Appeal No 1698 of 1971
Appeal by Special Leave from the Judgment and Order dated 8 4 1971 of the Kerala High Court in TRC No 4669
ST Desai AG Meneses Markos Vellapilly and KJ John for the Appellant
KT Harindra Nath and KMK Nair for the Respondent
The Judgment of the Court was delivered by KHANNA J
This is an appeal by special leave against the judgment of the Kerala Hight Court dismissing revision petition of the petitioner against the order in appeal of the Appellate Tribunal whereby the Tribunal refused to include certain items in the sales tax registration certifi cate of the appellant
The appellant Travancore Tea Estates Co Ltd is a company incorporated in England having its registered office in London
The appellant carries on the business of tea planting in India at Vandiperiyar in Peermade Taluk in Kerala State
Eight tea estates are owned by the appel lant in Peermade Taluk
To manufacture tea grown in those estates the appellant maintains separate tea facto ries in each of those estates
On an application made by the appellant for registration under
the Act 74 of 1956 hereinafter referred to as the Act the sales tax authorities granted registration certif icate to the appellant on January 9 1963
Aggrieved by the non inclusion of certain items of goods in the registration certificate the appellant filed writ petition in the Kerala High Court
The High Court directed the Sales Tax Officer to decide the question regarding the inclusion of items in the light of the decisions of this Court in 1
K Cotton Spinning  Weaving Mill3  Co Ltd vs 757 The Sales Tax Officer 1 and Indian Copper Corporation Ltd vs Commissioner of Commercial Taxes2 The Sales Tax Officer thereafter allowed the inclusion of some of the items of goods asked for by the appellant in the registra tion certificate but refused to include certain other goods in that certificate
The appellant thereupon preferred appeal before the Appellate Assistant Commissioner of Sales Tax Kottayam who partly allowed the appeal by di recting further inclusion of certain items
The Appellate Assistant Commissioner however declined to include the following items in the certificate in respect of which prayer had been made by the appellant 1
Fertilisers chemicals weedicides insecti cides fungicides and pesticides for use in tea cultivaton 2 Cement and other building materials for installing and housing tea machinery and equip ments 3
Building materials iron and hose pipes sanitary fittings for use in estates and estate factories   4
Weighing and measuring and packing equipments for use in tea estates and 5
All other articles and things for use in manufacture and processing of sale of tea
 The appellant then took the matter in further appeal before the Appellate Tribunal and prayed for the inclusion in the certificate of the above mentioned items
The Appellate Tribunal did not accept the prayer of the appellant and dismissed the appeal
Revision petition was thereupon filed by the appellant before the Kerala High Court against the order of the Tribunal
In appeal before the High Court it was stated on behalf of the appellant in respect of the first item relating to fertilisers chemicals weedicides and insecticides that they were used for cultivation of tea leaves
The conten tion of the appellant was that the growing and manufacturing of tea constituted one integrated process and therefore the items of goods required for growing tea should be deemed to be goods intended for use in the manufacture of tea within the meaning of section 83b of the Act
This contention had also been advanced by the appellant earlier before the Tribunal but the Tribunal rejected this contention as in its view the legislature has not included production by agriculture as one of the operations for which goods can be purchased under section 8 of the 
The Tribunal further held that merely because the agricultural process of the company is connected with the process of manufacture production of tea did not form part of the manufacture and processing of tea
The High Court disa greed with this reasoning of the Tribunal and observed that the expression in the manufacture of goods in section 83 b of the Act normally encompasses the entire process carried on by the dealer of converting the raw material into finished goods
In the opinion of the High Court the growing of tea leaves 1 16 STC 563
2 16 STC 259
758 was so integrally connected with the manufacture of tea that it could reasonably be taken as a part of the process of manufacturing tea
This circumstance however in the opin ion of the High Court by itself was not sufficient to make the goods eligible for inclusion in the registration certif icate
The High Court accordingly observed Under rule 13 read with section 83 b the use of the goods in the manufacture or processing of goods for sale will not be a sufficient ground for inclusion in the certificate
The further requirement is that the goods must be for use as raw materials or processing materials or machinery plant equipment tools stores spare parts accessories fuel or lubricants
The first item namely fertilisers chemicals insecticides etc
in our opinion cannot fall within the category of a raw material or processing material or machinery etc
The learned counsel for the company sought to contend that fertilisers chemicals etc
would come within file category of stores mentioned in section 83b and that as such it is eligible for specification in the certificate
We are unable to agree with this submission
The word stores  in the context in which it appears in rule 13 has to be necessarily goods intended for use in the manu facture or processing of goods for sale and it is not possible to hold that fertilisers chemicals weedicides insecticides etc
can come within this category
They are not in any way directly con nected with the manufacturing or processing of tea
As pointed out earlier the expression in the manufacture  can take within its compass only processes which are directly related to the actual production
As such the claim for inclusion of this item in the Sales Tax Registration Certifi cate cannot be supported
 The prayer of the appellant regarding items 2 3 and 4 was also disallowed in the light of the observations of this Court in the case of 1
K Cotton Spinning  Weaving Mills Co Ltd supra
Item No 5 in the opinion of the High Court was too vague and indefinite to deserve inclusion in the certificate
In the result the revision petition was dismissed
Before dealing with the contentions advanced it may be useful to refer to the relevant provisions
Section 7 of the Act makes provision for registration of dealers
Section 8 of the Act deals with rates of tax on sales in the course of inter State trade or commerce
Clause b of sub section 1 of that section provides that every dealer who in the course of inter State trade or commerce sells to a registered dealer other than the Government goods of the description referred to in sub section 3 shall be liable to pay tax under this Act which shall be 3 per cent of his turnover
The percentage before July 1 1966 was two
Sub section 3b reads as under 3 The goods referred to in clause b of sub section 1 759 b are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re sale by him or subject to any rules made by the Central Government in this behalf for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power The Central Sales Tax Registration and Turnover Rules 1957 have been framed by the Central Govern ment
Rule 13 of the rules reads as under 13
The goods referred to in clause b of sub section 3 of section 8 which a registered dealer may purchase shall be goods intended for use by him as raw materials processing materials machinery plant equipment tools stores spare parts accessories fuel or lubricants in the manufacture or processing of goods for sale or in mining or in the generation of electricity or any other form of power
 The question with which we are concerned in this appeal is whether the items of goods in respect of which prayer of the appellant for being included in the registration certif icate was refused answer to the description of goods as given in the above rule
Mr Desai on behalf of the appellant has not pressed the case of the appellant in respect of item No 5 which was found by the High Court to be vagne and indefinite
He has also not made any sub missions in respect of items 2 and 3 relating to Cement and building materials
The main contention of Mr Desai has related to item No 1 pertaining to fertilisers chemi cals weedicides insecticides fungicides and pesticides for use in tea cultivation
According to the learned coun sel cultivation and the growing of tea leaves was so inte grally connected with the manufacture of tea that it could be taken to be part of the process of manufacturing tea
As fertilisers and othergoods mentioned in item 1 were needed for tea clutivation the same should according to the learned counsel be held to be intended for use in the manufacture or processing of tea for sale
Regarding item 4 the case of the appellant is that though weighing equipment used in the factories has been allowed to be included in the certificate the weighing equipment used for the purpose of cultivation has not been included in the certificate
The weighing equipment to be used for culti vation should also it is urged be included in the certifi cate
The above contentions have been controverted by Mr Narendra Nath and he has urged that neither the goods mentioned in item No 1 nor the weighing equipment needed for cultivation are directly connected with the process of manufacturing tea
After giving the matter our earnest consideration we are of view that the contention of Mr Narendra Nath is well founded
760 Rule 13 has been the subject matter of two
decisions of this Court In the case of Indian Copper Corporation supra the assessee was a dealer engaged both in mining operations of copper and iron ore and the manufacturing of finished products from the ore for sale
This Court held that the two processes being inter dependent it would be impossible to exclude vehicles which are used for removing from the place where the mining operations were concluded to the factory where the manufacturing process started from the registration certificate
The expression goods intended for use in the manufacturing or processing of goods for sale was held to include such vehicles as were intended to be used for removal of processed goods from the factory to the place of storage
The mere fact that there is a statutory obligation imposed upon the owner of the factory or the mine to maintain hospital facilities would not in the opinion of this Court supply a connection between the goods and the manufacturing or processing of goods or the mining opera tions so as to make them goods intended for use in those operations
The expression intended to be used
it was further held cannot be equated with likely to facilitate the conduct of the business of manufacturing or of process ing goods or of mining
In J K Cotton Spinning  Weaving Milis Co Ltd supra the appellant manufactured for sale cotton tex tiles tiles and other commodities
Certain items of goods in the certificate of registration of the appellant were deleted by the sales tax authorities on the ground that they had been earlier erroneously included in the  certificate
This Court in that context dealt with the scope and ambit of section 83 b of the Act read with rule 13
It was held that the expression in the manufacture of goods in section 83b should normally encompass the entire process car ried on by the dealer of converting raw materials into finished good section Where any particular process is so inte grally connected with the ultimate production of goods that but for that process manufacture or processing of goods would be commercially inexpedient goods required in that process would fail within the expression in the manufacture of goods
 It was further held that the process of design ing might be distinct from the actual process of turning out finished goods
But there was no warrant for limiting the meaning of the expression in the manufacture of goods to the process of production of goods only
The expression in the manufacture was held to take in within its compass all processes which are directly related to the actual production
Drawing and photographic materials directly related to the actual production of goods were held to be goods intended for use in the manufacture of goods
Build ing materials including lime and cement not required in the manufacture of tiles for sale was however held to be not raw material in the manufacture or processing of goods or even as plant
We may now turn to the present case
The question which essentially arises for determination is whether fertilisers and other goods mentioned in item No 1 are intended for use by the appellant as equipment or stores in the manufac ture or processing of tea meant for 761 sale as urged on behalf of the appellant
The contro versy between the parties has centred round the point as to whether fertilisers and other goods mentioned in item No 1 can be said to be goods intended for use in the manufac ture or processing of tea meant for sale
So far as this question is concerned we find that the growing and plucking of tea leaves from the plants and the processing of those leaves in the factories are parts of a continued activity
The assertion of Mr Desai that the tea leaves would lose their value unless they are processed in the factory soon after they are plucked is not being questioned
It does not however follow from that that the cultivation of tea plants and the growth of tea leaves is not something distinct from the manufacturing process to which tea leaves are subjected in the factories
The fact that the time lag between the plucking of tea leaves and their being subjected to manufac turing process in the factories is very little would not detract from the conclusion that the cultivation and growth of tea plants and leaves is something distinct and separate from the manufacturing process to which those leaves are subjected in the factories for turning them into
tea meant for sale
Income which is realised by sale of tea by a tea company which grows tea on its land and thereafter subjects it to manufacturing process in its factory is an integrated income
Such income consists of elements or components
One element or component consists of the agricultural income which is yielded in the form of green leaves purely by the land over which tea plants are grown
The second element or component consists of non agricultural income which is the result of subjecting green leaves which are plucked from the tea plants grown on the land to a particular manufacturing process in the factory of the tea company
Rule 24 of the Income tax Rules 1922 and rule 8 of the Income tax Rules 1962 prescribe the formula which should be adopted for apportioning the income realised as a result of the sale of tea after it is grown and subjected to the manufacturing process in the factory
Sixty per cent
is taken to be agricultural income and the same consists of the first element or component while 40 per cent represents non agricultural income and the same comprises the second ele ment or component see Tea Estate India p Ltd vs Commis sioner of Income tax1
Fertilisers and the other goods mentioned in item No 1 are intended for use not in the manufacturing process in respect of tea meant for sale they are essentially needed for the cultivation and growth of tea plants and leaves
There is no direct relationship between use of fertilisers and other goods mentioned in item No 1  and the manufac turing process in respect of tea meant for sale
What is meant by manufacture of tea is clear from pages 863 4 of Vol
21 of Encyclopedia Britannica 1965 Edition wherein it is observed Black and green teas result from different manufactur ing processes applied to the same kind of leaf
After plucking the leaf is withered by being spread on bamboo trays in the sun or on withering tats within doors
The process takes 18 to 24 hours
Next it is rolled
by hand or by machines
The object of rolling is to break 762 the leaf ceils and liberate the juices and enzymes sealed within
The roll may last as long as three hours
Then it is taken to the roll breaker and green leaf sifting machine and after that fermented in baskets on glass shelves or on cool cement floors under damp cloth for 4 or 412 hours
The firing process drying follows in pans or baskets or in firing machines
It takes 30 to 40 min
The difference between black tea and green tea is the result of manipula tion
Green tea is manufactured by steaming without fermen tation in a perforated cylinder or boiler thus retaining some of the green colour
Black tea is allowed to ferment after being rolled and before firing
In the case of black tea the process of fermentation or oxidation reduces the astringency of the leaf and it is claimed developes the colour and aroma of the liquor
In making green tea the fermentation process is arrested by steaming the leaf while it is green and by light rolling before drying
 The cultivation and growth of tea plants and leaves cannot in our opinion be comprehended in the expression in the manufacture or processing of goods for sale
Cultivation and growth of tea plants no doubt results in the production of raw material in the form of green tea leaves which are ultimately processed into tea meant for Sale but such cultivation and growth are in the very nature of things prior to the manufacturing process and do not answer to the description of manufacture and processing of tea meant for sale
There is a vital difference between an agricultural operation and a manufacturing process and the same should not be lost sight of
What is needed for being used purely in an agricultural operation cannot be held to be goods required for use in a manufacturing process
We are therefore of the opinion that the appellant was not entitled to get fertilisers and other goods mentioned in item No 1  included in the registration certificate
The same reasoning would also hold good in respect of weigh ing machine used not in the factories but in the tea fields
appeal consequently fails and is dismissed with coats
VPS Appeal dismissed


Summary:
Section 8 of the  deals with rates of tax on sales in the course of inter State trade or commerce
Section 81b provides that every dealer who in the course of inter State trade or commerce sells to a registered dealer goods of the description referred to in sub section
3 shall be liable to pay tax at 3 of his turnover
Section 83b refers inter alia to goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for re sale by him or subject to any rules made by the Central Government in this behalf for use by him in the manufac ture or processing of goods for sale
Rule 13 of the Cen tral Sales Tax Registration and Turnover Rules 1957 framed under the Act provides that the goods referred to in section 83b which a registered dealer may purchase shall be goods intended for use by him inter alia as raw materials and processing materials in the manufacture or processing of goods for sale
The appellant owned tea estates in the respondent State and was also maintaining factories for the manufacture of tea
It prayed for inclusion in its Certificate of regis tration  1  fertilisers chemicals weedicides insec ticides fungicides and pesticides for use in tea cultiva tion and 2 weighing and measuring and packing equip ments for use in tea estates
The Department refused to include them and the Tribunal and the High Court confirmed the orders
In appeal to this Court it was contended that 1 cultivation and the growing of tea leaves was so integrally connected with the manufacture of tea that it could be taken to be a part of the process of manufacturing tea and since fertilisers etc were needed for tea cultivation the same should be held to
be intended for use in the manufacture or processing of tea for sale and 2 since weighing equipment used in the factories had been included in the certificate the weighing equipment used for the purpose of cultivation should similarly be included
Dismissing the appeal HELD 1 The goods in item 1 are intended for use not in the manufacturing process in respect of tea meant for sale but are only needed for the cultivation and growth of tea plants and leaves
There is no direct relationship between the use of fertilisers etc
and the manufacturing process and hence they were rightly not included in the registration certificate
761 G a Cultivation and growth of tea plants result in the production of raw material in the form of green tea leaves which are ultimately processed into tea meant for sale
But such cultivation and growth are in the very nature of things prior to the manufacturing process and do not answer to the description of manufacture and processing of tea meant for sale
There is a vital difference between an agricultural operation and a manufacturing process
What is needed for use purely in an agricultural operation cannot be held to be required for use in a manufacturing process
762 D b The fact that the time lag between the plucking of tea leaves and their being subjected to the manufacturing process is very little would not detract 756 from the conclusion that the cultivation and growth of tea plants is distinct and separate from the manufacturing process
761 C c Rule 24 of the Income Tax Rules 1922 and r 8 of the Income Tax Rules 1962 prescribe the formula which should be adopted for apportioning the income realised as a result of the sale of tea after it is grown and subjected to the manufacturing process in the factory thus recognis ing the difference between the agricultural income which is yielded in the form of green leaves purely by the land over which tea plants are grown and the non agricultural income which is the result of subjecting the green leaves plucked to a particular manufacturing process
761 E 2 The same reasoning holds good in respect of weighing machines used not in the factories but in the tea fields
762 E JK Cotton Spinning  Weaving Mills Co Ltd vs The Sales Tax Officer 16 STC 563
and Indian Copper Corporation Ltd vs Commission of Commercial Taxes 16 STC 259 fol lowed
Tea Estate India P Ltd vs Commissioner of Income tax referred to