Case: State of Karnataka Vs. B. Raghurama Shetty Etc

The assessees are owners of rice mills in the State of Karnataka and are registered dealers under the Act. In the course of their business, they purchase paddy and after milling paddy sell the resultant rice. During the assessment years, the assessees purchased paddy from agriculturists who were not liable to pay sales tax. T he assessing authority under the Act levied on the assessee in each of these cases purchase tax on the purchase turnover of paddy under section 6(i) of the Act. The appeals filed by the assessees against the said assessments were dismissed by the appellate authority. The Karnataka Sales Tax Appellate Tribunal allowed the appeals filed by the assessees against the orders of the appellate authority except the one filed by the assessee who is the respondent in Civil Appeal No. 1805 o f 1975 holding that the conversion of paddy into rice did not involve any manufacturing process and that the purchase turnovers of paddy in those cases were not liable to tax under section 6(i) of the Act. In the case of the assessee who is the respondent in Civil Appeal No. 1805 of 1975, the Tribunal held that the turnover was liable to be taxed as he had manufactured boiled rice out of the paddy purchased by him. Aggrieved by the decisions of the Tribunal, the State Government filed revision petitions before the High Court under section 23(1) of the Act in the first four cases and the assessee filed a revision petition in the last case. The High Court after holding that the turnovers in question were not liable to tax under section 6( i) of the Act dismissed the petitions filed by the State Government and allowed the petition of the assessee who is the respondent in Civil Appeal No. 1805 of 1975. Thereafter the High Court granted by a common order a certificate of fitness in all these cases to prefer appeals before this Court to the State Government. On the basis of said certificate, these appeals have been filed by the State Government against the orders of the High Court. Since these appeals involve a common question of law, they are disposed of by this common judgment.

Court's reasoning:
There is no merit in the submission made on behalf of the assessees that they had not consumed paddy when they produced rice from it by merely carrying out the process of dehusking at their mills. Consumption in the true economic sense does not mean only use of goods in the production of consumers goods or final utilisation of consumers goods by consumers involving activities like eating of food, drinking of beverages, wearing of clothes or using of an automobile by its owner for domestic purposes. A manufacturer also consumes commodities which are ordinarily called raw materials when he produces semi-finished goods which have to undergo further processes of production before t hey can be transformed into consumers goods. At every such intermediate stage of production, some utility or value is added to goods which are used as raw materials and at every such stage the raw materials are consumed. Take the case of b read. It passes through the first stage of production when wheat is grown by the farmer, the second stage of production when wheat is converted into flour by the miller and the third stage of production when flour is utilised by the baker to manufacture bread out of it. The miller and the baker have consumed wheat and flour respectively in the course of their business. We have to understand the word consumes in section 6(i) of the Act in this economic sense. It may be interesting to note that this is the basis of the levy of Value Added Tax, popularly called as VAT, which is levied as an alternative to tax on turnover in some Westernit is not disputed that the sales of paddy, which is a taxable commodity, in favour of the assessees had not suffered tax under section 5 in view of the circumstances in which they had taken place and it is held that the assessees had consumed paddy in the manufacture of rice which was a different commercial commodity for sale, the case of the assessees squarely falls under section 6(i) of the Act. The charge under section 6(i) should, therefore, be given dueis next contended that since the assessees would be exposed to double taxation both as buyers of paddy and as sellers of rice we should hold that the levy in question is impermissible because paddy and rice are liable to be taxed at a single point. No pro vision is shown to us which bars such taxation when the commodities are different. In fact, in this case there is no double taxation on the same commodity.Paddy and rice have been held to be different commodities by this Court in Ganesh Trading Co., Karnal v. State of Haryana &Anr. in which it is observedthe question for our decision is whether it could be said that when paddy was dehusked and rice was produced its identity remained. It was true that rice was produced out of paddy but it is not true to say that paddy continued to be paddy even after dehusking. It had changed its identity. Rice is not known as paddy. It is a misnomer to call rice as paddy. They are two different things in ordinary parlance. Hence quite clearly when paddy is dehusked and rice produced, there has been a change in the identity of theabove view has been followed by this Court in Babu Ram Jagdish Kumar and Co. v. The State of Punjab &Ors.5. It is unfortunate that the High Court as well as the Tribunal have tried to distinguish the decision of t his Court in Ganesh Trading Co.s case (supra) on insubstantial grounds, a detailed reference to which is unnecessary We reiterate the view expressed in the above two cases and hold that paddy and rice are two distinct commodities and that the milling of paddy involves a manufacturing process.