Holding

Section 5A(1)(a) applies only to goods consumed in the manufacture of another commodity, and the materials used for road repair constitute such consumption, making them taxable.

Summary

The petitioners, a group of PWD contractors, purchased sand, bricks and other materials for repairing public roads under contracts with the Public Works Department. The Revenue assessed purchase tax on the turnover of these materials under Section 5A(1)(a) of the Kerala General Sales Tax Act, 1963, arguing that the goods were "consumed otherwise" even though no manufacturing process was involved. The Tribunal and the Kerala High Court held that the materials were consumed in the manufacture of another commodity – the repaired road – and therefore fell within the scope of Section 5A(1)(a). The Supreme Court examined the interpretation of "consumed otherwise" and relied on the earlier decision in Pio Food Packers, concluding that the clause requires consumption in the manufacture of another commodity. Consequently, the Court dismissed the Special Leave Petitions, upholding the High Court's decision that the purchase tax was payable.

Issues considered

Whether materials used by a PWD contractor for road repair are liable to purchase tax under Section 5A(1)(a) of the Kerala General Sales Tax Act, 1963.
Whether the expression "consumed otherwise" in Section 5A(1)(a) includes consumption without a manufacturing process.

Legislation cited

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

Subjects

purchase taxsales taxSection 5Aconsumptionmanufacturepublic works departmentroad repairKerala General Sales Tax Act

Judgment

DEPUTY COMMISSIONER OF SALES TAX (LAW)
A
•• V•

' N. KANNAN NAIR & ORS.

APRIL 8, 1988

[SABYASACHI MUKHARJI ANDS. RANGANATHAN, JJ.) B

, Kera/a General Sales Tax Act, 1963-Section 5A( l)(a)-P. W.D.

-
) contractor-Undertakes contract for repair of roads-Materials like
sand, bricks etc. used by assessee---,Whether assessable to purchase tax.

The respondent-assessee a P.W.D. contr.actor had undertaken
certain contract works on behalf of the Public Works Department for c
.repair of roads.

The assessee was assessed on the purchased turnover of sand,
bricks etc. which were used for the execution of the work. The assess·
ment was upheld by the Appellate As!iistant Commissioner. D

In the second appeal preferred by the assessee the Tribunal found
that it was necessary under s. SA of the Kerala General Sales Tax Act,
1963 to have consumption of the commodity in the manufacture of
1
""' ..t\ another commodity, the goods purchased should be consumed, the con-
sumption should be in the process of manufacture and the result must E
be the manufacture of other goods, and held that when a P. W.D. con-
tractor was using articles for constructing a sea wall or repairing public
roads there was consumption of a commodity for the manufacture of
another commodity and allowed the appeal.

'- } . . The High Court upheld the decision of the Tribunal and rejected
~
F
the revision preferred by the Revenue,

In the Special Leave Petitions to this Court, it was contended on
•J · behalf of the Petitioner-Revenue, that if no manufacturing process was
involved, the case would fall within the scope.of s. SA(I)(a) of the Act
because the statutory provisions spoke not only of goods consumed in G
the manufacture of other goods for sale but also goods 'consumed
otherwise'.

Dismissing the Special Leave Petitions.

HELD: Section · S·A (I)(a) speaks of goods consumed in the H
. 489
490 SUPREME COURT REPORTS I1988] 3 S.C.R.
manufacture of other goods for purposes other than sale. [493F]
A
In the instant case, the user must be in the other commodity and
the expression 'consumed otherwise' must be so construed. When a
P.W.D. contractor is using articles for constructing or repairing a
public road there was consumption of a commodity for the manufacture
B of another commodity. [493F]

Deputy Commissioner, Sales Tax (Law) Board of Revenue
(Taxes) Ernakulam v. Pio Food Packers, [1980] 3 S.C.R. 1271; Ganesh
Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh, [19691 3
S.C.R. 490 and Deputy Commissioner of Sales Tax (Law), Board of
-
Revenue (Taxes), Ernakulam v. Thomas Stephen & Ors. Ltd., SLP(C)
c Nos. 8747-49/1987, referred to.

CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) No. 2867 of 1988 etc.

D From the Judgment and Order dated 1. 7 .1987 of the Kerala High
Court in T.R.C. No. 33of1985.

V.J. Francis for the Petitioner.

The Judgment of the Court was delivered by
E
SABY ASA CHI MUKHARJI, J. These are petitions for leave to
appeal under Article 136 of the Constitution from the decision of the
High Court of Kerala. The revenue is the petitioner before the High
Court. The respondent is the assessee. The respondent is a P.W.D.
contractor. He had undertaken certain contract works on behalf of the
F Public. Works Department. He had executed agreements with the
P.W.D. for repair of roads. The question involved is, whether the
materials used by the assessee for the said purpose can be taxed under
purchase tax under Section 5A of the Kerala General Sales Tax Act,
1963 (hereinafter called 'the Act'). The relevant provisions of Section {
5A(l), (a), (b), (c), (2) and (3) of the Act are as follows: •
G
•· · "5A. Levy of purchase tax: (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 which no tax is payable under section 5,
H and either: ·' .,

t.r
DY. COMMR. SALES TAX v. N.K. NAIR [MUKHARJI, J.] 491

(a) consumes such goods in the manufacture of other foods A
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 that
year at the rates mentioned in section 5.

{2) Notwithstanding anything contained in sub-
c
section (1), a dealer (other than a casual trader or agent of
a non-resident dealer) purchasing goods, the sale of which
is liable to tax under section. 5, shall not be liable to pay tax
under section (1) if his total turnover for a year is less than
(twenty thousand rupees); D

Provided that where the total turnover of such dealer for
the year in respect of the goods mentioned in clause (i) of
sub-section (I) of section 5 is not less than two thousand
five hundred rupees, he shall be liable to pay tax on the
taxable turnover in respect of these goods. E

{3) Notwithstanding anything contained in the fore-
~ going provisions of this section, a dealer referred to in sub-
section {I), who purchases goods, the sale of which is liable
•I'{
\
to tax under clause (ii) of sub-section (I) of Section 5, and
whose total turnover for a year is not less than (twenty F
thousand rupees) but not more than twenty-five thousand
rupees may, at his option instead of paying the tax in
accordance with the provisions of sub-section (I), pay tax
(at the rate) mentioned in clause (i) of sub-section (I) of
section 7 in accordance · with the provisions of that
section." G

The assessee was assessed on the purchase turnover of sand,
bricks, etc. which were used for the execution of liis work. The assess-
ment was upheld by the Appellate Assistant Commissioner. In the
second appeal preferred by the assessee, the Tribunal found that the
assessee was a P.W.D. Contractor. He had obtained an amount of H
492 SUPREME COURT REPORTS [1988] 3 S.C.R.

Rs.1,01,372 as per bills from the Executive Engineer (Roads and
A
Buildings). According to the assessing officer an amount of
Rs.27684.13 was the purchase value of articles used by the assessee for
the execution of these contracts and so the assessing officer had asses-
sed this turnover to tax under Section 5A of the Act. The Tribunal
found that it was necessary under the said Section 5A of the Act to have
B consumption of the commodity in the manufacture of another com-
modity, the goods purchased should be consumed, the consumption
should be in the process of manufacture and the result must be the
manufacture of other goods. Therefore, according to the Tribunal,
when a P.W.D. Contractor was using some articles for constructing a
Sea Wall or repairing a public road, there was consumption of a com-
c modity for the manufacture of another commodity. This conclusion
logically follows from the observations and ratio of this Court in
Deputy Commissioner, Sales Tax (Law) Board of Revenue (Taxes)
-+-
Ernakulam v. Pio Food Packers, [1980] 3 S.C.R. 1271, where Pathak,
J. as the learned Chief Justice then was held that when pineapple fruit
is processed . into pineapple slices for the purpose of being sold in
D sealed cans, there is no consumption of the original pineapple fruit for
the purpose of manufacture within the meaning of section 5A(l)(a) of
the Kerala General Sales Tax Act, 1963. He further observed at pages
1276 and 1277 of the report as follows:

"Although a degree of processing is involved in preparing
E pineapple slices from the original fruit, the commodity con-
tinues to possess its original identity, notwithstanding the
removal of inedible portions, the slicing and thereafter can-
ning it on adding sugar to preserve it. It is contended for
the Revenue that pineapple slices have a higher price in the
market than the original fruit and that implies that the
F slices constitute a different commercial commodity. The
higher price, it seems to us, is occasioned only because of
the labour put into making the fruit more readily consum-
able .and because of the can employed to contain it. It is not
as if the highe~ price is claimed because it is a different
commercial ccimmodity. It is said that pineapple slices
G appeal to a different sector of the trade and that when a
customer asks for a can of pineapple slices he has in mind
something very different from fresh pineapple fruit. Here
again, the distinction in the mind of the consumer arises
not from any difference in the essential identity of the two,
but is derived from the mere form in which the fruit is
H desired.
DY. COMMR. SALES TAX v. N.K. NAIR [MUKHARJI, J.[ 493

·Learned counsel for the Revenue contends that even A
.if no manufacturing process is involved, the case still falls
within section 5A(l)(a) of the Kerala General Sales Tax
Act, because the statutory provision speaks not only of
goods consumed in the manufacture of other goodsJor sale
but also goods consumed otherwise. There is a fallacy in
B
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."

The Tribunal accepted the assessee's contentions and allowed
the appeal. The High Court upheld the decision of the Tribunal and c
rejected the revision. Hence this petition for leave to appeal. We are
unable to see any ground for interference. The position is clear from
the decision of this Court in Pio Food Packers (supra). It was con-
tended before us that if no manufacturing pro~ess was involved, the
case would fall within the scope of Section 5-A(l)(a) of the Act be-
cause the statutory provisions spoke not only of goods consumed in the D·
manufacture of other goods for sale but also goods 'consumed other-
wise'.

Reliance for that was placed on the decision of this Court in
Ganesh Prasad Dixit v. Commissioner of Sales Tax, Madhya Pradesh,
(1969] 3 S.C.R. 490. It 1 is, however, not possible to accept this E
contention .

.. 1n the decision of Pio Food Packers (supra), it was observed that
the clause, truly read, spoke of goods consumed in the manufacture of
' I other goods for purposes other than sale. In the instant case, the user
~- must be iri the other commodity and the expression "consumed F
otherwise'' must be so construed. This contention·was specifically con-
sidered by this Court in S.L.P. (Civil) Nos. 8747-49 of 1987-Deputy
Commissioner of Sales Tax (Law), Board of Revenue (Taxes),
Ernakulam, judgment delivered on 14th March, 1988c

In the aforesaid view of ·the matter, there is no ground to G
interfere with the order of the High Court. The Special Leave Peti-
tions fail and are accordingly dismissed.

N.V.K. Petitions dismissed.