1981 (8) TMI 209 - HC - VAT and Sales Tax

Supreme Court affirms prawns as export goods under Central Sales Tax Act

The Supreme Court upheld the decision of the Sales Tax Appellate Tribunal, ruling that the prawns purchased by the assessee for export, although ... - ISSUES PRESENTED AND CONSIDERED 1. Whether purchases of prawns locally, which are subsequently cleaned, peeled, processed and packed for export, qualify as sales 'in the course of export' under section 5(1) read with section 5(3) of the Central Sales Tax Act. 2. Whether identity of the goods purchased and the goods exported is lost by reason of processing such that section 5(3) will not apply. 3. Whether the degree of processing applied to prawns results in a manufacture (consumption of the original commodity in the manufacture of another) displacing the original commodity's identity for purposes of sales tax exemption. 4. Whether the matter raises any substantial question of law of general importance warranting leave to appeal to the Supreme Court. ISSUE-WISE DETAILED ANALYSIS Issue 1: Application of section 5(1) and section 5(3) - sales 'in the course of export' Legal framework: Section 5(1) deems a sale to take place in the course of export only if the sale either occasions the export or is effected by transfer of documents of title after the goods have crossed customs frontiers. Section 5(3) deems the last sale preceding the sale which occasions export to be in the course of export if that last sale took place after, and was for the purpose of complying with, the agreement or order for such export. Precedent treatment: The Tribunal applied established authority interpreting the statutory scheme to include the immediately preceding sale where it satisfies the timing and purpose tests of section 5(3). Interpretation and reasoning: The Court accepted that the assessee's local purchases were not the immediate sale 'occasioning' export but were sales preceding that export. Since those purchases occurred after and for the purpose of complying with the export agreement/order, they fall within section 5(3) and are therefore to be treated as in the course of export. Ratio vs. Obiter: Ratio - section 5(3) applies to render the sales as in the course of export where the statutory temporal and purposive conditions are met. Conclusion: Section 5(3) applies to the purchases in question, placing them in the course of export and outside the scope of State sales taxation, subject to identity of goods (see Issue 2). Issue 2: Identity of goods after processing - whether processing defeats section 5(3) Legal framework: Section 5(3) requires that the last sale preceding the sale occasioning export be of 'those goods' - implying identity between goods purchased and goods exported for the deeming provision to operate. Precedent treatment: The Tribunal followed the controlling reasoning of higher-court authority which held that processing which does not change the commercial identity of the commodity does not convert the article into a new and distinct article for sales-tax/ statutory-deeming purposes. Interpretation and reasoning: The Court examined the nature and extent of processing (cleaning, peeling, grading, cooking, freezing, curing, packing) and concluded that, despite processing, the commodity remains prawns and retains its original commercial identity. The relevant test is whether the processed article is commercially regarded as distinct from the original commodity; here it is not. Ratio vs. Obiter: Ratio - processing that does not result in an essential commercial change in identity does not prevent section 5(3) from applying; the goods remain the same for the statutory deeming provision. Conclusion: Identity is retained; therefore section 5(3) applies and the purchases are deemed to be in the course of export and not taxable by State law. Issue 3: Whether processing amounts to 'manufacture' or consumption of the commodity in manufacture of another Legal framework: The concept of 'consumption in manufacture' contemplates that goods purchased are consumed in the process and result in a new and distinct article; several criteria include trade recognition of distinction and the extent/nature of processing. Precedent treatment: The Court relied on authority rejecting a finding of manufacture where processing merely removed inedible portions and preserved the original commodity for commercial purposes; comparison drawn to other authorities treating dressing/freezing as non-manufacture. Interpretation and reasoning: The Court applied the test whether commercially the product is still regarded as the original commodity. Processing here (peeling, cleaning, grading, curing, freezing, packing) does not produce a new and distinct article; it merely prepares the prawns for export. The processing is not consumption in manufacture of another commodity. Ratio vs. Obiter: Ratio - where processed goods retain their commercial identity, the processing does not amount to manufacture for purposes of excluding the deeming provision or permitting State taxation. Conclusion: The processing does not constitute manufacture or consumption in manufacture; purchases remain purchases of the same commodity for application of section 5(3). Issue 4: Leave to appeal - existence of substantial question of law of general importance Legal framework: Leave for appeal to the Supreme Court under Article 134-A requires a substantial question of law of general importance arising from the case. Precedent treatment: The Court considered whether the legal questions decided-statutory construction of sections 5(1) and 5(3) and the identity/manufacture tests-raise a question of sufficient general importance beyond the case facts. Interpretation and reasoning: The Court found that no substantial question of law of general importance arose requiring determination by the Supreme Court; the issues were resolved by application of settled principles and controlling authority. Ratio vs. Obiter: Ratio - leave to appeal declined because no substantial question of law of general importance arises. Conclusion: Certificate for leave to appeal was refused; the order under revision stands.