Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10
PETITIONER:
TVL K.A.K. ANWAR & CO. ETC.
Vs.
RESPONDENT:
STATE OF TAMIL NADU
DATE OF JUDGMENT: 27/11/1997
BENCH:
S.C. SEN, B.N. KIRPAL, K.T. THOMAS
ACT:
HEADNOTE:
JUDGMENT:
THE 27TH OF NOVEMBER, 1997
Present:
Hon’ble Mr. Justice S.C.Sen
Hon’ble Mr.Justice B.N.Kirpal
Hon’ble Mr. Justice K.T.Thomas
K. Parasaran, H.N. Salve and S. Sivasubramaniam, Sr.Advs.,
A.T.M.Sampath, V.Balaji, K.J. Chandran, Nikhil Sakhandand,
K.K. Mani, R. Ayyam Perumal, V.G. Pragasam, K. Swami, P.R.
Tiwari, A. Raghunath, A. Mariarputham, V. Krishnamurthy,
Advs. with them for the appearing parties.
J U D G M E N T
The following Judgment of the Court was delivered:
WITH
Civil Appeal Nos. 4747-48, 4749-50, 4751-52 of 1993
6660 of 1995, 1453 and 855 of 1994
KIRPAL, J.
Leave granted in SLP (c) Nos. 5384-85 of 1984.
The common question which arises in these appeals is
whether the turn-over in respect of hides and skins which
has once been subjected to tax under the Tamil Nadu General
Sales Tax Act, on its purchase at the raw stage, could be
taxed again on inter-state sales as tanned or dressed hides
and skins.
According to the appellants they purchase raw hides and
skins and after dressing they are sold in the course of
inter-state trade. The contention of the dealers before the
assessing authority was that hides and skins, whether in a
raw or dressed form, are declared goods under Section 14
(iii) of the Central Sales Tax Act and they are regarded by
the sald Act as a single commodity. This being so Section 15
of the Central Sales Tax Act provides that the goods which
have suffered tax once cannot be taxed again at the time of
inter-state sale. As the tax had been levied at the time of
purchase of raw hides and skins, therefore, there should be
no levy of tax on their inter-state sale after the said raw
hides and skin had been dressed.
The assessing authority, in all these cases, did not
accept the said contention as the authorities were of the
opinion that raw hides and skins were a commodity which were
different from dressed hides and skins and, therefore, the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10
restrictions contemplated by Section 15 of the Central Sales
Tax Act was not applicable.
The decision of the assessing authority was challenged
by some of the appellants by taking recourse to the
provisions under the Act and after an adverse decision from
the Tribunal, revision petitions are filed before the High
Court at Madras. Some of the other appellants chose to
challenge the decision of the sales tax authority as well as
the constitutional validity of Section 3 of the Tamil Nadu
General Sales Tax (3rd Amendment) Act, 1987 substituting
item no. 7 and the relevant entries thereto in the IInd
filing writ petitions before the High Court of Madras. The
High Court, by different decisions, came to the conclusion
that raw hides and skins was a commodity which was
commercially different from dressed hides and skins both
under the State Act as well as the Central Act and that the
State had the legislative competence to tax the inter-state
sale of dressed hides and skins even though tax had been
paid on the purchase of raw hides and skins. The further
finding of the High Court was that there was no merit in the
challenge to the legality of the entries which had been
substituted in the IInd Schedule by the Amending Act of
1987.
The controversy in these appeals relates to three
periods, namely, for the period prior to 23rd March, 1987;
for the period 23rd March, 1987 to 4th September, 1991, when
amendment was made to item no.7 to the IInd Schedule
pursuant to the aforesaid Amending Act and for the period
subsequent to 4th September, 1991 when the said schedule was
again amended, as a result of which the original entry got
restored.
In order to appreciate the rival contentions it is
necessary to refer to the statutory provisions. Sections 14
and 15 of the Central Sales Tax Act, in so far as they are
relevant for the purpose of these cases, are as under:
"14. Certain goods to be of special
importance in Inter state trade or
commerce:-
It is hereby declared that the
following goods are of special
importance in inter state trade or
commerce:-
........
(iii) hides and skins, whether in a
raw or dressed state."
15. Restrictions and conditions in
regard to tax on sale or purchase
of declared goods within a State:-
Every sales tax law of a State
shall, in so far as it imposes or
authorises the imposition of a tax
on the sale or purchase of declared
goods, be subject to the following
restrictions and conditions,
namely:-
(a) the tax payable under the law
in respect of any sale or purchase
of such goods inside the State
shall not exceed four per cent of
the sale or purchase price thereof,
and such tax shall not be levied at
more than one stage;
(b) Where a tax has been levied
under that law in respect of the
sale or purchase inside the State
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10
or any declared goods and such
goods are sold in the course of
inter state trade or commerce, and
tax has been paid under this Act in
respect of the sale of such goods
in the course of inter state trade
or commerce, the tax levied under
such law shall be reimbursed to the
person making such sale in the
course of inter state trade or
commerce in such manner and subject
to such conditions as may be
provided in any law in force in
that State.
............
(Provision extracted is the one
which was in force in 1987)
After the promulgation of the Central Sales Tax Act the
State Legislature introduced IInd Scheduled to the State Act
providing for the rates as well as the points of levy in
respect of declared goods. This was done in view of the
provisions of Sections 14 and 15 of the Central Act.
"Item No.7 of the Second Schedule in so far as it
related to the levy of sales tax on hides and skins, as it
was originally enacted and in force upto 22.3.1987 read as
hereunder:
----------------------------------------------------------
Sl. No. Description Point Rate of Effective
of goods of levy tax per from
cent
(1) (2) (3) (4) (5)
-----------------------------------------------------------
7. ORIGINAL & PRESENT ENTRY
(a) Raw hides At the point 2 1.4.1959
and skins of last purchase
in the State. 3 18.6.1967
(b) Dressed At the point 1 1.4.1959
hides and of first sale 1-1/2 18.6.1967
skins (which in the State
were not
subjected to
tax under 2 21.2.1978
this Act as
raw hides and
skins).
Note:
Rate of tax increased on item 7 (a) from 2% to 3% by Act 5
of 1967 w.e.f. 18.6.1967.
Rate of tax increased on item 7 (b) from 1% to 1-1/2% w.e.f.
18.6.1967 by Act 5 of 1967 and from 1-1/2% to 2% w.e.f.
21.2.1978 by Act 22 of 1978"
After and by virtue of the impugned Amendment Act 31 of
1987, which was proceeded by G.O.P. No. 291 dated 20.3.1987,
item 7 of the Second Schedule and the relevant entries
thereto read as hereunder:
"7(a) Raw hides At the point 2
and skins. of last
purchase in
the State.
(b) Dressed At the point
hides and of first sale
skins. in the State. 2
------------------------------------------------------------
With effect from 6th September, 1991 item no.7 of the IInd
Schedule was once again substituted and after such amendment
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10
the item read as under:-
"7(a) Raw hides At the point
and skins of last
purchase in
the State 4
(b) Dressed hides At the point
and skins of first sale
(which were in the State. 4
not subjected
to tax under
this Act as
raw hides and
skins).
The main thrust of the arguments of the learned counsel
for the appellants was two fold. It was explained that with
a view to preserve the raw hides and skins they are first
‘cured’ by either wet salting, dry salting or drying. In the
‘cured state’ the raw materials can be preserved for a
temporary period. In the next stage the hides and skins are
‘picked’ and thereafter they are tanned in which state they
can be preserved almost indefinitely. These tanned hides and
skins are processed further to yield dressed hides and skins
which are then ready for use. It was submitted that raw
hides and skins and dressed hides and skins, irrespective of
their state, are the same commodities. After ‘raw hides and
skins’ are purchased they are then dressed which has the
effect of preserving them. They do not undergo any change
and, therefore, ‘raw hides and skins’ and ‘dressed hides and
skins’ cannot be considered as commercially separate
commodities, the difference being only in form. This being
so, it was contended, hide and skins can be taxed at only
one stage in the State with the result that if they have
been subjected to tax at the raw state under the local Act,
then section 15 of the Central Sales Tax Act would have the
effect of preventing tax being levied on dressed hides and
skins.
In the alternative, it was contended that even assuming
that ‘raw hides and skins’ and ‘dressed hides and skins’
could be considered to be commercially distinct commodities
under Section 14(III), even then Section 14(III) of the
Central Sales Tax Act regards hides and skins as a single
commodity and they cannot be taxed twice over in any one
State. Elaborating this contention, it was submitted that
Section 15 of the Central Sales Tax Act provides that every
sales tax law of a State shall, insofar as it imposes or
authorises the imposition of tax on the sale or purchase of
declared goods, imposes two restrictions, namely, the tax
payable of declared goods, imposes two restrictions, namely,
the tax payable in respect of "such goods" cannot exceed 4%
and; secondly it cannot be levied at more than one stage.
The expression "such goods" occurring in Section 15, clause
(a), it was submitted, meant "declared goods" referred to in
Section 14 which, in the present case, is hides and skins. A
necessary corollary of this was that hides and skins could
be taxed only once in a State and once hides and skins have
been taxed in a State, in whichever form it may have been,
the same cannot be taxed again. Therefore if the State law
regarded them as different goods enabling the State to tax
them twice, then to that extent the relevant provisions of
the State law, being in conflict with Section 15 of the
Central Sales Tax Act, would be ultra vires.
On behalf of the appellants, strong reliance was placed
on the decision of this Court in the cases of State of Tamil
Nadu Vs. Mahi Traders and Ors. Etc. etc., (1989 (1) S.C.R.
445), State of Punjab and Ors. Vs. M/s. Chandu Lal Kishori
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10
Lal and Ors. Etc. [(1969) 3 SCR 849], Telangana Steel
Industries and Ors. Vs. State of A.P. and Ors. (1994 Supp.
(2) SCC 259) and State of Tamil Nadu Vs. Pyare Lal Malhotra
Etc. [(1976) 3 S.C.R. 168]. In Chandu Lal’s case (supra),
the leader had paid purchase tax on the purchase of unginned
cotton and, after ginning the cotton and removing the seeds,
it had sold the ginned cotton to customers outside the
State. In respect of the cotton seed sold by it to
registered dealers, a deduction had been claimed from the
purchase turnover but the same was not allowed on the ground
that the goods sold, namely cotton seed, were not the goods
in respect of which purchase tax had been levied inasmuch as
unginned cotton underwent a manufacturing process and the
goods produced were different from those purchased. Allowing
the appeal of the State of Punjab, a three Judges Bench of
this Court observed at page 853 that "declared goods" in
Section 14 of the Central Sales Tax Act, 1956 are
individually specified under separate items. "Cotton ginned
or unginned" is treated as a single commodity under one item
of declared goods’. Reliance was placed on this observation
and it was contended that because the entry in Section
14(III) reads as hides and skins, raw or dressed, it would
mean that raw hides and skins and dressed hides and skins
are treated as a single commodity.
In the case of Mahi Traders (supra), the question which
arose was whether leather splits and coloured leather were
hides and skins which fall in the category of "declared
goods" as set out in Section 14 of the Central Sales Tax Act
and, therefore, entitled to the concession available under
Section 15 of the Act, namely, the benefits of single point
taxation and of a smaller rate of tax. This Court held that
leather splits were nothing but cut pieces of hides and
skins and would, therefore, fall within Section 14(III) of
the Central Sales Tax Act. Dealing with the question
relating to coloured leather, the Court dealt with the
process in which the raw hides and skins undergo till they
are tanned and observed as follows:
"Structurally, hides and skins have
a thick middle layer called corium,
which is converted to leather by
tanning. The operations involved in
leather manufacture however fall
into three groups. Pre-tanning
operations include soaking, liming,
deliming, bating and picking and
post tanning operations are
splitting and shaving,
neutralising, bleaching, dyeing,
fat-liquoring and stuffing, setting
out, samming, drying, staking and
finishing. These operations bring
about chemical changes in the
leather substance and influence the
physical characteristics of the
leather, and different varieties of
commercial leather are obtained by
suitably adjusting the
manufacturing operations. These
processes need not be gone into in
detail but the passages relied upon
clearly show that hides and skins
are termed ‘leather’ even as soon
as the process of tanning is over
and the danger of their
putrefaction is put an end to. The
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10
entry in the CST Act, however,
includes within its scope hides and
skins until they are ‘dressed’.
This, as we have seen, represents
the stage when they undergo the
process of finishing and assume a
form in which they can be readily
utilised for manufacture of various
commercial articles. In this view,
it is hardly material that coloured
leather may be a form of leather or
may even be said to represent a
different commercial commodity. The
statutory entry is comprehensive
enough to include the products
emerging from hides and skins until
the process of dressing or
finishing is done". (emphasis
added)
This Court then concluded that splits and coloured leather
continued to be hides and skins entitled for special
treatment under the Central Sales Tax Act.
In Telangana Steel Industries and Others Vs. State of
A.P. and others (1994 Supp (2) SCC 259, the question was
whether iron wires were separate commercial goods from wire
rods from which they were produced. Without deciding whether
both the goods were one commercial commodities or not and
after referring to the decision of State of Tamil Nadu Vs
Pyare Lal Malhotra Etc., [(1976) 3 SCR 168] and Rajasthan
Roller Flour Mills Association and Anr. Vs. State of
Rajasthan and Ors., (1994 Supp (1) SCC 413), this Court held
that as both the rods and wires form part of one sub item
viz., (iv) (xv), they could not be taken as separate taxable
commodity and if wire rod which had been purchased by the
dealers had already been subjected to sales tax, then wires
which are drawn from the said rods could not be taxed again.
In arriving at this conclusion, it was observed that when
the sub-item spoke of wires "rolled, drawn, galvanized,
aluminized, tinned or coated...." it showed that even if
they were separate commercial commodities, the Legislature
nevertheless did not want wires to be taken as a commodity
different from rods for the purpose of permitting imposition
of sales tax once again on wires, despite rods having been
subjected to sales tax.
Even though the aforesaid decisions seem to support the
contentions urged on behalf of the appellants, we find that
the two questions involved in these cases, namely, whether
dressed hides and skins and raw hides and tanned skins are
different commodities and, secondly, whether Section 14(iii)
of the Central Sales Tax Act regards them as the single
commodity, appear to have been decided differently by a
Constitution Bench of this Court in Hajee Abdul Shakoor and
Company Vs. State of Madras [1964 (8) SCR 217]. The
appellant therein had contended that tanned and untanned
hides and skins did not form different commodities and,
therefore, tax could not be levied on the sales of hides and
skins in the raw condition when no tax is levied on the sale
of hides and skins in the tanned condition. On the other
hand the State had contended that they were two different
commodities and constituted two separate commodities for the
purpose of taxation. The Court at page 227 observed that
"hides and skins in the untanned condition are undoubtedly
different as articles of merchandise than tanned hides and
skins." If then dealt with the contention that tanning was
only a preservative process which makes no change in the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10
nature of the article itself, a submission which has also
been raised in the present case on behalf of the appellant.
The Court, however, did not accept this submission and in
this connection it approved the observations in Government
of Andhra Pradesh Vs. M.A. Abdul Bari and Company (9 STC
231) to the effect that tanning of raw hides and skins was a
manufacturing process as a result of which the product that
emerges is different from the raw material as after tanning
the hides and skins become a different commodity and then
concluded at page 228 that "it is, therefore, not correct to
say that the process of tanning brings about no change in
the raw hides and skins and that therefore both types of
hides and skins form one commodity." The appellant therein
had also referred to the decision in Abdul Subban and
Company Vs. State of Madras (11 STC 173) where the following
observations had been made at page 228:
"Section 14(3) of the Central Sales
Tax Act, 1956 (Act 74 of 1958) also
treats hides and skin whether
dressed or raw, as a single
commodity... Since skins tanned or
untanned, constitute only one class
of goods and the sale of that class
of goods can be taxed only at a
single point, obviously there can
be no tax on a sale of tanned
goods, if tax has already been paid
on an earlier transaction when
those skins were untanned."
The aforesaid conclusion in Abdul Subban’s case was not
accepted by this Court and it was observed at page 228 that
"no reason is given why the two kinds of hides and skins are
treated as a single commodity." Again at page 229 the
finding of the Court was that "we, therefore, hold that raw
hides and skins dressed hides and skins constitute different
commodities of merchandise and they could therefore be
treated as different goods for the purposes of the Act."
From the aforesaid observations it clearly follows that
the Constitution Bench had, in no uncertain terms, come to
the conclusion that raw hides and skins and dressed hides
and skins were not one and the same commodity. Therefore,
the first contention raised in the present case by the
learned counsel for the appellant cannot be accepted
notwithstanding the reliance by them on the aforesaid
decision in the case of Telanganna Steel Industries case. It
may here be noted that in none of these decisions was the
attention of the Learned Judges drawn to the aforesaid
observations of the Constitution Bench in Abdul Shakoor’s
case.
The other submission that Section 14(iii) of the
Central Sales Tax Act, in any case, treats raw hides and
skins and dressed hides and skins as one and the same
commodity, because it is included in the same sub-heading in
Section 14 also stands concluded by Abdul Shakoor’s case. As
already noted herein above, this Court specifically referred
to those observations in Abdul Subban’s case (supra) which
had interpreted Section 14 (iii) of the Central Sales Tax
Act to mean that hides and skins whether dressed or raw were
single commodity and this observation was disapproved when
at page 228 this Court observed in Abdul Shakoor’s case that
"no reason is given why the two kinds of hides and skins are
treated as a single commodity". The Court was called upon to
refer to the provisions of Section 5 Clause (vi) of the
Madras General Sales Tax Act, 1959 which related to the levy
of tax on the sale of hides and skins and which read as
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10
follows:
"Subject to such restrictions and
conditions as may be prescribed,
including conditions as to licences
and licence fees.....
(vi) The sale of hides and skins,
whether tanned or untanned shall be
liable to tax under section 3, sub-
section (1) only at such single
point in series of sales by
successive dealers as may be
prescribed. (emphasis added)
This provision was replaced by Section 5A (4) which is as
under:
"The sale of hides and skins,
whether in a raw or dressed state,
shall be liable to tax only at such
single point in the series of sales
by successive dealers as may be
prescribed but at the rate of two
percent on the turnover at that
point." (emphasis added)
The Court while interpreting the said provisions then held,
as under:
The real question is whether these
provisions that raw hides and skins
and dressed or tanned hides and
skins as one class of goods for the
purpose of taxation or as two
different classes of goods. If they
threat them as one class of goods,
the contention at the time of their
sale in a raw condition meets the
requirements of law as hides and
kins could be taxed only at a
single point. If the dressed or
tanned hides and skins are not
taxed at the time of their sale
that does not offend against the
statutory provisions. No question
of discrimination arises as a sale
of raw hides and skins of whatever
origin, i.e., whether produced in
the State or imported into the
State would be equally liable to
the levy of tax.
If the statute treats both these
kinds of hides and skins as
different commodities the
provisions of sub-rule (1) of r.16
providing for the levy of tax on
raw hides and skins at a certain
point even in the absence of any
provision for the taxation of
dressed hides and skins cannot be
said to be discriminatory and
invalid. The articles to be taxed
were not the same and the
legislature could provide
differently about their taxation.
(emphasis added)
The language of Section 14 (iii) of the Central Sales Tax
Act is similarly worded as the language of aforesaid
Sections 5 (vi) and 5A of the Madras General Sales Tax Act.
It is while interpreting this that it was held that raw and
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10
dressed hides and skins were different articles and that is
why the legislature could provide differently about their
taxation. The fact that both the articles are mentioned
under the same heading is also of no material consequence.
After referring to Raghbir Chand Som Chand Vs. Excise and
Taxation Officer (11 STC 149) wherein it was held that
ginned and unginned cotton constituted one commodity inter
alia for the reason that ginned and un-ginned cotton were
under the same head and thereby indicating that the
legislature looked upon ginned and un-ginned cotton as one
and the same thing, it was held in Abdul Shakoor’s case at
page 229 that "The fact that certain articles are mentioned
under the same heading in a statute or the Constitution does
not mean that they all constitute one commodity. The
inclusion of several articles under the same heading may be
for a reason other than that the articles constitute one and
the same thing." This means that merely being put under one
head would not make two different commodities a single item
for purposes of taxation.
When dressed hides and skins are different goods from
raw hides and skins, we do not find anything in the language
of Section 14 of the Central Sales Tax Act which can lead us
to the conclusion that these two different commodities were
to be regarded as constituting a single commodity for the
purpose of taxation. Sections 14 and 15 of the Central Sales
Tax Act have to be read together as they constitute a scheme
relating to taxation of goods of special importance in
inter-state trade or commerce. While Section 14 enumerates
the items which are regarded as being goods of special
importance in inter-state trade or commerce, it is Section
15 which imposes the restriction and conditions in regard to
tax on sale or purchase of declared goods within a State.
Section 14, in other words, is not a taxing provision but it
merely classified different commodities under the same
species under one entry. Merely because different goods or
commodities are listed together in the same sub-heading or
sub-item in Section 14 cannot mean that they are regarded as
one and the same item. Whenever the legislature wanted
different goods placed in the same entry to be regarded as a
single commodity it expressly provided for the same. By Act
103 of 1976 sub-sections (c) and (d) were inserted in
Section 15 of the Central Sales Tax Act. With the
introduction of Section 115 (d) "each of the pulses referred
to in Clause (vi-a) of Section 14, whether whole or
separated and, whether with or without husk, were to be
treated as a single commodity of the purposes of levy of tax
under that law." If the intention of the legislature had
been that the various commodities mentioned in the same
clauses in Section 14 were to be regarded as a single
commodity it would have specifically provided as such. The
legislature, however, chose to single out different types of
pulses only to be regarded as a single commodity.
Notwithstanding the fact that the raw hides and skins had
been held by this Court in Abdul Shakoor’s case (supra) as
being distinct from dressed hides and skins the legislature
did not think it appropriate to insert a clause similar to
Section 15 (d) which may have had the effect of regarding
raw hides and skins and dressed hides and skins as being
treated as a single commodity for the purposes of levy of
tax.
The words "hides and skins, whether in a raw or dressed
state" in Section 14(iii) of the Central Sales Tax Act
clearly seem to indicate that the legislature recognised
that raw hides and skins was an item different from dressed
hides and skins. As has already been noticed hereinabove it
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10
is after undergoing a manufacturing process involving
various stages that raw hides and skins becomes dressed
hides and skins. As observed in the State of Tamil Nadu Vs.
Pyare Lal Malhotra Etc. (1976 (3) SCR 168) at page 173 that
"sales tax law is intended to tax sales of different
commercial commodities and not to tax the production of the
manufacture of particular substances out of which these
commodities may have been made. As soon as separate
commercial commodities emerge or come into existence, they
become separately goods, without change of their identity as
such goods, are merely subjected to some processing or
finishing or are merely jointed together, they may remain
commercially the same goods which cannot be taxed again, in
a series sales, so long as they retain their identity as
goods of a particular type. In the present case dressed
hides and skins is a separate commercial commodity which
emerges after raw hides and skins has been subjected to
manufacturing process and, therefore, Section 14(iii) deals
with two different types of goods which unlike the case of
pulses referred to in Section 15 (d), is not regarded by the
Act as one and the same commodity.
Having come to the conclusion that raw hides and skins
and dressed hides and skins are two types of commodities, it
must flow therefrom that when the appellants purchased raw
hiides and skins on payment of tax they would be liable to
pay sales tax in respect of dressed hides and skins and such
levy will not fall foul of Section 15 as the two goods are
different taxable commodities. In other words the same goods
would not have been taxed more than once. In our opinion,
therefore the High Court was right in coming to the
conclusion which it did, namely, that the sales tax
authorities could levy sales tax on the sale of dressed
hides and skins and that the provisions of Section 3 of the
Tamil Nadu General Sales Tax (3rd Amendment) Act, 1987 are
not ultra vires.
The appeals are accordingly dismissed with no order as
to costs.