Commercial identity in manufacturing: solvent extraction of soya bean seeds can trigger purchase tax on transformed goods.

The Karnataka High Court considered whether solvent extraction of oil from soya bean seeds amounts to manufacture for purchase tax purposes and whether the seeds and de-oiled cake are different commodities under section 6 of the Karnataka Sales Tax Act, 1957. It held that a process that transforms purchased taxable goods into commercially distinct products satisfies the manufacturing condition, even if no entirely new article is created in a narrow sense. Applying the commercial identity test, the court treated soya bean seeds and the resultant oil and de-oiled cake as different commodities, so the purchase tax liability was attracted.

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Issues: (i) Whether extraction of oil from soya bean seeds results in manufacture and attracts purchase tax under section 6 of the Karnataka Sales Tax Act, 1957. (ii) Whether soya bean seeds and de-oiled soya bean cake are different commodities for the purpose of levy under section 6.

Issue (i): Whether extraction of oil from soya bean seeds results in manufacture and attracts purchase tax under section 6 of the Karnataka Sales Tax Act, 1957.

Analysis: Section 6 fastens liability where taxable goods purchased without tax are consumed in the manufacture of other goods or otherwise disposed of otherwise than by sale. The process of solvent extraction from soya bean seeds produces oil and de-oiled cake, and the process brings about a change in the original commodity. Manufacture is not confined to the creation of an entirely new article in a narrow sense; it is sufficient if the commodity undergoes a transformation resulting in a commercially distinct product. The purchasing dealer consumed the seeds in the manufacturing process, and the statutory conditions for purchase tax were satisfied.

Conclusion: The issue is answered in favour of the Revenue and against the assessee.

Issue (ii): Whether soya bean seeds and de-oiled soya bean cake are different commodities for the purpose of levy under section 6.

Analysis: The goods purchased as seeds lose their original character after processing and emerge as de-oiled cake and oil. The identity of the seed does not survive the manufacturing process in the same form. Applying the test of commercial identity, the seed and the resultant cake cannot be treated as one and the same commodity. The Tribunal's view that they are not different commodities was therefore unsustainable.

Conclusion: The issue is answered in favour of the Revenue and against the assessee.

Final Conclusion: The levy of purchase tax under section 6 was upheld, the Tribunal's order was set aside, and the appeal succeeded.

Ratio Decidendi: Where taxable goods are purchased and, by processing, are transformed into commercially distinct products, the original goods are treated as consumed in manufacture for the purposes of purchase tax under section 6.

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