Damaged cereals used as cattle or poultry feed retain their cereal character and qualify for sales tax exemption.

Damaged wheat and rice sold by the Food Corporation of India as fit for cattle or poultry feed retain their character as cereals in common parlance and do not cease to be cereals merely because they are unfit for human consumption. On that basis, the goods were held to fall within the relevant exemption entries in the Fifth Schedule, and the later demand for sales tax and cess on such sales was invalid and quashed. The Court also declined a direct refund order against the collecting dealer, noting bona fide collection and remittance to the State, and left the purchaser to seek refund from the State Government in accordance with law.

---

---

Issues: (i) Whether damaged wheat and rice sold by the Food Corporation of India as fit for cattle or poultry feed fall under entry 15 of the Fifth Schedule to the Karnataka Sales Tax Act, 1957 or are taxable under section 5(1) of that Act; (ii) whether the subsequent demand for sales tax and cess on such sales was valid; (iii) whether the first respondent was liable to refund the tax collected from the petitioner.

Issue (i): Whether damaged wheat and rice sold by the Food Corporation of India as fit for cattle or poultry feed fall under entry 15 of the Fifth Schedule to the Karnataka Sales Tax Act, 1957 or are taxable under section 5(1) of that Act.

Analysis: The Court held that the character of a grain does not cease merely because it is damaged or unfit for human consumption. A cereal continues to remain a cereal if it is still fit for consumption by livestock or poultry. Entry 6 of Part A of the Second Schedule, dealing with animal feed, did not apply because the goods sold were not processed commodities. The Court relied on the ordinary meaning of cereals, the definition in section 14 of the Central Sales Tax Act, 1956, and prior decisions holding that damage or inedibility does not necessarily alter the identity of the commodity. However, if the damaged grains are classified only for manure or for manufacture of inedible industrial starch, they would fall outside the exemption.

Conclusion: Damaged wheat and rice sold as fit for cattle or poultry feed fall under entry 15 of the Fifth Schedule, and for the earlier period under entries 64 and 40A of the Fifth Schedule, and are exempt from tax.

Issue (ii): Whether the subsequent demand for sales tax and cess on such sales was valid.

Analysis: Once damaged rice and wheat classified by the Food Corporation of India as fit for cattle or poultry feed were held to be exempt cereals, no tax could be demanded on their sale under section 5(1) of the Act. The later communication seeking tax and cess was therefore inconsistent with the legal position determined on the first issue.

Conclusion: The demand for sales tax and cess was invalid and was quashed.

Issue (iii): Whether the first respondent was liable to refund the tax collected from the petitioner.

Analysis: The Court noted that the first respondent had acted bona fide under the Commissioner's clarification and had already remitted the tax to the State. In those circumstances, a direct refund order against the first respondent was not considered appropriate. The petitioner was left at liberty to seek refund from the State Government, which would have to deal with such application in accordance with law.

Conclusion: The first respondent was not directed to refund the tax; the petitioner was relegated to seek refund from the State Government.

Final Conclusion: The writ petition succeeded to the extent of declaring the damaged grains exempt when sold as cattle or poultry feed and quashing the impugned demand, while the claim for direct refund against the first respondent was declined.

Ratio Decidendi: A damaged grain does not lose its identity as a cereal merely because it is unfit for human consumption if it remains fit for consumption as livestock or poultry feed; exemption entries must be construed according to the commodity's essential character in common parlance.

---