Appeal No 498 of 1958
Appeal from the judgment and order dated February 11 1955 of the Andhra Pradesh High Court in T R C No 120 of 1953 arising out of the judgment and order dated December 29 1952 of the Sales Tax Tribunal Madras in Tribunal Appeal No 857 of 1951
A V Viswanatha Sastri M Ranganatha Sastri and M section K Sastri for the appellants
D Narasaraju Advocate General for the State of 15 Andhra Pradesh T V R Tatachari D Venkatappayya Sastri and T M Sen for the respondent
October 18
The Judgment of the Court was delivered by AYYANGAR J
This appeal on a certificate under article 133 of the Constitution granted by the High Court of Andhra Pradesh raises for consideration principally the question whether hardened or hydrogenated groundnut oil commonly called Vanaspati is  groundnut oil  within the meaning of Rule 182 of the Madras General Sales Tax Turnover and Assess ment Rules 1939
Tungabhadra Industries Ltd the appellant in this appeal has a factory of considerable size at Kurnool in the State of Andhra Pradesh
The company purchases groundnuts and groundnut kernels within the State and manufactures groundnut oil and also refined oil as well as hydrogenated oil all of which it sells
The appeal is concerned with the assessment to salestax of this company for the year 1949 50
Section 3 of the Madras General Sales Tax Act 1939 enacts  3
1 Subject to the provisions of this Act a every dealer shall pay for each year a tax on his total turnover for such year and b the tax shall be calculated at the rate of three pies for every rupee in such turnover
2        3        4 For the purposes of this section and the other provisions of this Act turnover shall be determined in accordance with such rules as may be prescribed Provided that no such rules shall come into force unless they are approved by a resolution of the Legislative Assembly
5 The taxes under sub sections 1 and 2 shall be assessed levied and collected in such manner and in such installments if any as may be prescribed Provided that i in respect of the same transaction of sale the buyer or the seller but not both as determined by 16 ii where a dealer has been taxed in respect of the purchase of any goods in accordance with the rules referred to in clause i of this proviso he shall not be taxed again in respect of any sale of such goods effected by him
 Rules were made by virtue inter alia of these provisions entitled  The Madras General Sales Tax Turnover and Assessment Rules 1939 
Of these those relevant to the present context are Rules 4  5
Rule 4 reads 41 Save as provided in sub rule 2 the gross turnover of a dealer for the purposes of these rules shall be the amount for which goods are sold by the dealer
2 In the case of the undermentioned goods the gross turnover of a dealer for the purposes of these rules shall be the amount for which the goods are bought by the dealer a groundnut 
The result of the combined operation of section 412 in the  case of those who purchased groundnut and having crushed them sold the oil obtained was that they had to pay tax on both their purchases of groundnut and their sales of oil produced therefrom
This was considered by the rule making authority to be an unfair burden and relief was accordingly provided by Rules 5 and 18 of the same rules the material portions of which ran  5
1 The tax or taxes under section 3 shall be levied on the net turnover of a dealer
In determining the net turnover the amounts specified in clauses a to 1 shall subject to the conditions specified therein be deducted from the gross turnover of a dealer
Clause k of this rule reads k in the case of a registered manufacturer of groundnut oil and cake the amount which he is entitled to deduct from his gross turnover under rule 18 subject to the conditions specified in that rule This rule was amended by a notification dated November 9 1951 by the addition of the words 17  groundnut oil  but this modification of the rule is not relevant to the present case which is concerned with the assessment of a period anterior to the modification
Rule 18 referred to here reads to quote only the material words  18
1 Any dealer who manufactures groundnut oil and cake from groundnut andor kernel purchased by him may on application to the assessing authority having jurisdiction over the area in which he carries on his business be registered as a manufacturer of groundnut oil and cake
2 Every such registered manufacturer of groundnut oil will be entitled to a deduction under clause k of sub rule 1 of rule 5 equal to the value of the groundnut andor kernel purchased by him and converted into oil and cake if he has paid the tax to the State on such purchases Provided that the amount for which the oil is sold is included in his net turnover Provided further that the amount of the turnover in respect of which deduction is allowed shall not exceed the amount of the turnover attributable to the groundnut andor kernel used in the manufacture of oil and included in the net turnover
Explanation
For the purpose of this sub rulea 143 lb
of groundnut shall be taken to be equivalent to 100 lb of kernel b 143 lb of groundnut or 100 lb of kernel when converted into oil will normally be taken to yield 40 lb of oil and c one candy of oil shall be taken to be equivalent to 500 lb of oil Then follow other provisions not relevant for the purposes of the present appeal
The appellant was registered as a manufacturer of groundnut oil under r 181
That the appellant purchased the groundnuts the value of which was claimed as a deduction in the turnover within the State and paid tax on such purchase to the State was not in dispute
Nor was there any controversy that the sale 18 price of the oil expressed out of and sold either as raw groundnut oil refined oil or hydrogenated oil was included in the turnover of the appellant
The Deputy Commercial Tax Officer Kurnool who completed the assessment of the appellant accepted the figures of purchases and sales submitted by it and dealing with the claim for the deduct ion of the purchase price of
the groundnuts from the proceeds of the sale of all oil by the company raw refined and hydrogenated granted a deduction in respect of the purchase price of the groundnuts attributable to the unrefined oil sold by the appellant but held that the appellant was not entitled to the deduction claimed in respect of the refined and hydrogenated oil for the reason that it was only unrefined or unprocessed groundnut oil that was connoted by the expression groundnut oil  in rule 51k read with rule 181 and 2 of the Turnover and Assessment Rules
This order of the Deputy Commercial Tax Officer was affirmed by the Commercial Tax Officer on appeal and the appellant filed a further appeal to the Sales Tax Appellate Tribunal
The second appellate authority upfield the contention of the appellant in regard to the sale of refined oil but rejected it in so far as it related to the sales of hydrogenated oil
The matter was thereafter brought up before the High Court of Andhra Pradesh by a Tax Revision Case filed under section 13b1 of the Act and the learned Judges upheld the view of the Tribunal and disallowed the claim of the appellant to the deduction claimed in regard to the sales turnover of hydrogenated oil
They granted the certificate under article 133 which has enabled the appellant to file an appeal to this Court
The claim of the appellant to the deduction under r 182 on the sales of refined groundnut oil is no longer in dispute
The ground upon which both the Tribunal as well as the High Court decided against the allowance of the deduction in respect of the sales of hydrogenated oil while upholding the appellants  case as regards refined oil may be briefly stated thus The exemption or deduction from the sale turnover under r 182 is on its terms applicable only to the sale of the oil in the form in which it is when extracted 19 out of the kernel
When raw groundnut oil is converted into refined oil there is no doubt processing but this consists merely in removing from raw groundnut oil that constituent part of the raw oil which is not really oil
The elements removed in the refining process consist of free fatty acids phosphotides and unsaponifiable matter
After the removal of this nonoleic matter therefore the oil continues to be ground
nut oil and nothing more
The matter removed from the raw groundnut oil not being oil cannot be used after separation as oil or for any purpose for which oil could be used
In other words the processing consists in the non oily content of the raw oil being separated and removed rendering the oily content of the oil 100 per cent
For this reason refined oil continues to be groundnut oil within the meaning of rules 51k and 182 notwithstanding that such oil does not possess the characteristic colour or taste odour etc
of the raw groundnut oil
But in the case of hydrogenated oil which is prepared from refined oil by the process of passing hydrogen into heated oil in the presence of a catalyst usually finely powdered nickel two atoms of hydrogen are absorbed
A portion of the oleic acid which formed a good part of the content of the groundnut oil in its raw state is converted by the absorption of the hydrogen atoms into stearic acid and it is this which gives the characteristic appearance as well as the semi solid condition which it attains
In the language of the Chemist an inter molecular or configurational chemical change takes place which results in the hardening of the oil
Though it continues to be the same edible fat that it was before the hardening and its nutritional properties continue to be the same it has acquired new properties in that the tendency to rancidity is greatly removed is easier to keep and to transport
Both the Tribunal as well as the learned Judges of the High Court held that the hydrogenated oil or Vanaspati ceased to be groundnut oil by reason of the chemical changes which took place which resulted in the acquisition of new properties including the loss of its fluidity
In other words 20 they held that Vanaspati or hydrogenated oil was not  groundnut oil  but a product of groundnut oil manufactured out of groundnut oil and therefore not entitled to the benefit of the deduction under r 182
The arguments of Mr Visvanatha Sastri for the appellants were briefly two 1 The reasons behind the rules 5k  182 which were designed to afford relief against what would amount practically to double taxation of the same assessee both when he purchased and when he sold the goods required that the appellants  claim should be allowed
2 Hydrogenated groundnut oil was no less groundnut oil than either refined or even unrefined oil
The fact that the quality of the oil had been improved does not negative its continuing to be oil and the materials before the departmental authorities and the Court established that it continued to be oil and was nothing more
The argument based on the reason of the rule can
not carry the appellant far since in the present case it is an exemption from tax which he invokes and of which he seeks the benefit
If the words of the rule are insufficient to cover the case the reason behind the rule cannot be availed of to obtain the relief Nor could it be said to be a case of double taxation of the same goods at the purchase and sale points which is forbidden by section 35 of the Act
If the view adopted by the learned Judges of the High Court that hydrogenated groundnut oil is not  groundnut oil  but a product of groundnut oil were correct learned Coun
sel cannot urge that he would still be entitled to the deduction for which provision is made in r 182
Consequently it is the second of the submissions alone which really requires to be examined
In doing so it would be convenient to consider the reasoning on the basis of which the view  that hydrogenated oil was not  groundnut oil  was sought to be sustained before us
The learned Advocate General of Andhra Pradesh who appeared for the respondent Commercial Tax Officer sought to support the decision of the High Court by two lines of reasoning
The first was that 21 the exemption applied only to the sale of the oil as it emerged from the presser and that any processing of the oil including refining in order to remove even  the impurities and free fatty acids took it out of the category of  groundnut oil  as used in the rule
In support of this submission he referred us to the Table of Conversion of groundnuts and kernel into oil set out in the Explanation to r 182 extracted earlier and submitted that the 40 lb of oil for every 100 lb of kernel was based on the yield of raw groundnut oil and that this was an indication that nothing other than raw groundnut oil was intended to be covered by the expression  groundnut oil  in the rule
We must however point out that this last submission has no factual basis to support it
It is not known whether the proportion of 40 lb of oil for every 100 lb of kernel represents the average weight of oil extractable from different varieties of groundnut kernels or is the average of the different types of oils which may be produced out of different varieties of kernels
In the absence of any definite data in this regard it is impossible to accept the argument that the Table of Conversion justifies any particular construction of what was meant by  groundnut oil  in the main part of the rule
Nor is the learned Advocate General well founded in his submission that the processing of the oil in order to render it more acceptable to the customer by improving its quality would render the oil a commodity other than  groundnut oil  within the meaning of the rule For instance if the oil as extracted were kept still in a vessel for a period of time the sediment normally present in the oil would settle at the bottom leaving a clear liquid to be drawn out
The learned Advocate General cannot go so far as to say that if this physical process was gone through the oil that was decanted from the sediment which it contained when it issues out of the expresser ceased to be di groundnut oil  for the purposes of the rule
If the removal of impurities by a process of sedimentation does not render groundnut oil any the less so it follows that even the process of refining by the 22 application of chemical methods for removing impuri ties in the oil would not detract from the resulting oil being  groundnut oil  for the purpose of the rule
It may be mentioned that processes have been discovered by which even on extraction from the oil mill the oil issues without any trace of free fatty acids
It could hardly be contended that if such processes were adopted what comes out of the expresser is not groundnut oil
The submission of the learned Advocate General based on a contention that the Tribunal and the learned Judges of the High Court erred in holding that even refined groundnut oil was  groundnut oil  for the purpose of the rule must be rejected
The next question is whether if beyond the process of refinement of the oil the oil is hardened again by the use of chemical processes it is rendered any the less groundnut oil 
In regard to this the learned Advocate General first laid stress on the fact that while normally oil was a viscous liquid the hydrogenated oil was semi solid and that this change in its physical state was itself indicative of a substantial modification of the identity of the substance
We are unable to accept this argument
No doubt several oils are normally viscous fluids but they do harden and assume semi solid condition on the lowering of the temperature
Though groundnut oil is at normal temperature a viscous liquid it assumes a semi solid condition if kept for a long enough time in a refrigerator
It is therefore not correct to say that a liquid state is an essential characteristic of a vegetable oil and that if the oil is not liquid it ceases to be oil
Mowrah oil and Dhup oil are instances where vegetable oils assume a semi solid state even at normal temperatures
Neither these nor cocoanut oil which hardens naturally on even a slight fall in temperature could be denied the name of oils because of their not being liquid
Other fats like ghee are instances where the physical state does not determine the identity of the commodity
The next submission of the learned Advocate General was that in the course of hydrogenation the oil 23 absorbed two atoms of hydrogen and that there was an inter molecular change in the content of the substance
This however is not decisive of the matter
The question that has still to be answered is whether hydrogenated oil continues even after the change to be  groundnut oil 
If it is it would be entitled to the benefit of the deduction from the turnover or to put it slightly differently the benefit of the deduction from the turnover cannot be denied unless the hydrogenated groundnut oil has ceased to be  groundnut oil 
To be groundnut oil two conditions have to be satisfied
The oil in question must be from groundnut and secondly the commodity must be  oil 
That the hydrogenated oil sold by the appellants was out of groundnut not being in dispute the only point is whether it continues to be oil even after hydrogenation
Oil is a chemical compound of glycerine with fatty acids or rather a glyceride of a mixture of fatty acids principally oleic linoleic stearic and palmitic the proportion of the particular fat varying in the case of the oil from different oil seeds and it remains a glyceride of fatty acids even after the hardening process though the relative proportion of the different types of fatty acids undergoes a slight change
In its essential nature therefore no change has occurred and it remains an oil a glyceride of fatty acids that it was when it issued out of the press
In our opinion the learned Judges of the High Court laid an undue emphasis on the addition by way of the absorption of the hydrogen atoms in the process of hardening and on the consequent inter molecular changes in the oil
The addition of the hydrogen atoms was effected in order to saturate a portion of the oleic and linoleic constituents of the oil and render the oil more stable thus improving its quality and utility
But neither mere absorption of other matter nor inter molecular changes necessarily affect the identity of a substance as ordinarily understood
Thus for instance there are absorptions of matter and inter molecular changes which deteriorate the quality or utility of the oil and it might be interesting to see if such additions and alterations could be taken to 24 render it any the less  oil 
Groundnut oil when it issues out of the expresser normally contains a large proportion of unsaturated fatty acids oleic and linoleic which with other fatty acids which are saturated are in combination with glycerine to form the glyceride which is oil
The unsaturated fatty acids are unstable i e they are subject to oxidative changes
When raw oil is exposed to air particularly if humid and warm ie in a climate such as obtains in Madras oxygen from the atmosphere is gradually absorbed by the unsaturated acid to form an unstable peroxide in other words the change involves the addition of two atoms of oxygen which in its turn decomposes breaking up into aldehydes
It is this oxidative change and particularly the conversion into aldehydes that is believed to be responsible for the sharp unpleasant odour and the characteristic taste of rancid oil
If nothing were done to retard the process the rancidity may increase to such extent as to render it unfit for human consumption
The change here is both additive and inter molecular but yet it could hardly be said that rancid groundnut oil is not groundnut oil
It would undoubtedly be very bad groundnut oil but still it would be groundnut oil and if so it does not seem to accord with logic that when the quality of the oil is improved in that its resistance to the natural processes of deterioration through oxidation is increased it should be held not to be oil
Both the Tribunal as well as the High Court have pointed out that except for its keeping quality without rancidity and ease of packing and transport without leakage hydrogenated oil serves the same purpose as a cooking medium and has identical food value as refined groundnut oil
There is no use to which the groundnut oil can be put for which the hydrogenated oil could not be used nor is there any use to which the hydrogenated oil could be put for which the raw oil could not be used
Similarly we consider that hydrogenated oil still continues to be  groundnut oil  notwithstanding the processing which is merely for the purpose of rendering the oil more stable thus improving its keeping qualities for 25 those who desire to consume groundnut oil
In our opinion the assessee company was entitled to the benefit of the deduction of the purchase price of the kernel or groundnut under r 182 which went into the manufacture of the hydrogenated groundnut oil from the sale turnover of such oil
One other point which is involved in the appeal relates to the claim of the appellant to a deduction in respect of the freight charges included in the price of the commodity
Under r 51g of the Turnover and Assessment Rules in determining the net turnover of a dealer he is entitled to have deducted from his gross turnover  all amounts falling under the following two heads when specified and charged for by the dealer separately without excluding them in the price of the goods sold  i freight ii   
The appellant claimed exemption on a sum of Rs 388377 13 3 on the ground that it represented the freight in respect of the goods sold by the appellant asserting that they had been charged for separately
The assessing officer rejected the claim and this rejection was upheld by the departmental authorities and by the High Court in Revision
It would be seen that in order to claim the benefit of this exemption the freight should 1 have been specified and charged for by the dealer separately and ii the same should not have been included in the price of the goods sold
The learned Judges of the High Court held that neither of these conditions was satisfied by the bills produced by the appellant
We consider the decision of the High Court on this point was correct
In the specimen bill which the learned Counsel for the appellants has placed before us after setting out the quantity sold by weight 23760 lb the price is specified as 15 annas 9 pies per lb
and the total amount of the price is determined at Rs 23 388 12 0
From this the railway freight of Rs 1439 12 0 is deducted and the balance is shown as the sum on which sales tax has been computed
26 From the contents of this invoice it would be seen that the appellant has charged a price inclusive of the railway freight and would therefore be outside the terms of r 51g which requires that in order to enable a dealer to claim the deduction it should be charged for separately and not included in the price of goods sold
The conditions of the rule not having been complied with the appellant was not entitled to the deduction in respect of freight
The result therefore is that the appeal is allowed in part and the order of the High Court in so far as it denied to the appellant the benefit of the deduction in the turnover provided by r 182 of the Turnover and Assessment Rules is set aside
In view of the appellant having succeeded only in part there will be no order as to costs in this appeal
Appeal allowed in part


Summary:
The appellants who were dealers registered under the Assam Sales Tax Act 1947 submitted a return of their turnover for the account period April 1 1948 to September 30 1948 which included sales in Assam of all goods other than jute
The Superintendent of Taxes however summarily assessed the appellants under sub section
4 of section 17 of the Act by order dated September 30 1950 to pay tax on sales of jute despatched by them to Calcutta during the account period
The order of assessment was confirmed by the Commissioner of Taxes
On an application by the appellants the Commissioner referred certain questions of law arising out of the assessment to the High Court which then gave its opinion that as the consignments in question were not sales within the meaning of sub section
12 of section 2 of the Act they were not taxable and that as to whether the sales could thereafter be assessed if they fell within the purview of the Explanation to sub section
12 of section 2 it expressed no opinion
On receipt of the opinion the Commissioner directed the Superintendent of Taxes to dispose of the case in accordance with the judgment of
the High Court
The Superintendent of Taxes then set aside the order of assessment dated September 30 1950 and issued a notice to the appellants on January 30 1953 directing them to produce the necessary evidence in order in the case came within the purview of the Explanation to sub s12 of section 2 of the Act
The appellant claimed that the Superintendent had no jurisdiction to commence any further proceeding for assessment as the notice issued to him was beyond three years from the end of the assessment period as provided by section 19 of the Act
Held that the High Court in answering the questions referred to it was exercising an advisory jurisdiction and could not and did not give any direction to the sales tax authorities to proceed to assess or not to assess the appellants to sales tax  it merely gave its opinion that the transactions were not sales within the meaning of section 2 sub section
12 of the Act and were accordingly not taxable
41 Held further that the Commissioner not having issued any notice under section 19A of the Act or exercised his revisional authority under section 31 but having merely directed the case to be disposed of in accordance with the judgment of the High Court the Superintendent of Taxes had no jurisdiction to initiate fresh proceedings for reassessment under section 19 after the expiry of three years from the assessment period
Commissioner of Income Tax Bombay Presidency and Aden and others vs Bombay Trust Corporation Ltd 1936 LR 63 1
A 408 distinguished