Case: Travancore Tea Estates Co. Ltd Vs. State Of Kerala

This is an appeal by special leave against the judgment of the Kerala High 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 certificate of the appellantThe appellant, Travancore Tea Estates Co. Ltd., is a company incorporated in England having it s 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 appellant in Peermade T aluk. To manufacture tea grown in those estates, the appellant maintains separate tea factories in each of those estates. On an application made by the appellant for registration under.the Central Sales Tax Act, 1956 (Act 74 of 1956) (hereinafter referred to as the Act), the sales tax authorities granted registration certificate 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 o f this Court in 1. K. Cotton Spinning &Weaving Mill3 Co. Ltd. v. The Sales Tax Officer (16 S.T.C. 563.) and Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes.(16 S.T.C. 259.) The Sales Tax Officer thereafter allowed the inclusion of some of the items of goods asked for by the appellant in the registration 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 directing 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. Fertilisers, chemicals, weedicides, insecticides, fungicides and pesticides for use in tea cultivation:2. Cement and other building materials for installing and housing tea machinery and equipments: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; and5. 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 t he order of the TribunalIn 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 we re used for cultivation of tea leaves.

Reasoning: 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 manufacturing 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 t o 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 element or component (see Tea Estate India (p.) Ltd. v. Commissioner of Income-tax (1).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 manufacturing process in respect of t ea 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 manufacturing 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 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 41/2 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 manipulation. Green tea is manufactured by steaming without fermentation 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.