TaxTMI 
TaxTMI 
1960 (10) TMI 51
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....) Rules, 1939. Tungabhadra Industries Ltd.- the appellant in this appeal-had a factory of considerable size at Kurnool in the State of Andhra Pradesh. The company purchases groundnuts and groundnut kernels within the State and manufactures groundnut oil and also refined oil as well as hydrogenated oil all of which it sells. The appeal is concerned with the assessment to sales tax of this company for the year 1949-50. Section 3 of the Madras General Sales Tax Act, 1939, enacts: (a) every dealer shall pay for each year a tax on his total turn- over for such year; and (b) the tax shall be calculated at the rate of three pies for every rupee in such turnover. (2)........................................... (3)........................................... (4) For the purposes of this section and the other provisions of the Act, turnover shall be determined in accordance with such rules as may be prescribed: Provided that no such rules shall come into force unless they are approved by a resolution of the Legislative Assembly. (5). The taxes under sub-sections (1) and (2) shall be assessed, levied and collected in such man....
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....ion]. Rule 18 referred to here reads, to quote only the material words: "18. (1) Any dealer who manufactures groundnut oil and cake from groundnut and/or kernel purchased by him may, on application to the assessing authority having jurisdiction over the area in which he carries on his business, be registered as a manufacturer of groundnut oil and cake. (2) Every such registered manufacturer of groundnut oil will be entitled to a deduction under clause (k) of sub-rule (1) of rule 5 equal to the value of the groundnut and/or kernel, purchased by him and converted into oil and cake it he has paid the tax to the State on such purchases: Provided that the amount for which the oil is sold is included in his net turnover: Provided further that the amount of the turnover in respect of which deduction is allowed shall not exceed the amount of the turnover attributable to the groundnut and/or kernel used in the manufacture of oil and included in the net turnover. Explanation.- For the purpose of this sub-rule- (a) 143 lb. of groundnut shall be taken to be equivalent to 100 lb. of kernal; (b) 143 lb. of groundnut or 100 lb.....
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....fined groundnut oil is no longer in dispute. The ground upon which both the Tribunal as well as the High Court decided against the allowance of the deduction in respect of the sales of hydrogenated oil, while upholding the appellant's case as regards refined oil may be briefly stated thus: The exemption or deduction from the sale turnover under rule 18(2), is on its terms applicable only to the sale of the oil in the form in which it is when extracted out of the kernel. When raw groundnut oil is converted into refined oil, there is no doubt processing, but this consists merely in removing from raw groundnut oil that constitutent part of the raw oil which is not really oil. The elements re- moved in the refining process consist of free fatty acids, phosphotides and unsaponifiable matter. After the removal of this non-oleic matter therefore the oil continues to be groundnut oil and nothing more. The matter removed from the raw groundnut oil not being oil cannot be used, after separation, as oil or for any purpose for which oil could be used. In other words, the processing consist in the non-oily content of the raw oil being separated and removed, rendering the oily content of the oil....
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....son of the rule cannot carry the appellant far, since in the present case it is an exemption from tax which he invokes and of which he seeks the benefit. If the words of the rule are insufficient to cover the case, the reason behind the rule cannot be availed of to obtain the relief. Nor could it be said to be a case of double taxation of the same goods at the purchase and sale points which is forbidden by section 3(5) of the Act. If the view adopted by the learned Judges of the High Court that hydrogenated groundnut oil is not "groundnut oil" but a product of groundnut oil were correct, learn- ed counsel cannot urge that he would still be entitled to the deduction for which provision is made in rule 18(2). Consequently it is the second of the submissions alone which really requires to be examined. In doing so it would be convenient to consider the reasoning on the basis of which the view that hydrogenated oil was not "groundnut oil" was sought to be sustained before us. The learned Advocate-General of Andhra Pradesh who appeared for the respondent-Commercial Tax Officer sought to support the decision of the High Court by two lines of reasoning. The first was th....
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....ve been discovered by which even on extraction from the oil mill, the oil issues without any trace of free fatty acids. It could hardly be contended that if such processes were adopted what comes out of the expresser is not groundnut oil. The submission of the learned Advocate-General based on a contention that the Tribunal and the learned Judges of the High Court erred in holding that even refined groundnut oil was "groundnut oil" for the purpose of the rule, must be rejected. The next question is whether if beyond the process of refinement of the oil, the oil is hardened, again by the use of chemical processes it is rendered any the less "groundnut oil". In regard to this, the learned Advocate-General first laid stress on the fact that while normally oil was a viscous liquid, the hydrogenated oil was semi-solid and that this change in its physical state was itself indicative of a substantial modification of the identity of the substance. We are unable to accept this argument. No doubt, several oils are normally viscous fluids, but they do harden and assume semi-solid condition on the lowering of the temperature. Though groundnut oil is, at normal temperature, a viscous ....
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....ition of the hydrogen atoms was effected in order to saturate a portion of the oleic and linoleic constituents of the oil and render the oil more stable thus improving its quality and utility. But neither mere absorption of other matter, nor inter- molecular changes necessarily affect the identity of a substance as ordinarily understood. Thus for instance there are absorptions of matter and inter-molecular changes which deteriorate the quality or utility of the oil and it might be interesting to see if such additions and alterations could be taken to render it any the less "oil". Groundnut oil when it issues out of the expresser normally contains a large pro- portion of unsaturated fatty acids-oleic and linoleic-which with other fatty acids which are saturated are in combination with glycerine to from the glyceride which is oil. The unsaturated fatty acids are unstable, i.e., they are subject to oxidative changes. When raw oil is exposed to air particularly if humid and warm, i.e., in a climate such as obtains in Madras, oxygen from the atmosphere is gradually absorbed by the unsaturated acid to form an unstable peroxide (in other words the change involves the addition of two atoms....