JUDGMENT
Venkataswami, J.
1. Aggrieved by the order of the Tamil Nadu Sales Tax Appellate Tribunal (Additional Bench), Madras in T.A. No. 779 of 1988 dated December 23, 1989, this revision petition is preferred by the petitioners under section 38 of the Tamil Nadu General Sales Tax Act, 1959, hereinafter called “the Act”.
2. The brief facts leading to the filing of this tax case are as under :
The petitioners are dealers in carbon dioxide. They have their factories at Manali and Tuticorin which are adjacent to the factories of Madras Fertilisers Limited, Manali, and Southern Petro Chemical Industries Corporation Limited, Tuticorin, hereinafter called “SPIC”. They purchased carbon dioxide with purity of 99 per cent from Madras Fertilisers and 99.2 per cent from SPIC. When they sell carbon dioxide after removing certain impurities, the purity will be 99.8 per cent. It is common ground that carbon dioxide is exigible to tax at the point of first sale in the State as per entry 106 of the First Schedule to the Act. It is again common ground that the petitioners have paid tax on the purchase of carbon dioxide. For the assessment year 1985-86, their turnover relating to carbon dioxide amounting to Rs. 1,02,98,958 was subjected to tax at 10 per cent by the Revenue overruling the objections of the petitioners that the carbon dioxide having been already subjected to tax at the point of first sale, cannot again be subjected to tax at the hands of the petitioners. The stand taken by the Revenue seems to be that the carbon dioxide purchased by the petitioners with some impurities was a different commodity from the one sold by the petitioners after removing impurities. Hence, according to the Revenue the carbon dioxide is exigible to tax at the hands of the petitioners when sold to the consumers. This view of the Revenue has been confirmed by the Tribunal. The Tribunal in its order has observed as follows :
“In this instant case we find that the appellant had purchased gas and what he has sold is distinct and different commercial commodity. There are two grades of gas. One gas is used for beverages, fire extinguishers, refrigerators and general commercial purposes. Another gas with higher purity is used for welding purpose. The carbon dioxide dealt with by the appellant can be used for these purposes and further the excise duty has been paid only by the appellant and not by the sellers, Madras Fertilisers or SPIC.
…………
Further the appellant has purchased the gas in a compressed form and this cannot be used as such for industrial purposes because of their impurities. Further what has been sold by the appellant as the gas has been brought under the ISI specification and is actually a commodity commercially different from the gas purchased from the Madras Fertilisers Limited and SPIC. They are of different grades and are different commercial commodities. Further we have found that the gas purchased by the appellant cannot be used for industrial purpose such as aerated water, etc. We may also point out that gas as dealt with and described under entry 106 of the First Schedule of the Act may be of different categories and need not be of a particular variety.”
3. On the above view, overruling the contentions raised before the Tribunal supported by various decisions cited on behalf of the petitioners, it (the Tribunal) has confirmed the assessment on the turnover in question. Aggrieved by that, the present tax case is preferred.
4. Mr. Natarajan, the learned counsel appearing for the petitioners, as usual elaborately argued the matter. He submitted that the Tribunal went wrong in holding that gradation of gas for commercial purpose and welding purpose is sufficient for justifying to demand under entry 106 of the First Schedule to the Act. According to the learned counsel, the Tribunal failed to advert to the specific materials made available on record before it in the shape of certificate dated December 9, 1978, issued by SPIC to the effect that the goods sold by them as first seller did conform to Indian Standards 307-1966 and further improvement in purity will not make the commodity a different one. A reading of entry 106 of the First Schedule would not warrant a fresh single point levy merely on the basis of improvement in the quality of carbon dioxide. The assumption of the Tribunal that carbon dioxide purchased by the petitioners and resold by them were two different and distinct goods was unwarranted. Likewise, the payment of excise duty by the petitioners has been misunderstood by the Tribunal without appreciating the circumstances under which the petitioners paid the excise duty. It is stated that SPIC and Madras Fertilisers Limited were remitting Central excise duty for a considerable period on their manufacture of carbon dioxide and the petitioners opted to remit duty under rule 56-B read with Chapter X, as even the process of filling for marketing was within the extended definition of “manufacture” under section 2(f) of Central Act 1 of 1944 and by undertaking payment of excise duty by the petitioners, the benefit of exemption for supplies to industries. Governments and hospitals could be availed of by them. Therefore, the payment of excise duty does not in anyway change the position regarding the levy of sales tax on the carbon dioxide sold by the petitioners. Another ground on which reliance was placed by the Revenue as well as the Tribunal to hold that what was purchased by the petitioners was different from what was sold, was the price difference between the price paid by the petitioners on their purchase and the price charged by the petitioners on their sales. This has been explained by stating that the petitioners have to incur overheads of marketing and transport, holding high value cylinders, excise duty and profit margin. Therefore, without appreciating this position, the view taken by the Revenue as well as by the Tribunal was unsustainable.
5. Mr. Natarajan contended that the carbon dioxide purchased by the petitioners and the one, after removing certain impurities, sold by them, nonetheless remains carbon dioxide and, therefore, there was no justification at all to levy single point tax again on the sales of carbon dioxide at the hands of the petitioners under entry 106 of the First Schedule to the Act. In support of this contention, he placed reliance on the following judgments : Raghbir Chand Som Chand v. Excise and Taxation Officer [1960] 11 STC 149 (Punj), Tungabhadra Industries Ltd. v. Commercial Tax Officer , Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Travancore Rubber and Tea Co. [1967] 20 STC 520 (SC), State of Tamil Nadu v. Pyare Lal Malhotra , Alladi Venkateswarlu v. Government of Andhra Pradesh and Shanmugam Pillai & Co. v. State of Tamil Nadu [1990] 76 STC 303 (Mad.). He further contended that the onus is heavily on the Revenue to establish that the carbon dioxide purchased by the petitioners was different from the one sold by them, which burden the Revenue failed to discharge. In support of this contention he placed reliance on a judgment of the Supreme Court reported in Collector of Central Excise v. Calcutta Steel Industries .
6. Contending contra, the learned Additional Government Pleader placing reliance on a judgment of this Court reported in Nemichand Parasmal & Co. v. Deputy Commercial Tax Officer [1984] 55 STC 47, submitted that the view taken by the Revenue confirmed by the Tribunal is correct and the order of the Tribunal does not call for any interference. He also submitted that the decisions cited by the learned counsel for the petitioners will have no application to the particular facts of this case.
7. We have considered the rival submissions. Entry 106 of the First Schedule to the Act reads as follows :
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Sl. Description of the goods Point of levy Rate of tax
No. (per cent)
-----------------------------------------------------------------
106 Gases (other than those At the point of 10
specified in item 159) first sale in the
in compressed, liquefied State.
or solidified form).
8. Before proceeding further, it is necessary and useful to note the activities of the petitioners in removing the impurities from the carbon dioxide purchased by them from Madras Fertilisers Limited and SPIC.
9. Carbon dioxide (CO2) purchased from Southern Petro Chemical Industries Corporation and Madras Fertilisers Limited is received in compressed form at a pressure of 150 to 200 psi (pounds per square inch) as against the normal atmospheric pressure of 14 to 15 psi. The gas is passed through a potassium permanganate scrubber and then through sodium carbonate solution and finally given a waterwash. Impurities such as over-flow traces and contaminations are removed in the process. The gas is then passed on through the compressor to the intercooler where it is cooled with water and sent to the trap for removal of moisture and oil. This is repeated second time and sent to a dehumidifier which is an alumina gel dryer which removes moisture from the gas. Finally it is passed through activated carbon to remove all the final traces of odour, before it is taken for filling in cylinders. The analysis of the products received and issued are as follows :
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Carbon dioxide supplied by
—————————
Southern Petro Madras Fertilisers
Chemical Limited
Industries
Corporation Ltd.
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CO2 (carbon dioxide) 99.20 per cent 99.00 per cent
H2(hydrogen) ... 0.75 per cent
N2(nitrogen) 0.46 per cent 0.25 per cent
Oxygen and argon 0.044 per cent
Moisture 0.08 per cent
CO2 as processed by SICGIL,
the petitioners herein.
CO2 (carbon dioxide) 99.8 per cent
Acid and sulphuric dioxide Passes through test.
Phosphine and hydrogen
sulphide do.
Moisture 0.176 per cent
10. The above table will show that Southern Petro Chemical Industries Corporation Limited and Madras Fertilisers Limited had supplied carbon dioxide (CO2) and the petitioners merely removed certain impurities but nevertheless there is substantial and almost total identity in the carbon dioxide content. In fact, even after processing, the petitioners are not to secure 100 per cent pure carbon dioxide (CO2). In this regard, the processing is done by the petitioners to bring the gas to ISI Standard for supply to aerated water and other industries.
11. In this back-drop, let us consider the issue with reference to the ratio laid down by the several decisions of this Court and of the Supreme Court referred to and cited by the learned counsel for the petitioners. In Raghbir Chand Som Chand v. Excise and Taxation Officer [1960] 11 STC 149, a Division Bench of the Punjab High Court held that ginned and unginned cotton are essentially the same commodity. In Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827, the Supreme Court had occasion to consider the character of groundnut oil converted into vanaspati. The Supreme Court held :
“The question that has still to be answered is whether hydrogenated oil continues even after the change to be ‘groundnut oil’. If it is, it would be entitled to the benefit of the deduction from the turnover, or to put it slightly differently, the benefit of the deduction from the turnover cannot be denied, unless the hydrogenated groundnut oil has ceased to be ‘groundnut oil’. To be groundnut oil, two conditions have to be satisfied. The oil in question must be from groundnut and secondly the commodity must be ‘oil’. That the hydrogenated oil sold by the appellants was out of groundnut not being in dispute, the only point is whether it continues to be oil even after hydrogenation. Oil is a chemical compound of glycerine with fatty acids, or rather a glyceride of a mixture of fatty acids – principally oleic, linoleic, stearic and palmitic – the proportion of the particular fat varying in the case of the oil from different oil-seeds and it remains a glyceride of fatty acids even after the hardening process, though the relative proportion of the different types of fatty acids undergoes a slight change. In its essential nature therefore no change has occurred and it remains an oil – a glyceride of fatty acids – that it was when it issued out of the press.
In our opinion, the learned Judges of the High Court laid an undue emphasis of the addition by way of the absorption of the hydrogen atoms in the process of hardening and on the consequent inter-molecular changes in the oil. The addition of the hydrogen atoms was effected in order to saturate a portion of the oleic and linoleic constituents of the oil and render the oil more stable thus improving its quality and utility. But neither mere absorption of other matter, nor inter-molecular changes necessarily affect the identity of a substance as ordinarily understood. Thus for instance there are absorptions of matter and inter-molecular changes which deteriorate the quality or utility of the oil and it might be interesting to see if such additions and alterations could be taken to render it any the less ‘oil’. Groundnut oil when it issues out of the expresser normally contains a large proportion of unsaturated fatty acids – oleic and linoleic – which with other fatty acids which are saturated are in combination with glycerine to form the glyceride which is oil. The unsaturated fatty acids are unstable, i.e., they are subject to oxidative changes. When raw oil is exposed to air particularly if humid and warm, i.e., in a climate such as obtains in Madras, oxygen from the atmosphere is gradually absorbed by the unsaturated acid to form an unstable peroxide (in other words the change involves the addition of two atoms of oxygen) which in its turn decomposes breaking up into aldehydes. It is this oxidative change and particularly the conversion into aldehydes that is believed to be responsible for the sharp unpleasant odour, and the characteristic taste of rancid oil. If nothing were done to retard the process the rancidity may increase to such extent as to render it unfit for human consumption. The change here is both additive and inter-molecular, but yet it could hardly be said that rancid groundnut oil is not groundnut oil. It would undoubtedly be very bad groundnut oil but still it would be groundnut oil and if so it does not seem to accord with logic that when the quality of the oil is improved in that its resistance to the natural processes of deterioration through oxidation is increased, it should be held not to be oil.”
12. Again, the Supreme Court in Deputy Commissioner of Agricultural Income-tax and Sales Tax v. Travancore Rubber and Tea Co. [1967] 20 STC 520, held as follows :
“Where the only facts that were established were that the assessee converted the latex tapped from its rubber trees into sheets and effected a sale of those sheets to its customers and that the conversion of latex into sheets was a process essential for the transport and marketing of the produce :
Held, that the onus of proving that the assessee was carrying on business and was, therefore, a ‘dealer’ within the meaning of section 2(b) of the Central Sales Tax Act, 1956, was on the department and that the department had not discharged that onus.”
13. The Supreme Court again in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319, held as follows :
“As we all know, sales tax law is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities may have been made. As soon as separate commercial commodities emerge or come into existence, they become separately taxable goods or entities for purposes of sales tax. Where commercial goods, without change of their identity as such goods, are merely subjected to some processing or finishing or are merely joined together, they may remain commercially the goods which cannot be taxed again, in a series of sales, so long as they retain their identity as goods of a particular type.”
14. The Supreme Court in Alladi Venkateswarlu v. Government of Andhra Pradesh [1978] 41 STC 394, had occasion to consider whether rice would include “atukulu” (parched rice) and “muramaralu” (puffed rice). The Supreme Court has held as follows :
“‘Atukulu’ (parched rice) and ‘muramaralu’ (puffed rice) are rice within the meaning of entry 66(b) of the First Schedule to the Andhra Pradesh General Sales Tax Act, 1957.
The intention of the Legislature cannot be to tax under section 5(1) of the Act as well as under section 5(2) simultaneously. Section 5(2) does not say that a ‘further’ tax would be levied under it but only talks of levying ‘the tax’ in accordance with section 5(2) in cases falling within the ambit of the Second Schedule to which reference is made therein. It is not fair to so interpret a taxing statute as to impute an intention to the Legislature to go on taxing what is virtually the same product in different forms over and over again. Such a result would be contrary to the basic axioms of taxation. Unless the language of the taxing statute is absolutely clear, it should not be given an obviously unfair interpretation against the assessee.
Keeping in view the various provisions of the Act, together with the history of exemption of ‘parched rice’ and ‘puffed rice’ and its cancellation, it could not be the intention of the State Government suddenly to make the incidence of tax on ‘parched rice’ and ‘puffed rice’ so heavy by subjecting them to multi-point tax under section 5(1).
‘Rice in husk’ is ‘paddy’. When it is removed from husk. The husk and rice become separately taxable under the Act. But, there are no separate entries for rice, and rice reduced into an edible form by heating or parching without any addition of ingredients or appreciable changes in chemical composition. The term ‘rice’ is wide enough to include rice in its various forms whether edible or inedible. Rice in the form of grain is not edible. Parched rice and puffed rice are edible. But ‘rice’ in entry 66 is wide enough to cover both forms of rice.
The term ‘rice’ as ordinarily understood in English language would include both parched and puffed rice.”
15. In Shanmugam Pillai & Co. v. State of Tamil Nadu [1990] 76 STC 303, a Division Bench of this Court while considering entry 6-A, namely, “fried gram” of the Second Schedule to the Act held as follows :
“It has been brought to our notice that the view taken by the Additional Bench, Coimbatore, in C.T.A. No. 459 of 1970, has been approved by a Division Bench of this Court in Deputy Commissioner (C.T.) v. Meenambika Trading Co. (T.C. No. 609 of 1980 dated 9th August, 1980). Ismail, C.J., speaking for the Bench, has held as follows :
‘The only question that the Tribunal had to consider in the present case was, whether the fried and parched gram will fall within entry 6-A of the Second Schedule to the Tamil Nadu General Sales Tax Act, 1959. The entry itself uses the expression “pulses, that is to say, gram or gulab gram, etc.”. It does not say whether parched or fried or not. Consequently the Tribunal had to consider what exactly the change that is brought about on a gram being parched or fried. The Tribunal referred to the meaning given for the word “parch” in the Chamber’s 20th Century Dictionary as “to make hot and dry, to roast slightly”. If that is the correct meaning of the word “parch”, certainly by being parched, gram did not undergo such a change as to make it commercially a different commodity. If so, entry 6-A was rightly held applicable and consequently, the order of the Tribunal does not call for interference. The tax revision 5 is therefore dismissed.'”
16. A perusal of the above judgments and the ratio laid down thereon will clearly and unmistakably support the case of the petitioners. As we have seen, entry 106 of the First Schedule to the Act simply reads “gases”. There is nothing to suggest that with reference to difference in purity, gases can be subjected to tax once over bringing under the same entry. The ratio laid down by the Supreme Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827 and the ratio laid down in Shanmugam Pillai & Co. v. State of Tamil Nadu [1990] 76 STC 303 (Mad.) as extracted squarely apply to the facts of this case. Even though all these decisions were cited before the Tribunal, unfortunately the Tribunal has distinguished the cases by saying those cases will not apply to the facts of the present case.
17. As against this, the reliance placed by the learned Additional Government Pleader on Nemichand Parasmal & Co. v. Deputy Commercial Tax Officer [1984] 55 STC 47 (Mad.), in our view, is not apposite. In that case, the question for consideration was whether the expression “sugar” will include either sugar candy or diamond sugar. The learned Judges have held diamond sugar is not normally treated in common parlance as sugar. They further hold that so long as diamond sugar is sold in the market as a separate commodity apart from sugar, it can be taken as a separate commodity other than sugar for the purpose of levy of sales tax. The ratio laid down in that judgment will have no bearing to the issue with which we are concerned in this case. We have noticed that carbon dioxide remains carbon dioxide at the hands of the petitioners notwithstanding the removal of certain impurities, and there is nothing to show that this has been treated as a different commodity in the commercial circle. Therefore, we are not able to agree with the contentions of the learned Additional Government Pleader.
18. Further, as rightly pointed out by the learned counsel for the petitioners, the onus is on the Revenue to establish that the carbon dioxide purchased by the petitioners was different from the one sold by them. In Collector of Central Excise v. Calcutta Steel Industries , the Supreme Court has held as follows :
“Reliance was placed on certain observations of this Court in South Bihar Sugar Mills Ltd. v. Union of India . There, this Court was dealing with item 14-H and the appellants’ manufacturing mixture of gases containing carbon dioxide by burning limestone with coke in using only the carbon dioxide from the mixture for refining sugarcane juice and for producing soda ash by solvay ammonia soda process – whether the mixture of gases was kiln gas or compressed carbon dioxide covered by item 14-H in Schedule I to the Act. It was held there by this Court that the gas generated by the appellant-companies was kiln gas and not carbon dioxide as known to the trade, i.e., to those who deal in it or who use it. The kiln gas in question, therefore, is neither carbon dioxide nor compressed carbon dioxide known as such to the commercial community and, therefore, cannot attract item 14-H in the First Schedule. It was held that it was incorrect to say that because the sugar manufacturer wants carbon dioxide for carbonisation purposes and sets up a kiln for it that he produces carbon dioxide and not kiln gas. In fact what he produces is a mixture known both to trade and science as kiln gas one of the constituents of which is, no doubt, carbon dioxide. The kiln gas which is generated in these cases is admittedly never liquefied nor solidified and is, therefore, neither liquefied nor solidified carbon dioxide. Assuming that it can be termed carbon dioxide it cannot be called compressed carbon dioxide as understood in the market among those who deal in compressed carbon dioxide. If the Revenue wants to tax a particular goods known as such then the onus is on the Revenue, in that they have failed.”
19. In the view we have taken that there is no change in the identity of the commodity purchased by the petitioners and sold by them subsequently, we hold that the Revenue cannot subject the second sales of carbon dioxide by the petitioners to tax by bringing the same under entry 106 of the First Schedule to the Act. Though the learned counsel for the petitioners, as noticed earlier, advanced various contentions, in the view we have taken above, it is unnecessary for us to deal with all the contentions.
20. In the result, the tax revision case is allowed. There will, however, be no order as to costs.
21. Petition allowed.