Full Judgment Text
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PETITIONER:
DEPUTY COMMISSIONER OF SALES-TAX (LAW), BOARD OF REVENUE(TAX
Vs.
RESPONDENT:
SHIPHY INTERNATIONAL, ALLEPPEY
DATE OF JUDGMENT07/03/1988
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1988 AIR 992 1988 SCR (3) 98
1988 SCC Supl. 439 JT 1988 (1) 566
1988 SCALE (1)531
ACT:
Central Sales Tax Act, 1956-Section 5(3)-Export of
fresh frog legs after freezing to avoid decomposition and
decay-Whether assessee entitled to benefit of the Section-
Test to be applied in determination of character of
commodity.
HEADNOTE:
%
The respondent-assessee had purchased fresh frog legs
and after removing the skin, washing and removing dirt etc.
and freezing it for the purpose of avoiding decomposition
and decay exported the said frog legs and claimed
entitlement to benefit of s. 5(3) of the Central Sales Tax
Act, 1956.
It was contended on behalf of the State that what was
purchased as fresh legs was not exported as such, without
freezing them and, therefore, the assessee was not entitled
to the benefit of the section.
The Sales Tax Tribunal held that the fresh frog legs
purchased by the assessee and exported after freezing for
the purpose of avoiding decomposition and decay, were one
and the same commodity and the frozen legs did not undergo
any material change in character and the identity of the
frog legs remained unchanged as such, and, therefore, the
assessee was entitled to the benefit of s. 5(3) of the Act.
The High Court upheld the view of the Tribunal.
Dismissing the State’s appeal,
^
HELD: Every processing does not bring about a change in
the character and identity of the commodity. The nature and
extent of processing may vary from one case to another and
indeed there may be several stages of processing and perhaps
different kinds of processing at each stage. With each
process suffered, the original commodity experiences change.
But it is only when the change or a series of changes take
the commodity to the point where commercially it can no
longer be regarded as the original commodity but, instead,
is recognised as a new and distinct commodity that it can be
said that a new commodity,
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distinct from the original, has come into being. The test is
whether in the eyes of those dealing in the commodity or in
commercial parlance the processed commodity is regarded as
distinct in character and identity from the original
commodity.
In the instant case, the High Court was right in
holding, on the facts found by the Tribunal, that frozen
frog legs are same as fresh frog legs, and the process was
only to prevent decomposition.
M/s. Sterling foods. v. State of Karnataka and another,
[1986] SCC 469 and Deputy Commissioner of Sales Tax v. Pio
Food Packers, [1980] 3 SCR 1271 . relied on.
East Texas Motor Freight Lines v. Frozen Food Express,
(100 L Ed. 917 at 923) referred to.
Deputy Commissioner of Sales Tax and others v. A.B.
lsmail and others, [1986] Suppl. SCC 218 distinguished.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 904 (NT)
of 1988
From the Judgment and Order dated 10.11.1986 of the
Kerala High Court in T.R.C. No. 162 of 1986
V.J. Francis for the Appellant.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. Special leave granted.
This is an appeal against the judgment and order of the
High Court of Kerala dated 10th of November, 1986. By the
impugned judgment the High Court has dismissed the Tax
Revision Case filed at the instance of the Sales-tax
authority. The assessee-respondent herein had purchased
fresh frog legs and after removing the skin, washing and
removing dirt etc. and freezing it for the purpose of
avoiding decomposition and decay, the said frog legs were
exported. The assessee claimed that they were entitled to
the benefit of section 5(3) of the Central Sales-tax Act,
1956.
In order to appreciate the question it is necessary to
refer to the findings of the Tribunal. The Tribunal found
that what was purchased
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by the assessee was fresh frog legs and, after freezing it
for the purpose of avoiding decomposition and decay, it was
exported. It was, therefore, held by the Tribunal that what
was purchased as fresh frog legs was exported by the
assessee. It was contended on behalf of the State that what
was purchased was fresh frog legs and the same was not
exported as such without freezing it. The tribunal held that
only frozen frog legs were exported. Therefore, if followed
that what was purchased and exported was one and the same
commodity. The frozen frog legs did not undergo, any
material change in character. The identity of the frog legs
remained unchanged as such. In that view of the matter the
Tribunal held that the assessee was entitled to the benefit
of section 5(3) of the aforesaid Act. The High Court
accepted this view.
In our opinion the question is concluded by a decision
of this Court in M/s. Sterling Foods v. State of Karnataka
and another, [1986] 3 S.C.C. 469. That was a decision of a
Bench of three learned Judges rendered on 21st July, 1986.
There the Court was concerned with Shrimps, prawns and
lobsters locally purchased for complying with export orders
and after the process of cutting their heads and tails,
peeling, deveining, cleaning, freezing and packing, exported
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these outside India-under prior contract of sale. It was
held that after such processing, shrimps, prawns and
lobsters retained their original identity and did not become
different commodities. It was, therefore, held that the
assessee was entitled to exemption from tax under section
5(3) of the Central Sales Tax Act, 1956 in respect of
purchase turnover of shrimps, prawns and lobsters, the
purchases being of the same commodities which were exported.
There, the question was whether shrimps, prawns and lobsters
subjected to processing like cutting of heads and tails,
peeling, deveining, cleaning and freezing ceased to be the
same commodity or become different commodity for the purpose
of the Central Sales Tax Act. This Court expressed the view
that the test applied for the purpose of determining whether
a commodity subjected to processing retained its original
character and identity is as to whether the processed
commodity is regarded in the trade by those who deal in it
as distinct in identity from the original commodity or it is
regarded, commercially and in the trade as same as the
original commodity.
Every processing does not bring about a change in the
character and identity of the commodity. The nature and
extent of processing may vary from one case to another and
indeed there may be several stages of processing and perhaps
different kinds of processing at each
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stage. With each process suffered, the original commodity
experiences change. But it is only when the change or a
series of changes take the commodity to the point where
commercially it can no longer be regarded as the original
commodity but instead is recognised as a new and distinct
commodity that it can be said that a new commodity, distinct
from the original, has come into being. The test is whether
in the eyes of those dealing in the commodity or in
commercial parlance the processed commodity is regarded as
distinct in character and identity from the original
commodity. See in this connection the observations of this
Court in Deputy Commissioner of Sales Tax v. Pio Food
Packers, [1980] 3 S.C.R. 1271.
Applying that test in M/s. Sterling Foods v. State of
Karnataka & Anr. (supra) the Court had found that processed
or frozen shrimps, prawns and lobsters were commercially
regarded as the same commodity as raw shrimps,. prawns and
lobsters. These are in common parlance known as shrimps,
prawns and lobsters. There was no essential difference
between raw shrimps, prawns and lobsters and processed or
frozen shrimps, prawns and lobsters. The only difference was
that processed shrimps, prawns and lobsters were ready for
the table while raw shrimps, prawns and lobsters were not,
but still both are, in commercial parlance, shrimps, prawns
and lobsters.
The aforesaid view also finds ample support from the
decision of the Supreme Court of the United States in East
Texas Motor Freight Lines v. Frozen Food Express 100 L Ed.
917 at 923, where the question was whether dressed and
frozen chicken was a commercially distinct article from the
original chicken. The United States Supreme Court held that
it was not a commercially distinct article but was
commercially and in common parlance the same article as
chicken. The United States Supreme Court held that killing,
dressing and freezing a chicken is certainly a change in the
commodity. But it is no more drastic a change than the
change which takes place in milk from pasteurising,
homogenizing, adding vitamin concentrates, standardising and
bottling.
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Applying the aforesaid tests to the facts of this case,
we are clearly of the opinion that the High Court was right
on the facts found by the Tribunal in this case that frozen
frog legs is same as fresh frog legs, the process was only
to prevent decomposition.
Reliance was placed on behalf of the revenue on a
decision of the same Bench of three learned Judges of this
Court in the case of Deputy
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Commissioner of Sales Tax and another v. A.B. Ismail and
others, [1986] Suppl. S.C.C. 218. This was a decision prior
to the decision in Sterling Foods, (supra) which as we have
mentioned before was rendered on 21st July, 1986 and this
decision was rendered on 15th April, 1986. In the subsequent
decision no reference was made to the previous one because
the facts were entirely different. There it was the sale of
meat, hides and skin, got after slaughtering goat and sheep.
It was held that it was taxable under section 5A(l)(a) of
the Kerala General Sales Tax Act. It was further held that
goats and sheeps are distinct from meat, hides and skins.
The process of conversion from goat and sheep into mutton,
hides and skin involves consumption and manufacture
resulting in production of goods different from the original
goods. It was held that consumption was a word of wide
import. It denoted the taking in of something, to convert
that something into another. In that case, goats and sheeps
underwent a process viz., slaughtering, and then came into
existence meat, hides and skin. The slaughter of the animals
and their conversion into meat was the consequence of
consumption of goats in a legal sense. In such conversion, a
process of manufacture could also be inferred. There the
Court considered the goat and sheep different from mutton
from commercial circle and common parlance. But that is not
as in the case of frozen frog legs and fresh frog legs and
these are essentially the same commodity.
In the aforesaid view of the matter, we are of the
opinion that the High Court was right in the view it took.
The appeal is accordingly dismissed. There will be no order
as to costs.
N.P.V. Appeal dismissed.
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