STATE OF KERALA Vs. G SANKARAN NAIR

JUDGEMENT

(1.) IN these tax revision cases by the State of Kerala, a common question as to whether raw cashew-nuts and cahsew kernels are the same goods for the purpose of section 5 (3) of the Central Sales Tax Act, 1956, arises for decision.

(2.) THE assessee in all these cases are exporters of cashew kernels. THE question raised relates to the exigibility to sales tax on the purchase turnover of raw cashew-nuts, purchased locally from within the State by the assessees for the purpose of export of its kernal to foreign countries. THE assessments relate to periods after the amendment of the Central Sales Tax Act, 1956, by Act 103 of 1976. As per section 3 of the Amendment Act, 1976, sub-section (3) was added to section 5 with effect from 1st April, 1976.

(3.) TO attract sub-section (3), it must be shown that the goods exported are the same as had been purchased for the purpose of export. Unless therefore the cashew kernels exported can be said to be the same goods, as the raw cashew-nuts purchased, it cannot be said that the purchase was in the course of export within the meaning of sub-section (3) of section 5. Whether cahsew kernels and raw cahsew-nuts are the same goods with reference to article 286 (1) (b) of the Constitution came up for decision before a Constitution Bench of the Supreme Court in the decision in State of Travancore-Cochin v. Shanmugha Vilas Cahsew-nut Factory [1953] 4 STC 205 (SC ). Patanjali Sastri, C. J. , on behalf of himself, Mukherjea, Vivian Bose and Ghulam Hasan, JJ. , summarised the conclusion of the majority on the interpretation of article 286 (1) (b), at page 217, as follows : " Our conclusions may be summed up as follows :- (1) Sales by export and purchases by import fall within the exemption under article 286 (1) (b ). This was held in the previous decision. (2) Purchases in the State by the exporter for the purpose of export as well as sales in the State by the importer after the goods have crossed the customs frontier are not within the exemption. (3) Sales in the State by the exporter or importer by transfer of shipping documents while the goods are beyond the customs frontier are within the exemption, assuming that the State-power of taxation extends to such transactions. It remains to consider in the light of the foregoing discussion how far the cashew-nut purchases made by the respondents are within the exemption under article 286. It will be recalled that these purchases fell into three groups : I. Purchases made in the local market, II. Purchases from the neighbouring districts of the State of Madras, and III. Imports from Africa. As regards Group I, the High Court finds that 'the purchases of raw nuts whether African or Indian are all made with the object of exporting their kernels' though there were some negligible sales in the local market of what are called 'factory rejects'. The High Court further finds that the bulk of the kernels were in fact exported by the respondents themselves, a small quantity being sold by the respondents to other exporters who also subsequently exported the same. Thus, on the whole, the respondents could be said to have purchased the raw nuts for the purpose of exporting the kernels and to have actually exported them. But, it will be seen, the purchases are not covered by the exemption on the construction we have placed on clause (1) (b), even if the difference between the raw materials purchased and the manufactured goods (kernels) exported is to be ignored. It may, however, be mentioned here that the High Court has found that the raw cashew-nuts and the kernels manufactured out of them by various processes, partly mechanical and partly manual, are not commercially the same commodity. This finding, which is not seriously disputed before us, would be an additional ground for rejecting the claim to exemption in respect of these purchases, as the language of clause (1) (b) clearly requires as a condition of the exemption that the export must be of the goods whose sale or purchase took place in the course of export. " Das, J. (as he then was), in his concurring judgment stated at page 247 : " The High Court has, on remand, enquired into the process of manufacture through which the raw cashew-nuts are passed before the edible kernels are obtained. The High Court, in its judgment on remand, goes minutely into the different processes of baking or roasting, shelling, pressing, pealing, and so forth. Although most of the process is done by hand, part of it is also done mechanically by drums. Oil is extracted out of the outer shells as a result of roasting. After roasting the outer shells are broken and the nuts are obtained. The poison is eliminated by pealing off the inner skin. By this process of manufacture the respondents really consume the raw cashew and produce new commodities. The resultant products, oil and edible kernels, are well recognised commercial commodities. They are separate article of commerce quite distinct from the raw cahsew-nuts. Indeed, it is significant that the respondents place orders for 'cashew-nuts' but orders are placed with them for 'cashew-nut kernels'. In the circumstances, 'the goods' exported are not the same as the goods purchased. The goods purchased locally are not exported. What are exported are new commodities brought into being as a result of manufacture. There is transformation of the goods. The raw cashews are consumed by the respondents in the sense that a jute mill consumes raw jute, or a textile mill consumes cotton and yarn. The raw cashews not being actually exported the purchase of raw cashews cannot be said to have been made 'in the course of' export so as to be entitled to immunity under clause (1) (b ). " The above observations of Das, J. , were quoted and followed in a later decision of the Supreme Court in Anwarkhan Mehboob Co. v. State of Bombay (Now Maharashtra) [1960] 11 STC 698 (SC ). The question whether hides and skins in the untanned condition can be considered to be the same goods as tanned hides and skins came up for decision before the Supreme Court in Hajee Abdul Shukoor & Co. v. State of Madras [1964] 15 STC 719 (SC) and relying on the decision in State of Travancore-Cochin v. Shanmugha Vilas Cashew-nut Factory [1953] 4 STC 205 (SC) the Supreme Court observed that it was not correct to say that the process of tanning brings about no change in the raw hides and skins and that both types of hides and skins constitute the same goods.