Holding

Goods used solely as fuel or for kiln maintenance are not liable to tax under Section 5A(1) of the Kerala General Sales Tax Act, 1963 because they are not consumed in the manufacture of other goods nor are they disposed of.

Summary

The assessee, Thomas Stephen & Co. Ltd., a ceramic manufacturer, purchased cashew shells, lime shells and other consumed stores which it used as fuel and for kiln maintenance. It claimed exemption from purchase tax under Section 5A(1) of the Kerala General Sales Tax Act, 1963, arguing that the goods were either consumed in the manufacture of other goods or disposed of otherwise, and also relied on Notification S.R.O. 732/73. The Tribunal and the High Court held that the goods were used only as ancillary fuel and not as raw material in the manufacture of the end product, and that no disposal occurred; consequently, none of the conditions of clauses (a) or (b) of Section 5A(1) were satisfied and the purchases were not taxable. The Supreme Court affirmed this view, stating that goods used for ancillary purposes like fuel do not fall within the ambit of Section 5A(1)(a) and that “disposal” requires a transfer of title, which was absent. The petition for special leave was dismissed.

Issues considered

Whether the use of cashew shells, lime shells and consumed stores as fuel or for kiln maintenance constitutes "consumption in the manufacture of other goods" under clause (a) of Section 5A(1) of the Kerala General Sales Tax Act, 1963.
Whether such goods are deemed to be "disposed of" under clause (b) of the same provision.
Whether the purchase of cashew shells is exempt under Notification S.R.O. 732/73.

Legislation cited

Kerala General Sales Tax Act, 1963s. 5A(1)

Subjects

sales taxpurchase taxSection 5Aconsumptionfuelancillary usedisposalexemptionKerala General Sales Tax Actcashew shellskiln maintenancetaxability

Judgment

DEPUTY COMMISSIONER OF SALES TAX (LAW),
A
BOARD OF REVENUE (TAXES), ERNAKULAM.
v.
THOMAS STEPHEN & CO. LTD. QUILON.

MARCH 14, 1988
B
[SABYASACHI MUKHARJI & S. RANGANATHAN, JJ.] A_.

Kera/a General Sales Tax Act, 1963: s. 5A( 1)-Cashew Shells and
consumed stores used as fuel in the Kiln and maintenance-Whether
exempt from Tax-Consumption in process of manufacture resulting in A
other goods-Essentiality of.
c
Section SA(l) of the Kerala General Sales Tax Act, 1963, requires
~ a dealer to pay purchase tax on the taxable goods purchased in cir-
- -""-~ cumstances in which no tax is payable, if he (a) consumes such goods in
the manufacture of other goods for sale or otherwise, or (b) disposes _of
D such goods in any manner other than by way of sale in the State, or (c)
despatches them to any place outside the State except as a direct result
of sale or purchase in the course of inter-state trade or commerce.

The assessee-company, a manufacturer and dealer in ceramics
was sought to be assessed to tax under s. SA of the Act for the assess-
E ment years 1974--7S, 1975-76 and 197&-77 among other things for the
purchase turnover of cashew shells and consumed stores, lime shells
etc., purchased by it. The assessee contended that cashew shells were
used by them as fuel for manufacturing products and, therefore, by
virtue of notification S.R.O. 732/73 the purchase turnover of cashew
shells was exempt from tax. Iu the alternative, it was contended that the
F purchases in question were not liable for levy of tax since none of the
conditions prescribed in clause (a), (b) or (c) of s. SA(!) of the Act were
satisfied, and that lime shells and certain consumed stores !lad been
used in the maintenance of the kiln and the factory, and were not
taxable in view of the conditions prescribed ins. SA.

G The assessing anthority and the First Appellate Authority brought
these pnrchases to tax under s. SA(l) of the Act. The Tribunal rejected
the 11ssessee's claim of exemption under the said notification. However,
it held that these items were not taxable under s. SA of the Act. It took
the view that the cashew shells had been used only as fuel in the kiln for
the manufacture of tiles and other goods and, hence, clause (a) of s.
H SA(l) of the Act was not satisfied, there being no consumption of the
248
DY. COMMR. OF S.T. (LAW)•. TIIOMAS STEPHEN 249
'r cashew shells in the manufacture of other goods or otherwise, that there A
was no disposal of lime shells or the consumed stores which were used
up for the maintenance of the factory and kiln and that there was also
no consumption of those goods in the manufacture of other goods for
sale or otherwise. The High Court upheld the decision of tile Trf:
bunal.
B
)., Dismissing the special leave petitions by the Revenue,

HELD: l. Goods used for ancillary purpose like fuel in the pro-
cess of manufacture, do not fall withins. SA(l)(a) of the Act. Consump-
) \ tion must be in the manufacture as raw-material or of other compo-
nents which go into the making of the end product, to come within the c
~ mischief of the section. Cashew shells do not tend to the making of the
end product. These .had been used as fuel in the kiln and did not get
transformed into the end product. These had not been used as raw-
material in the manufacture of the goods but only as aid in the man-
ufacture of goods by the assessee. Cashew shells, therefore, do not
D
attract levy of tax under the said section. The same is the position with
regard to the liine shells and consumed stores, which have been used
only in the maintenance of the kiln and the factory and not used in the
mannfacture of the end product. l252E-G]

2. Disposal means transfer of title in the goods to any other
E
person. The expression "dispose" means to transfer or alienate. Clause
(b) of section SA(l) requires that the goods in question should be trans-
ferred to some person othewise than by way of sale. In the instant case,
there was no evidence of transfer of cashew shells, the lime shells or the
consumed stores at all. These were used by the assessee himself as fuel
in the case of cashew shells for maintenance of kiln. Therefore, there F
was no disposal of the goods as known to law. SulH:lause (b) ofs. SA(l)
was, therefore,. not applicable. [253G·H; 254A-B]

CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) Nos. 8747-49 of 1987.

From the Judgment and Order dated 9.12.1986 of the Kerala G
), High Court in TRC Nos. 152 to 154 of 1986;

V .J. Francis for the Petitioner.

The Judgment of the Court was delivered by
H
250 SUPREME COURT REPORTS [1988] 3 S.C.R.

SABYASACHI MUKHARJI, J. This is a petition for leave to
A
appeal under Article 136 of the Constitution of India from the Judg·
ment and Order of the High Court of Kerala, dated December 9, 1986.
The High Court by the impugned judgment dismissed the revision
cases, which were brought at the instance of the revenue.

B
The assessee is a manufacturer and dealer in tiles, terra-<:0tta
wares and ceramic. It was assessed to tax under Section 5A of the
Kerala General Sales Tax Act, 1963, hereinafter called 'the Act' for
the assessment years 1974-75, 1975-76 and 1976-77 among other
things on the purchase turnover of cashew shells and consumed stores,
lime shells etc., purchased by the assessee-Company. These are in
c abundant supply in that area. These are used, as it appears from the
judgment of the High Court and from the facts found by the Tribunal,
as fuel in the kiln in the factory of the assessee for the manufacture of
tiles and others. It was sought to be assessed to tax. The assessee
contended that cashew shells were used by them as fuel for (emphasis
supplied) manufacturing products referred to above and, therefore, by
D virtue of notification S.R.0 ..732/73 the purchase turnover of cashew
shells were exempt from tax. In the alternative, it was contended by
the assessee that the purchases in question were not liable for levy of
tax since none of the conditions prescribed in clause (a), (b) or (c) ,of
Section 5A of the Act were satisfied.
E
The assessee had also purchased during the relevant years in
question, lime shell and certain stores described as consumed which
had been used in the maintenance of the kiln and the factory. These
purchases were also claimed as non-taxable in view of the conditions
prescribed in Clause (a), (b) or (c) of Section 5A of the Act, being not
F satisfied. The assessing authority and the First Appellate Authority
overruled the contentions of the assessee and brought these purchases
to tax under Section 5A ( 1) of the Act.

The relevant provisions of Section 5A(l) of the Act and Clauses
(a), (b) and (c) of the same are as follows:
G

"5-A. Levy of purchase tiix-(1) Every dealer who, in the }-
course of his business, purchases from a registered dealer
or from any other person any goods the sale or purchase of
which is liable to tax under this Act in circumstances in
H which no tax is payable under Section 5, and either-
DY. COMMR. OF S.T. (LAW) v. TIIOMAS STEPHEN (MUKHARJI, J.] 251

(a} consumes such goods in the manufacture of other A
goods for sale or otherwise; or

(b) disposes of such goods in any manner other than by
way of sale in the state; or

(c) despatches them to any place outside the State except B
. as a direct result of sale or purchase in the course of
inter-state trade or commerce,

shall, whatever be the quantum of the turnover relating to
such purchase for a year, pay tax on the taxable turnover
relating to such purchase for the year at the rates men- c
tioned in section 5."

In second appeal the Tribunal also did not accept this case of the
assessee regarding non-taxability of the purchase turnover of the
cashew shells under the said Notification. The Tribunal, however, held D
that the cashew shells had been used only as fuel in the kiln for the
manufacture of tiles and other goods and, hence, Clause (a) of Section
5A(l) of the Act, was not satisfied, there being no ciinsumption of the
cashew shells in the manufacture of other goods or otherwise. The .
Tribunal was of the opinion that these were used for the manufacture.
~ The Tribunal also held that there was no disposal of the lime shells or E
the consumed stores which were used up for the maintenance of the
factory and kiln and that there was also no consumption of those goods .
in the manufacture of other goods for sale or otherwise. In this view of
-the matter the Tribunal held that these Items were not taxable under
Section 5A of the Act.
) '- i .. , ,

F
The revenue being aggrieved went to the High Court: TJ.ie High
Court upheld the decision of the Tribunal and rejected the revenue's
contention. '
,,
The construction of Section 5A of the Act, came-up for consid- G
eration before this Court in Deputy Commissioner of Sales Tax (Law),
Board of Revenue (Taxes), Emakulam v. Pio Food Packers, [1980]
Vol. 46 STC 63. That was a case dealing with pineapples sliced for
being sold in sealed cans. It was held that there was no consumption of
the original pineapple fruit for the purpose of manufacture and the
case did not fall under Section 5A(l)(a) of the Act. It was further H
252 SUPREME COURT REPORTS [1988) 3 S.C.R.
A observed that although a degree of processing was involved in prepar-
ing pineapple slices from the original fruit, the commodity continued
to possess its original identity, notwithstanding the removal of inedible
portions, the slicing and thereafter canning it on adding sugar to pre-
serve it.

B On the construction of the section, this Court observed that sec-
tion 5A(l)(a) of the Act envisaged the consumption of a commodity in A
the manufacture pf another commodity (emphasis supplied). The goods
purchased should be consumed, the consumption should be in the
process of manufacture, and the result must be manufacture of other ).._
goods. Pathak, J. as the learned Chief Justice then was, at page 67 of
the report observed as follows:
c
"The learned counsel for the revenue contends that even if
no manufacturing process is involved, the case still falls
within section SA(l)(a) of the Kerala General Sales Tax
Act, because the statutory provision speaks not only of
D goods consumed in the manufacture of other goods for sale
but also goods consumed otherwise. There is a fallacy in
the submission. The clause, truly read, speaks of goods
consumed in the manufacture of other goods for sale or
goods consumed in the manufacture of other goods· for
purposes other than sale." }..
E
The cashew shells in the instant case, had been used as fuel in the
kiln. The cashew shells did not get transformed into the end product.
These have not been used as raw-materials in the manufacture of the
goods. These have been used only as an aid in the manufacture of the
goods by the assessee. Consumption must be in the manufacture as ~·
F raw-material or of other components which go into the making of the
end product to come within the mischief of the section. Cashew shells
do not tend to the making of the end product. Goods used for ancillary
purposes like fuel in the process of the manufacture, do not fall within
section 5A(l)(a) of the Act. Cashew shells, therefore, do not attract
levy of tax under the said section. The same is the position with regard
G to the lime shell and consumed stores, which have been used only in the
maintenance of the kiln and the factory and not used in the man-
ufacture of the end product. The revenue, therefore, was wrong in its /-·
contention on this aspect.

·support was sought to be obtained from certain observations of
H this Court in Ganesh Prasad Di.xii v. Commissioner of Sales Tax,
DY. COMMR. OFS.T. (LAW)v. THOMAS STEPHEN [MUKHARJJ,J.I 253
\. Madhya Pradesh, [1969] 3 SCR 490 at page 491 where this Court was A
dealing with the provisions of Madhya Pradesh General Sales Tax Act,
1959. There the expression used was 'either consumes such goods in
the manufacture of the goods for sale or otherwise'. At page 495 of the
report Shah, J. speaking for this Court observed as under:

B
"Mr. Chagla for the appellants urged that the expression
) _"or otherwise" is intended to denote a conjunctive intro-
ducing a specific alternative to the words for sale immedia-
tely preceding. The clause in which it occurs means, says
Mr. Chagla, that by s. 7 the price paid for buying goods
>-\
J
consumed in the manufacture of other goods, intended to
be sold or otherwise disposed of, alone is taxable. We do c
+ not think that that is a reasonable interpretation of the
expression "either consumes such goods in the manufac-
ture of other goods for sale or otherwise". It is intended by
the Legislature that consumption of goods renders the price
paid for their purchase taxable, if the goods are used in the
D
manufacture of other goods for sale or if the goods are
consumed otherwise."

These observations, in our opinion, have no relevance to the
. ...( present facts of the case. Further this very contention was negatived,
though without reference to Ganesh Prasad's case (supra) in the pas- E
sage set out hereinbefore in Deputy Commissioner of Sales Tax v. Pio
Food Products (supra). The expression consumption otherwise must in
the context mean consumption of other goods for purposes other than
sale.

·+--'' Another contention raised before the High Court' was that the ·.,
F
goods had been disposed of otherwise than by way of sale within the
State and, hence, liable to tax by virtue of section 5A(l)(b) of the Act.
The question, therefore, is whether there is any disposal of these
goods in any manner otherwise than by way of sale within the State.
Disposal means transfer of title in the goods to any other person. The
expression "dispose" means to trarisfer or alienate. It was formerly an G
essential word in any conveyance of land. See Jowitt "The Dictionary
~ of English Law" and also Webster Comprehensive Dictionary (Inter-
national Edn. )- Vol. l, page 368. Clause (b) of the section requires
that the goods in question should be transferred to some pe~son
otherwise than by way of sale. In this case, there was no evidence of
any transfer at all, therefore, there was no 'disposal' of the goods as H
254I
SUPREME COURT REPORTS [1988) 3 S.C.R.

A known to law. The High Court records that admittedly there was no
transfer of the cashew shells, the lime shells or the "consumed stores in
this case. These were used by the assessee himself as fuel in the case of
cashew.shells for the maintenance of kiln. Sub-clause {b) of section
5A(l) was, therefore, not applicable. In the background of the facts of
this case, the High Court, in our opinion, was right.
B

'
The petition for leave must fail and is rejected. A.
. P.S.S. Petitions dismissed.