that certain operations—trimming ends, peeling bark, polishing joints, or cutting into somewhat shorter lengths while retaining sufficient length for beams—do not change the commercial identity of the goods as "timber." Conversely, operations that cut long logs into many small pieces (e.g., thirty pieces of two feet each), or convert them into planks, rafters, firewood or other small articles, remove the goods from the category of timber in commercial usage because the essential characteristic that makes them "timber" (suitability as beams/pillars) is lost.
The Court examined prior decisions: it approved the Calcutta single-judge and Bachha Tewari decisions to the extent they follow the commercial-usage test; it found the Rajani Timber Traders Bench dictum too sweeping and lacking specificity about when sized timber ceases to be timber; and it declined to accept the Andhra decision's broad conclusion that planks and cut sizes are timber in all contexts, distinguishing that case on the record basis (affidavits asserting local usage) that is absent here.
Crucially, the Court found that the taxing authorities and the Tribunal failed to record any clear factual findings about the manner in which the timbers were sized—there was no description of the dimensions, extent of cutting, or the nature of conversion relied upon to show loss of essential character. The Sales Tax Officer and Assistant Commissioner had merely stated that the dealer cut the timber logs into sizes at saw mills; the Tribunal also assumed that sizing caused loss of character without recording particulars.
On that factual record, the Court concluded it was impermissible to apply the proviso to section 5(2)(A)(a)(ii) (or to say there was a contravention of it) because the essential legal question—whether the sizing changed the commodity's commercial identity—was not factually established. The Court further clarified a conceptual point: contravention of the proviso is not the correct characterization where the dealer has in fact converted the goods into a different commodity. Instead, in that case the dealer would have violated the declaration given under Form XXXIV and the proviso would be applicable in the sense that the price of goods so utilized must be included in taxable turnover. Thus, the Court required the Tribunal to gather fuller and specific facts about the nature of the sizing and whether it changed the essential commercial character of the timber.
Holding and Implications
Holding: The reference is accepted and the referred question is modified by the Court. The Court answered the modified question by stating that, on the finding recorded by the Tribunal, it is not possible to say whether the timbers were converted into a different commercial commodity by the act of sizing them. The Court directed that the Tribunal gather further facts to determine whether the sizing changed the essential character of the timber. In consequence, the taxing authorities were held to have acted contrary to law in invoking the proviso without recording the nature of conversion.
Immediate consequences and orders: Parties are to bear their own costs and the reference fee deposited is to be refunded to the petitioner. The matter is remitted (by implication) for further fact-finding by the Tribunal on the specific nature of the sizing/conversion.
Broader implication: The opinion applies and clarifies the commercial-usage approach to determine when a processed product retains the identity of the original commodity; however, it does not lay down a categorical rule that all sized wood is or is not "timber"—rather it insists on a fact-specific inquiry. The decision does not purport to create a new general precedent beyond articulating and applying the commercial-usage test and requiring proper factual findings before invoking the proviso to section 5(2)(A)(a)(ii).
Source: Opinion excerpt provided. This summary strictly reflects only the information contained in the provided opinion and does not add or infer facts beyond that text.
G.K Misra, C.J:— Under section 24(1) of the Orissa Sales Tax Act, 1947 (Act 14 of 1947) (hereinafter to be referred to as the Act), the Tribunal has referred the following question of law arising out of its appellate order passed on 26th December, 1970.
“Whether, on the facts and circumstances of the case, the Tribunal was right in holding that there was contravention of the proviso to section 5(2)(A)(a)(ii) inasmuch as the assessee purchased round logs from registered dealers on the basis of his registration certificate free of tax to resell them in Orissa but instead of doing so he converted them into sized wood and then resold the same?”
2. The undisputed facts are that the petitioner purchased logs from registered dealers free of tax to the extent of Rs. 29,551.50 for resale in Orissa. The logs were cut into sizes in saw mills and then were resold in Orissa. All the taxing authorities held that by conversion of logs into sized wood the petitioner contravened section 5(2)(A)(a)(ii) of the Act.
3. section 5(2)(A)(a)(ii) of the Act runs thus:
“In this Act, the expression ‘taxable turnover’ means that part of a dealer's gross turnover during any period which remains after deducting therefrom—
(a) his turnover during that period on………
(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………
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.”
4. The petitioner was the purchasing dealer. Timber is one of the goods specified in his certificate of registration as being intended for resale by him in Orissa. On the basis of such entry and a declaration given in form XXXIV under rule 27(2) of the Orissa Sales Tax Rules the petitioner purchased timbers free of tax. The turnover in respect of such purchase was deducted from his gross turnover to determine the taxable turnover. Before resale, however, he sized the timbers and resold them in Orissa.
5. The question for consideration is whether the logs sized in the saw mills can still be styled as “timber” as specified in the petitioner's certificate of registration. In other words, whether logs originally purchased and those very logs sized after purchase are identical goods for the purpose of imposition of sales tax is to be determined.
6. The Supreme Court has now firmly ruled that in finding out the true meaning of the entries mentioned in a Sales Tax Act, what is relevant is not the dictionary meaning, but how those entries are understood in common parlance, specially in commercial circles: see Ganesh Trading Co., Karnal v. State of Haryana [1973] 33 S.T.C 623 S.C..
7. Bereft of authorities we propose to analyse the meaning of the word “timber” as understood in common parlance, specially in commercial circles. It is to be emphasised that all that is wood is not timber though timber is wood. In common parlance timber ordinarily means long logs of wood used for purposes of beams and pillars in the construction of houses and such similar uses. After the felling of big trees and the chopping off of the branches of those trees the trunk of the tree is called timber. A very long piece of log may be cut into different pieces. If the pieces after cutting still remain long so as to be used as beams, pillars and such similar uses, the cut pieces would still be called timber. To illustrate, a timber originally 60 feet long is cut into three pieces of 20 feet each. Each of the three pieces retains sufficient length to be used as beams or pillars and would be still treated as timber in common parlance.
8. Take another illustration. After purchase of some timbers a dealer for the sake of convenience of transport may cut a portion from each end of the timber, may peel off the barks and polish the joints at some places of those timbers. Even after all these operations have been performed, the logs of wood would still be termed as timber.
9. In the aforesaid illustrations the goods sold do not differ in identity from the goods purchased. The original timber would not be a thing different from the sized timber.
10. If, however, the original timber of 60 feet long is cut into thirty pieces of two feet each, none of the pieces is treated as timber. Similarly, timbers converted into firewood, rafters and planks are all wood but cannot be called timbers.
11. Thus, timber in common parlance in Orissa takes within its ambit only long and big sized logs of wood ordinarily used in house constructions as beams and pillars. Timbers can be used for other purposes such as planks, rafters and other wood products like tables and chairs. When timbers are so converted or are cut into very small sizes so as to be unfit for user as beams, pillars and similar such uses, they cannot be termed as timbers in common parlance though they retain their essential character as wood. The essential characteristic of timber as a commercial commodity is lost after such conversion.
12. We would now proceed to examine the authorities cited on either side.
13. In Shaw Bros, and Co. v. State of West Bengal, a learned single Judge of the Calcutta High Court held that when planks are made from logs or damaged wood, a new kind of commodity is manufactured because plank made out of timber is not timber in its nascent state.
14. In Bachha Tewari v. Divisional Forest Officer [1963] 14 S.T.C 1067., the same learned Judge held that when timber is chopped off and converted into firewood it would not be treated as timber.
15. On the test laid down by us, both these decisions were correctly decided.
16. In State Of Orissa v. Rajani Timber Traders [1974] 34 S.T.C 374, a Bench of this Court dealt with a similar question. The learned Judges observed:
“Timber logs and sized timbers are certainly different commodities in the commercial sense though sized timbers are brought out only from timber logs by a particular process. One who has a need of timber logs would not be satisfied if sized timber is offered to him. Similarly, one requiring sized timber would not be satisfied if timber logs are supplied. There is a clear distinction between the two and they cater to different types of needs in the commercial market.”
17. The aforesaid dictum has been too widely stated. It does not indicate the meaning of the word “timber” as used in common parlance in commercial circles. It does not also purport to specify the meaning of the expression “sized timber” as used in that judgment. As we have already analysed, timber would continue to be timber in certain circumstances even if it is sized while it would cease to be timber in a different set of circumstances of which we have given certain illustrations which are not exhaustive. The aforesaid Bench decision thus does not furnish a clear guidance to the taxing authorities as to in what circumstances sized timbers would cease to be timbers.
18. Reliance is placed by the petitioner on a Bench decision of the Andhra Pradesh High Court in G. Ramaswamy v. State of Andhra Pradesh [1973] 32 S.T.C 309;. It would appear from that judgment that in Andhra Pradesh in common parlance the word “timber” takes within its ambit planks, rafters, cut sizes, etc. At page 315 their Lordships observed thus:
“What must follow is that planks, rafters, cut sizes, etc., obtained from logs of wood according to the popular or commercial usage or the interpretation placed by the administration is ‘timber’ within the meaning of item 63 of Schedule I to the Act.”
19. On the analysis given by us we are unable, with respect, to subscribe to this conclusion. This decision is also distinguishable as the petitioners in that case asserted in their affidavits that timber in the commercial field means the planks, the rafters and the cut sizes and the Government did not offer any convincing denial to the contrary.
20. Coming to the facts of the case before us, we are somewhat surprised that none of the taxing authorities including the Tribunal has given any clear picture of the sized timber, to which they are referring (sic) relating to the conversion of the original timber purchased. The Sales Tax Officer merely states that the dealer cut the timber logs into sizes by saw mills. Similarly, the Assistant Commissioner of Sales Tax does not give a picture as to in what manner the timbers originally purchased were sized. The Tribunal also does not advert to it. All of them assume that the moment the timbers are sized in saw mills they lose their original character. Without recording a clear finding as to how the timbers were sized and they lost their original character and constituted a different commercial commodity, it is not possible for us to say that the taxing authorities were justified in invoking the proviso to section 5(2)(A)(a)(ii). It is to be noted that the question referred to this court is somewhat incorrectly framed inasmuch as it speaks of contravention of the proviso. In fact, there is no contravention of the proviso if the dealer converted the timber originally purchased into a different commercial commodity. On the other hand, he would be held not to have sold timber inside Orissa and, as such, he violated the declaration given in form XXXIV under rule 27 in conformity with the entry in his certificate of registration. There is no contravention of the proviso. Rather in case of violation the proviso would be applicable and price of the goods so utilised would be included in the taxable turnover of the dealer.
21. On the aforesaid analysis, we are clearly of the opinion that the taxing authorities acted contrary to law in invoking the proviso without indicating the nature of the conversion of original timbers. The Tribunal is to gather further facts as to in what manner the original timbers were sized and if such sizing changes the essential character of the timber.
22. The question referred to us is modified as follows:
“Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the proviso to section 5(2)(A)(a)(ii) is applicable inasmuch as the assessee purchased round logs on the basis of his registration certificate free of tax to resell them in Orissa but instead of doing so he converted them into sized wood and then resold the same.”
23. We answer the question by saying that on the finding recorded by the Tribunal it is not possible for us to say whether the timbers were converted into a different commercial commodity by the act of sizing them.
24. In the result, the reference is accepted as indicated above. In the circumstances, parties to bear their own costs. The reference fee deposited be refunded to the petitioner.
B.K Ray, J.:— I agree.
26. Reference answered accordingly.
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