Case: Shaw Wallace &amp; Co. Ltd Vs. State Of Tamil Nadu

2. The appellant, Tvl. Shaw Wallace & Co. Ltd., a public limited company, is a registered dealer under the Act and is an assessee on the rolls of the Commercial Tax Officer IV, Central Assessment Circle-23, Madras. Amongst other things, the appellant manufactures and deals in chemical fertilisers. It also prepares fertiliser mixtures. For the assessment years 1969-70 and 1970-71, and appellant claimed exemption on a turnover of Rs. 2, 35, 01, 129.47 and Rs. 2, 07, 94, 490.73 respectively relating to sales of fertiliser mixtures. The case of the appellant was that as the fertiliser mixtures were prepared by dry mixing of various chemical fertilisers (shown as sub-item (1) to (15) of serial No. 21 of First Schedule to the Act) according to the standard formula approved by the Director of Agriculture at its mixing works manually by means of shovels and as the resultant product could not be said to be a commodity different from the ingredients composing it which had been purchased within the State and had suffered tax under item No. 21 of the First Schedule to the Act, they could not be taxed again. The assessing officer disallowed the exemption on the entire turnover for the year 1969-70. He, however, allowed exemption on a turnover of Rs. 1, 65, 44, 223.73, which represented the mixture should after August 6, 1970, the date when the Tamil Nadu General Sales Tax (Third Amendment) Act (26 of 1970) amending item 21 of the Schedule came into force. On appeal, the Appellate Assistant Commissioner (CT) I, Madras City, found that part of the ingredients which went into the production of fertiliser mixtures had suffered tax under the Act. He, therefore, allowed exemption on the turnover which had suffered tax by following the earlier decision of the Sales Tax Appellate Tribunal dated July 27, 1972 in the case of Rallis India Ltd. T.A. No. 114 of 1971, where it was held that there is no manufacture and resultant product, viz., manure mixture is not a different product than the ingredients constituting it, which have already suffered tax. The exemption allowed by the Appellate Assistant Commissioner for the years 1969-70 and 1970-71 amounted to Rs. 1, 20, 18, 842.80 and Rs. 42, 38, 182.90 respectively. The appellant filed further appeals for both the years under section 36(1) of the Act before the Tamil Nadu Sales Tax Appellate Tribunal against the orders of the Appellate Assistant Commissioner. The State of Tamil Nadu also filed enhancement petitions. Since the earlier order of the Sales Tax Appellate Tribunal dated July 27, 1972, in T.A. No. 114 of 1971, which was the basis of the relief granted by the Appellate Assistant Commissioner, was reversed by the Madras High Court vide its judgment dated September 18, 1973, in State of Tamil Nadu vs. Rallis India Ltd. (T.C. No. 18 of 1973) (1), the Sales Tax Appellate Tribunal by its orders Nos. 1138/1139 of 1972 dated February 21, 1974, cancelled the relief granted to the appellant by the Appellate Assistant Commissioner. The appellant thereupon took the matter in revision to the Madras High Court under section 38 of the Act but its applications were dismissed at the stage of admission by that court on March 5, 1974 in the light of its earlier judgment dated September 18, 1973, in State of Tamil Nadu vs. Rallis India Ltd. (T.C. No. 18 of 1973 (Revision No. 6 of 1973), where it was observed :Each of the component articles and the manure mixture have different chemical properties of their own and their use also is different. It is not, therefore, possible to treat the manure mixture as the same article as the components themselves ........ Whether the process adopted (in the preparation of manure mixture) is manufacture or otherwise, if the resultant product obtained by mixing the various articles of chemical fertilisers referred to in item 21 is sold as a different commercial product and for a different user, it has to be treated as a different article from the components3. In rendering this decision, the Madras High Court relied on the ratio of the decision of its own Court in Imperial Fertiliser and Company vs. State of Madras to the effect that if the mixture sold has different chemical properties and is treated as a different commodity in commerce, its sale cannot be taken to be a second sale of chemical fertiliser merely because the components have suffered tax at an earlier stage as chemical fertilisers4. After failing to obtain a certificate of fitness for appeal to this Court, the appellant applied for special leave to this Court, which was granted, vide order dated March 15, 1974.

Court's reasoning:
8. A plain reading of the above-mentioned, provisions would show that it is only when a chemical fertiliser specified in sub-items (1) to (15) of item No. 21 of the First Schedule is sold in the same condition in which it is purchased that it is not subject to a fresh levy. Fertiliser mixture, it would be noted, is not the same article as the ingredients composing it. It is sold as a different commercial product. It is put to a different use and has different chemical properties. As such, it has to be treated as a different article from its component parts13. In regard to the test for determining the taxable events in relation to the sales tax, the same learned brother observed as follows :-The mere fact that the substance or raw material out of which it is made has also been taxed in some other form, when it was sold as a separate commercial commodity, would make no difference for purposes of the law of sales tax. The object appears to us to be to tax sales of goods of each variety and not the sale of the substance out of which they are made .... As soon as separate commercial commodities emerge or come into existence, they become separately taxable goods or entities for purposes of sales tax .... The law of sales tax is also concerned with goods of various descriptions. It, therefore, becomes necessary to determine when they cease to be goods of one taxable description and become those of a commercially different category and description14. As in the instant cases, the mixtures produced by the appellant are different from their component parts, their properties and uses are also different and they are sold as different commercial products, the appellant was not entitled to the exemption claimed by it.