Full Judgment Text
1
IN THE HIGH COURT OF KARNATAKA AT BANGALORE ®
TH
DATED THIS THE 16 DAY OF AUGUST, 2012
BEFORE
THE HON’BLE MR.JUSTICE B.S.PATIL
W.P.No.5739/2011 & W.P.Nos.18322-332/2012
C/w
W.P.Nos.5740-42/2011 & W.P.Nos.18286-318/2011,
W.P.No.16015/2011 & W.P.Nos.23815-825/2011,
W.P.No.16162/2011 & W.P.Nos.41091-101/11,
W.P.No.25518/2011 & W.P.Nos.43584-593/2011 (T-RES)
IN W.P.5739/2011 & W.P.Nos.18322-332/2012
C/W
W.P.Nos.5740-5742/2011 & W.P.Nos.18286-318/2011:
BETWEEN:
M/s.Balanoor Plantations and Industries Ltd.,
rd
Empire Infantry, 3 Floor,
No.29, Infantry Road,
Bangalore-01,
Rep.by its Managing Director
Sri Ashok Kuriyan
Aged about 58 years,
S/o Sri K.O.Kuriyan. … PETITIONER
(COMMON)
(By Sri G.Rabinathan & M.Thirumalesh, Adv.)
AND:
1. State of Karnataka,
Represented by Principal Secretary to Govt.,
Finance Department,
Government of Karnataka,
Vidhana Soudha,
Bangalore-01.
2. Commissioner of Commercial Taxes,
Vanijya Therige Karyalaya,
2
Gandhinagar,
Bangalore-09.
3. Assistant Commissioner of Commercial
Taxes (Audit)-13, DVO-1,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09. … RESPONDENTS
(COMMON)
(By Sri T.K.Vedamurthy, HCGP)
IN W.P.No.16015/2011 & W.P.Nos.23815-825/2011
C/W
W.P.No.25518/2011 & W.P.Nos.43584-593/2011:
BETWEEN:
M/s.Badra Estates & Industries Ltd.,
rd
Empire Infantry, 3 Floor,
No.29, Infantry Road,
Bangalore-01,
Rep.by its Managing Director
Sri Jacob Mammen,
Aged about 49 years,
S/o late Sri K.C.Mammen. … PETITIONER
(COMMON)
(By Sri G.Rabinathan & M.Thirumalesh, Adv.)
AND:
1. State of Karnataka,
Represented by Additional Chief
Secretary to Government,
Finance Department,
Government of Karnataka,
Vidhana Soudha,
Bangalore-01.
2. Commissioner of Commercial Taxes, Karnataka,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09.
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3. Assistant Commissioner of Commercial
Taxes (Audit)-13, DVO-1,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09. … RESPONDENTS
(COMMON)
(By Sri T.K.Vedamurthy, HCGP)
IN W.P.No.16162/2011 & W.P.Nos.41091-101/11:
M/s. Devon Plantation & Industries Ltd.,
rd
Empire Infantry, 3 Floor,
No.29, Infantry Road,
Bangalore-01,
Rep. by its Managing Director
Sri K.Kurian,
Aged about 55 years,
S/o late Sri Raju.K. … PETITIONER
(By Sri G.Rabinathan & M.Thirumalesh, Adv.)
AND:
1. State of Karnataka,
Represented by Additional Chief
Secretary to Government,
Finance Department,
Government of Karnataka,
Vidhana Soudha,
Bangalore-01.
2. Commissioner of Commercial Taxes, Karnataka,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09.
3. Assistant Commissioner of Commercial
Taxes (Audit)-13, DVO-1,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09. … RESPONDENTS
(By Sri T.K.Vedamurthy, HCGP)
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W.P.5739/2011 & W.P.Nos.18322-332/2012 and
W.P.Nos.5740-5742/2011 & W.P.Nos.18286-318/2011 are filed
under Articles 226 & 227 of the Constitution of India, praying
to declare that the petitioner is eligible to deduction of the tax
paid on fertilizers, pesticides etc., purchased from dealers
registered under KVAT Act, 2003 from the output tax payable
on sales of coffee and etc.
W.P.No.16015/2011 & W.P.Nos.23815-825/2011 and
W.P.No.25518/2011 & W.P.Nos.43584-593/2011 are filed
under Articles 226 & 227 of the Constitution of India, praying
to declare that the petitioner is eligible to deduction of the tax
paid on fertilizers, pesticides etc., purchased from dealers
registered under KVAT Act, 2003 from the output tax payable
on sales of coffee and etc.
W.P.No.16162/2011 & W.P.Nos.41091-101/2011 are
filed under Articles 226 & 227 of the Constitution of India,
praying to declare that the petitioner is eligible to deduction of
the tax paid on fertilizers, pesticides etc., purchased from
dealers registered under KVAT Act, 2003 from the output tax
payable on sales of coffee and etc.
These petitions having been heard and reserved for orders
on 16.07.2012, coming on for Pronouncement of Order, this
day, the Court made the following:
ORDER
1. W.P.No.5739/2011 is filed by M/s.Balanoor Plantation
and Industries Limited. It is a Company incorporated under
the Indian Companies Act, 1956 and a dealer registered under
the provisions of the Karnataka Value Added Tax Act, 2003 (for
short, ‘the Act’). It owns coffee and tea estates located in
Chickmagalur District and is engaged in the cultivation of coffee
and tea and in manufacturing/processing of cured coffee and
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roasted tea for sales in domestic market. It is calling in
question the reassessment order dated 14.01.2011 passed by
the Assistant Commissioner of Commercial Taxes (Audit) – 13,
DVO-1, Bangalore, levying additional tax along with interest
and penalties for the tax period 2005-06 and the consequent
demand notice issued.
2. W.P.Nos.5740-742/2011 and W.P.Nos.18286-318/2011
are also filed by M/s.Balanoor Plantation and Industries
Limited challenging the reassessment orders dated 14.01.2011
passed by the Assistant Commissioner of Commercial Taxes
(Audit)-13, DVO-1, Bangalore, for the tax periods 2006-07,
2007-08 and 2008-09 and consequent demand notices issued.
3. W.P.No.16015/2011 and W.P.Nos.23815-825/2011 are
filed by M/s.Badra Estates and Industries Limited, Bangalore.
It is a company incorporated under the Indian Companies Act,
1956 and a dealer registered under the Act. Petitioner –
Company owns plantations and is engaged in growing coffee,
curing and processing of goods for sale of cured coffee to its
customers in the State. It is challenging the reassessment
order dated 25.03.2011 passed by the Assistant Commissioner
of Commercial Taxes (Audit–16), VAT Division No.1, Bangalore,
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for the tax period April, 2006 to March, 2007 and the
consequent demand notice issued.
4. W.P.No.25518/2011 and W.P.Nos.43584-593/2011 are
also filed by M/s.Badra Estate and Industries Limited
challenging the reassessment order dated 31.05.2011 passed
by the Assistant Commissioner of Commercial Taxes (Audit–11),
DVO-1, Bangalore, for the tax period May, 2007 to March, 2008
and the consequent demand notice issued.
5. W.P.No.16162/2011 and W.P.Nos.41091-41101/2011 are
filed by M/s.Devon Plantation and Industries Limited. It is a
company incorporated under the Indian Companies Act, 1956
and a dealer registered under the Act. It is engaged in growing
coffee and tea and also in curing and processing of the goods
for sale of the processed tea and cured coffee locally to its
customers in the State. It is calling in question the
reassessment order dated 25.03.2011 passed by the Assistant
Commissioner of Commercial Taxes (Audit-16), VAT Division-I,
Bangalore, for the tax period April, 2006 to March, 2007 and
the consequent demand notice issued.
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6. By the impugned orders, the Assistant Commissioner of
Commercial Taxes has denied the input tax credit to the
petitioners on purchases of fertilizers, chemicals, pesticides and
agricultural machinery holding that inputs used for cultivation
of tea plants/coffee were not eligible for input tax credit. The
Assistant Commissioner of Commercial Tax has held that
cultivation of different plants, no doubt requires inputs such as
chemicals, fertilizers, pesticides, etc. and tax would have been
paid by the dealer concerned on such purchases made by them.
However, as per the provisions of the Act, deduction is available
to a registered dealer towards tax paid only on inputs as
defined under Section 2(19) of the Act that are purchased in the
course of his business and for use in his business. He has
further held that the activity of growing tea does not fall within
the meaning of the term ‘business’ as defined under Section
2(6) of the Act. Hence, tax paid on purchase of goods, which
are not in the course of business and for use in the business,
was not available for deduction as per the provisions contained
in Section 10 of the Act. Reliance has been placed on the
judgment of the Apex Court in the case of M/S.TRAVANCORE TEA
ESTATES CO. LTD. VS. STATE OF KERALA – 39 STC 1 (SC) , wherein it
is held that cultivation and growth of tea plants cannot be
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comprehended in the expression ‘in the manufacture or
processing of goods for sale’. He has further held that
cultivation of tea plants and the growth of tea leaves is distinct
and separate from sale of tea, consequently, the liabilities
imposed and facilities extended in respect of sale of tea could
not be applicable to cultivation of tea plants, hence, while
calculating the net tax payable on sale of tea under Section
10(3), no deduction can be given in respect of tax paid on goods
purchased for use in the course of growing tea leaves.
7. Learned counsel for the petitioners Sri Rabinathan has
placed reliance on the order passed by this Court in the case of
DIWAN BAHADUR S.L.MATHIAS & SONS, CHIKMAGALUR VS. STATE OF
KARNATAKA AND OTHERS 2010 (69) KAR.L.J. 280 to contend that it
has been already held by this Court that tea growing is not an
agricultural activity and the judgment of the Apex Court in
Travancore ’s case was rendered in the context of Central Sales
Tax Act, 1956, where no provision has been made to exclude
tea cultivation from the purview of agriculture, hence the said
decision could not have been made basis for the impugned
order passed by the Assessing Officer. His contention is that
despite such an order passed by this Court, the Commissioner
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of Commercial Taxes vide his proceedings dated 22.11.2010 has
held that the activity of raising or growing tea plants continued
to be agricultural activity as per Section 2(1) and the person
raising or growing tea plants continued to be an agriculturist as
per Section 2(2).
8. The Commissioner of Commercial Tax, while giving
clarification in the matter, has relied on the judgment of the
Apex Court in Travancore ’s case. He has given such
clarification exercising his powers under Section 59(4) of the
Act pursuant to the application filed by M/s.Diwan Bahadur
S.L.Mathias & Sons and in pursuance of the direction issued by
this Court while remitting the matter for reconsideration vide
order dated 13.07.2010 passed in W.P.Nos.12993-994/2010 &
W.P.Nos.13420-422/2010 (M/s.Diwan Bahadur S.L.Mathias &
Sons case).
9. As the controversy has arisen in the light of the
clarification issued by the Commissioner for Commercial Taxes
on 22.11.2010 which is produced at Annexure-C in
W.P.No.5739/2011 which in turn is the result of the direction
issued by this Court in M/s.Diwan Bahadur S.L.Mathias &
Son’s case, it is necessary to notice the observations made by
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this Court while remitting the matter for reconsideration to the
Commissioner for Commercial Taxes. Paragraphs 11 to 15 are
relevant for this purpose. They are extracted hereunder:
“11. Sri Shivayogiswamy further submits that the
definition of the term “input” as contained in
Section 2(19) of the said Act is that any goods
purchased by the dealer in the course of his
business for resale or for use in the manufacturing
or processing or packing or storing of other goods
or any other use in business.
12. The submissions of the learned Counsel have
received my anxious consideration. My perusal of
the impugned order reveals that the second
respondent has proceeded on the fallacy that the
petitioner’s tea growing is an agricultural activity.
He has held that, as the fertilizers, chemicals,
pesticides are not required for the business activity,
the input tax paid on their purchases cannot be
considered for deduction out of the output tax
payable on the sale of commercial tea.
13. Further, decision of the Apex Court in the case
Travancore
of has served as the foundation for
rejecting the claim of the petitioner. But what
cannot be lost sight of is that the said judgment
was passed in a case falling for consideration under
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the Central Sales Tax Act, 1956. As contended by
Sri Venkatesh, the learned Counsel for the
petitioner, there are no provisions in the CST Act
excluding the tea cultivation/plantation from the
purview of agriculture. A judgment is a good law
for what it has decided.
14. The implications of the petitioner not being an
agriculturist and the tea not being agricultural or
horticultural produce for the purpose of the said
Act are not examined by the second respondent.
What is required to be considered by the
respondent 2 is the entitlement or otherwise based
on the petitioner’s registration as a dealer under
the said Act, when the petitioner is not an
agriculturist and tea is not an agricultural or
horticultural produce. This aspect of the matter
has to be examined and thereafter fresh orders are
to be passed by the respondent 2.
15. For all the aforesaid reasons, the impugned
order is liable to be quashed and accordingly it is
quashed, but the same does not automatically
mean that the petitioner is entitled to input tax
credit or set off on fertilizers, chemicals, manure,
etc. The issue has to be re-examined by the second
respondent.”
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10. It is necessary to notice here that in the aforementioned
judgment, this Court has referred to the definition of the term
‘agricultural produce or horticultural produce’ as defined under
Section 2(3) and explanation 4(a) to Section 2 (12). Based on
the above observations made in paragraph 11 to 15 of the
judgment, learned counsel appearing for the petitioners
submits that the term ‘agricultural produce or horticultural
produce’ as defined in Section 2(3) and the term ‘agriculturist’
as defined under Section 2(2) have fallen for consideration
before this Court and this Court after considering the respective
contentions has held that the petitioners’ activity of tea growing
was not an agricultural activity.
11. This contention of the petitioners is strongly resisted by
the learned Government Pleader stating that such a
pronouncement is not made in the judgment of this Court as
this Court did not analyse the definition of the term
‘agricultural produce or horticultural produce’ except referring
to the same and extracting the same in the order. He further
contends that as the matter has been remitted for fresh
consideration to the Commissioner for Commercial Taxes
directing him to reexamine the issue, this Court has to consider
13
the question whether tea growing is an agricultural activity and
tea is an agricultural produce and consequently as to whether
petitioners are entitled for any deduction towards input tax paid
on fertilizers, chemicals, pesticides, etc., for growing tea.
Similar is the contention addressed with reference to the
activities leading to growing of coffee and the manufacture and
sale of coffee.
12. It is true this Court has not analysed the definition of the
term ‘agricultural produce or horticultural produce’ and has not
authoritatively pronounced on the meaning and scope of the
said term as used in Section 2(3) of the Act. But it is also true
that this Court has observed in so many words that in its
nd
opinion, the 2 respondent therein (Commissioner for
Commercial Tax) had proceeded on the fallacy that the
petitioner Diwan Bahadur S.L.Mathias & Sons was carrying on
an agricultural activity by growing tea.
13. Even assuming that this Court has not analysed the
definition clause used in Section 2(3) of the Act, while
nd
characterizing the conclusion reached by the 2 respondent –
Commissioner of Commercial Tax as fallacious in stating that
growing of tea was an agricultural activity, it is clear that this
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Court has opined that growing of tea is not an agricultural
activity.
14. Paragraph-15 of the judgment further makes it clear that
as the growing of tea was not an agricultural activity and the
tea not being ‘agricultural produce or horticultural produce’, for
the purpose of the Act what was required by the Commissioner
for Commercial Tax to consider was the entitlement of the
petitioner for input tax credit when the petitioner therein was
not an agriculturist and the tea grown was not an agricultural
produce or horticultural produce. It is for the consideration of
this aspect of the matter and for passing fresh orders, the
nd
matter was remitted to the 2 respondent – Commissioner for
Commercial Tax with a direction to reexamine the issue.
15. After reexamination, the Commissioner for Commercial
Tax has come to the conclusion that ‘the activity of raising or
growing tea plants continues to be an agricultural activity and
the person raising or growing tea continues to be an
agriculturist’. He also further points out that in the light of the
definition of the terms ‘input’ and ‘business’ as used in the Act,
tax paid on goods purchased by the petitioners in the course of
their agricultural activities and for use in such agricultural
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activity does not fall within the ambit of input tax as provided
under Section 10.
16. It is thus clear that the Commissioner of Commercial Tax
has not kept in mind the observations made by this Court in
paragraphs 11 to 15 extracted herein above, particularly
paragraph-14. Though this Court had directed the
Commissioner to consider the implication of the matter
proceeding on the premise that the petitioners were not
agriculturists and tea grown was not an agricultural or
horticultural produce for the purpose of KVAT Act, regarding
the claim made for input tax credit or set off on fertilizers,
chemicals, pesticides, etc., the Commissioner has proceeded on
the premise that tea cultivation continued as an agricultural
activity.
17. Learned Government Pleader submits that even if this
Court proceeds on the premises that tea is not an agricultural
produce, petitioners in these cases are not entitled for such
input tax credit. Whereas, the counsel for the petitioner
contends to the contrary.
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18. In this background, it has become necessary for this
Court to examine the issue at some detail. It is necessary to
refer to the definition of the term ‘agricultural produce or
horticultural produce’ as defined in Section 2(3). It reads as
under:-
“Agricultural produce or horticultural
produce” shall not be deemed to include tea,
beedi leaves, raw cashew, timber, wood,
tamarind and such produce, except coffee (as
has been subject to any physical, chemical or
other process for being made fit for
consumption, save mere cleaning, grading,
sorting or drying).”
19. Similarly, it is also necessary to understand the meaning
and definition of the term ‘dealer’ so far as it is relevant for the
present purpose. The relevant portion of the definition needs to
be extracted as under:
“ Dealer ” means any person who carries on the
business of buying, selling, supplying or
distributing goods, directly or otherwise, whether
for cash or for deferred payment, or for
commission, remuneration or other valuable
consideration and includes.-
(a)……..
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(b)………
(c)………
(d)………
(e)………
(f)………
(g)………
(h)………
(i)………
Explanations-
(1) …
(2) …
(3) …
(4) (a) An agriculturist who sells exclusively
agricultural produce grown on land cultivated by
him personally or a person who is exclusively
engaged in poultry farming and sells the products
of such poultry farm shall not be deemed to be a
dealer within the meaning of this clause;
(b) Where the agriculturist is a company and is
selling pepper, arecanut, cardamom, rubber,
timber, wood, raw cashew or coffee grown on land
cultivated by it personally, directly or otherwise,
such company, shall be deemed to be a dealer in
respect of turnovers relating to sales of such
produce.”
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20. The term ‘ agricultural produce or horticultural produce ’
as defined in Section 2(3) introduces a deeming clause stating
that agricultural or horticultural produce shall not be deemed
to include tea, beedi leaves, raw cashew, timber, wood,
tamarind and such produce, except coffee as has been subject
to any physical, chemical or other process for being made fit for
consumption, save mere cleaning, grading, sorting or drying.
21. It is contended by the learned counsel for the petitioner
that the qualifying phrase – ‘as has been subject to any
physical, chemical or other process for being made fit for
consumption’ used in the definition qualifies only the words
‘such produce’ and not the words preceding the word ‘and’. In
other words, according to him, tea, beedi leaves, raw cashew,
timber, wood, tamarind shall not be deemed to be included in
the definition of the term ‘agricultural produce or horticultural
produce’. But, as regards other such produce are concerned,
the deeming clause will apply only when they are subjected to
any physical, chemical or other process for being made fit for
consumption, save mere cleaning, grading, sorting or drying.
22. A descriptive phrase normally qualifies the expression
which immediately precedes it. In the definition clause, the
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word ‘and’ is used. It is clear that the expression ‘as has been
subject to any physical, chemical, or other process for being
made fit for consumption’ is not used to restrict the meaning of
the terms ‘tea, beedi leaves, raw cashew, timber, wood,
tamarind’ so as to hold that they shall not be deemed to be
agricultural or horticultural produce only if they are made fit for
consumption by some physical or chemical process. If tea is
made fit for consumption by physical or chemical process which
ultimately means processed tea or tea powder, it hardly
requires to be clarified that it is not an agricultural produce as
it undergoes the process of drying, processing,
powdering/breaking etc.
23. What then is the meaning of the term ‘such produce’.
The word such produce is followed by the expression ‘except
coffee as has been made. Hence, the descriptive clause qualifies
the expression ‘such produce’. The descriptive clause cannot
be taken to qualify the word coffee in the instant case. If it is so
construed then it will result in absurdity as it will tantamount
to saying coffee made fit for consumption by physical, chemical
other process can be construed as agricultural or horticultural
produce, which is not intended. Therefore, I am of the view that
the definition clause in Section 2(3) makes it clear that tea shall
20
not be deemed to be included in the definition of ‘agricultural
produce or horticultural produce’.
24. If this is so, then, the next important question that
requires to be addressed is, in the light of the term ‘input’ and
the definition of the term ‘business’ coupled with the definition
of the term ‘dealer’ whether the petitioners are entitled to claim
input tax credit for the purchase of fertilizers, chemicals,
pesticides, fungicides, etc., and other capital goods purchased
for growing tea.
25. The definition of the term ‘dealer’ is already extracted
insofar as it is relevant for the purpose of this case. The term
‘ input ’ is defined in Section 2(19). It reads as under:
“ Input ” means any goods including capital
goods purchased by a dealer in the course of his
business for re-sale or for use in the manufacture or
processing or packing or storing of other goods or
any other use in business’.
26. The expression ‘ capital goods ’ is defined in Section 2(7).
It reads as under:
“ Capital goods ” for the purpose of Section
12 means plant, including cold storage and
similar plant, machinery, goods vehicles,
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equipments, moulds, tools and jigs, and used in
the course of business other than for sale’.
27. The term ‘ business ’ is defined in Section 2(6). It reads as
under:
“ Business ” includes –
(a) any trade, commerce, manufacture or any
adventure or concern in the nature of trade,
commerce or manufacture, whether or not such trade,
commerce, manufacture, adventure or concern is
carried on in furtherance of gain or profit and whether
or not any gain or profit accrues therefrom; and
(b) any transaction in connection with, or incidental
or ancillary to, such trade, commerce, manufacture,
adventure or concern.
28. Chapter – II of Act deals with incidence and levy of tax.
Section 3 which provides for levy of tax states that tax shall be
levied on every sale of goods in the State by a registered dealer
or a dealer liable to be registered, in accordance with the
provisions of this Act. It further states that tax shall also be
levied, and paid by every registered dealer or a dealer liable to
be registered, on the sale of taxable goods to him, for use in the
22
course of his business, by a person who is not registered under
this Act.
29. In terms of Section 4, every dealer who is or is required to
be registered as specified in Sections 22 and 24, shall be liable
to pay tax, on his taxable turnover in respect of goods
mentioned in the said provisions.
30. In respect of goods mentioned in Third Schedule the
dealer is required to pay tax at the rate of 5%. In the Third
Schedule, different goods are mentioned including coffee beans
and seeds (whether raw or roasted); cocoa pods and beans,
green tea leaf and chicory. This is found in Item No.24 of the
Third Schedule. In Item No.92 of the Third Schedule, tea is
mentioned as one of the goods taxable as per Section 4 on the
taxable turnover.
31. As per the definition of the term ‘dealer’ as extracted
above, an agriculturist who sells exclusively agricultural
produce grown on land cultivated by him personally shall not
be deemed to be a dealer within the meaning of the clause.
However, explanation (4)(b) to Section 2(12) makes it clear that
where the agriculturist is a company and is selling pepper,
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arecanut, cardamom, rubber, timber, wood, raw cashew or
coffee grown on land cultivated by it personally, directly or
otherwise, such company, shall be deemed to be a dealer in
respect of turnovers relating to sales of such produce. It is
therefore clear that all agriculturists and all agricultural
produce are not kept out of the purview of tax as only those
agriculturists who sell exclusively agricultural produce grown
on land cultivated by them personally are not required to be
registered as dealer as they are not deemed to be a dealer
within the meaning of the term ‘dealer’. Similarly, if the
agriculturist is a company selling certain specified produce,
even if such produce is grown on land cultivated by it
personally, such company is deemed to be a dealer in respect of
turnover relating to sales of such produce. Therefore, it has to
be borne in mind that distinction between agricultural produce
and non-agricultural produce is relevant only to a certain
extent, for the purpose of understanding whether a person
engaged in carrying on business of buying, selling, supplying or
distributing goods is a dealer.
32. The real issue is what is the nature of the business the
petitioners are carrying on, what is the input that they use for
24
the purpose of their business and whether they are entitled for
input tax credit for the tax paid while purchasing fertilizers,
pesticides, chemicals and other capital goods for growing tea
and coffee. As is evident from the definition of the term ‘input’,
input means any goods including capital goods purchased by a
dealer in the course of his business for re-sale or for use in the
manufacture or processing or packing or storing of other goods
or any other use in business. The tax that is sought to be
collected from the petitioners is in respect of the taxable sale of
goods namely tea powder/coffee produced by the dealer in the
course of his business.
33. For the purpose of finding out the taxable sale of goods
produced by the dealer in the course of his business, in the
instant case, the term ‘business’ has to be regarded as the
trade, commerce, manufacture or any adventure in the nature
of trade, commerce or manufacture in respect of the
manufacturing, processing of tea or coffee including different
processes involved in that regard and this cannot be stretched
to include cultivation and growing of tea plants and tea leaves
or coffee. The term ‘business’ as used in Sub-Clauses (a) & (b)
of Clause (6) of Section 2 of the Act to mean any trade,
commerce or manufacture or any adventure or concern in the
25
nature of trade, commerce or manufacture carried on by any
person and transaction in connection with or incidental or
ancillary to such trade, commerce, manufacture, adventure or
concern would mean the business of manufacturing/processing
tea. Understood in the light of the definition of the term ‘input’
which means any goods including capital goods purchased by a
dealer in the course of his business for resale or for use in the
manufacture or processing or packing or storing of other goods
or any other use in the business, it means that in the course of
this business, if the dealer purchases any capital goods or other
goods for use in the manufacture or processing or packing or
storing of other goods or any other use in the business, then
the dealer can claim input tax credit.
34. The contention of the learned counsel for the petitioners
is that the term ‘any other use in business’ used in the
definition of the term ‘input’ includes use of fertilizers,
pesticides and other capital goods for the purpose of growing
tea plants and tea leaves. Merely because the petitioners,
apart from engaging themselves in the process of
manufacturing tea, are also cultivating tea plantation and are
growing tea leaves, it cannot be said that both the activities of
26
growing tea leaves and manufacturing of tea powder has to be
taken as an integral part of their business for the purpose of
understanding the definition of the term ‘input’, to claim input
tax credit.
35. As adverted to above, the definition of the term ‘capital
goods’ encompasses machinery, goods vehicles, equipment used
in the course of business other than for sale. As per Section
12, deduction of input tax shall be allowed to the registered
dealer in respect of capital goods for purchase of such capital
goods for use in the business of sale of any goods in the course
of export out of the territory of India and in the case of any
other dealer in respect of the purchase of capital goods wholly
or partly for use in the business of taxable goods. The taxable
goods produced by the petitioner in the instant case is tea and
coffee. In the course of manufacture or production of these
goods, whatever goods including capital goods are purchased
for use in the manufacture or for processing or packing or
storing of other goods or any other use in business, which can
be described as ‘input’ as per definition in Section 2(19),
petitioners are entitled to claim deduction of input tax.
27
36. But, in the instant case, petitioners seek to claim
deduction of input tax for having purchased agricultural
machineries, motor car, fertilizers and chemicals on the ground
that they are purchased by them for use in their business
which includes growing of and maintaining tea plantation apart
from processing and manufacturing tea. This contention
cannot be accepted. Fertilizers and Chemicals or for that
matter agricultural machineries, such as tractors, trailers,
transformers, motor car, pump sets and electrical goods, which
are used for tea cultivation cannot be regarded as goods falling
within the definition of the term ‘input’ for the purpose of the
business of the petitioners, which in the instant case is
manufacturing and processing of tea for the sale of which
output tax is claimed. The ‘output tax’, in the instant case, is
not claimed on the sale of tea leaves, on the other hand, the
output tax is paid on the sale of manufactured tea. Therefore,
the business of the dealer for the purpose has to be understood
confining it to the manufacturing process resulting in
production of tea and any transaction in connection therewith
or incidental or ancillary to it. Viewed in this background, even
though the petitioners are engaged in cultivating tea plantation
and in growing tea leaves, this cannot be regarded as business
28
and has no relevance for the purpose of granting input tax
credit to the inputs used by way of purchase of fertilizers,
chemicals etc., in the course of cultivation of tea.
37. The expression ‘business’ used in Section 2(6), in this
background, cannot be stretched to include the tea plantation
and cultivation by the dealer for the purpose of claiming input
tax credit. Therefore, fertilizers, chemicals, pesticides and other
agricultural machineries, which are used for the purpose of
growing tea leaves cannot be termed as goods purchased by the
petitioners in the course of their business in manufacturing or
processing or packing of tea produced by them or storing of
other goods or any other use in that business. It is in this
background that useful reference can be made to the judgment
of the Apex Court in Travancore ’s case, for the limited purpose
of understanding that the cultivation of tea plants and the
growing of tea leaves, though not something entirely distinct
from the manufacturing process to which tea leaves are
subjected in the factories and although the time-lag between
the plucking of tea leaves and their being subjected to
manufacturing process in the factories is very little, the same
would not detract from the conclusion that the cultivation and
29
growth of tea plants and leaves is something distinct and
separate from the manufacturing process to which those leaves
are subjected in the factories for turning them into tea meant
for sale. Income which is realized by sale of tea by tea
company, which grows tea on its land and thereafter subjects it
to manufacturing process in its factory consists of two elements
or components, one is the component consisting of income from
growth of tea leaves which is yielded in the form of green leaves
purely by the cultivation in the land. The second component
consists of the income which is the result of subjecting the
green leaves which are plucked from the tea plants grown on
the land and to a particular manufacturing process in the
factory of the tea company.
38. In Travancore ’s case, the Apex Court has observed by
referring to Rule 24 of the Income Tax Rules, 1922 and also
Rule 8 of the Income Tax Rules, 1962, which prescribed the
formula to be adopted for apportioning the income realized as a
result of the sale of tea after it is grown and subjected to
manufacturing process in the factory. 60% is taken to be the
agricultural income which consisted of the first element or
component, while 40% represented non-agricultural income
30
which consisted of the second element or component. In this
regard, the Apex Court referred to the judgment in the case of
Tea Estate India Pvt. Ltd., Vs. Commissioner of Income Tax
(1976)103 ITR 784 (SC). Therefore, it is very evident and crystal
clear that fertilizers, pesticides, fungisides, chemicals, used in
tea cultivation and the agricultural machineries, pump sets and
other electrical equipments, used for growing tea leaves by the
tea planters cannot at all be regarded as goods used in the
course of production of tea meant for sale. There is no direct
relation between the two.
39. Same logic and reasoning applies to coffee as the
cultivation and growing of coffee is distinct from
manufacturing/preparing coffee for sale.
In the result and for the foregoing, I do not find any merit
in these writ petitions and the same are therefore dismissed.
Sd/-
JUDGE
PKS
IN THE HIGH COURT OF KARNATAKA AT BANGALORE ®
TH
DATED THIS THE 16 DAY OF AUGUST, 2012
BEFORE
THE HON’BLE MR.JUSTICE B.S.PATIL
W.P.No.5739/2011 & W.P.Nos.18322-332/2012
C/w
W.P.Nos.5740-42/2011 & W.P.Nos.18286-318/2011,
W.P.No.16015/2011 & W.P.Nos.23815-825/2011,
W.P.No.16162/2011 & W.P.Nos.41091-101/11,
W.P.No.25518/2011 & W.P.Nos.43584-593/2011 (T-RES)
IN W.P.5739/2011 & W.P.Nos.18322-332/2012
C/W
W.P.Nos.5740-5742/2011 & W.P.Nos.18286-318/2011:
BETWEEN:
M/s.Balanoor Plantations and Industries Ltd.,
rd
Empire Infantry, 3 Floor,
No.29, Infantry Road,
Bangalore-01,
Rep.by its Managing Director
Sri Ashok Kuriyan
Aged about 58 years,
S/o Sri K.O.Kuriyan. … PETITIONER
(COMMON)
(By Sri G.Rabinathan & M.Thirumalesh, Adv.)
AND:
1. State of Karnataka,
Represented by Principal Secretary to Govt.,
Finance Department,
Government of Karnataka,
Vidhana Soudha,
Bangalore-01.
2. Commissioner of Commercial Taxes,
Vanijya Therige Karyalaya,
2
Gandhinagar,
Bangalore-09.
3. Assistant Commissioner of Commercial
Taxes (Audit)-13, DVO-1,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09. … RESPONDENTS
(COMMON)
(By Sri T.K.Vedamurthy, HCGP)
IN W.P.No.16015/2011 & W.P.Nos.23815-825/2011
C/W
W.P.No.25518/2011 & W.P.Nos.43584-593/2011:
BETWEEN:
M/s.Badra Estates & Industries Ltd.,
rd
Empire Infantry, 3 Floor,
No.29, Infantry Road,
Bangalore-01,
Rep.by its Managing Director
Sri Jacob Mammen,
Aged about 49 years,
S/o late Sri K.C.Mammen. … PETITIONER
(COMMON)
(By Sri G.Rabinathan & M.Thirumalesh, Adv.)
AND:
1. State of Karnataka,
Represented by Additional Chief
Secretary to Government,
Finance Department,
Government of Karnataka,
Vidhana Soudha,
Bangalore-01.
2. Commissioner of Commercial Taxes, Karnataka,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09.
3
3. Assistant Commissioner of Commercial
Taxes (Audit)-13, DVO-1,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09. … RESPONDENTS
(COMMON)
(By Sri T.K.Vedamurthy, HCGP)
IN W.P.No.16162/2011 & W.P.Nos.41091-101/11:
M/s. Devon Plantation & Industries Ltd.,
rd
Empire Infantry, 3 Floor,
No.29, Infantry Road,
Bangalore-01,
Rep. by its Managing Director
Sri K.Kurian,
Aged about 55 years,
S/o late Sri Raju.K. … PETITIONER
(By Sri G.Rabinathan & M.Thirumalesh, Adv.)
AND:
1. State of Karnataka,
Represented by Additional Chief
Secretary to Government,
Finance Department,
Government of Karnataka,
Vidhana Soudha,
Bangalore-01.
2. Commissioner of Commercial Taxes, Karnataka,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09.
3. Assistant Commissioner of Commercial
Taxes (Audit)-13, DVO-1,
Vanijya Therige Karyalaya,
Gandhinagar,
Bangalore-09. … RESPONDENTS
(By Sri T.K.Vedamurthy, HCGP)
4
W.P.5739/2011 & W.P.Nos.18322-332/2012 and
W.P.Nos.5740-5742/2011 & W.P.Nos.18286-318/2011 are filed
under Articles 226 & 227 of the Constitution of India, praying
to declare that the petitioner is eligible to deduction of the tax
paid on fertilizers, pesticides etc., purchased from dealers
registered under KVAT Act, 2003 from the output tax payable
on sales of coffee and etc.
W.P.No.16015/2011 & W.P.Nos.23815-825/2011 and
W.P.No.25518/2011 & W.P.Nos.43584-593/2011 are filed
under Articles 226 & 227 of the Constitution of India, praying
to declare that the petitioner is eligible to deduction of the tax
paid on fertilizers, pesticides etc., purchased from dealers
registered under KVAT Act, 2003 from the output tax payable
on sales of coffee and etc.
W.P.No.16162/2011 & W.P.Nos.41091-101/2011 are
filed under Articles 226 & 227 of the Constitution of India,
praying to declare that the petitioner is eligible to deduction of
the tax paid on fertilizers, pesticides etc., purchased from
dealers registered under KVAT Act, 2003 from the output tax
payable on sales of coffee and etc.
These petitions having been heard and reserved for orders
on 16.07.2012, coming on for Pronouncement of Order, this
day, the Court made the following:
ORDER
1. W.P.No.5739/2011 is filed by M/s.Balanoor Plantation
and Industries Limited. It is a Company incorporated under
the Indian Companies Act, 1956 and a dealer registered under
the provisions of the Karnataka Value Added Tax Act, 2003 (for
short, ‘the Act’). It owns coffee and tea estates located in
Chickmagalur District and is engaged in the cultivation of coffee
and tea and in manufacturing/processing of cured coffee and
5
roasted tea for sales in domestic market. It is calling in
question the reassessment order dated 14.01.2011 passed by
the Assistant Commissioner of Commercial Taxes (Audit) – 13,
DVO-1, Bangalore, levying additional tax along with interest
and penalties for the tax period 2005-06 and the consequent
demand notice issued.
2. W.P.Nos.5740-742/2011 and W.P.Nos.18286-318/2011
are also filed by M/s.Balanoor Plantation and Industries
Limited challenging the reassessment orders dated 14.01.2011
passed by the Assistant Commissioner of Commercial Taxes
(Audit)-13, DVO-1, Bangalore, for the tax periods 2006-07,
2007-08 and 2008-09 and consequent demand notices issued.
3. W.P.No.16015/2011 and W.P.Nos.23815-825/2011 are
filed by M/s.Badra Estates and Industries Limited, Bangalore.
It is a company incorporated under the Indian Companies Act,
1956 and a dealer registered under the Act. Petitioner –
Company owns plantations and is engaged in growing coffee,
curing and processing of goods for sale of cured coffee to its
customers in the State. It is challenging the reassessment
order dated 25.03.2011 passed by the Assistant Commissioner
of Commercial Taxes (Audit–16), VAT Division No.1, Bangalore,
6
for the tax period April, 2006 to March, 2007 and the
consequent demand notice issued.
4. W.P.No.25518/2011 and W.P.Nos.43584-593/2011 are
also filed by M/s.Badra Estate and Industries Limited
challenging the reassessment order dated 31.05.2011 passed
by the Assistant Commissioner of Commercial Taxes (Audit–11),
DVO-1, Bangalore, for the tax period May, 2007 to March, 2008
and the consequent demand notice issued.
5. W.P.No.16162/2011 and W.P.Nos.41091-41101/2011 are
filed by M/s.Devon Plantation and Industries Limited. It is a
company incorporated under the Indian Companies Act, 1956
and a dealer registered under the Act. It is engaged in growing
coffee and tea and also in curing and processing of the goods
for sale of the processed tea and cured coffee locally to its
customers in the State. It is calling in question the
reassessment order dated 25.03.2011 passed by the Assistant
Commissioner of Commercial Taxes (Audit-16), VAT Division-I,
Bangalore, for the tax period April, 2006 to March, 2007 and
the consequent demand notice issued.
7
6. By the impugned orders, the Assistant Commissioner of
Commercial Taxes has denied the input tax credit to the
petitioners on purchases of fertilizers, chemicals, pesticides and
agricultural machinery holding that inputs used for cultivation
of tea plants/coffee were not eligible for input tax credit. The
Assistant Commissioner of Commercial Tax has held that
cultivation of different plants, no doubt requires inputs such as
chemicals, fertilizers, pesticides, etc. and tax would have been
paid by the dealer concerned on such purchases made by them.
However, as per the provisions of the Act, deduction is available
to a registered dealer towards tax paid only on inputs as
defined under Section 2(19) of the Act that are purchased in the
course of his business and for use in his business. He has
further held that the activity of growing tea does not fall within
the meaning of the term ‘business’ as defined under Section
2(6) of the Act. Hence, tax paid on purchase of goods, which
are not in the course of business and for use in the business,
was not available for deduction as per the provisions contained
in Section 10 of the Act. Reliance has been placed on the
judgment of the Apex Court in the case of M/S.TRAVANCORE TEA
ESTATES CO. LTD. VS. STATE OF KERALA – 39 STC 1 (SC) , wherein it
is held that cultivation and growth of tea plants cannot be
8
comprehended in the expression ‘in the manufacture or
processing of goods for sale’. He has further held that
cultivation of tea plants and the growth of tea leaves is distinct
and separate from sale of tea, consequently, the liabilities
imposed and facilities extended in respect of sale of tea could
not be applicable to cultivation of tea plants, hence, while
calculating the net tax payable on sale of tea under Section
10(3), no deduction can be given in respect of tax paid on goods
purchased for use in the course of growing tea leaves.
7. Learned counsel for the petitioners Sri Rabinathan has
placed reliance on the order passed by this Court in the case of
DIWAN BAHADUR S.L.MATHIAS & SONS, CHIKMAGALUR VS. STATE OF
KARNATAKA AND OTHERS 2010 (69) KAR.L.J. 280 to contend that it
has been already held by this Court that tea growing is not an
agricultural activity and the judgment of the Apex Court in
Travancore ’s case was rendered in the context of Central Sales
Tax Act, 1956, where no provision has been made to exclude
tea cultivation from the purview of agriculture, hence the said
decision could not have been made basis for the impugned
order passed by the Assessing Officer. His contention is that
despite such an order passed by this Court, the Commissioner
9
of Commercial Taxes vide his proceedings dated 22.11.2010 has
held that the activity of raising or growing tea plants continued
to be agricultural activity as per Section 2(1) and the person
raising or growing tea plants continued to be an agriculturist as
per Section 2(2).
8. The Commissioner of Commercial Tax, while giving
clarification in the matter, has relied on the judgment of the
Apex Court in Travancore ’s case. He has given such
clarification exercising his powers under Section 59(4) of the
Act pursuant to the application filed by M/s.Diwan Bahadur
S.L.Mathias & Sons and in pursuance of the direction issued by
this Court while remitting the matter for reconsideration vide
order dated 13.07.2010 passed in W.P.Nos.12993-994/2010 &
W.P.Nos.13420-422/2010 (M/s.Diwan Bahadur S.L.Mathias &
Sons case).
9. As the controversy has arisen in the light of the
clarification issued by the Commissioner for Commercial Taxes
on 22.11.2010 which is produced at Annexure-C in
W.P.No.5739/2011 which in turn is the result of the direction
issued by this Court in M/s.Diwan Bahadur S.L.Mathias &
Son’s case, it is necessary to notice the observations made by
10
this Court while remitting the matter for reconsideration to the
Commissioner for Commercial Taxes. Paragraphs 11 to 15 are
relevant for this purpose. They are extracted hereunder:
“11. Sri Shivayogiswamy further submits that the
definition of the term “input” as contained in
Section 2(19) of the said Act is that any goods
purchased by the dealer in the course of his
business for resale or for use in the manufacturing
or processing or packing or storing of other goods
or any other use in business.
12. The submissions of the learned Counsel have
received my anxious consideration. My perusal of
the impugned order reveals that the second
respondent has proceeded on the fallacy that the
petitioner’s tea growing is an agricultural activity.
He has held that, as the fertilizers, chemicals,
pesticides are not required for the business activity,
the input tax paid on their purchases cannot be
considered for deduction out of the output tax
payable on the sale of commercial tea.
13. Further, decision of the Apex Court in the case
Travancore
of has served as the foundation for
rejecting the claim of the petitioner. But what
cannot be lost sight of is that the said judgment
was passed in a case falling for consideration under
11
the Central Sales Tax Act, 1956. As contended by
Sri Venkatesh, the learned Counsel for the
petitioner, there are no provisions in the CST Act
excluding the tea cultivation/plantation from the
purview of agriculture. A judgment is a good law
for what it has decided.
14. The implications of the petitioner not being an
agriculturist and the tea not being agricultural or
horticultural produce for the purpose of the said
Act are not examined by the second respondent.
What is required to be considered by the
respondent 2 is the entitlement or otherwise based
on the petitioner’s registration as a dealer under
the said Act, when the petitioner is not an
agriculturist and tea is not an agricultural or
horticultural produce. This aspect of the matter
has to be examined and thereafter fresh orders are
to be passed by the respondent 2.
15. For all the aforesaid reasons, the impugned
order is liable to be quashed and accordingly it is
quashed, but the same does not automatically
mean that the petitioner is entitled to input tax
credit or set off on fertilizers, chemicals, manure,
etc. The issue has to be re-examined by the second
respondent.”
12
10. It is necessary to notice here that in the aforementioned
judgment, this Court has referred to the definition of the term
‘agricultural produce or horticultural produce’ as defined under
Section 2(3) and explanation 4(a) to Section 2 (12). Based on
the above observations made in paragraph 11 to 15 of the
judgment, learned counsel appearing for the petitioners
submits that the term ‘agricultural produce or horticultural
produce’ as defined in Section 2(3) and the term ‘agriculturist’
as defined under Section 2(2) have fallen for consideration
before this Court and this Court after considering the respective
contentions has held that the petitioners’ activity of tea growing
was not an agricultural activity.
11. This contention of the petitioners is strongly resisted by
the learned Government Pleader stating that such a
pronouncement is not made in the judgment of this Court as
this Court did not analyse the definition of the term
‘agricultural produce or horticultural produce’ except referring
to the same and extracting the same in the order. He further
contends that as the matter has been remitted for fresh
consideration to the Commissioner for Commercial Taxes
directing him to reexamine the issue, this Court has to consider
13
the question whether tea growing is an agricultural activity and
tea is an agricultural produce and consequently as to whether
petitioners are entitled for any deduction towards input tax paid
on fertilizers, chemicals, pesticides, etc., for growing tea.
Similar is the contention addressed with reference to the
activities leading to growing of coffee and the manufacture and
sale of coffee.
12. It is true this Court has not analysed the definition of the
term ‘agricultural produce or horticultural produce’ and has not
authoritatively pronounced on the meaning and scope of the
said term as used in Section 2(3) of the Act. But it is also true
that this Court has observed in so many words that in its
nd
opinion, the 2 respondent therein (Commissioner for
Commercial Tax) had proceeded on the fallacy that the
petitioner Diwan Bahadur S.L.Mathias & Sons was carrying on
an agricultural activity by growing tea.
13. Even assuming that this Court has not analysed the
definition clause used in Section 2(3) of the Act, while
nd
characterizing the conclusion reached by the 2 respondent –
Commissioner of Commercial Tax as fallacious in stating that
growing of tea was an agricultural activity, it is clear that this
14
Court has opined that growing of tea is not an agricultural
activity.
14. Paragraph-15 of the judgment further makes it clear that
as the growing of tea was not an agricultural activity and the
tea not being ‘agricultural produce or horticultural produce’, for
the purpose of the Act what was required by the Commissioner
for Commercial Tax to consider was the entitlement of the
petitioner for input tax credit when the petitioner therein was
not an agriculturist and the tea grown was not an agricultural
produce or horticultural produce. It is for the consideration of
this aspect of the matter and for passing fresh orders, the
nd
matter was remitted to the 2 respondent – Commissioner for
Commercial Tax with a direction to reexamine the issue.
15. After reexamination, the Commissioner for Commercial
Tax has come to the conclusion that ‘the activity of raising or
growing tea plants continues to be an agricultural activity and
the person raising or growing tea continues to be an
agriculturist’. He also further points out that in the light of the
definition of the terms ‘input’ and ‘business’ as used in the Act,
tax paid on goods purchased by the petitioners in the course of
their agricultural activities and for use in such agricultural
15
activity does not fall within the ambit of input tax as provided
under Section 10.
16. It is thus clear that the Commissioner of Commercial Tax
has not kept in mind the observations made by this Court in
paragraphs 11 to 15 extracted herein above, particularly
paragraph-14. Though this Court had directed the
Commissioner to consider the implication of the matter
proceeding on the premise that the petitioners were not
agriculturists and tea grown was not an agricultural or
horticultural produce for the purpose of KVAT Act, regarding
the claim made for input tax credit or set off on fertilizers,
chemicals, pesticides, etc., the Commissioner has proceeded on
the premise that tea cultivation continued as an agricultural
activity.
17. Learned Government Pleader submits that even if this
Court proceeds on the premises that tea is not an agricultural
produce, petitioners in these cases are not entitled for such
input tax credit. Whereas, the counsel for the petitioner
contends to the contrary.
16
18. In this background, it has become necessary for this
Court to examine the issue at some detail. It is necessary to
refer to the definition of the term ‘agricultural produce or
horticultural produce’ as defined in Section 2(3). It reads as
under:-
“Agricultural produce or horticultural
produce” shall not be deemed to include tea,
beedi leaves, raw cashew, timber, wood,
tamarind and such produce, except coffee (as
has been subject to any physical, chemical or
other process for being made fit for
consumption, save mere cleaning, grading,
sorting or drying).”
19. Similarly, it is also necessary to understand the meaning
and definition of the term ‘dealer’ so far as it is relevant for the
present purpose. The relevant portion of the definition needs to
be extracted as under:
“ Dealer ” means any person who carries on the
business of buying, selling, supplying or
distributing goods, directly or otherwise, whether
for cash or for deferred payment, or for
commission, remuneration or other valuable
consideration and includes.-
(a)……..
17
(b)………
(c)………
(d)………
(e)………
(f)………
(g)………
(h)………
(i)………
Explanations-
(1) …
(2) …
(3) …
(4) (a) An agriculturist who sells exclusively
agricultural produce grown on land cultivated by
him personally or a person who is exclusively
engaged in poultry farming and sells the products
of such poultry farm shall not be deemed to be a
dealer within the meaning of this clause;
(b) Where the agriculturist is a company and is
selling pepper, arecanut, cardamom, rubber,
timber, wood, raw cashew or coffee grown on land
cultivated by it personally, directly or otherwise,
such company, shall be deemed to be a dealer in
respect of turnovers relating to sales of such
produce.”
18
20. The term ‘ agricultural produce or horticultural produce ’
as defined in Section 2(3) introduces a deeming clause stating
that agricultural or horticultural produce shall not be deemed
to include tea, beedi leaves, raw cashew, timber, wood,
tamarind and such produce, except coffee as has been subject
to any physical, chemical or other process for being made fit for
consumption, save mere cleaning, grading, sorting or drying.
21. It is contended by the learned counsel for the petitioner
that the qualifying phrase – ‘as has been subject to any
physical, chemical or other process for being made fit for
consumption’ used in the definition qualifies only the words
‘such produce’ and not the words preceding the word ‘and’. In
other words, according to him, tea, beedi leaves, raw cashew,
timber, wood, tamarind shall not be deemed to be included in
the definition of the term ‘agricultural produce or horticultural
produce’. But, as regards other such produce are concerned,
the deeming clause will apply only when they are subjected to
any physical, chemical or other process for being made fit for
consumption, save mere cleaning, grading, sorting or drying.
22. A descriptive phrase normally qualifies the expression
which immediately precedes it. In the definition clause, the
19
word ‘and’ is used. It is clear that the expression ‘as has been
subject to any physical, chemical, or other process for being
made fit for consumption’ is not used to restrict the meaning of
the terms ‘tea, beedi leaves, raw cashew, timber, wood,
tamarind’ so as to hold that they shall not be deemed to be
agricultural or horticultural produce only if they are made fit for
consumption by some physical or chemical process. If tea is
made fit for consumption by physical or chemical process which
ultimately means processed tea or tea powder, it hardly
requires to be clarified that it is not an agricultural produce as
it undergoes the process of drying, processing,
powdering/breaking etc.
23. What then is the meaning of the term ‘such produce’.
The word such produce is followed by the expression ‘except
coffee as has been made. Hence, the descriptive clause qualifies
the expression ‘such produce’. The descriptive clause cannot
be taken to qualify the word coffee in the instant case. If it is so
construed then it will result in absurdity as it will tantamount
to saying coffee made fit for consumption by physical, chemical
other process can be construed as agricultural or horticultural
produce, which is not intended. Therefore, I am of the view that
the definition clause in Section 2(3) makes it clear that tea shall
20
not be deemed to be included in the definition of ‘agricultural
produce or horticultural produce’.
24. If this is so, then, the next important question that
requires to be addressed is, in the light of the term ‘input’ and
the definition of the term ‘business’ coupled with the definition
of the term ‘dealer’ whether the petitioners are entitled to claim
input tax credit for the purchase of fertilizers, chemicals,
pesticides, fungicides, etc., and other capital goods purchased
for growing tea.
25. The definition of the term ‘dealer’ is already extracted
insofar as it is relevant for the purpose of this case. The term
‘ input ’ is defined in Section 2(19). It reads as under:
“ Input ” means any goods including capital
goods purchased by a dealer in the course of his
business for re-sale or for use in the manufacture or
processing or packing or storing of other goods or
any other use in business’.
26. The expression ‘ capital goods ’ is defined in Section 2(7).
It reads as under:
“ Capital goods ” for the purpose of Section
12 means plant, including cold storage and
similar plant, machinery, goods vehicles,
21
equipments, moulds, tools and jigs, and used in
the course of business other than for sale’.
27. The term ‘ business ’ is defined in Section 2(6). It reads as
under:
“ Business ” includes –
(a) any trade, commerce, manufacture or any
adventure or concern in the nature of trade,
commerce or manufacture, whether or not such trade,
commerce, manufacture, adventure or concern is
carried on in furtherance of gain or profit and whether
or not any gain or profit accrues therefrom; and
(b) any transaction in connection with, or incidental
or ancillary to, such trade, commerce, manufacture,
adventure or concern.
28. Chapter – II of Act deals with incidence and levy of tax.
Section 3 which provides for levy of tax states that tax shall be
levied on every sale of goods in the State by a registered dealer
or a dealer liable to be registered, in accordance with the
provisions of this Act. It further states that tax shall also be
levied, and paid by every registered dealer or a dealer liable to
be registered, on the sale of taxable goods to him, for use in the
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course of his business, by a person who is not registered under
this Act.
29. In terms of Section 4, every dealer who is or is required to
be registered as specified in Sections 22 and 24, shall be liable
to pay tax, on his taxable turnover in respect of goods
mentioned in the said provisions.
30. In respect of goods mentioned in Third Schedule the
dealer is required to pay tax at the rate of 5%. In the Third
Schedule, different goods are mentioned including coffee beans
and seeds (whether raw or roasted); cocoa pods and beans,
green tea leaf and chicory. This is found in Item No.24 of the
Third Schedule. In Item No.92 of the Third Schedule, tea is
mentioned as one of the goods taxable as per Section 4 on the
taxable turnover.
31. As per the definition of the term ‘dealer’ as extracted
above, an agriculturist who sells exclusively agricultural
produce grown on land cultivated by him personally shall not
be deemed to be a dealer within the meaning of the clause.
However, explanation (4)(b) to Section 2(12) makes it clear that
where the agriculturist is a company and is selling pepper,
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arecanut, cardamom, rubber, timber, wood, raw cashew or
coffee grown on land cultivated by it personally, directly or
otherwise, such company, shall be deemed to be a dealer in
respect of turnovers relating to sales of such produce. It is
therefore clear that all agriculturists and all agricultural
produce are not kept out of the purview of tax as only those
agriculturists who sell exclusively agricultural produce grown
on land cultivated by them personally are not required to be
registered as dealer as they are not deemed to be a dealer
within the meaning of the term ‘dealer’. Similarly, if the
agriculturist is a company selling certain specified produce,
even if such produce is grown on land cultivated by it
personally, such company is deemed to be a dealer in respect of
turnover relating to sales of such produce. Therefore, it has to
be borne in mind that distinction between agricultural produce
and non-agricultural produce is relevant only to a certain
extent, for the purpose of understanding whether a person
engaged in carrying on business of buying, selling, supplying or
distributing goods is a dealer.
32. The real issue is what is the nature of the business the
petitioners are carrying on, what is the input that they use for
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the purpose of their business and whether they are entitled for
input tax credit for the tax paid while purchasing fertilizers,
pesticides, chemicals and other capital goods for growing tea
and coffee. As is evident from the definition of the term ‘input’,
input means any goods including capital goods purchased by a
dealer in the course of his business for re-sale or for use in the
manufacture or processing or packing or storing of other goods
or any other use in business. The tax that is sought to be
collected from the petitioners is in respect of the taxable sale of
goods namely tea powder/coffee produced by the dealer in the
course of his business.
33. For the purpose of finding out the taxable sale of goods
produced by the dealer in the course of his business, in the
instant case, the term ‘business’ has to be regarded as the
trade, commerce, manufacture or any adventure in the nature
of trade, commerce or manufacture in respect of the
manufacturing, processing of tea or coffee including different
processes involved in that regard and this cannot be stretched
to include cultivation and growing of tea plants and tea leaves
or coffee. The term ‘business’ as used in Sub-Clauses (a) & (b)
of Clause (6) of Section 2 of the Act to mean any trade,
commerce or manufacture or any adventure or concern in the
25
nature of trade, commerce or manufacture carried on by any
person and transaction in connection with or incidental or
ancillary to such trade, commerce, manufacture, adventure or
concern would mean the business of manufacturing/processing
tea. Understood in the light of the definition of the term ‘input’
which means any goods including capital goods purchased by a
dealer in the course of his business for resale or for use in the
manufacture or processing or packing or storing of other goods
or any other use in the business, it means that in the course of
this business, if the dealer purchases any capital goods or other
goods for use in the manufacture or processing or packing or
storing of other goods or any other use in the business, then
the dealer can claim input tax credit.
34. The contention of the learned counsel for the petitioners
is that the term ‘any other use in business’ used in the
definition of the term ‘input’ includes use of fertilizers,
pesticides and other capital goods for the purpose of growing
tea plants and tea leaves. Merely because the petitioners,
apart from engaging themselves in the process of
manufacturing tea, are also cultivating tea plantation and are
growing tea leaves, it cannot be said that both the activities of
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growing tea leaves and manufacturing of tea powder has to be
taken as an integral part of their business for the purpose of
understanding the definition of the term ‘input’, to claim input
tax credit.
35. As adverted to above, the definition of the term ‘capital
goods’ encompasses machinery, goods vehicles, equipment used
in the course of business other than for sale. As per Section
12, deduction of input tax shall be allowed to the registered
dealer in respect of capital goods for purchase of such capital
goods for use in the business of sale of any goods in the course
of export out of the territory of India and in the case of any
other dealer in respect of the purchase of capital goods wholly
or partly for use in the business of taxable goods. The taxable
goods produced by the petitioner in the instant case is tea and
coffee. In the course of manufacture or production of these
goods, whatever goods including capital goods are purchased
for use in the manufacture or for processing or packing or
storing of other goods or any other use in business, which can
be described as ‘input’ as per definition in Section 2(19),
petitioners are entitled to claim deduction of input tax.
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36. But, in the instant case, petitioners seek to claim
deduction of input tax for having purchased agricultural
machineries, motor car, fertilizers and chemicals on the ground
that they are purchased by them for use in their business
which includes growing of and maintaining tea plantation apart
from processing and manufacturing tea. This contention
cannot be accepted. Fertilizers and Chemicals or for that
matter agricultural machineries, such as tractors, trailers,
transformers, motor car, pump sets and electrical goods, which
are used for tea cultivation cannot be regarded as goods falling
within the definition of the term ‘input’ for the purpose of the
business of the petitioners, which in the instant case is
manufacturing and processing of tea for the sale of which
output tax is claimed. The ‘output tax’, in the instant case, is
not claimed on the sale of tea leaves, on the other hand, the
output tax is paid on the sale of manufactured tea. Therefore,
the business of the dealer for the purpose has to be understood
confining it to the manufacturing process resulting in
production of tea and any transaction in connection therewith
or incidental or ancillary to it. Viewed in this background, even
though the petitioners are engaged in cultivating tea plantation
and in growing tea leaves, this cannot be regarded as business
28
and has no relevance for the purpose of granting input tax
credit to the inputs used by way of purchase of fertilizers,
chemicals etc., in the course of cultivation of tea.
37. The expression ‘business’ used in Section 2(6), in this
background, cannot be stretched to include the tea plantation
and cultivation by the dealer for the purpose of claiming input
tax credit. Therefore, fertilizers, chemicals, pesticides and other
agricultural machineries, which are used for the purpose of
growing tea leaves cannot be termed as goods purchased by the
petitioners in the course of their business in manufacturing or
processing or packing of tea produced by them or storing of
other goods or any other use in that business. It is in this
background that useful reference can be made to the judgment
of the Apex Court in Travancore ’s case, for the limited purpose
of understanding that the cultivation of tea plants and the
growing of tea leaves, though not something entirely distinct
from the manufacturing process to which tea leaves are
subjected in the factories and although the time-lag between
the plucking of tea leaves and their being subjected to
manufacturing process in the factories is very little, the same
would not detract from the conclusion that the cultivation and
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growth of tea plants and leaves is something distinct and
separate from the manufacturing process to which those leaves
are subjected in the factories for turning them into tea meant
for sale. Income which is realized by sale of tea by tea
company, which grows tea on its land and thereafter subjects it
to manufacturing process in its factory consists of two elements
or components, one is the component consisting of income from
growth of tea leaves which is yielded in the form of green leaves
purely by the cultivation in the land. The second component
consists of the income which is the result of subjecting the
green leaves which are plucked from the tea plants grown on
the land and to a particular manufacturing process in the
factory of the tea company.
38. In Travancore ’s case, the Apex Court has observed by
referring to Rule 24 of the Income Tax Rules, 1922 and also
Rule 8 of the Income Tax Rules, 1962, which prescribed the
formula to be adopted for apportioning the income realized as a
result of the sale of tea after it is grown and subjected to
manufacturing process in the factory. 60% is taken to be the
agricultural income which consisted of the first element or
component, while 40% represented non-agricultural income
30
which consisted of the second element or component. In this
regard, the Apex Court referred to the judgment in the case of
Tea Estate India Pvt. Ltd., Vs. Commissioner of Income Tax
(1976)103 ITR 784 (SC). Therefore, it is very evident and crystal
clear that fertilizers, pesticides, fungisides, chemicals, used in
tea cultivation and the agricultural machineries, pump sets and
other electrical equipments, used for growing tea leaves by the
tea planters cannot at all be regarded as goods used in the
course of production of tea meant for sale. There is no direct
relation between the two.
39. Same logic and reasoning applies to coffee as the
cultivation and growing of coffee is distinct from
manufacturing/preparing coffee for sale.
In the result and for the foregoing, I do not find any merit
in these writ petitions and the same are therefore dismissed.
Sd/-
JUDGE
PKS