Holding

Rubber sheets derived from natural rubber (caoutchouc) remain forest produce and are liable to forest development tax.

Summary

The Karnataka Forest Development Corporation supplied natural rubber sheets (RMA grades I‑V) to Cantreads Pvt Ltd. The State, under s.101A of the Karnataka Forest Act, 1963, levied a forest development tax on the raw smoked rubber. The High Court held that the processed rubber sheets were not forest produce and set aside the tax. On appeal, the Supreme Court examined whether the term 'caoutchouc' in s.2(7) of the Act includes such processed rubber. It held that caoutchouc, synonymous with natural rubber or latex, encompasses the material even after processing (sulphuric acid treatment, smoking, and shaping into sheets) and that processing does not create a new commodity. Consequently, the rubber sheets remain forest produce and are liable to tax under s.98‑A. The Court set aside the High Court judgment and allowed the appeal, dismissing the respondents' writ petitions.

Issues considered

Whether rubber sheets of grades RMA I‑V supplied by the State constitute 'forest produce' within the meaning of s.2(7) of the Karnataka Forest Act, 1963.
Whether the forest development tax under s.98‑A is applicable to such processed rubber.

Legislation cited

Karnataka Forest Act, 1963s. 101-A, s. 2(7), s. 98-A

Subjects

forest producecaoutchoucnatural rubberforest development taxKarnataka Forest Actprocessing of rubbercommercial parlance

Judgment

KARNATAKA FOREST DEVELOPMENT A
·~
CORPORATION LTD. ETC. ETC.
v.
CANTREADS PVT. LTD. AND ORS.

APRIL 15, 1994
B
R.M. SAHA!, S.P. BHARUCHA AND N.VENKATACHALA, JJ.]

; • Kamataka Forest Act, 1963 : ss.2(7), 98.4, IOIA-'Forest produce'-
'Caoutchouc'-Raw smoked rubber-Shaped in RMA sheets of grades I to
V-Lery of Forest Development Tax on--Held, caoutchouc or latex obtained c
from trees, treated by sulphuric acid and dried with smoke to obtain shape of
sheets continued to be the same--RMA sheets of grades I to V were forest
produce.

The appellant-Corporation supplied sheets of natural rubber of
grades RMA I to V to the respondent-Company. The Chief Conservator of D
Forest issued a notification under s.lOlA of the Kamataka Forest Act,
1963, levying Forest Development Tax on raw smoked rubber. The State
Government informed the respondent the rate of supply of rubber in
accordance with the order of the Chief Conservator of Forest. The respon-
dent challenged the fixation of seigniorage by filing a writ petition before E
the High Court which held that the natural rubber in the shape of RMA
sheets as purchased by the respondent was not forest produce. The State's
appeal was dismissed by the Division Bench of the High Court holding that
latex being a natural produce, hardened by chemical process in the form
of sheets, dried with the help of smoke and graded in Grades I to V,
resulted in bringing out a commodity different from latex and could not F
be treated as forest prodnce and, therefore, no tax could be levied on it
•
In appeal to this Court, it was contended on behalf of the appellants
that the word 'caoutchouc' enumerated as a 'forest produce' under s.2(7)
of the Act was wide enough to include rubber sheets of varying grades G
supplied to the respondent.

Allowing the appeal, this Court

HELD : 1.1. 'Caoutchouc' which is included as one of the forest
'~
produce under s.2(7) of the Karnataka Forest Act, 1963, is natural rubber H
539

•
540 SUPREME COURT REPORTS [1994] 3 S.C.R.

A which includes latex. Latex is the modern name for caoutchouc. It is
nothing but natural rubber. Caoutchouc or latex means not only milky
substance obtained from the trees but it included all milk substances
processed, till it is made marketable. It cannot remain as such for long,
therefore, it needs processing. Since the processing does not result in
bringing out a new commodity but it preserves the same and renders it
B fit for being marketed, it does not change its character. Caoutchouc or
latex obtained from the trees continued to be the same when it was treated
by sulphuric acid and even after it was dried with smoke to obtain the
shape of sheets. [pp. 542-G-H; 543-G-H; 544-A] , '

C 1.2. The High Court, while applying the test or commercial parlance,
erred in holding that where latex produced from the tree underwent
processing howsoever meagre it was, the resultant produce obtained by
addition of sulphuric acid could not be treated to be forest produce and;
that since government rubber plantations itself treated grade rubber
sheets as different from wet latex while selling the same in auction, it
D could not claim that the latex after processing remained the same. The
test of commercial parlance while considering entries in Sales Tax Act
cannot be applied while considering the definition of forest produce.
[543-F-H, 544-A-C)
Random House Dictionary, Encyclopaedia Britannica, and En- 411
E cyclopaedia of Social Sciences, Vol. XIII-XIV, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2674 of
1991 etc. etc.

From the Judgment and Order dated 4.3.91 of the Karnataka High
F Court in W.P.No. 14734 of 1990.

S.K. Kulkarni and Suryakant for the Appellants.
•
K.N. Bhat, Ravi P.Wadhwani, M. Veerappa and K.H. Nohin Singh
for the Respondents.
G
The Judgment of the Court was delivered by

R.M. SAHA!, J. The short and the only question of law that survives
for consideration in these appeals directed against the judgment and order
of the High Court of Karnataka is whether rubber sheets of various grades
H supplied by the State of Karnataka or the Karnataka Forest Plantation

•
FORESTDEVL CORPN. LTD. v. CANTREADS LTD. [SAHAJ,J.] 541

Corporation to the private limited companies, were Forest Produce within A
the meaning of the Karnataka Forest Act, 1963 (hereinafter referred to as
'the Act') and hence liable to payment of forest development tax under
Section 98-A thereof.

Even though validity of sub-section (1) of Section 101-A, which B
enabled the State Government to grant or supply forest produce to any
person on payment of seigniorage value as may be fixed by the Chief
Conservator of Forest, was challenged, it does not appear to have been
pressed in the High Court either ·before the learned ~ngle Judge or the
Division Bench nor was it pressed even, in this Court to support the order
of the High Court. The dispute, thus, centres round the question whether C
rubber sheets could be regarded as 'forest produce'. It may further not be
out of place to mention that the definition of 'Forest Produce' in the Act
was amended in 1989 and rubber latex was added as one of the items in
it. But the learned col!nsel for the State did not rely on the amended
definition as clarificatory of what was included earlier. He based his D
submission, rather on claim that the word 'caoutchouc1 was wide enough
to include rubber sheets.

- The respondent, a private limited company, negotiated with the State
of Karnataka in 1979 for supply of 60 tonnes of natural rubber of grade

- RMA I to V per month for a period of five years. A year later State Forest E
Corporation was constituted. The State, therefore, transferred the liability
of supply of the quota of rubber to the Corporation. In the meantime the
Chief Conservator of Forest issued notification fixing seigniorage on raw
smoked rubber. The State Government informed the company, that the
supply of rublier from 9.1.1981 onwards would be at the rate mentioned in F
the orders made by the Chief Conservator of Forests under Section 101-A
.. of the Act. The company challenged that fJXation of the seigniorage by the
Chief Conservator of Forests by a writ petition filed in the High Court. The
writ petition was allowed by the learned Single Judge and it was held that
the natural rubber, which has been agreed to be purchased by the Company
from the Corporation or the State, being in the shape of RMA sheets, was G
not forest produce. While the State filed appeal against that order of the
Single Judge, the Company filed writ petition for refund of the amount paid
by it. Since the controversy in the appeal and the writ petition was the
same, the Division Bench decided both, the Writ petition and appeal, by a
common order, agreeing with the learned Single Judge that latex, which is H
542 SUPREME COURT REPORTS (1994] 3 S.C.R.

A the natural produce, hardened by application of the sulphuric acid and
given the shape or form of sheets and thereafter dried with the help of
smoke and graded into grades of I to V could not be treated as forest
produce, for the process applied resulted in bringing out a commodity
which was different from latex, and therefore, no tax could be levied on it.

B 'Caoutchouc' is included as one of th forest produce under sub-
section (7) of Section 2 of the Karnataka Forest Act. In Chambers English
Dictionary, 'caoutchouc' is defined as 'India-rubber, gum-elastic; the latex
of rubber trees'. In Random House Dictionary, 'rubber' is defined as
'India-rubber, natural rubber, gum-elastic caoutchouc - a highly elastic,
c light cream or dark amber colored, solid substance polymerized by the
drying and coagulation of the latex or milky juice of rubber tree and plants'.
'Caoutchouc' is described in Encyclopaedia Britannica as, 'the principal
constituent of natural rubber and therefore sometimes called pure rubber.
It occurs as a vegetable gum, mixed with 1/20 to 8 times its own weight of
D other substances. Caoutchouc is a white resilient solid; at 0-10 degree
celsius it is hard and opaque, but it becomes soft and translucent above 20
degree celsius. In the same book 'Rubber' is described as, 'an organic
substance - obtained from natural sources of synthesized artificially - which
has the desirable properties of extensibility, stretchability and toughness.
Previously known as caoutchouc, a term that has become limited to the
E chemically pure form of the substance'. In Encyclopaedia of Social Scien-
ces, Vol. XIII-XIV it is do.scribed thus,

"Latex, which is not the sap of the tree but a milky fluid
contained in the bark, is obtained by narrow incisions in the bark.
During the period of high process trees were tapped once or even
F
twice a day. With lower prices it has become customary to tap less
frequently, but over a wider circumference of the tree. The trees
are ordinarily rested for two months or more each year. After the
latex has been gathered it is brought to the plantation warehouses
and coagulated by acetic acid or some other chemical. The result-
G ing rubber comes on the market as "crepe!! rubber or, if it has gone
through a smoking process, as 11 smoked sheet1'.

'Caoutchouc' is, thus natural rubber which includes latex. The natural
rubber or latex is milky fluid obtained by incisions, in the bark of trees. It
H cannot remain as such for long therefore it needs processing.
FOREST DEVL. CORPN. LTD. v. CANTREADS LTD. [SAHA!, J.] 543

In the Rubber Grower's Companion 1991 it is mentioned that the A
main crop for the rubber tree is latex, a milky white dispersion of rubber
in water which is harvested by the process of tapping. The latex that flows
out from the rubber trees on tapping is channelled into a container
attached to them. The latex gets dried up on the tapping panel (tree lace)
and the collection cups (shall scrap) from part of the crop and are B
collected by the tapper. The different kinds of crops harvested from rubber
plantations are highly susceptible to bacterial action due to contamination
• on keeping. Therefore, it is essential to process them into forms that will
allow safe storage and marketing. One of the marketable items is ribbed
sheet rubber. It further discusses how the latex is converted into ribbed
sheets. Latex is coagulated in suitable containers into thin slabs of a C
coagulum and sheet through a set of smooth rollers followed by a grooved
set and dried to obtain ribbed sheet rubbers depending upon the drying
method sheets rubbers are classified into two ribbed smoked sheets and
the air dried sheets. It is further mentioned that the ribbed sheets after 2
or 3 hours are put in the smoke house where the certain degree of D
temperature is maintained. The completely dried sheets are removed to the
packing sheets where they are carefully inspected and classified according
to standards published by the Rubber Manufacturers Association.

The High Court found that since what was sold by the appellant was
not rubber obtained from the trees but sheets or blocks of rubber which E
were chemically and mechanically processed it could not be held to be
forest produce. The High Court applied the test of commercial parlance
and held that where latex produced from the tree underwent processing
howsoever meagre it was the resultant produce obtained by addition of
sulphuric acid could not be treated to be forest produce. It was further F
found that since Government rubber plantations itself treated grade rubber
sheets as different from wet latex while selling the same in auction it could
not claim that the latex after processing remained the same. Neither
reasoning appears to be well founded. The meaning of the word
'caoutchouc' has been discussed. Latex is the modern name for caoutchouc..
It is nothing but natural rubber. Caoutchouc or latex means not only milky G
substance obtained from the trees but it included all milk substance
proeessed, till it is made marketable. Since the processing does not result
in bringing out a new commodity but it preserves the same and renders it
fit for being marketed. It does not change its character. It was caoutchouc
or latex when it was obtained from the trees, it continued to be caoutchouc H
1
I

544 SUPREME COURT REPORTS [1994) 3 S.C.R.

A or latex when it was treated by sulphuric acid and continued to be so even
after it is dried with smoke to obtain the shape of sheets.

The test of commercial parlance while considering entries in Sales
Tax Act was evolved as the tax under the Salex Tax enactments is normally
either on sale or purchase or on manufacture or import etc. Therefore, it
B is the understanding or the knowledge of the item by the common man or
persons dealing it iri the market and not in the techrucal or botanical sense
which was accepted by this Court as the decidirig factor~But that test
cannot be applied while considering the definition of forest produce.

c passedInbythetheresult, these appeals succeed and are allowed. The order
High Court is set aside and the writ petitions filed by the
respondents shall stand dismissed.

R.P. Appeal allowed.