Processed agricultural goods lose entry tax exemption when made fit for consumption and fall outside agricultural produce.

Processed agricultural commodities lose exemption under the Karnataka Tax on Entry of Goods Act when they have been subjected to physical, chemical or other processing to make them fit for consumption. The statutory definition of "agricultural or horticultural produce" excludes more than mere cleaning, grading, sorting or drying, and the exemption entry cannot be expanded by implication. Applying that test, malted barley, maize flakes and hops pellets are treated as processed goods made fit for consumption in beer manufacture, not as agricultural produce. They therefore fall outside Schedule II entry 2 and are liable to entry tax under Schedule I.

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Issues: Whether malted barley or barley malt, maize flakes and hops pellets are agricultural or horticultural produce falling within entry 2 of Schedule II of the Karnataka Tax on Entry of Goods Act, 1979 and therefore exempt from entry tax, or whether they are goods liable to tax under entry 80 of Schedule I.

Analysis: Section 3 of the Act levies entry tax on goods specified in Schedule I, while section 3(6) exempts goods specified in Schedule II. The definition of "agricultural or horticultural produce" in section 2(A)(1) excludes produce subjected to any physical, chemical or other process for being made fit for consumption, except mere cleaning, grading, sorting or drying. The exemption entry cannot be enlarged by implication where the statute has expressly carved out only limited inclusions. The controlling test is not whether the processed commodity retains its original identity, but whether the produce has been processed to make it fit for consumption when it enters the local area, including consumption as a raw material in manufacture. Applying that test, barley converted into malted barley, maize into flakes or grits, and hops into pellets are processed commodities made fit for consumption in beer manufacture and are outside the definition of agricultural produce.

Conclusion: The products in question are not agricultural or horticultural produce within entry 2 of Schedule II and are liable to entry tax.

Ratio Decidendi: A produce subjected to physical, chemical or other processing for being made fit for consumption loses the character of agricultural produce under the Act, and such goods cannot claim exemption merely because they originate from an agricultural commodity.

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