Purchase tax on livestock used to produce different commercial goods upheld under a broad reading of consumption

Purchase tax under section 6 of the Karnataka Sales Tax Act, 1957 applied where sheep and goats were bought without sales tax liability and then slaughtered to produce mutton, hides and skins. The Court held that the activity was not manufacture, but the wide meaning of "consumed" covered using one commercial commodity to produce another. As the animals were converted into commercially different goods, the purchases were treated as consumed otherwise than by manufacture, attracting purchase tax. The levy remained sustainable on the correct interpretation of section 6 even though the Commissioner's reasoning based on "disposed of" was not accepted.

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Issues: Whether the purchase price of sheep and goats bought in business under circumstances in which no tax was leviable on the sale price became taxable under section 6 of the Karnataka Sales Tax Act, 1957 when the goods were slaughtered to produce mutton, hides and skins.

Analysis: Section 6 fastens purchase tax where taxable goods are bought in the course of business without sales tax liability and are then either consumed in the manufacture of other goods for sale or consumed otherwise than by manufacture to produce other goods. The activity here did not amount to manufacture, and the Court held that the word "consumed" is wide enough to cover the use of one commercial commodity for producing another. Sheep and goats were converted into commercially different goods, namely mutton, hides and skins, and that amounted to consumption otherwise than by manufacture. The Court also held that the levy could be sustained on the correct interpretation of section 6 even though the Commissioner's reasoning on "disposed of" was not accepted.

Conclusion: The appellants were liable to pay purchase tax under section 6 of the Karnataka Sales Tax Act, 1957.

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