JUDGMENT
V. Rengasamy, J. (Vice Chairman)
1. This revision by the Revenue is against the order of the Appellate Tribunal (Additional Bench, Madurai) in M.T.A. No. 592 of 1984 dated September 30, 1986. The assessment is in respect of sale of the pulpwood for the year 1976-77. The assessee is a timber merchant. The respondent purchased the timber from Tamil Nadu Forest Plantation Corporation Ltd., Pudukottai, after paying the taxes to the Plantation Corporation for the sale of the timber. The respondent, thereafter, entered into an agreement with Gwalior Rayon Silk Manufacturing (Weaving) Co. Ltd., Kerala, for the sale of 1183.05 tonnes of pulpwood for a value of Rs. 11,67,588. The timber purchased from the Tamil Nadu Forest Plantation Corporation was cut into logs and after debarking and splitting, they were transported to Gwalior Rayon Silk Manufacturing Company. The Deputy Commercial Tax Officer levied tax for this turnover treating the commodity as pulpwood taxable at multi-point and also levied penalty under Section 12(3)(b) of the Act, as returns were not submitted for the sale of pulpwood. As against this order, appeal was filed before the Appellate Assistant Commissioner who did not interfere with the order of the assessing authority and in the appeal before the Appellate Tribunal, the assessee produced certain records contending that as already the timber sold to the purchaser had suffered tax under entry 84 of the First Schedule, at 5 per cent, the same timber cannot be again taxed. The Appellate Tribunal remanded the matter to the Appellate Assistant Commissioner for fresh consideration and the Appellate Assistant Commissioner after receiving the appeal from the Appellate Tribunal, remanded the matter to the assessing authority to consider the assessability of the disputed turnover with reference to the accounts and the records maintained by the appellant. The assessee challenged this order of remand made by the Appellate Assistant Commissioner before the Appellate Tribunal and the Appellate Tribunal which took up the matter once again gone into the question of claim of second sales and has found that the nature of commodity had not changed from its character as timber and therefore, the assessee is not liable to tax. The assessment order and the penalty were set aside by the Appellate Tribunal. It is against this order of the Tribunal, the Revenue has come forward with this revision.
2. The learned Government Advocate–Tr. R. Tholgappian cited a series of decision contending that when the eucalyptus trees purchased by the respondent-assessee who debarked them and converted them into pulpwood, the commodity has become a new commercial product different from the trees purchased by him from the Forest Plantation Corporation, and this new product is taxable as multi-point goods and the assessee is not entitled to claim second sales of the timber. As mentioned above, the respondent purchased the eucalyptus trees from the Tamil Nadu Forest Plantation Corporation treating the eucalyptus trees as timber and paid taxes under entry 84 of the First Schedule at 5 per cent single point tax. It is admitted by the assessee that they cut the trees and converted into logs and debarked them as they were sold for the manufacturers of rayon silk at Kerala. It appears that the agreement between the respondent-assessee and the purchaser, namely, Gwalior Rayon Silk Company, mentions the eucalyptus logs as pulpwood. It is because of this change of the commodity into logs, known as pulpwood, it is argued for the Revenue that the timber has become a new commercial product different from the original timber for which tax was paid and the new commodity is again taxable. The learned Government Advocate–Tr. R. Tholgappian cites the following decisions, justifying the levy of tax as multi-point goods. [1988] 68 STC 324 (SC) (Mukesh Kumar Aggarwal & Co. v. State of Madhya Pradesh) is a decision on the point whether the eucalyptus tree sold in heaps after removing the bailies and poles could be called as timber meant for building purposes. The wood was sold by the assessee therein to manufacture synthetic fibre, treating the wood as raw material for pulp. But, he claimed the commodity as firewood. The High Court of Madhya Pradesh has held that the commodity was timber, rejecting the contention of the assessee that the same was only a firewood. But the Supreme Court has held that as timber is a wood suitable for building purposes, bridges, ships, etc., whereas eucalyptus logs could not be treated as timber and therefore, it remanded the matter to the High Court to find out whether the goods would fall within any other entry. In [1980] 46 STC 117 (Mad.) (A.H.K. and Company v. State of Tamil Nadu), it was held that the assessee who sold the logs of wood describing as firewood to Gwalior Rayon Silk Mfg. Co. Limited and claimed exemption from sales tax as firewood was not taxable. The Madras High Court, considering the details as to the specification of the articles to be supplied to Gwalior Rayon Silk Mfg. Co. Ltd., rejected the claim of sale of firewood. In [1983] 52 STC 3 (Mad.) (Malayalee Stores v. State of Tamil Nadu), wherein also the sale of eucalyptus tree for the manufacture of rayons to use wood as raw material describing the wood as firewood, was not accepted and it was taxed under entry 84 of the First Schedule as a single point goods. The High Court has observed that what meaning an article has in the market and in commerce between dealers and customers in general must be its proper classification in the statute. In [1992] 86 STC 569 (Mad.) (Gwalior Rayon Silk Manufacturing (WVG) Company Limited v. State of Tamil Nadu) following the decision in [1983] 52 STC 3 (Malayalee Stores v. State of Tamil Nadu) the Madras High Court has held that Eucalyptus tree was taxable as timber and bamboo at 5 per cent single point goods under entry 84 of the First Schedule, though the assessee claimed that the commodity was only firewood. The learned Government Advocate–Tr. R. Tholgappian, refers to the observation of the Supreme Court in [1986] 63 STC 322 [Atul Glass Industries (P) Ltd. v. Collector of Central Excise] wherein it is expressed as follows :
“When a consumer buys an article, he buys it because it performs a specific function for him. There is a mental association in the mind of the consumer between the article and the need it supplies in his life. It is the functional character of the article which identifies it in his mind. In the case of a glass mirror, the consumer recalls primarily the reflective function of the article more than anything else. It is a mirror, an article which reflects images. It is referred to as a glass mirror only because the word ‘glass’ is descriptive of the mirror in that glass has been used as a medium for manufacturing the mirror.”
The learned Government Advocate argues that an article has to be identified with its primary function and the consumer also buys an article keeping the function of the article that as observed by the Supreme Court, in the above case, the buyer in this case, namely, Gwalior Rayon Mfg. Co. Ltd. purchased the logs of eucalyptus only as pulpwood for the art silk industry and therefore, eventhough originally the respondent-assessee purchased it as timber, on account of its use, later in the manufacture of silk industry, the commodity has to be treated as multi-point goods and the assessing authority has rightly levied multi-point tax at 4 per cent whereas the Appellate Tribunal has wrongly interpreted that the commodity still remains to be timber and not taxable as it was second sales. The apex Court itself in the decision cited by the learned Government Advocate, namely [1986] 63 STC 322 [Atul Glass Industries (P) Ltd. v. Collector of Central Excise] has laid down the ratio that the nature of the goods cannot be determined by the test of use to which they are capable of being put and the user test is logical but inconclusive. The apex Court further observes that the particular use to which an article can be applied in the hands of a special consumer is not determinative of the nature of the goods. For the reason that the logs of eucalyptus were intended to be used for the rayons industry, that itself, will not decide the nature of the goods, when basically the uncut eucalyptus trees and the cut and sized eucalyptus logs cannot differ in their character as timber. In all the decisions which the learned Government Advocate, cited, exemption was claimed for eucalyptus logs claiming the same as firewood, because under the Tamil Nadu General Sales Tax Act, firewood is exempted from tax. In the cited cases, the assessee purchased eucalyptus trees as firewood but after cutting and converting into logs, they were sold as raw material for the silk industry.
Therefore, the apex Court as well as the Madras High Court, has held that the logs of eucalyptus could not be treated as firewood, when they were sold as pulpwood, and therefore, it was taxable. As a matter of fact, in [1983] 52 STC 3 (Malayalee Stores v. State of Tamil Nadu) and [1992] 86 STC 569 [Gwalior Rayon Silk Manufacturing (WVG) Company Limited v. State of Tamil Nadu], the Madras High Court has held that the supply of eucalyptus blue gum sold by the pulpwood contractor to the Gwalior Rayons was to be treated as sale of timber falling under entry 84 of the First Schedule. Similarly, in [1992] 86 STC 569 [Gwalior Rayon Silk Manufacturing (WVG) Company Limited v. State of Tamil Nadu] also, the commodity namely, eucalyptus, logs sold to Gwalior Rayon was brought under entry 84 of the First Schedule as single point goods though in those cases also, the commodity was sold as raw material for the rayon industry, and the pulpwood was not treated as multi-point goods but only as timber under entry 84 of the First Schedule.
3. The learned counsel appearing for the respondent–Tr. N. Inbarajan, relying on a decision in [1973] 32 STC 309 (AP) (G. Ramaswamy v. State of Andhra Pradesh) contended that the timber, converted as planks, rafters, etc., was not a conversion of the character of the commodity and as held by the Andhra Pradesh High Court, in the above case, the timber which has the basic character of the eucalyptus remains, the same even though it was sold for rayon industry. In the above decision, the timber bought by the dealer, was converted into planks, rafters, etc., and the assessing authority levied tax treating them as general goods. But the Andhra Pradesh High Court has held that the character as timber was not changed even after conversion of the logs into planks and rafters.
The observation of the Andhra Pradesh High Court is as follows :
“Applying these principles thus decided to the facts of the present cases, we have no hesitation in reaching the conclusion that merely because planks, rafters and cut sizes, etc., are sawn or cut from logs of wood, they do not alter their character. They still continue to be raw materials which by themselves and in the same form cannot be directly put to use for construction purposes. The log of wood purchased by the timber merchant is merely cut or sawn to sizes for convenience sake and to make them acceptable to the customers. They do not in that process lose their character as timber. They retain the same character. What the merchants purchased in the form of log of wood was timber. What they sold to their customers in the shape of planks, rafters and cut sizes after processing them was also timber. The customers purchased timber. There is no other name suggested to such planks, rafters, etc., except timber.”
The Madras High Court in [1994] 93 STC 87 (State of Tamil Nadu v. C. Kanchanamala) has held that when the purchased timber was sliced, into splints and sold the splints to match industry, there was no essential difference in identity between the original commodity and the processed article for the purpose of Section 7-A of the Tamil Nadu General Sales Tax Act. But, the learned Government Advocate contended that there must be consumption of the goods for the change of identity for the application of Section 7-A and therefore, in that case, as the character of timber was not consumed in the process of splints, it was held therein that there was no difference in the identity of the commodity. It is true that for application of Section 7-A as to the identity of the commodity, the new commodity should have consumed the original commodity. But, in the above decision, it was found that the timber logs purchased and the sliced splints have not lost their identity, namely, timber. Anyhow, taking into consideration of the ratio, in [1973] 32 STC 309 (AP) (G. Ramaswamy v. State of Andhra Pradesh) and also specific finding of the Madras High Court in [1983] 52 STC 3 (Malayalee Stores v. State of Tamil Nadu) and [1992] 86 STC 569 (Mad.) [Gwalior Rayon Silk Manufacturing (WVG) Company Limited v. State of Tamil Nadu] that the logs of eucalyptus timber is to be taxed as single point goods under entry 84 of the First Schedule and the commodity sold by the respondent-assessee was originally taxed under entry 84 at 5 per cent, the taxing authorities are not entitled to treat the commodity as multi-point goods levying tax once again. Therefore, the Appellate Tribunal has rightly accepted the claim of second sales and set aside the assessment order. We find that the order of the Appellate Tribunal is perfectly correct. As we find no error for our interference, the revision is dismissed.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand, and the seal of this Tribunal, this the 16th day of November, 1999.