STATE OF ANDHRA PRADESH Vs. MODERN PROTEINS LIMITED

JUDGEMENT

(1.) A common question of law relating to assessment of two assessment years, namely, 1977-78 and 1982-83 made under the Andhra Pradesh General Sales Tax Act (6 of 1957, for short "the Act" and the central Sales Tax Act, for short the 'cst Act' arises for decision. The respondent having its factory at Kumool in A. P. is a dealer under the Act, in groundnut, deoiled cake, edible protein flour and other products. After decortication and passing through expellers of the groundnut seeds, groundnut oil and groundnut oil cakes are obtained. The groundnut oil cake again is subjected to the process in the solvent in which "food hexane" is sprayed to obtain solvent groundnut oil and groundnut deoiled cake. The deoiled cake is then granuled by grinding and the end product which is "groundnut protein flour" is again subjected to heat and steam treatment under controlled and regulated conditions to ensure removal of solvent and brought into a uniform composition. Colouring or flavouring agents are added to this flour so as to conform to the requirements mentioned in the Fifth Schedule to the Solvent Extracted Oil, Deoiled Meal and Edible Flour (Control) Order, 1967 for short 'the Order' issued under Section 3 of the Essential Commodities Act.

(2.) For the assessment year 1977-78, the CTO, Kumool determined the tax liability in respect of the respondent's net turnover under CST at 4 per cent on groundnut protein flour. On appeal the Assistant Commissioner concluded that it is deoiled cake within Entry 29 of the First Schedule to the Act, exigible to sales tax at I per cent at the point of first sale in the State. The Deputy Commissioner exercising suo motu power under Section 20 (2 and Section 9 (2 of the Act revised the appellate order and held that the groundnut protein flour is not deoiled cake and affirmed the order of the CTO. On further revision to the STAT the tribunal upheld the order of the Deputy Commissioner. In revision to the High court, the division bench by the impugned order, TRC No. 40 of 1982 dated 26/6/1984 held that the deoiled groundnut cake can be both edible as well as inedible and in either case it would fall under Entry 29. It is immaterial whether the groundnut cake is in small pieces in shape or big flat cake pieces. The groundnut flour is not different and distinct commercial product from the deoiled groundnut cake. Therefore, it is exigible to sales tax under Entry 29 of Schedule 1.

(3.) The question, therefore, is whether groundnut protein flour is a deoiled cake within Entry 29 of Schedule I of the Act. The process of manufactory and the resultant product has already been stated. Its substance bears reiteration that groundnut seeds obtained after the process of decortication are of a high grade quality, rich in proteins but free from harmful materials processed in the expeller and the outcome is groundnut oil and groundnut oil cake. The groundnut oil cake again is pressed through the solvent in which "food hexane"is sprayed resultantly groundnut oil and groundnut deoiled cakes are obtained. The deoiled groundnut cake again is granuled by grinding and is subjected to heat and steam treatment under controlled and regulated condition to ensure removal of solvent and brought into a uniform composition. Colouring or flavouring agents are added to this flour which is named as groundnut protein flour. This is edible flour fit for human consumption. The groundnut cake and deoiled cake are animal feed. This will be apparent from the order which regulates not only the production but also sale by licence and the products should conform to the standards prescribed in the respective schedules. Rule 2 (b) defines "deoiled meal" (instead of naming as cake) to mean the residual material left over when oil is extracted by a solvent from any oil-bearing material while "edible flour" is defined in Rule 2 (c) to mean the ground material prepared from deoiled meal which is derived from oil cake obtained either by single pressing of good quality edible oilseeds or as a result of direct extraction of oil from such oilseeds. Rule 3 regulates their production by a licence and Rule 9 regulates sale thereof. Sub-rule (5 of Rule 9 provides that no person shall manufacture, stock for sale, or sell or offer for sale deoiled meal unless in the case of meal intended for use as livestock feed, such deoiled meal conforms to the standards of quality for the appropriate deoiled meal specified in the Fourth Schedule. Similarly sub-rule (6 of Rule 9 is with regard to edible groundnut flour. Clause (iv) therein provides that "the edible flour" conforms to the standards of quality specified in the Fifth Schedule. The quality, content and the percentage of the respective deoiled meal and edible groundnut flour have been prescribed in Schedule 4 and Schedule 5 respectively, the details of which are not necessary to specify in this judgment, since across the bar there is no dispute regarding the differences enumerated therein. But the controversy raised across the bar and also found acceptable to the High court in favour of the assessee, is that as per the analyst's report deoiled cake and groundnut protein flour bear some of the common ingredients and contents, whether in edible or in non-edible form it remains the same substance and that therefore, the groundnut protein flour is exigible to sales tax under Entry 29 of Schedule 1. The contention of Shri Sitaramiah, learned Senior Counsel for the appellant is that deoiled cake is a distinct commodity meant for animal feed while groundnut protein flour admittedly is meant for human consumption. The price for the former is Rs. 1,077. 00 per metric ton while for the latter it is Rs. 2,500. 00 per metric ton. Food Corporation of India, to whom the assessee had sold the groundnut protein flour, placed orders only as a groundnut protein flour known in the commercial parlance. It is a distinct commodity fit for human consumption. Admittedly it was sold by the assessee for human consumption at a higher price treating it as distinct from deoiled cake which was also sold by the assessee for animal feed at Rs. 1,077. 00 per metric ton. Thus the two commodities are known in the commercial parlance as different and distinct commercial commodities. Deoiled cake, thereby, is different and groundnut protein flour is altogether another commodity from deoiled cake which does not fall within Entry 29 of the First Schedule. Shri Harish Salve, the learned Senior Counsel for the respondent on the other hand contended that generic entry "deoiled cake" is exigible to tax under Entry 29, be it edible or non-edible meant for human consumption or animal feed so long as it conforms to the generic descriptive entry. It bears no relevance whether it is used for human consumption or animal feed. In otherwords, the user test in the commercial parlance, bears little relevance. The process of extracting groundnut oil cake from expeller and by solvent process removal of the oil and to make the deoiled cake in big size and thereafter making it into small cakes; the small cake granuled into pieces down the steam, is a continuous process and the commodity remained the same without indicating any separate process. Therefore, groundnut protein flour whether is oiled or deoiled, whether in bulk or small pieces, whether granuled or remained in small pieces make no difference for exigibility to tax. He gave the illustrations of breweries, textiles, petrochemicals and glassware as examples. To appreciate the contentions pragmatically we called upon the assessee to produce the samples of deoiled cakes and groundnut protein flour and gave time till Thursday, i. e. , 14/4/1992. Even till today, i. e. , Saturday, i. e. , April 16 they were not produced. We also indicated to the counsel that non-production may lead us to draw an adverse inference.