K. Shivashankar Bhat, J.
1. Taxability under the provisions of the Karnataka Sales Tax Act, 1957 (“the Act”, for short), is the question to be considered in all these petitions. The common question is whether the dealer who purchased timber in circumstances in which no sales tax was charged under section 5, is liable to pay tax on the said purchase price under section 6, because the timber purchased by him is cut or sawn by him, into sizes, logs, planks, rafters, etc., for purposes of sale.
2. The State contends that when timber is converted into logs, sizes, etc., a new product emerges and timber is consumed in the manufacture of the new products.
Section 6 to the extent relevant to consider the rival contentions read as follows :
“Section 6. Levy of purchase tar under certain circumstances. – Subject to the provisions of sub-section (5) of section 5, every dealer who in the course of his business purchases any taxable goods in circumstances in which no tax under section 5 is leviable on the sale price of such goods, and
(i) either consumes such goods in the manufacture of other goods for sale or otherwise or consumes otherwise, or disposes of such goods in any manner other than by way of sale in the State.”
(other clauses omitted)
“Explanation. – For the purpose of this section ‘consumes such goods in the manufacture’ shall include goods consumed for ancillary purposes in or for such manufacture.”
As rightly submitted by Mr. Dinesh Rao, the learned counsel for some of the petitioners, the question has three aspects :
(i) whether there is any manufacturing activity involved in the cutting of timber into logs, planks, etc.;
(ii) whether timber is consumed in the said process; and
(iii) whether any new product emerges out of the said process.
All these aspects involved in the main question are no more unclear in view of the two decisions of the Supreme Court, viz., (1) State of Orissa v. Titaghur Paper Mills Co. Ltd. and (2) Collector of Central Excise v. Kutty Flush Doors & Furniture Co. (P.) Ltd. .
We have no doubt that the question necessarily has to be answered against the Revenue. However, having regard to the elaborate arguments and the several decisions cited before us, we consider it fair to refer to a few of the decisions.
One of the contentions advanced in Titaghur Paper Mills case is referred at page 261 of STC (1326 of AIR) thus :
“….. According to the respondent-firm, the Divisional Forest Officer would not be entitled to do so because it had made sized and dressed logs from the timber which it had purchased under the timber contracts and had sold such logs and paid sales tax on these sales and, therefore, to tax the sales of timber to them would be to levy the tax at an earlier point in the same series of sales which is not permissible by reason of the prohibition contained in the proviso to section 8. According to them, timber and sized or dressed logs are one and the same commercial commodity.”
In the course of its discussion, the Supreme Court found that there was no difference between timber and logs; thereafter the court proceeded to consider as to whether “beams, rafters and planks would also be logs or timber”.
At page 266 of STC (1330 of AIR), the Supreme Court held :
“A question which remains is whether beams, rafters and planks would also be logs or timber. The Shorter Oxford English Dictionary defines ‘beam’ inter alia, as ‘a large piece of squared timber, long in proportion to its breadth and thickness’ and the Concise Oxford Dictionary defines it as a ‘long piece of squared timber supported at both ends, used in houses, ships, etc.’ and according to Webster’s Third New International Dictionary, it means ‘a long piece of heavy often squared timber suitable for use in house construction. A beam is thus timber sawn in a particular way. ‘Rafter’ as shown by the Shorter Oxford English Dictionary is nothing but ‘one of the beams which give slope and form to a roof, and bear the outer covering of slates, tiles, thatch, etc.’ The Concise Oxford Dictionary and Webster’s New International Dictionary define ‘rafter’ in very much the same way; the first defines it as ‘one of the sloping beams forming framework of a roof and the second as ‘one of the often sloping beams that support a roof. Rafter would also, therefore, be timber or log put to a particular use. A ‘plank’ is defined in Shorter Oxford English Dictionary as ‘a long flat piece of smoothed timber, thicker than a board, specially a length of timber sawn to a thickness of from two to six inches, a width of nine inches or more, and eight feet or upwards in the length’. According to the Concise Oxford Dictionary it is a ‘long wide piece of timber, a few inches thick’ and according to Webster’s Third New International Dictionary, it is ‘a heavy thick board that in technical specifications usually has a thickness of 2 to 4 inches and width of at least 8 inches’. The exact thickness and width of a plank may be of importance in technical specifications but in ordinary parlance planks would be flattened and smoothed timber. Such flatness and smoothness can only be achieved by using a saw and other implements required for that purpose. The same would be the case when timber is rounded or shaped.”
One of the conclusions as summarised at page 294 of STC (1350 of AIR) is :
“Timber and sized or dressed logs are one and the same commercial commodity. Beams, rafters and planks would also be timber.”
In Collector of Central Excise v. Kutty Flush Doors a Furniture Co. (P.) Ltd. same view was reiterated by the Supreme Court, in the context of the levy of excise duty on sawn timber. Excise duty becomes chargeable only when a new and different article emerges having a distinct name, character and use. The basic test was reiterated in the following words :
“It may be worthwhile to note that ‘manufacture’ implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more was necessary and there must be transformation; a new and different article must emerge having a distinct name, character or use.”
A decision of this Court reported in Moideen Kunhi v. Collector of Central Excise 1986 (23) ELT 293, was referred by the Supreme Court with approval; in the said decision also, it was held that no new product emerges by sawing of timber into several sizes.
A decision of the Kerala High Court in Deputy Commissioner of Sales Tax v. Kunhalavi & Co.  66 STC 100 has taken a similar view.
A mere change in the form of the article in no way results in producing a new commodity; this principle has been very often applied by the Supreme Court.
In Sterling Foods v. State of Karnataka it was held that processed frozen shrimps, prawns and lobsters are not a new and distinct commodity but they retain the same character and identity as the original shrimps, prawns and lobsters. At page 244 of STC (1812 of AIR) the court pointed out :
“There is no essential difference between raw shrimps, and lobsters and processed or frozen shrimps, prawns and lobsters. The dealer and the consumer regard both as shrimps, prawns and lobsters. The only difference is that processed shrimps, prawns and lobsters are not, but still both are, in commercial parlance, shrimps, prawns and lobsters. It is undoubtedly true that processed shrimps, prawns and lobsters are the result of subjecting raw shrimps, prawns and lobsters to ascertain and identity as shrimps, prawns and lobsters notwithstanding the removal of heads and tails, peeling, divining and cleaning which are necessary for making them fit for the table. Equally it makes no different in character or identity when shrimps, prawns, and lobsters ar frozen for the purpose of preservation and transfer to doubt that processed or frozen shrimps, prawns and lobsters are not a new and distinct commodity but they retain the same charter and identity as the original shrimps, prawns and lobsters.”
The Deputy Commissioner of Sales Tax v. Pio Food Packers was a case of pineapple slices; question was whether slicing the pineapple fruit for sale in sealed cans, attracts the provisions of section 5-A of the Kerala General Sales Tax Act, language of which is similar to section 6 of the Act with which we are dealing in these cases. At page 65 of STC (1228 of AIR), the court reiterated the principle :
“There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in trade, by those who deal in it, as distinct in identity from the commodity involved units manufacture Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a 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 article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity.”
The fact that pineapple slices fetch higher price, than the pineapple was held to be irrelevant to the question, because, the higher price was occasioned by the labour involved in cutting the fruit into slices and the can employed to contain the slices. Therefore, when the substantial character and identity of an article remain the same, in spite of some process involved to make it a convenient article to trade or use, and the process resulted in some change in the form of the article, it cannot be said that a new article emerges; the original article continues in the new form and the former is not consumed “in the manufacture of any new article”
The attempt of the learned Government Advocate to persuade us to accept the Revenue’s stand did not stop here. The learned counsel tried to distinguish the above decisions, by reference to the scheme of the Act and the language employed in section 6, read with the explanation thereto.
It was contended that every commodity taxed under section 5, is taxed udder section 6, provided, under certain circumstances, tax under section 5 was not levied; therefore distinctions made by the Legislature while imposing a tax under section 5, by treating different forms of the same article differently, should be taken note of, to hold that every different form of that article is a distinct and different goods, and the process of converting the form of that article is manufacture activity or at any rate, an activity ancillary or incidental to the manufacture of new commodity.
In the earlier Second Schedule entry 45(b) was introduced by the Karnataka Act 10 of 1983. While entry 45(a) referred to ‘Timber, rosewood and sandalwood in log form”, sub-item (b) referred to “Timber, rosewood and sandalwood in cut or manufactured form of all sizes and shapes,- (i) obtained from out of material which has already suffered tax; (ii) in other cases”.
In the present Second Schedule serial No. 9 of part T covers :
“Timber excluding casurina, bamboo, eucalyptus but including rosewood and sandalwood;
(i) in log form;
(ii) in cut or manufactured form of all sizes and shapes;
(a) obtained from out of material which has suffered tax under item (i) above;
(b) in other cases.”
Different rates are prescribed depending upon the form of the timber or the fact that the form is obtained from out of tax-paid timber.
The State contended, that the Legislature itself has recognised that timber undergoes transformation into a different commodity by levying different rates of taxes, as above and therefore, same idea should govern the change in the form of timber, while applying section 6.
There is basic misconception underlying this contention. State Legislature is competent to impose different rates of sales tax on a commodity depending on its form and it has prefect competence to levy tax on a transaction of sale of the commodity in one form and when that goods undergoes a change of form and is then sold, such a resale also can be subject to tax. In fact, under section 5(1), transactions in respect of an unenumerated goods are subjected to levy at multiple points; if this is permissible, it is all the more logical to find Legislature levying tax at different transactions of sales of the same commodity, depending upon its form. A mere in the form of a goods, need not necessarily involve manufacture. To attract section 6, there should be a consumption of goods purchased earlier, in the manufacture of other goods for sale or other wise or its consumption otherwise or disposal of the purchased goods for sale or otherwise or its consumption otherwise or disposal of the purchased goods in any manner other than by way of sales in the State. Here, the contention of the Revenue is that, timber is consumed in the manufacture of logs, sizes, rafters, etc., because, such an idea of consumption in the manufacture of these logs, sizes, etc. is conveyed by the relevant entries in the Second Schedule, referred to above. Whether there was a consumption of timber, when it was sawn into logs, planks, etc., depends upon the concept of “consumption” referred to in section 6 and the term “consumption” cannot have an artificial meaning depending upon the wording of the entries in other Schedule to the Act. These Schedule are to be read with 5. Section has nothing to do with these Schedules. Section 6 has to be understood by the language used in the said provision, unless, the Legislature has specifically made an other provision to govern the language of Section 6. The observation of the Supreme Court in Sterling Foods v. State of Karnataka are quite relevant here. The Supreme Court was considering the scope of 5 of the Central Sales Tax Act. At page 242 of Section (1811 of AIR), the court held that in order to attract the provision.
“……… it is necessary that the goods which are purchased by an assessee for the purpose of complying with the agreement or order for in relation to export, must be the same goods which are export out of the territory of India. The words ‘those goods’ in this sub-section are clearly referable to ‘any goods’ mentioned in the preceding part of the sub-section and it is therefore obvious that the goods purchased by the assessee and the goods exported by him must be the same.”
The State contended that entry 13(a) in the Third Schedule made a distinction between frozen and unfrozen shrimps, etc., and therefore they are different goods; this contention was negatived. At page 245 of STC (1813 of AIR), the court held :
“…. The State Legislature was not at all concerned with the question as to whether processed or frozen shrimps, prawns, and lobsters are commercially the same commodity as raw shrimps, prawns and lobsters or are a different commodity and merely because the State Legislature made a distinction between the two for the purpose of determining exigibility to State sales tax, it cannot be said that in commercial parlance or according to popular sense, processed or frozen shrimps, prawns and lobsters are recognised as different commodity distinct from raw shrimps, prawns and lobsters. The question whether raw shrimps, prawns and lobsters after suffering processing retain their original character or identity or become a new commodity has to be determined not on the basis of a distinction made by the State Legislature for the purpose of exigibility to State sales tax because even where the commodity is the same in the eyes of the persons dealing in it the State Legislature may make a classification for determining liability to sales tax. This question, for the purpose of the Central Sales Tax Act, has to be determined on the basis of what is commonly known or recognised in commercial parlance. If in commercial parlance and according to what is understood in the trade by the dealer and the consumer, processed or frozen shrimps, prawns and lobsters retain their original character and identity as shrimps, prawns and lobsters and do not become a new distinct commodity and are as much ‘shrimps, prawns and lobsters’ as raw shrimps, prawns and lobsters, subsection (3) of 5 of the Central Sales Tax Act would be attracted and if with a view to fulfilling the existing contract for export, the assessee purchases raw shrimps, prawns and lobsters and processes and freezes them, such purchases of raw shrimps, prawns and lobsters would be deemed to be in the course of export so as to be exempt from liability to State sales tax.”
Only because, Section 6 and the Second Schedule are in the same Act, it cannot be said that the State Legislature was deeming the mere change in the form of timber into logs, sizes, etc., as the result of manufacture. The purpose of the Second Schedule is not to identify the manufacturing activity involved in bringing about a change in the form of a commodity, so as to clarify the terms used in Section 6.
The distinction made by Mr. Dattu, learned Government Advocate, between the words “in the manufacture of other goods” and “on the manufacture of other goods” has no relevance to the present cases. The former phraseology may be of wider connotation. Even when the goods purchased were by themselves not converted into new goods, but merely used in the process of manufacturing another goods, may attract the provisions of section 6; but such a fact situation is not before us. Timber, here, is not even used in the process of manufacturing some other goods. Timber was cut into sizes or logs for sales. The ultimate fate of these logs or size may be use in the manufacture of new goods, like any article of furniture, box, etc. That event has not even happened here; the purpose of the cutting or sawing of timber involved in these cases, is not directly connected with the manufacture of any new goods. The purpose is to make the timber presentable in the market or change its form for the sake of convenience. The substance and character of the timber, in no way undergoes any change.
Explanation to Section 6 was relied which reads “for the purpose of this section ‘consumes such goods in the manufacture’ shall goods consumed for ancillary purpose in or for such manufacture”.
It was contended that sawing of timber into logs, planks, etc., is done as ancillary in or for manufacture of other goods and, therefore, timber is consumed “in the manufacture of other goods”.
Purpose of this explanation to Section 6 is not to rope in a possible ultimate use of the several forms of timber. None can with certainty say that sawn timber would necessarily be used in the manufacture of another article. Planks and logs are likely to be used just us they are in some cases. Further, the consumption “referred in section 6(i) shall have to be by the dealer who purchased the goods; if so the consumption for ancillary purpose in or for such manufacture also shall have to be by the same dealer. When no manufacturing activity of any sort is involved and the cutting of timber into sizes, planks, etc., has no direct connection to any immediate purpose of manufacturing another article by the dealer, it is impossible to apply the explanation to Section 6. The conversion of the form of timber, here, is for the purpose of enabling its sale; the cutting or sawing of timber may be considered as incidental to the preparation of the timber for marketing purpose and not ancillary in or for any manufacture.
The decision of the Supreme Court in Tata Iron & Steel Co. Ltd. v. Union of India has no bearing on the present issue. In the said case the polishing of “forged goods” was held to be incidental or ancillary to the completion of the said manufactured product; the finished product enraged after this incidental/ancillary process was completed.
Entry 45 in the earlier Second Schedule underwent a change with effect from April 1, 1983. Till the said date entry 45 referred to “Timber, rosewood and sandalwood”. By Act 10 of 1983, entry 45 came to be reworded with effect from April 1, 1983, as follows.
“45(a) Timber, rosewood and (April 1, 1983 to March 31, 1986
sandalwood in log form rate of tax 8 per cent. thereafter
13 per cent).
(b) Timber, rosewood and
sandalwood in cut and
manufactured form of all sizes
and shapes, –
(i) obtained from out of Rate of tax 2 per cent. between
material which has April 1, 1983 to March 31, 1986;
already suffered tax; thereafter it was 3 per cent.;
(ii) in other cases. Rate 8 per cent. (April 1, 1983
to March 31, 1986; thereafter it
was 3 per cent).”
Thus it is clear Legislature decided to levy different rates of taxes depending upon the “form” of the timber; even here, if the main material has already suffered tax, the changed form would be subject to a lower rate of tax. Explanation IX(ii) inserted to the Second Schedule with effect from April 1, 1983 stated that, “for purposes of serial No. 45(b) ‘timber, rosewood and sandalwood in cut or manufactured form’ shall include door or window frames and shutters but exclude furniture”.
There is no definition of the term “timber in manufactured form” except, the explanation which includes “door or window frames and shutters” in the term. This was an unnecessary exercise because, no argument is necessary to hold that each of “door, window frames and shutters” would be a different commercial commodity having a distinct character and utility as against “timber” and the change of “timber” into door, window frames and shutters would be the result of a manufacturing activity. For the purpose of the Second Schedule, this concept of manufacture is irrelevant because, Legislature is always competent to recognise even a formal difference or distinction in a commodity to treat it as a different taxable commodity, so long as such a difference or distinction is normally recognised in commercial world; therefore object of the aforesaid explanation IX(ii) is to bring in doors, window frames and shutters within serial No. 45, since, these articles, normally would not be considered as a mere changed forms of timber. At the same time, these articles are required to be considered differently from “furniture”, treated elsewhere for taxation. (Vide entry 58 of the old Second Schedule and new Part F, serial No. 12).
Serial No. 45 clearly envisages the idea that division of the subject-matter of the taxable goods falling within its sweep, is mainly based on the “form” of timber. From this it cannot be inferred that every 343 article treated as a distinct “taxable goods”, is a separate identifiable, different goods – different from the material from which it is made.
Entry 45 was amended, as above, with effect from April 1, 1983. On October 30, 1985, the Commissioner issued a circular No. 58. MSR. CR. 347/ (vii) 85-85 (annexure “E” in W.P. No. 23297 of 1990) which reads :
“Timber : Mere cutting of timber into cut sizes or planks does not make the timber lose its character of being timber. In view of the decision of the Tribunal in A.R. Contractor’s case (KLJ 1965, 82) (which was upheld by the High Court) Section 6 is not attracted as no new commercial commodity emerges.”
The circular reflected the understanding of the Commissioner, who heads the Commercial Tax Department. Obviously, no attempt was made to challenge the decision of the High Court affirming the view of the Tribunal, referred to in the circular. Act was not amended. If actually amendment made to serial No. 45 with effect from April 1, 1983 had altered the situation, the circular would have been differently worded. The change in the view was expressed for the first time in circular No. 73. CLR. 978/87-88, stating,
“Since, timber and cut sizes are separately categorised under the Second Schedule to the Karnataka Sales Tax Act, 1957, cutting of timber into sizes would amount to a manufacture and hence purchase of timber from unregistered dealers for conversion into cut sizes would be liable to tax under Section 6 and also eligible for 50 per cent. concession in terms of the 1987 notification.”
This circular has occasioned many of the present writ petitions before us.
The understanding of the law at the earliest point of time of its enactment cannot be ignored. The Finance Act, 1964, amended section 52(2) of the Income-tax Act, 1961; this was understood in a particular manner by the Central Board of Direct Taxes, in a circular issued on July 7, 1964. In Varghese v. Income-tax Officer , the principle of contemporaneous expositio was applied to the circular which understood the amendment in a particular manner. At page 612 of ITR (1932 of AIR), the court observed :
“….. The rule of construction by reference to contemporanea expositio is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous. This rule has been succinctly and felicitously expressed in Crawford on Statutory Construction, 1940 Edn., where it is stated in para 219 that ‘Administrative construction (i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute) generally should be clearly wrong before it is overturned; such a construction, commonly, referred to as practical construction, although non-controlling, is nevertheless entitled to considerable weight, it is highly persuasive’.”
Since the circular was issued by the highest authority entrusted with the execution of the provisions of the Act, the circular was accepted as conveying the true import of the provisions of the Act. Thereafter the Supreme Court pointed out that the circular issued by the Central Board was administratively binding on the Revenue under the Income-tax Act. Situation is not different under the Karnataka Sales Tax Act; here as per section 3A of the Act instructions issued by the Commissioner binds all subordinate authorities in the enforcement of the provisions of the Act. The relevance of the circular issued on October 30, 1985 on the interpretation of the provisions of the Act, cannot be brushed aside. The Commissioner has changed his view while issuing the subsequent circular. This would affect a large number of assessments or transactions already concluded. In the absence of any substantial new material forthcoming shedding a different light on the language employed by the Legislature (such as an amendment to the Act affecting its scheme, or some interpretation of the provisions of the Act by the High Court or Supreme Court), the Commissioner should not normally issue a different circular; he should realise the inconvenience and hardship that may be caused, by the changed instruction. The Commissioner has a responsibility not, only to safeguard the interest of the Revenue, but also a duty to consider the well being of the trading class, who contribute to the Revenue.
If Section 6 was understood as inapplicable to the cases of the purchasers of timber all along, those dealers, when, in turn, sell the cut-form of timber, will be liable to pay sales tax under serial No. 45 of the Second Schedule, because, they will be the first or earliest of the dealers liable to tax, attracting section 5(3)(a) read with the Second Schedule. Since these logs, planks, etc., are the forms of timber obtained from timber which did not suffer tax earlier, a higher tax as per serial No. 45 (b)(ii) will be levied. This rate is the same rate applicable to “timber” under serial No. 45 (a). The process of cutting the timber into different forms, the initial investment including transportation expenses would increase the cost of the cut or sawn timber and, therefore, its sale value is bound to be more than the value of the timber from which it is formed; if so, certainly the sale price would fetch a higher quantum of tax, though the rate of tax is the same. For example, if timber was purchased at Rs. 100 without any tax thereon, the cost of the cut forms of timber is bound to be more than Rs. 100, say Rs. 125. 13 per cent. on Rs. 125 would fetch more tax, tie., Rs. 16.25) than 13 per cent. on Rs. 100.
If sales tax on timber was leviable then tax thereon would be Rs. 13. The cost of cut form would increase to Rs. 138; but the rate will be only 3 per cent. as per serial No. 45 (b)(i) which is Rs. 4.14. The total tax then collected is only Rs. 17.14; the difference is only marginal, as far as the revenue is concerned. But, this interpretation would have a far-reaching impact on the traders who are to pay the purchase tax now for the earlier years. They would have already paid 13 per cent. on the sales of sawn-timber (various forms of timber); asking them to pay again another 13 per cent. on the earlier purchase value shall have to be borne by the dealer without any opportunity to pass on the burden to the consumers. It is certainly true that such a likely hardship to the assessees is not always relevant while construing the fiscal legislation; it is said equity and taxation do not travel together, though they are not sworn enemies. But this aspect should have weighed with the Commissioner while changing his view and issuing the subsequent circular; another circular dated February 5, 1990, was issued by the Commissioner reiterating the view expressed in the second circular (referred by us already).
Mr. Dattu relied on a decision of this Court in Popular Bone Mills v. State of Karnataka (S.T.R.P. No. 22 decided on 3rd June, 1993 (Since . In support of his proposition that when the Legislature has made a distinction between two types of commodities and treated them differently for levying the tax under the Act, in the several Schedules to the Act, intention of the Legislature is to treat those commodities as different, distinct and separate commercial articles; in such a case, one article made out of the other, is the result of an activity referred to in Section 6 to attract the tax under the said provision; in other words, one article has to be deemed to have been manufactured out of the other. In the above case, court was considering whether “bone meal” was an article manufactured out of “bones and horns”, or the former and the latter are substantially the same article. In view of the differential treatment meted out by serial No. 48 of the Second Schedule and serial No. 13 in the Second Schedule, this Court held them to be different articles. The Bench observed :
“The Legislature has specifically treated the commodity called ‘bone’, under the Third Schedule and the commodity referred to as ‘bone meal’ under the Second Schedule. The fact that bone and bone meal have different commercial value, cannot be normally disputed. The Legislature is perfectly competent to take into consideration this distinction and treat different commercial commodities differently for the purpose of levy of tax that is what has been done in the instant case by the Legislature. Therefore, if the petitioner was the last purchaser of the bone, the petitioner is certainly liable to pay the purchase tax under the Third Schedule. Thereafter, when the petitioner sells the commodity referred as a ‘bone meal’ prepared out of the aforesaid bone, the said turnover also is liable to tax under the Second Schedule because the petitioner will be the first seller of ‘bone meal’.”
This was a case of a specific entry in the Third Schedule; the purchase of goods referred to in the said Schedule are liable to single point purchase tax under section 5(3)(b); when the Legislature has clearly referred to “bones and horns” in the Third Schedule, there is no scope to exclude the said identifiable goods from the Third Schedule by any implication. Court was not concerned with the language of Section 6 of the Act at all.
In State of Karnataka v. Chamundeswari Industries  84 STC 518 another Bench of this Court (of which one of us was a member), held, that “rice” and “puffed rice” are different commodities and “puffed rice” is “manufactured” out of “rice” and therefore, Section 6 of the Act is attracted. Actually much argument is not needed to hold that “puffed rice” is a commodity different from rice, having a distinct character and use of its own. No doubt, there is an observation to the following effect :
“Under the scheme of the Karnataka Act, however, the entries are separately given in that entry 138 of the Second Schedule covers parched rice or beaten rice and entry 9 of Fourth Schedule covers rice as such. It is permissible for the Legislature to classify goods in any manner it likes and this position is clear in view of the fact that after the manufacturing process a new commodity comes into existence.”
In fact, the observations of the Supreme Court in Pyare Lal Malhotra’s case referred to therein itself says, –
“….. it may also become necessary to consider whether a manufacturing process, which has altered the identity of the commercial commodity, has taken place. The law of sales tax is also concerned with ‘goods’ of various descriptions. It therefore, becomes necessary to determine when they ceased to be goods of one taxable description and become those of a commercially different category and description.”
The Bench did not hold that in every case, whenever the Legislature categorised a particular commodity as a distinct “taxable goods”, said commodity is the result of a manufacturing activity or that in bringing out the new taxable goods, the material from which it is brought out stands consumed. We reiterate here, that there is no doubt regarding the competence of the State Legislature to give a different identity to a goods depending upon some distinction, for the purpose of levy of sales tax.
Section 6 is equally a charging section. Unless the levy under it is clearly brought out, the said provision cannot be attracted by implication. The doctrine stated by Rowlatt, J. (Cape Brandy Syndicate v. Inland Revenue Commissioners  1 KB 64) is quite well known :
“In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.”
Taxation by inference or by analogy is impermissible.
“The question is not at what transaction the section is according to some alleged general purpose arrived, but what transaction its language according to its normal meaning fairly and squarely hits.”
(Vide : St. Albyn (L. M.) v. A. G.  2 All ER 473).
Bombay Legislature has thought it fit to make the position very clear. To the definition of “manufacture”, it added an explanation :
“For the purpose of this clause, the cutting, sawing, sizing or hewing of timber, shall be deemed to be manufacture.”
[See : Kisangopal Shrikisandas Damani v. State of Maharashtra  79 STC 331 (Bom)]
Mr. Dattu argued that the above activity of cutting, sawing, sizing or hewing “consumes” the timber, and therefore, Section 6 is attracted.
The words “or consumes otherwise” between “otherwise” and “or disposes of’ in section 6(i) were inserted with effect from September 8, 1988. Earlier, there was some doubt whether goods “consumed otherwise” was covered by the then existing phraseology of section 6(i). Following the latest decision of the Supreme Court in Pio Food Packers case , a Bench of this Court held in Reliable Rocks Builders and Suppliers v. State of Karnataka  49 STC 110 that section 6(i) is attracted only when there is consumption of goods, in the manufacture of some other goods. There, this Court held that process of breaking boulders into jelly cannot be described as a manufacturing process. To the same effect is the view taken by a Bench of the Andhra Pradesh High Court in Nandanam Construction Company v. Assistant Commissioner (Intelligence) .
The basic question is whether the timber is “consumed” when it is sawn into various forms ? The scope of the word “consumed” has to be understood in the manner laid down by the Supreme Court. Only because there was a change of the “form” of an article, can it be said the “article” was consumed, when substance of the “article” is not altered. When an “article” is dressed up for marketing purposes, can it be said, it is consumed; every kind of process, is not a process of utilising the article; process of preparing an article for sale, is nothing but effecting cosmetic change in the article. It cannot be said that in such a situation, article is “consumed” for any purpose. The test stated by the Supreme Court in Pio Food Packers case is, “where there is no essential difference in identity between the original commodity and the processed article it is not possible to that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity”.
Another often referred case, which we refer once again, is Sterling Foods v. State of Karnataka . It was clearly laid down that, when shrimps, prawns and lobsters are subjected to the process of cutting, of heads and tails, peeling, divining, cleaning and freezing, the identity of the original commodity is not changed.
Madhu Silica Private Limited v. State of Gujarat  85 STC 258 is a decision of the Gujarat High Court, which is strongly relied on by the learned Government Advocate. The basic question raised before the Gujarat High Court related to the competence of the State Legislature to levy purchase tax, when the taxable event is in reality, the manufacturer of another goods out of the purchased goods; court’s discussion at page 301 was referred to by the learned counsel. The court was actually considering the question whether the impugned provision therein sought to levy tax in the nature of excise and the answer was in the negative. The court pointed out that the taxable event is actually the raw materials, but the actual levy is postponed depending upon the manufacture of goods out of the said raw materials; the bench pointed out :
“That charging event centering round purchase of raw materials, etc., remains dormant till the goods are actually put to use in manufacture of taxable goods. It gets activised then. These events have nothing to do with the ultimate manufacture of taxable goods.”
We respectfully concur with this view and in fact, this view is in accordance with the decision in Hotel Balaji’s case . The learned Government Advocate referred to Madhu Silica Private Limited case  85 STC 258 (Guj) at page 304 where the following observation is found :
“A manufacturer/dealer who proceeds to manufacture taxable goods knows very well at the stage the manufacturing process starts as to which goods are sought to be manufactured by utilising raw materials. Ultimately, whether the concerned goods which he produces bear full burden of tax or get partial or full exemption from payment of tax on the happening of certain contingencies will have nothing to do with the question whether raw materials, etc., were utilised for manufacturing such goods. Measure of tax or ultimate liability to pay tax either wholly or partially on manufactured goods cannot have any impact on the question whether purchased raw materials were used or utilised in the manufacturing process for producing such manufactured goods.”
The Bench did not equate all taxable goods to manufactured goods. At page 305, it was observed :
“….. that the phrase ‘uses them as raw material or processing materials or consumable stores in the manufacture of taxable goods’ as employed by section 15B would mean user of such raw material in the manufacturing process for manufacturing generally taxable goods under the Act and ultimately, in given circumstances, such manufactured goods may not attract tax under the charging provision and still they would remain taxable goods. It is, therefore,not possible to agree with the contention of the petitioners that charging event under section 15B would be manufacture of taxable goods.”
Even if the above observations are removed out of context and read, they do not support any of the propositions advanced before us by the learned advocate.
In the result, for the reasons stated above these petitions are allowed. The respondents are restrained from levying tax under Section 6 of the Act on the ground that the timber purchased earlier in the circumstances in which no tax under 5 was levied on the sale price of such timber, attracts purchase tax because the timber is sawn into various forms, referred to in the respective petitions. If, in any of these cases before us, assessment orders or reassessment orders have been made contrary to the law laid down herein, the same shall be modified, to be in accordance with this order.
Consequently, writ petitions are allowed. Rule made absolute in the writ petitions. No costs.
Writ petitions allowed.