Agricultural produce retains its character after simple processing, keeping raw rubber sheets outside sales tax liability.

Processing that merely preserves agricultural produce for marketing, without creating a new commodity, does not change its essential character for sales tax purposes. The Karnataka High Court held that raw rubber sheets obtained from latex by adding acid and smoke remained agricultural produce, because the statutory definitions and the relevant entry treating raw rubber in liquid or sheet form supported that conclusion. Mere cleaning, grading, sorting, drying, or similar processing was insufficient to remove the exemption. Accordingly, the rubber sheets were outside taxable turnover under the Karnataka Sales Tax Act, and the assessment orders were set aside.

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Issues: Whether raw rubber sheets sold by the assessee retained the character of agricultural produce and were therefore outside the taxable turnover under the Karnataka Sales Tax Act, 1957.

Analysis: The provisions defining agriculture and agricultural produce were read together to hold that, apart from specifically excluded items, produce derived from agriculture continues to be agricultural produce even after mere cleaning, grading, sorting, drying, or similar processing that does not bring into existence a new commodity. The latex obtained from rubber trees was processed into sheets by adding acid and smoke, but this did not alter its essential identity. The statutory entry treating raw rubber in liquid or sheet form as raw rubber also supported the conclusion that sheet form rubber was not a different commodity. The proviso relied upon by the Revenue was considered in the light of the relevant assessment year, and it was held that the assessee's rubber did not cease to be agricultural produce for tax purposes.

Conclusion: The raw rubber sheets remained agricultural produce and were not liable to sales tax as claimed by the Revenue.

Final Conclusion: The revision succeeded and the assessment orders were set aside, with the assessee prevailing on the exemption issue.

Ratio Decidendi: Where processing of agricultural produce does not create a new commodity and merely preserves the original product for marketing, its essential character as agricultural produce is retained for sales tax purposes.

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