HINDUSTAN LEVER LTD.versusSTATE OF KARNATAKA

                            [2016] 4 S.C.R. 250



A                       HINDUSTAN LEVER LTD.
                                     v.
                         STATE OF KARNATAKA
                       (Civil Appeal No.4003 of2007)
B                          SEPTEMBER 02, 2016
                (A. K. SIKRI AND R. F. NARIMAN, JJ.]
           Karnataka Tax on Entry of Goods Act.1979- Schedule l,Ent,.Y
    66, 80 - Classification - Exemption - Packing materials for tea
    whether can said to be raw material, components, or inputs used in
c   the manufacture of tea - Claim by appellant-assessee, a tea
    manufacturing unit at Dharwad, for exemption from payment of
    entry tax on packing material of tea Jinder notification dated
    31.3.1993-Held: Packing materials separately defined in Entry 66
    and raw materials, component parts and inputs, used in the
D   manufacture of an intermediate or finished product separately
    defined in Entry 80 - When raw materials, component parts and
    inputs are spoken of obviously they refer to materials, components
    and things which go into the finished product, namely, tea in the
    present case, and cannot be extended to cover packing materials
    of tea which is separately provided for by Entry 66 -Assesseenot
E
    entitled from exemption from Entry tax - Notification dated 31. 3.1993
    issued u/s.JJA - Notification dated 23.9.1998 issued uls.3.
           Dismissing the appeal, the Court
           HELD: 1. When raw materials, component parts and inputs
    are spoken of, obviously they refer to materials, components and
F   things which go into the finished product, namely, tea in the
    present case, and cannot be extended to cover packing materials
    of the said tea which is separately provided for by the said Entry
    66. [Para 9] (261-B-C]
          2. The notification dated 23.9.1998 issued under Section 3
G   uses identical language as that contained in Entries 66 and 80 of
    Schedule I to the Entry Tax Act. Equally, notification dated
    31.3.1993 is an exemption notification issued under Section llA
    which also uses the identical language of Entry 80 of Schedule I.
    This being the case, it is clear that neither notification can be
H   read to include "packing material" as "raw materials, component
                                     250
     HINDUSTAN LEVER LTD. v. STATE OF KARNATAKA                         251



parts or inputs used in the manufacture" of tea. [Para 10][261-C-        A
D)
      Escorts Limited v. CCE (2015) 9 SCC 109: 2015 (5)
       SCR 241; Nestle India Ltd. v. State of Karnataka
      decided on 22.3.2006 by Karnataka High Court -
      referred to.                                                       B
      Government ofAndhra Pradesh v. Guntur Tobaccos Ltd.
      15 STC 240; Brooke Bond Lipton India Ltd. v. State of
      Karnataka 109 STC 265;Tata Engineering &
      Locomotive Co. Ltd. (TELCO) v. State of Bihar (1994) 6
      SCC 479: 1994 (4) Suppl. SCR 410; J.K. Cotton
      Spinning & Weaving Mills Co. Ltd. v. S.T.O. (1965) 1
                                                                         c
      SCR 900:Mls. Star Paper Mills Ltd. v. CCE,
      Meerut(l989) 4 SCC 724: 1989 (3) SCR 892; CCE
      v. Mis. Eastend Paper Industries Ltd. (1989) 4 SCC
      244: 1989 (3) SCR 1017; CCE v. Ballmpur Industries
      Limited (1989) 4 SCC 566: 1989 (1) Suppl.                          D
       SCR341;H.MM Ltd. v. CCE (1994) 6 sec 594: 1994
      (4) Suppl. SCR 13 ; Mis. J.K. Cotton Spinning &
      Weaving Mills Co. Ltd. v. Sales Tax Officer, Kanpur
      (1965) 1 SCR 900 - distinguished.
                       Case Law Reference                                E
2015 (5) SCR 241               referred to             Paras
15 STC 240                     distinguished           Para 15
109 STC 265                    distinguished           Para 16
1994 (4) Suppl. SCR 410        distinguished           Para 17
1965 (1) SCR 900               distinguished           Para 17           F
1989 (3) SCR 892               distinguished           Para 18
1989 (3) SCR 1017              distinguished           Para 19
1989 (1) Suppl. SCR 341        distinguished           Para 19
1994 (4) Suppl. SCR 13         distinguished           Para 19
1965 (1) SCR 900               distinguished           Para 20           G
~    CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4003
of2007.
       From the Judgment and Order dated 23.11.2006 of the High Court
ofKamataka in Civil Revision Petition No. 1207 of2004, Civil Revision
Petition No. 1208 of2004 and Civil Revision Petition No. 1209 of2004.    H
252                 SUPREME COURT REPORTS                      [2016] 4 S.C.R.



A           K?vin Gulati, Sr. Adv., R. N. Karanjawala, Ms. Ruby Singh Ahuja,
       Ms. Suman· Yadav, Harsh Trivedi, Ms. Eesha Mohapatra, Mrs. Manik
       Karanjawala, Advs. for the Appellant.
                '
             Basavaprabhu S. Patil, Sr. Adv., V. N. Raghupathy, Anirudh
       Sanganeria, Amjid Maqbool, Parikshit P. Angadi, Chinnay Deshpande,
B      Advs. for the Respondent.
             The Judgment of the Court was delivered by
               R. F. NARIMAN, J. I. The appellant is a public limited
       company having a tea manufacturing unit at Dharwad and various other
       units which also manufacture tea. The tea manufactured by the appellant
       Is of three types, namely, packet tea, tea in tea bags, and quick brewing
c      black tea. It is claimed that the Dharwad Unit, as opposed to the other
       units manufacturing tea, is a new unit and is, therefore, exempt altogether
       from payment of entry tax on packing material of tea under a notification
       dated 31.3 .1993 issued under Section I I A of the Karnataka Tax on Entry
       of Goods Act, 1979 (hereinafter referred to as the "Karnataka Entry
D      Tax Act"). Insofar as the other units are concerned, it is the case of the
       appellant they are covered by Explanation II to a Notification dated
       23 .9 .1998 issued under Section 3 of the said Act, and "packing material"
       being covered by the said Explanation would entitle them to pay entry
       tax at the rate of I% and not 2%. In these appeals, we are concerned
 E     with three assessment years I 994- I 995, I 995- I 996 and I 996- I 997.
               2. The question that arises for decision in this appeal is whether
       "packing materials" which enter the local area for consumption therein,
       that is for packing tea that is manufactured by the appellant, can be said
       to be raw material, components, or inputs used in the manufacture of
       tea. In order to answer this question, it is necessary to first set out the
 F
       relevant provisions of the Karnataka Entry Tax Act. They are as follows:
              "2. Definitions.- (A) In this Act, unless the context otherwise
              requires,-
              (4a) goods means all kinds of moveable property (other than
 G .          newspapers, actionable claims, stocks and shares and securities)
              and includes livestock;                                       ~

              (7) "Schedule" means a schedule appended to this Act;
              (8) "tax" means tax leviable under this Act;
              (Sa) 'Value of the goods' shall mean the purchase value of such
H
HINDUSTAN LEVER LTD. v. STATE OF KARNATAKA                                253
             [R. F. NARIMAN, J.]

 goods that is to say, the purchase price at which a dealer has           A
 purchased the goods inclusive of charges borne by him as cost of
 transportation, packing, forwarding and handling charges,
 commission, insurance, taxes, duties and the like, or if such goods
 have not been purchased by him, the prevailing market price of
 such goods in the local area.
                                                                           B
 (B) Words and expressions used in this Act, but not defined,
 shall have the meaning assigned to them in the Karnataka Sales
 Tax Act, 1957 (Karnataka Act 25 of 1957 .)
 3. Levy of tax.- (I) There shall be levied and collected a tax on
 entry of any goods specified in the FIRST SCHEDULE into a                 c
 local area for consumption, use or sale therein, at such rates not
 exceeding five percent of the value of the goods as may be
 specified retrospectively or prospectively by the State Government
 by notification and different dates and different rates may be
 specified in respect of different goods or different classes of goods
 or different local areas.                                                 D

 11 A. Power of State Government to exempt or reduce tax.-
 ( 1) The State Government may, if in its opinion it is necessary in
 public interest so to do, by notification and subject to such
 restrictions and conditions and for such period as may be specified       E
 in the notification, exempt or reduce either prospectively or
 retrospectively the tax payable under this Act,-
   (i) by any specified class of persons or class of dealers or in
 respect of any goods or class of goods; or
   (ii) on entry ofall orany goods or class of goods into any specified    F
 local area.
 (2) The State Government may, by notification cancel or vary any
 notification issued under sub-section (I).
 (3) Where any restriction or condition specified under sub-section
 ( 1) is contravened or is not observed by a dealer or a declaration       G
 furnished under the said sub-section is found to be wrong, then
 such dealer shall be liable to pay by way of penalty an amount
 equal to twice the difference between the tax payable at the rates
 specified by or under the Act and the tax paid at the rates specified
 under the notification on the value of such goods in respect of           H
254              SUPREME COURT REPORTS                         [2016] 4 S.C.R.



A           which such contravention or non-observance has taken place or
            a wrong declaration is furnished:
            Provided that before taking action under the sub-section the dealer
            shall be given a reasonable opportunity of being heard.
                                     FIRST SCHEDULE
B           (See Section 3 (I))
             66. Packing materials namely:-
            (i) fibre board cases, paper boxes, folding cartons, paper bags,
             carrier bags and card board boxes, corrugated board boxes and
            the like.
             (ii) tin plate containers (cans, tins and boxes) tin sheets, aluminium
c            foil, aluminium tubes, collapsible tubes, aluminium or steel drums,
             barrels and crates and the like ;
             (iii) plastic, poly-vinyl chloride and polyethylene films bottles,
             pots, jars, boxes, crates, cans, carboys, drums, bags and cushion
             materials and the Iike ;
D            (iv) wooden boxes, crates, casks and containers and the like;
             (v) gunny bags, bardan (including batars), hessian cloth, and the
             like;
             (vi) glass bottles, jars and carboys and the like ;
             (vii) laminated pacing materials such as bitumanised paper and
             hessian based paper and the like;
 E           80. Raw materials component parts and inputs which are used in
             the manufacture of an intermediate or finished product."
             3. Under Section 11 A of the Act, a Notification dated 31.3 .1993,
      exempting raw materials, component parts, and inputs entering a local
      area for use in the manufacture of an intermediate or finished product,
 F    was promulgated. It reads as under:
             "Entry tax on raw materials, etc. for use in manufacture of goods
             by new industrial units - Exemption (Karnataka)
             Notification III No.FD.11.CET 93 dated the 31"
             March,1993
             [Public in Karnataka Gazette, Extraordinary No. 20 I, Part 4~C(ii)
 G           dated 31" March, 1993]
             In exercise of the powers conferred by section 11-A of the
             Karnataka Tax on Entry of Goods Act, 1979 the Government of
             Karnataka being of the opinion that it is necessary in the public
             interest so to do, hereby exempts with effect from the first day of
             April, 1993 the tax payable under the said act, on the entry ofraw
 H
     HINDUSTAN LEVER LTD. v. STATE OF KARNATAKA                             255
                  [R. F. NARIM~N, J.]

      materials, component parts and inputs and machinery and its parts     A
      into a local area for use in the manufacture of an intermediate or
      finished product by the new industrial units mentioned in column
      (2) of the Table below located in the zones specified in column
      (3) and for the period mentioned in Column (4) thereof.
                                     TABLE
                                                                             B
s.    Type of               Location of         Period of exemption
No    Industry              Ind ustr~
 I           2                       3                       4

I.    Tiny /Small/medi      Situated in Zone-   4 years from the date of
      um and large          Ill specified in    commencement of
      scale ind us trial
      units
                            annexure-1 to
                            Government
                                                commercial production or
                                                4 years from the date of
                                                                             c
                            Order No. Cl/138    commencement of this
                            SPC/90, dated       notification whichever is
                            27.9.1990           later.
2.    Tiny/small/medi       Situated in Zone-   5 years from the date of
      um and large          IV specified in     commencement of
      scale industrial      annexure I to       commercial production or     D
      units                 Government          5 years from the date of
                            Order No.           commencement of this
                            Cl/138/SPC/90,      notification whichever is
                            dated 27.9.1990     later.
3.    Tiny/small scale/     Situated in Zone-   5 years from the date of
      Medium and            Ill specified in    commencement of
      large scale           annex ure I to      commercial production        E
      industrial units in   Government                   OR
      the thrust sector     Order No.           5 years from the date of
      as defined in         Cl/138/SPC/90,      commencement of this
      annexure-ll to        dated 27.9.1990     notification whichever is
      G.O.No.                                   later.
      Cl.138/SPC/90.
      dated 27.9.1990                                                        F
4.    Tiny/small scale/     Situated in Zone-   6 years from the date of
      Medium and            IV specified in     commencement of
      large scale           annexure-1 to       commercial production,
      industrial units in   Government                   OR
      the thrust sec tor    Order No.           6 yc·ars from the date of
      as defined in         CI/138/SPC/90,      commencement of this
      Annexure ll to        dated 27.9.1990     notification whichever is    G
      G.O.No.                                   later.
      C!.138/SPC/90,
      dated 27.9.1990
      Explanation - (I) For the purpose of this notification "a new
      industrial unit" shall have the same meaning assigned to it in
      Notification No. FD 239 CSL 90(1) dated I 9 1h June, 1991, issued
                                                                             H
256                SUPREME COURT REPORTS                       (2016] 4 S.C.R.



A           under Section 8-A of the Karnataka Sales Tax Act, 1957.
            (2) The provisions of the notification shall not apply to a unit to
            which the provisions ofNotification No. FD 239 CSL 90(1) dated
            l 9'h June, 1991 issued under Section 8-A of the Karnataka Salex
            Tax Act, 1957 shall not apply.
B              (3) The procedure specified in Notification No. FD 239 CSL
               90(1), dated 19'h June, 1991 issued under Section 8-A of the
               Karnataka Sales Tax Act, 1957 for claiming exemption under that
               notification shall mutates mutandis apply to a industrial unit
               claiming exemption under this notification."
             4. By a notification dated 31.3 .1994, various goods which entered
c     a local area were charged at different rates of entry tax. This notification
      was struck down by the High Court as violating Article 30 I of the
      Constitution, and hence, the State Government came out with notification
      dated 23.9.1998 to cure the defects pointed out by the High Court, and
      was for the period dated 1.4.1994 to 6.1.1998. The aforesaid notification
D     reads as follows:
      "SI No. I 04
            No. FD 112 CET 98, Bangalore, dated 23rd September, 1998
              In exercise of the powers conferred by sub-section ( 1) of
      Section 3 of the Karnataka Tax on Entry of Goods Act, 1979
      (Karnataka Act 27 of 1979), the Government of Kamataka, hereby
      specify that with effect from the First day of April, 1994 and upto 61h
      day of January, 1998, tax shall be levied and collected under the said Act
      on the entry of goods specified in column (2) of the table below into a
      local area from any place outside the State of consumption or use therein,
 F    at the rates specified in the corresponding entries in column; (3), thereof:-

                                        TABLE

               SI. No.      Commodity                       Rate of tax

                                 2                               3
G
           3                Packing material namely:             2%

                            (i) Fibre board cases, paper
                            boxes, Folding cartons,
                            paper bags, carrier bags and
                            card board boxes, corrugated
                            board boxes and the like;
    HINDUSTAN LEVER LTD. v. STATE OF KARNATAKA                                 257
                 [R. F. NARIMAN, J.]


     (ii)         Tin plate containers (cans, tins and boxes). tin      2%      A
                  sheets, aluminium foil, aluminium tubes,
                  collapsible tubes, aluminium or steel drums,
                  barrels and crates and the like:

     (iii)        Plastic, polyvinyl chloride and polyethylene firms,   2%
                  bottles, pots, jars, boxes. crates, cans, carboys,
                  drums, bags and cushion materials and the like;               B

     (iv)         Wooden boxes, crates. casks and containers and        2%
                  the like;

      (v)         Gunny bags, bardan (including batars) hessian         2%
                  cloth and the like:

      (vi)        Glass bottles, jars and carboys and the like;         2%
                                                                                c
      (vii)       Laminated packing materials, such as bluminised       2%
                  paper and hessian-based paper and the like;

      4.          Raw materials, component parts and inputs are         1%
                  used in the manufacture of an intermediate of
                  finished product.                                             D

      Explanation I - The words "raw materials, component parts and
      any other inputs" do not include exempted goods which are
      specified in the Schedule, horticultural produce, cereals, pulses,
      oil seeds including copra and cotton seeds, timber or wood of any         E
      species, newsprint, silk cocoons, raw, thrown or twisted silk, tobacco
      (whether raw or cured) and blended yarn, man-made filament
      yarn, man-made fibre yarn, man-made fibre, woolen yarn and
      woolen blended yarn, washed cotton seed oil, non-refined.edible
      oil, rice bran and oil cake and such other goods as may be notified
                                                                                F
      by the State Government from time to time.
      Explanation II - If any of the goods liable to tax under this Act
      are brought into a local area for use or consumption as raw
      materials, component parts and inputs in the manufacture of an
      intermediate or finished product, the tax payable on such goods
      shall be at the rate of one percent."                                     G

      5. All the authorities under the Entry Tax Act i.e. the Assessing
Authority, the First Appellate Authority and the Karnataka Appellate
Tribunal have held that packing material cannot be regarded as raw
material, component parts or inputs used in the manufacture of finished
                                                                                H
258              SUPREME COURT REPORTS                          (2016] 4 S.C.R.



A     goods and, therefore, in the context of the Entry Tax Act read with
      Schedule I, such packing material is neither exempt nor chargeable at
      the rate of I% on a true construction of the aforesaid notifications of
      1993 and 1998. The High Court in tum has dismissed the revision petitions
      filed under the statute by the assessee following thei~ own judgment in
      Nestle India Ltd. v. State of Karnataka, a Division Bench judgment
B
      of the Karnataka High Court dated 22.3.2006. This is how the appellants
      have come before us in the present civil appeals.
              6. Shri Arvind Datar and Shri Kavin Gulati, learned senior
       advocates, strenuously argued before us that the judgment in the Nestle
       case, which was followed in the instant case, was incorrect inasmuch
c      as according to them "packing material" is clearly an "input", if not a
       component part of manufactured tea, and would, therefore, qualify for
       exemption and/or lesser rate of tax as the case may be. They also
       argued that Explanation II to the Notification of 23.9.1998 made the
       position clear that even though packing material may be covered under
D      item 3 of the said Notification, yet, as it is an input in the manufacture of
       the finished product tea, it would be covered by Explanation II, and
       therefore would be taxable at the rate of I% and not 2%. They further
       argued that words and expressions that are not defined under the Entry
       Tax Act but which are defined in the Karnataka Sa\es Tax Act, 1957
       would have to be borrowed forthe purpose of the Entry Tax Act. In this
 E     regard, in particular, they relied upon Section SA of the Karnataka Sales
       Tax Act, and in particular Explanation I to the aforesaid Section which
       defined "industrial inputs" as meaning either a "component part" or "raw
       material" or "packing materials", and argued that packing material has
       been recognized as an input under the Karnataka Sales Tax Act, and
 F      should be so recognized under the Entry Tax Act read with the two
       notifications aforesaid. They also cited a large number of judgments of
       this Court and of the High Court to buttress their submission that packing
      . material would certainly come within the expression "input" and would
       therefore be covered by the aforesaid two notifications.

 G          Shri Kavin Gulati also specifically pointed out the Tea Marketing
      Control Order, 2003 made under Section 30 of the Tea Act, 1953 in
      which, "manufacturer" has been defined as a person who also produces
      value added products commercially known as tea, that is packet tea, tea
      box, etc., and therefore went on to argue that it is obvious that packing
      material used to market tea would necessarily be included.
H
    HINDUSTAN LEVER LTD. v. STATE OF KARNATAKA                                259
                 [R. F. NARlMAN, J.]

       7. Shri Patil, learned senior advocate appearing on behalf of the      A
State of Karnataka, countered these submissions, and stated that the
High Court was absolutely correct in interpreting the Entry Tax Act and
the two notifications in the mannerthat it did in Nestle case. He argued
that the context of the Entry Tax Act is most important and that decisions
relatable to the Central Excise Act and to Sales Tax statutes wou Id not
                                                                               B
therefore apply. His primary argument was that Schedule I of the
Entry Tax Act itself made a clear distinction between packing materials,
on the one hand, and raw materials, component parts and inputs, on the
other, the Schedule making it clear that they were distinct and separate
goods. He further adverted to the definition of the expression "goods"
contained in the Entry Tax Act and argued that unlike in the Central          c
Excise Act and in Sales Tax statutes, goods need not be marketable, the
definition confining goods to "movable property" without more. He also
argued that adverting to Section SA of the Karnataka Sales Tax Act
would be of no help in the facts of the present case inasmuch as we are
not concerned with "industrial inputs" but inputs as understood by the
                                                                              D
Entry Tax Act read with Schedule I. According to him all the judgments
cited by the appellants were distinguishable in that none of them pertain
to any entry tax statute but were all under the Central Excise Act or
Sales Tax statutes.
       8. Having heard learned counsel for the parties, it is important to
go back to a few fundamentals. As has been explained in Escorts                E
Limited v. CCE, (2015) 9 SCC I 09, the definition of"manufacture" in
the Central Excise Act is dependent upon the definition of"goods" defined
by the Constitution in Article 366(12). This Court has therefore held:-
      "lt is clear on a reading of this Entry that a duty of excise is only
      leviable on ·'goods" manufactured or produced in India. "Goods"          F
      has been defined under Article 366(12) as follows:
      "366.Definitions.-ln this Constitution, unless the context
      otherwise requires, the following expressions have the meanings
      hereby respectively assigned to them, that is to say-
                                      ***                                      G
      ( 12) 'goods' includes all materials, commodities and a11icles;"
      Each of these three expressions has been defined in Shorter
      Oxford English Dictionary as follows:
      "Materials".-the matter of which a thing is or may be made;
                                                                              H
260             SUPREME COURT REPORTS                         [2016] 4 S.C.R.



A           the constituent parts of something.
            "Commodities".-a thing of use or value; a thing that is an object
            of trade; a thing one deals in or makes use of.
            "Articles".-a particular item of business.
            Although the definition of"goods" is an inclusive one, it is clear
B           that materials, commodities and articles spoken of in the definition
            take colour from one another. In order to be "goods" it is clear
            that they should be known to the market as materials, commodities
            and articles that are capable of being sold.
            In the basic judgment which has been referred to in every excise
c           case for conceptual clarity, namely, Union ofIndia v. Delhi Cloth
            & General Mills Co. Ltd. [( 1977) I ELT 199 : AIR 1963 SC 791
            : 1963 Supp (I) SCR 586] , this Court held that for excise duty to
            be chargeable under the constitutional entry read with Section 3
            of the Central Excise and Salt Act, two prerequisites are necessary.
            First, there must be "manufacture" which is understood to mean
D           the bringing into existence of a new substance. And secondly, the
            word "goods" necessarily means that such manufacture must bring
            into existence a new substance known to the market as such
            which brings in the concept of marketability in addition to
            manufacture .... " [paras 8-11]
 E           9. However, on a perusal of the definition of"goods" in Section
      2(A)(4a) of the Entry Tax Act, the said definition is an exhaustive one
      including all kinds of movable property and livestock. It is obvious from
      a reading of this definition that marketability does not appear to be a
      sine qua non for something to qualify as "goods" under the Entry Tax
      Act, unlike the Central Excise Act, and this basic fact will have to be
 F
      kept in view while dealing with some of the judgments that have been
      cited before us. This is for the reason that anything that is tangible,
      without more, and enters a local area for consumption, sale or use therein
      is taxable, the taxable event being 'entry' and not 'manufacture' of goods,
      which, as has been noticed hereinabove, brings in the concept of
 G    marketability in the context of a duty of excise, which is absent in the
      context of entry tax. We might also add that Section 2(A)(8a) wherein
      the "value of the goods" is defined, also makes a distinction between
      "goods" as such, and "packing material", making it clear that charges
      borne by a dealer as cost of packing would have to be included in the
      "value of goods". In the context of the Entry Tax Act, the difference
 H
    HINDUSTAN LEVER LTD. v. STATE OF KARNATAKA                                  261
                 [R. F. NARIMAN, J.]

between 'goods' used in the manufacture of goods and "packing material"          A
is also brought out by Schedule I. Packing materials are separately
defined in Entry 66. On the other hand, raw materials, component parts
and inputs, which are used in the manufacture of an intermediate or
finished product, are separately and distinctively given in Entry 80 thereof.
The context of the Entry Tax Act therefore is clear. When raw materials,
                                                                                 8
component parts and inputs are spoken of, obviously they refer to
materials, components and things which go into the finished product,
namely, tea in the present case, and cannot be extended to cover packing
materials of the said tea which is separately provided for by the aforesaid
Entry66.
       I 0. The notification dated 23.9.1998 issued under Section 3 uses
                                                                                 c
identical language as that contained in Entries 66 and 80 of Schedule I to
the Entry Tax Act. Equally, notification dated 3 1.3 .1993 is an exemption
notification issued under Section 11 A which also uses the identical
language of Entry 80 of Schedule I. This being the case, it is clear that
neither notification can be read to include "packing material" as "raw           D
materials, component parts or inputs used in the manufacture" of tea.
      11. This brings us to an argument made by learned counsel for the
appellants on the correct construction of Explanation II to the notification
dated 23.9.1998.
       12. What has first to be seen is that packing material, and raw           E
materials, component parts and inputs are separately provided for under
the Schedule to the Act. The same is also true of the aforesaid
Notification. Packing material is contained in Entry 3 of the table whereas
raw materials, component parts and ·inputs are contained in Entry 4.
The rate at which they are taxed is also different- packing materials at         F
2%, whereas raw materials, components parts and inputs are taxed at
1%. This being so, the reason for inclusion of Explanation II appears to
be that goods which are liable to tax, being finished goods in themselves,
may yet be brought into a local area for use or consumption as raw
material, component paits and inputs in the manufacture of an intermediate
or finished product. It is only such goods that are liable to be taxed at        G
the rate of I%. It is difficult to accept the argument on behalf of the
appellants that Explanation II makes it clear that though packing materials
may be liable to tax at 2%, yet if they fall in Explanation II, they would
be liable to tax at the rate of I%. This would fly in the face of the
scheme of Schedule I of the statute which, as has been held earlier,             H
262              SUPREME COURT REPORTS                           [2016) 4 S.C.R.



A     makes it clear that in no case can packing materials be said to be raw
      materials, component pa1ts or inputs used in the manufacture of finished
      goods. For this reason alone we find it difficult to construe the notification
      dated 23.9.1998 in the manner suggested by the appellants.
             13. Even otherwise, there is no such Explanation II contained in
B     the exemption notification dated 31.3.1993. This being the case, if we
      were to accept the case of the appellants, they would be liable to tax at
      the rate of I% under the 1998 notification but would not be exempt
      under the 1993 notification, thus rendering the same packing material
      liable to tax at the rate of2% in the case of the Dharwad unit and I% in
      the case of all other units. Th is would lead to an anomalous situation
c     which can best be avoided by not accepting the argument on behalf of
      the appellants.
            14. Equally, the argument based on Section SA of the Karnataka
      Sales Tax Act is fallacious in that it is only for the purpose of"industrial
      inputs" that packing materials are included, and forms a separate scheme
D     of taxation under the Sales Tax statute. We cannot accede to the
      argument that de hors the context of the Entry Tax Act, we should
      accept that industrial inputs include packing materials and that therefore,
      by parity of reasoning, "inputs" under the Entry Tax Act should also
      include packing material. This argument has therefore correctly been
 E    turned down by the High Cou1t of Karnataka in the Nestle case.
             15. We have riow to deal with the judgments cited on behalf of the
      ~ppellants. In Government of Andhra Pradesh v. Guntur Tobaccos
      Ltd., [ 15 STC 240), this Court had to decide as to whether the use of
      packing material should be regarded as execution of a works contract
 F    and not as a sale. This Court held on the facts in that case that packing
      material was part of the process of re-drying tobacco as it was necessary
      to pack it in a waterproof material to protect it from heat and humidity,
      so as to store tobacco for a sufficiently long period to avoid fermentation,
      and to make the tobacco mature for use in cigarettes, cigars, etc. The
      context of the judgment is entirely different from the facts contained in
 G    the present case and would thus have no relevance. Learned counsel
      for the appellants tried to draw succour from th is judgment stating that
      the idea of packing tea is.also to keep out moisture. While that may be
      so, that single fact cannot lead to a conclusion that would drive a coach
      and four through the scheme of the Entry Tax Act.
 H
    HINDUSTAN LEVER LTD. v. STATE OF KARNATAKA                                  263
                 [R. F. NARIMAN, J.]

       16. Brooke Bond Lipton India Ltd. v. State of Karnataka,                 A
109 STC 265, was cited next. This is a High Court judgment under the
Karnataka Sales Tax Act, in which it was stated that packaging led to
value addition for the purpose of excise and sales tax, and that it was a
possible view that packaged blended tea produced in the industrial unit
of the appellant is a manufactured product in which packing materials
                                                                                 8
are inputs. This was in the context of exemption notifications under the
Sales Tax Act. As can be seen from paragraph 26 of the aforesaid
judgment, the questions involved in that case were entirely different.
Also, the test of what is "manufacture" was borrowed from the Central
Excise Act as can be seen from paragraph 48 of the judgment. The
High Court points to a new dimension to the word "manufacture" in the            c
context of excise which would therefore include within it packing material
as well in order that the goods be made marketable. This, as we have
seen above, cannot be done in the context of the Entry Tax Act.
        17. In Tata Engineering & Locomotive Co. Ltd. (TELCO)
v. State of Bihar, (1994) 6 SCC 479, this Court had to deal with a               D
notification issued by the State of Bihar in the context of sales tax. The
expression "raw material" and "input" was used in the notification. This
Court held, following J.K. Cotton Spinning & Weaving Mills Co.
Ltd. v. S.T,O., ( 1965) l SCR 900, that the expression "in the
manufacture of goods'' would normally encompass the entire process
carried on by the dealer of converting raw materials into finished               E
products. The precise question before this Court was whether products
finished in themselves, such as tyres, tubes, batteries, etc., when purchased
by the appellant for use in the manufacture of vehicles, could be said to
be inputs. This Court held that as a vehicle cannot be operative without
tyres, tubes; and batteries, obviously they were inputs in the sense of the      F
dictionary meaning of what is "put in". Both the fact situation and the
ratio of this judgment are far removed from the facts in the present case
inasmuch as it is nobody's case that without the packing material
manufactured tea cannot be said to exist as a finished product, it being
"moveable property" and therefore "goods" under the Karnataka Entry
Tax Act. This judgment is also therefore of no avail to the appellant.           G

      18. Mis. Star Paper Mills Ltd. v. CCE, Meernt, ( 1989) 4
SCC 724, is an excise case in which an exemption Notification exempted
goods used as component parts in manufacture of any goods on which
excise duty was leviable. This judgment defines the word "component"
                                                                                 H
264              SUPREME COURT REPORTS                        [2016] 4 S.C.R.


A     to mean a constituent part. In this context, it was held that paper core is
      a component part of paper delivered to the customer in rolls, but not in
      sheets as it was not necessary for manufacture of paper sheets. This
      case would have no application to the facts of the present case. It is
      obvious that packing material used to pack a product complete in itself,
      cannot possibly be included in the word "component" as it is not a
B
      constituent pai1 of manufactured tea.
              19. Three other judgments under the Central Excise Act were
      cited. The first of them, CCE v. Mis. Eastend Paper Industries
      Ltd., (1989) 4 SCC 244, was concerned with the marketability aspect
      of central excise which, as has been held by us above, would not apply
c     in the context of the Entry Tax Act. In that judgment, paper wrapping
      was held to be essential to make the concerned goods marketable. The
      second of these judgments CCE v. Ballarpur Industries Limited,
      ( 1989) 4 sec 566, again concerned a completely different fact situation.
      The question in that case was whether an admitted input, Sodium Sulphate,
D     in the manufacture of paper, would not be construed to be a raw material
      only by reason that in the course of chemical reactions Sodium Sulphate
      is consumed and burnt up. This Court held that consumption and burning
      up would make no difference, as an 'input' need not always manifest
      itself in the final product. And in H.M.M. Ltd. V. CCE, ( 1994) 6 SCC
      594, it was held that a screw cap on a bottle containing Horlicks was a
 E    component part of Hor licks, it being an essential ingredient to complete
      the process of manufacture to make Horlicks marketable. This judgment
      again will not apply for the same reason indicated above, namely, that
      marketability is not relevant for the purpose of the Entry Tax Act.
             20. Mis. J.K. Cotton Spinning & Weaving Mills Co. Ltd. v.
 F    Sales Tax Officer, Kanpur, ( 1965) 1 SCR 900, is a judgment in which
      Section 8 of the Central Sales Tax Act was pressed into aid on behalf of
      the appellant. In this case, the question was whether drawing materials,
      photographic materials etc. could be comprehended within the expression
      "in the manufacture of goods for sale" within the meaning of section
 G    8(3)(b) of the Central Sales Tax Act, 1956. In order to determine whether
      such materials would qualify as such, this Court held that where any
      particular process is so integrally connected with the ultimate production
      of goods that, but for that process, manufacture or process of goods
      would be commercially inexpedient, goods required in that process would
      fall within the expression "in the manufacture of goods". What has
 H
    HlNDUSTAN LEVER LTD. v. STATE OF KARNATAKA                                265
                 [R. F. NARIMAN, J.]

been said about the excise cases squarely applies here. The expression        A
used in Section 8 of the Central Sales Tax Act is not "in the manufacture
of goods", but "in the manufacture of goods for sale", bringing in the
elementDf marketability.
       21. It only remains to deal with the argument made on behalf of
the appellant based on the Tea Marketing Control Order. Needless to           B
add, a manufacturer for the purpose of the said Order is specifically a
person who produces value added products commercially known as tea.
The context of the said definition is for the purpose of registering
manufacturers or producers and buyers of tea, having relevance therefore
to the sale aspect of tea. As has already been held by us, the context of
entry tax being different, we are afraid this argument also does not avail
                                                                               c
the appellant.
       22. We are, therefore, of the view that the High Court was correct
in following its own earlier Division Bench judgment in the Nestle case.
This appeal is, accordingly, dismissed.
                                                                              D
Ankit Gyan                                               ·Appeal dismissed.