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CASE NO.:

Appeal (civil) 6073-74 of 1994

PETITIONER:

STATE OF BIHAR AND ORS.

RESPONDENT:

UNIVERSAL HYDROCARBONS CO. LTD. AND ANR.

DATE OF JUDGMENT: 12/08/1994

BENCH:

M.N. VENKATACHALIAH & S. MOHAN

JUDGMENT:

JUDGMENT

1994 SUPPL. (2) SCR 627

The Judgment of the Court was delivered by

MOHAN, J. Leave granted.

Respondent No. 1 is a private company. The respondent No. 2 of the

director-cum-shareholders.

The respondent purchases raw petroleum product. This product under goes a

process of manufacture in the factory. The ultimate com-modity is Calcined

Petroleum Coke (hereinafter referred to 'C.P.C').

The respondent was subject to Sales Tax under Bihar Finance Act, 1981, Act

(hereinafter referred to as Finance Act) on the sale of C.P.C. as well as

the Central Sales Tax Act, 1956 (hereinafter referred to as 'the Act). The

respondent stated that he missed to Claim the adjustment of sales tax paid

on the purchase of raw materials in the returns filed or the months of July

and August, 1990. The admitted tax due thereon was paid. In terms of

Section 15(b) of the act, the respondent was entitled to refund of sale tax

paid under Finance Act. While filing the return for the month of September,

1990, the respondent did not pay the admitted tax of Rs. 1,96,072 but

claimed refund of Rs. 5,22,728 which would be adjusted towards the admitted

tax of 1, 96,072 and the balance of Rs. 3,26,656 was to be refunded on

account of Bihar Sales Tax paid on the direct raw materials purchased for

the months of July, August and September, 1990.

The application for refund was considered by the Assistant Commissioner and

the same was dismissed since the claim for refund was against law. By order

dated 8.1.1990, a penalty of Rs. 9,852.85 was imposed. Against this order,

respondent preferred C.WJ.C. No. 7549/90.

Thereafter the respondent filed an application of refund for Rs.

19,22,340.12 for the period 1985-86 and Rs. 17,65,987.01 for the period

1986-87 under Section 15(b) of the Act read with Rule 35 of Bihar Sales Tax

Rules 1983. By notice dated 2.2.1991, the dealers was called Upon to

substantiate his claim. While that application was pending, he preferred

C.W.J.C. No. 5813/91 before the High Court of Patna. While disposing of the

writ petition, the High Court Ordered 5.9.1991 to consider the claim of

refund and pass orders. On a consideration of the matter, the Joint

Commissioner by order dated 16.12.1991 rejected the claim. Thereupon, the

respondent preferred C.WJ.C. 415 of 1992.

Both C.W.J.C. Nos.7549/90 and 415/92 came to be disposed of under a common

order dated 10.4,92 which impugned in this civil appeal. Ac-cordingly, the

writ petitions were allowed.

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The High Court set aside the findings of the Joint Commissioner in so far

as he held that R.P.C. and C.P.C. though different commercial commodities,

are declared goods under Section 14(l-a) of the Act. The petition was

liable to be reject on the ground that raw petroleum coke has undergone a

process of manufacture. On this line of reasoning, the High Court took the

view that C.P.C. is a form of R.P.C. and, therefore, petitioners before it,

would be entitled to exemption/reimbursement under Section 15(b) of the

Act.

In this civil appeal before us, the only contention urged by the State of

Bihar is that no doubt the entry under Section 14 (1-a) of the Act says

'Goal', including Coke in all its forms, but excluding 'charcoal'. Having

regard to the ruling of this Court in State of Tamil Nadu v. Pyare Lal

Malhotra, ATR (1976) SC 800 it should be held if R.P.C. has undergone a

process of manufacture which ultimately results in C.P.C., it is a

different product for the purpose of taxation. In the field of taxation,

the State has a wide choice in choosing the object of taxation. In this

ease, one added feature is that for the purpose of excise duty, R.P.C. is

treated different than C.P.C. both the products being subject to separate

excise duty. Therefore, it is prayed that the judgment of the High Court be

set-aside and the order of the Joint Commissioner be restored.

In opposition to this, the learned counsel for the respondents urges that

there is a wide distinction between entry under Section 14(l-a) of the

Central Salts tax relating to cock in aft forms an Section 14(iv) iron and

steel, 'that is to say". Because of this peculiar phraseology ''that is to

say', the riding of Pyare Lal case (supra) came to be so-laid down. But

here, there is no such difficulty, having regard to the nature of the

entry, the same principle same to be adopted with regard to "oil and seeds"

in Sait Rikhaji Furtamal and another V. State of Andhra Pradesh, [1991]

Supp, 1 SCC 202. As a matter of fact, India Carbon Ltd, v. Superintendent

of Taxes, Gauhati and others, AIR (1972) SC 154 fully supports the stand of

the respondents. The High Court was justified in relaying on this ruling.

This decision also refers to Pyare Lai's ruling (supra).

Further, in State of Tamil Nadu v. Mahi Traders, [1989] 1 SCC 724 in

relation to Hides & Skins, at page 734 the test of different commercial

commodities has been categorically rejected.

In other to appreciate this controversy, we will now refer to the relevant

provisions of the Act,

Section 14 of the Act catalogues certain goods of special importance in

inter-state trade or commerce. They are commonly called 'declared goods'.

Item (i-a) read as follows:

"Coal, including Coke in all its form, but excluding charcoal:

Provided that during the period commencing on the 23rd day of February 1967

and ending with the date of Commencement of Section 11 of the Central Sales

Tax (Amendment) Act, 1972 (61 of 1972), this clauses shall have effect

subject to the modification that the words "but excluding charcoal" shall

be omitted."

The object of classifying the goods as 'declared goods' can be gathered

from Section 15 of the Act. This Section imposes restrictions and

conditions with regard to tax on sale an purchase of declared goods' within

a State. Clauses (a) & (b) of the said Section read as follows:

"The tax payable under that law in respect' of any sale of purchase of such

goods inside the State shall not exceed (four per cent) or the sale or

purchase price thereof, and such tax shall not be levied at more than on

stage;

Where a tax has been levied under that law in respect of the Sale of

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purposes inside the State of any declared goods and such goods are sold in

the course of inter- state trade of commerce, and tax has been paid under

this Act in respect of the sale of much 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."

In the instant case, the respondent purchases R.P.C. and after sub-jecting

that to a process of manufactures C.P.C. is produced. When exemption was

sought to be claimed on the ground that both these items will fall under

Section 14(l-a) of the Act, that was rejected by the Joint Commissioner. He

took the following view:

"It is not disputed that the Raw Petroleum Coke and the Calcined Petroleum

Coke, though different commercial com-modities are both declared goods. In

order to entitle inter State Sale of such goods to avail the benefit of

Section 15(b) of the Central Sales Tax Act, the same goods as subjected to

inter State levy of tax must be sold in course of inter-State trade or

commerce. The expression 'such goods used in section 15(b) quoted above and

underlined by me is very significant in the matter.

Once the particular goods which had earlier been subjected to inter-State

tax in the State was again put to a process of manufacture, it loses it

original identity and emerges as another from of finished product though

still remaining a declared goods. The cite an example, case of steel scrap

of billets rolled into different kinds of steel materials may be taken.

When these are purchased as raw materials within a State after being

subjected to State Tax at 4 per cent being declared goods and are then

rolled into rods, channels, wire etc., they become different commercial

commodity though still remaining declared goods as defined under Section 14

of the Central Sales tax Act, In the instant case, the Raw Petroleum Coke,

a declared good is put tot he process of production by the dealer in his

factory called Universal Hydrocarbons Co. Pvt. Ltd. and another commercial

commodity, namely, calcined petroleum coke, again a declared goods in terms

of Section 14 (la) is produced. Therefore, the original identity of Raw

Petroleum Coke is lost and than Calcined Petroleum Coke is the outcome of

the process of manufacture.'

In supporting the reasoning, reliance is placed on Pyare Lal's case

(supra). The ultimate finding given by him is as under :

"That though Raw Petroleum Coke and Calcined Petroleum Coke/both

commodities are declared goods under Section 14(l-a) of the Central Sales

Tax Act in the light of judgment of the Hon'ble Supreme Court in the case

of India Carbon Co. dated 18.8.1997 for the purposes of sales tax they are

two separate commercial commodities.

That the raw Petroleum Coke has riot been sold in course of Inter-State

trade or commerce in the Same Fonns in terms of Section 15(b) of the

Central Sales Tax Act rather it has undergone a process of manufacture in a

factory and the commodity turned but thereby is Calcined Petroleum Coke

which is a different Commercial commodity proved by levy of separate

central excise duty at both the: points of production of raw petroleum Coke

and Calcined Petroleum Coke."

In rendering this finding reliance is placed on the purchase bills, sales

bills and registration certificate.

The High Court in the Impugned judgment considered the scope of the phrase

'that-is to say. Thereafter it proceeded to hold that C.P.C. is a form of

R.P.C. and, therefore, the exemption under Section I5(b) of the Act would

be available;

We have already referred to entry relating to coke occurring under Section

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14(l-a) of the Act. When the entry says 'coke' in all its forms', there is

no possibility of bringing coke of different forms except under this entry.

The Joint Commissioner has clearly held that both Raw Petroleum Coke and

Calcined Petroleum Coke, though different commercial commodities are

'declared goods'. However, he held that by process of manufacture, Raw

Petroleum Coke has lost its original identity and has resulted in a new

product, namely, Calcined Petroleum Coke. Therefore, according to him, the

benefit under Section I5(b) of the Act could be availed of only If the same

goods are subject to inter-State levy of tax. He opined the use of words

'such goods' under Section 15(b) of the Act are of significance.

We are totally unable accept this line of reasoning. Once the entry is

"coke in all its forms" irrespective of the Raw Petroleum Coke loses its

original identity or in the process of manufacture Calcined Petroleum Coke

is produced, cannot take Calcined Petroleum Coke out of the purview of this

entry. In more of less identical situation, this Court held in India

Carbons; case (supra) that Petroleum Coke is one form the coal governed by

the expression 'coal' within Sections 14(l-a). The relevant extract of the

judgment is as under:

"It is not disputed that petroleum coke is covered by Clauses(i) of Section

14 which reads 'coal including coke in all its forms" the State was not

competent to levy tax at a rate exceeding the one given in Section 15 (a)

of the Central Act.

The High Court was of the view that the word 'coal' includes coke in all

its forms in clause (i) of Section 14 of the Central Act and must be taken

to mean coke derived from coal. In other words it must be coke, which had

been derived or acquired from coal by following the usual process of

heating or burning. The contention, therefore, of the appellant was

negatived that petroleum coke was covered by the aforesaid provision of the

Central Act."

This decision fully supports the respondent. The fact that Calcined

Petroleum Coke is a different commodity is of little consequence. In

interpreting the scope of Hides and Skins which fail under Section 14(i)

(iii) of the Act, this Court in Mahi Traders -case (supra) held at pages

734-35 as under :

"According to him the products purchased and sold are not different even

under the classification by way of the dichotomy between raw and dressed

hides and skins under the Tamil Nadu General Sales Tax Act. Under the

Central Sales Tax Act, the appellant is in a much better position, because

all the hides and skins are brought together in one entry, Whether raw or

dressed, the product falls; under the same entry.

The operations involved in leather manufacture however fall into three

groups. Pre-tanning operations includes soaking, liming, de-liming, bating

and pickling, 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 entry in the CST Act, however, includes within its scope

hides arid 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 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

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dressing or finishing is done." (emphasis supplied)

This is enough to conclude the case against the appellant. However, since

reliance is placed on Pyare Lal Malhotra's case (supra), we have to make a

brief reference to the same. That case dealt with the scope of the entry

14(iv) of the Act, Iron and steel 'that is to say". The interpretation of

this phrase 'that is to say" loomed large. It was held in paragraph 13 & 14

as under:

"It is true that the question whether goods to be taxed have subjected to a

manufacturing process so as to produce a new marketable commodity, is the

decisive test in determining whether an excise duty is leviable or not on

certain goods. No doubt, in the law dealing with the sales tax the taxable

event is the sale an not the manufacture of goods. Nevertheless, if the

question is whether a new commercial commodity has come into existence or

not, so that its sale is a hew taxable event, in the Sales Tax law, it may

also become necessary to consider whether a manufacturing process, which

has altered the identity of the commercial com-modity, has taken place. The

law of sales tax is also concerned with "goods" of various descriptions.

It, therefore, becomes necessary to determine when the cease to be goods of

one taxable description and become those of a Commercially different

category and description,

It appears to us that the position has been simplified by the amendment of

the law, as indicated above, so that each of the categories falling under

"Iron and Steel" constitutes new species of commercial commodity more

clearly now. It follows that when one commercial commodity is transformed

into another, it be-comes a separate commodity for purposes of sales tax."

The position hereis entirely different. There is no such phrase under

Section 14(ia) of the Act. In the case of 'Oil' an seeds' occurring under

namely, 'that is to say' occurs. This Court in State of A.P, (supra) held

in paragraph 4 as under :

"Mr. Rangam appearing in support of the appeals contended that there was a

circular of Government of India with reference to the provisions of the

Central Sales Tax Act as to what would be included within the meaning of

oil seeds and all the five items referred to here were included in the

circular as being oil seeds. It is difficult for us to accept his

submission that after the Act has been amended reliance is available to be

placed on the circular. On the basis of the test indicated by this Court in

State of Tamil Nadu v. Pyare lal Malhotra, we must hold that the expression

'that is to say' employed in the definition in the statute with reference

to oil seed is exhaustive and is not illustrative. Since on amendment these

five items were no more included in oil seeds, the appellant is not

entitled to claim the benefit,"

This vital distinction cannot be lost sight of. Therefore, the argument of

the appellant has to be rejected, in the result, upholding the judgment Of

the High Court, we find no merit in this appeal which is accordingly

dismissed. However, there shall be no order as to costs.