JUDGMENT
Srinivasa Iyengar, J.
1. These are revision petitions preferred by the State under section 23(1) of the Karnataka Sales Tax Act, 1957 (hereinafter called the “Act”), against the common order of the Sales Tax Appellate Tribunal in S.T.A. 605 of 1972, S.T.A. 66 of 1972 dated 4th September, 1973, and S.T.A. 180 of 1973 dated 3rd September, 1973. They involve a common question and they have been argued together. They will be disposed of by this order.
2. The respondents are registered dealers under the “Act”, and they own rice mills. They purchase paddy and after milling paddy, the resultant rice is sold. The Commercial Tax Officer brought to tax the purchase turnover of paddy under section 6(i) of the Act. This was upheld in appeal by the Assistant Commissioner of Commercial Taxes and, on further appeal to the Sales Tax Appellate Tribunal, it was held that it could not be construed that mere dehusking of paddy and getting rice amounted to “manufacture” and, on the facts and circumstances, it could not be said that there was any consumption of goods in the manufacture of other goods for sale or otherwise, and the imposition of sales tax under section 6(i) was not right. The correctness of this conclusion is challenged in these revision petitions.
3. It is urged by the learned Government Advocate that paddy and rice are two different articles and are not the same and the conversion of paddy into rice amounts to “manufacture” according to the dictionary meaning or in its grammatical sense, as by means of processing, paddy is converted into rice for consumption or utilisation and, therefore, it must be held that there is consumption of goods in the manufacture of other goods for sale or otherwise and, as such, the purchase turnover was liable to tax. Alternatively, it is contended that even if it be held that there was no manufacture of goods for sale or otherwise, the assessee has disposed of such goods in a manner otherwise than by sale in the State and, therefore, the turnover attracted the imposition of tax under section 6(i) of the Act.
4. The question for consideration is whether by hulling or milling paddy, the resultant product rice amounts to consumption of paddy in the manufacture of other goods for sale and whether there was disposal of such goods in any manner otherwise than by way of sale in the State.
5. The relevant portion of section 6 of the Act is as follows :
“6. Levy of purchase tax 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 disposes of such goods in any manner other than by way of sale in the State, or
(ii) …………..
shall be liable to pay tax on the purchase price of such goods at the same rate at which it would have been leviable on the sale price of such goods under section 5.”
6. The expression “manufacture” has not been defined in the Act. The learned Government Advocate argued that paddy and rice are different article, and, therefore, as there is conversion of one kind of goods into another, it must be held that there has been consumption of goods in the manufacture of other goods for sale or otherwise. For the former submission, reliance was placed on the decision of the Supreme Court in Ganesh Trading Co. v. State of Haryana . In that case, the Supreme Court was considering the claim of a dealer for exclusion of the turnover relating to paddy over which purchase tax had been paid, in computing the total turnover. Under the provisions of the Punjab General Sales Tax Act, 1948, there was an exemption from payment of sales tax if the very paddy in respect of which purchase tax was paid was sold and not if that paddy was converted into rice and then sold. The contention of the dealer was that paddy and rice were identical goods and, therefore, when the law granted exemption in respect of paddy that should be available in respect to the transactions relating to rice also. This was not accepted by the Supreme Court. The learned Judge held that paddy and rice were two different goods in the ordinary parlance and when paddy was dehusked and rice was produced its identity had been changed and, further, the Punjab and Haryana General Sales Tax Act, 1948, made a distinction between rice and paddy and each of them had been treated differently. On this reasoning the claim of the assessee was rejected.
7. In our opinion, this decision does not resolve the question for consideration in these cases, which is whether there is consumption of paddy in the manufacture of other goods for sale or otherwise. The process by which rice is got is by dehusking and removing the husk from the paddy. It appears to us to be jarring to say that rice is manufactured from or out of paddy. Paddy or rice is a food article. Rice is already in that form in paddy. No new substance is brought into being by merely dehusking paddy. In older rimes rice was got from paddy by hand pounding. Sometime later this pounding was done by a mechanical contrivance. After the introduction of machinery the same process of pounding or removing husk is carried on by huller and mills. The mere change in the employment of the means for dehusking would not result in the change or character or nature of the article. The land on which paddy is grown is called paddy-filed or rice-filed and the two expression are used as interchangeable and without distinction. As a food article reference to paddy or rice means one and the same thing. Ordinarily, a manufactured article takes a different form and subserves different purposes from the original material. Every manufacture involves processes but every process cannot be said to be a manufacture. There is a sharp line of demarcation between mere processing short of manufacture and making finished articles after manufacturing them. The extent of change which has been effected in the original material is usually the test applied in determining whether the article is or is not of manufacture. The mere bestowal of labour on an article, even if applied through machinery, will not make an article manufactured goods, unless the treatment has progressed so far that a transformation ensues and an article different from the original product is brought into existence. When skin of a plantain is peeled before eating, can it be said that the peeled plantain fruit is a manufactured article ? No new substance which was not existing has been brought into existence. Similarly, if an orange is peeled and the fruit is taken out, no new article is brought into existence and the fruit taken out cannot be said to be a manufactured product. Rice is fashioned by nature in the form of paddy and obtaining of rice is a mere liberation of the natural product. In getting the rice imbedded in paddy no transformation takes place and no manufactured article is got.
8. The true test in determining whether an article is or is not a manufactured article, has been described in Corpus Juris Secundum, Volume 55, at pages 685 and 686 :
“In determining whether an article is or is not a manufacture, or whether a process or operation is or is not manufacturing, one of the important factors is the extent of the change that has been effected in the original materials, since, while every change in an article is the result of treatment, labour and manipulation, every change is not manufacture; something more is necessary, and the application of labour must be carried out to such an extent that the article suffers a species of transformation and a new and different article emerges.”
9. In Raghbir Chand Som Chand v. Excise and Taxation Officer ([1960] 11 S.T.C. 149.), reference has been made to the decision in Consolidated Trucks service v. United States (144 Fed. Supp. 814 at 817.), wherein it was held that the removal of the peanuts from the shell did not render them a manufactured commodity despite the employment of machinery in shelling and cleaning the raw peanuts.
10. In Stroud’s Judicial Dictionary (3rd Edition), construing the meaning of “manufacture”, it is stated :
“The word ‘manufacture’ said Abbotte, C.J., in R. v. Wheeler ((1819) 2 B. & Ald. 345.), ‘has been generally understood to denote either a thing made which is useful for its own sake and vendible as such, as a medicine, a stove, a telescope and many others; or to mean an engine or instrument, or some part of an engine or instrument, to be employed either in the making of some previously known article or in some other useful purpose as a stocking frame, or a steam engine for raising water from mines; or it may perhaps extend also to a new process to be carried on by known implements or elements acting upon known substances, and ultimately producing some other known substance but producing it in a cheaper or more expeditious manner or of a better or more useful kind. No mere philosophical or abstract principle can answer to the word “manufacture”. Something of a corporeal and substantial nature, something that can be made by man from the matters subjected to his art and skill, or at the least some new mode of employing practically his art and skill is required to satisfy the word’.”
11. The learned Government Advocate, however, sought to place reliance upon the decision in Laxmi Chand Badri Narain v. Commissioner of Sales Tax, M.P. ([1971] 27 S.T.C. 211.) In that case, the Madhya Pradesh High Court noticed the definition of “manufacture” as contained in section 2(j) of the Madhya Pradesh General Sales Tax Act, 1958, and held that the process of preparing rice amounted to manufacture within the definition. Therefore, the said decision is not of much assistance in deciding the question in the instant cases. The learned Government Advocate also referred to the decision of the Supreme Court in State of Punjab v. Chandu Lal Kishori Lal , in which observation had been made that ginning process was a manufacturing process and a contention to that effect put forth on behalf of the appellants in that case had been accepted. But the real question for determination in that case, as is clear from the judgment at page 56, was not whether ginning process is a manufacturing process. In our opinion, this decision also is of no assistance. Having regard to the complicated nature of the machinery employed in that case, it was held that it cannot be said that the process was not a manufacturing process merely because the resultant product is not obtained by consuming another article or raw material.
12. As paddy does not suffer any transformation and a new and different article does not emerge when it is milled or hulled, the process of milling or hulling cannot be called a process of manufacture and rice cannot be called as a manufactured article. The use of the expression “convert” in obtaining rice from paddy is itself, in our opinion, inappropriate and in accurate, because, by removing the husk by whatever process it may be, one thing is not converted into another thing. There is, therefore, no consumption of paddy in the manufacture of other goods for sale or otherwise. The view taken by the Tribunal in this behalf must, therefore, be upheld.
13. In our opinion, the alternate contention put forth by the learned Government Advocate that the assessee had disposed of such goods other than by way of sale in that State, is also untenable. It does not follow that if the first part of sub-clause (i) is not attracted, the second part must automatically apply. The word “dispose” involves an element of transfer of title in goods. The learned Government Advocate referred to the decision of the Supreme Court in Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh ([1964] 24 S.T.C. 343 (S.C.).). In that case, the appellants who were a firm of building contractors, had purchased building materials and used the materials in the course of their business. The materials purchased had been used up in the construction of buildings and they became part of those buildings. The learned Judges were interpreting the provisions of section 7 of the Madhya Pradesh General Sales Tax Act (2 of 1959). It was held that the building materials had been purchased in the course of the business of the assessees and those materials were taxable under the Act and the appellants had consumed the materials other than in the manufacture of goods for sale and for profit-motive and, therefore, on the plain words of the section, the purchase price was taxable. It is clear from the facts in that case, that the building materials had actually been used up in the buildings constructed by the assessees and thus consumed. There was a transfer of the title in the goods. It could also be said there was a disposal of the goods otherwise than in the manufacture of goods for sale.
14. In Corpus Juris Secundum (Volume 27) the words “disposal” and “disposed of” have been defined. The expression “disposal” has been stated to mean :
“Passing out of control from one to another, either temporarily or permanently, as distinguished from a mere change of use by the owner.”
15. In regard to the expression “dispose of”, it has been stated to mean :
“to alienate, bargain away, barter, bestow, convey, exchange, give, give away or transfer by authority. Also in other sense, to collect, finish with, get rid of, put away by any means or remove. Even when standing along the phrase ‘dispose of’, when used in a criminal statute, is universally held by the courts to include only those transactions in which there has been a transfer of either title or absolute possession of the property or else some such disposition of it as would destroy it in whole or in part.”
There is no transfer of the paddy as such to anyone else and, therefore, it cannot be said that there has been disposal of the goods in any manner other than by way of sale. Dehusking of paddy by itself cannot amount to disposal.
It is common ground that in regard to the rice got out of the paddy milled the dealers have been subjected to sales tax on the sale turnover of the rice. The levy in regard to paddy or rice is at a single point. Therefore, the same transaction could not be subjected to tax both at the purchase point as well as at the sale point. The article disposed of is only rice, which was the result of the paddy milled, and that has been subjected to tax under the Act. It is, therefore, inconceivable that there was any other disposal of the paddy as such so as to come within the ambit of the second clause of section 6(i).
16. We, therefore, hold that the respondents were not liable to pay tax on the purchase turnover of the paddy milled in their mills either on the ground that they had consumed paddy in the manufacture of other goods for sale or otherwise or disposed of such goods in any manner other than by way of sale in the State.
17. The revision petitions, accordingly, fail, and are dismissed. No costs.
18. Petitions dismissed.
