REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4003 OF 2007
HINDUSTAN LEVER LTD. …APPELLANT
Versus
STATE OF KARNATAKA …RESPONDENT
J U D G M E N T
R.F.Nariman, J.
1. The appellant is a public limited company having a tea manufacturing
unit at Dharwad and various other units which also manufacture tea.
The tea manufactured by the appellant is of three types, namely,
packet tea, tea in tea bags, and quick brewing black tea. It is
claimed that the Dharwad Unit, as opposed to the other units
manufacturing tea, is a new unit and is, therefore, exempt altogether
from payment of entry tax on packing material of tea under a
notification dated 31.3.1993 issued under Section 11A of the Karnataka
Tax on Entry of Goods Act, 1979 (hereinafter referred to as the
“Karnataka Entry Tax Act”). Insofar as the other units are concerned,
it is the case of the appellant they are covered by Explanation II to
a Notification dated 23.9.1998 issued under Section 3 of the said Act,
and “packing material” being covered by the said Explanation would
entitle them to pay entry tax at the rate of 1% and not 2%. In these
appeals, we are concerned with three assessment years 1994-1995, 1995-
1996 and 1996-1997.
2. The question that arises for decision in this appeal is whether
“packing materials” which enter the local area for consumption
therein, that is for packing tea that is manufactured by the
appellant, can be said to be raw material, components, or inputs used
in the manufacture of tea. In order to answer this question, it is
necessary to first set out the relevant provisions of the Karnataka
Entry Tax Act. They are as follows:
“2. Definitions.- (A) In this Act, unless the context otherwise
requires,-
(4a) goods means all kinds of moveable property (other than
newspapers, actionable claims, stocks and shares and securities)
and includes livestock;
(7) “Schedule” means a schedule appended to this Act;
(8) “tax” means tax leviable under this Act;
(8a) ‘Value of the goods’ shall mean the purchase value of
such goods that is to say, the purchase price at which a dealer
has purchased the goods inclusive of charges borne by him as
cost of transportation, packing, forwarding and handling
charges, commission, insurance, taxes, duties and the like, or
if such goods have not been purchased by him, the prevailing
market price of such goods in the local area.
(B) Words and expressions used in this Act, but not
defined, shall have the meaning assigned to them in the
Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957.)
3. Levy of tax.- (1) There shall be levied and collected a
tax on entry of any goods specified in the FIRST SCHEDULE into a
local area for consumption, use or sale therein, at such rates
not exceeding five percent of the value of the goods as may be
specified retrospectively or prospectively by the State
Government by notification and different dates and different
rates may be specified in respect of different goods or
different classes of goods or different local areas.
11A. Power of State Government to exempt or reduce tax.-
(1) The State Government may, if in its opinion it is necessary
in public interest so to do, by notification and subject to such
restrictions and conditions and for such period as may be
specified in the notification, exempt or reduce either
prospectively or retrospectively the tax payable under this Act,-
(i) by any specified class of persons or class of
dealers or in respect of any goods or class of goods; or
(ii) on entry of all or any goods or class of goods into
any specified local area.
(2) The State Government may, by notification cancel or vary any
notification issued under sub-section (1).
(3) Where any restriction or condition specified under sub-
section (1) is contravened or is not observed by a dealer or a
declaration furnished under the said sub-section is found to be
wrong, then such dealer shall be liable to pay by way of penalty
an amount equal to twice the difference between the tax payable
at the rates specified by or under the Act and the tax paid at
the rates specified under the notification on the value of such
goods in respect of which such contravention or non-observance
has taken place or a wrong declaration is furnished:
Provided that before taking action under the sub-section
the dealer shall be given a reasonable opportunity of being
heard.
FIRST SCHEDULE
(See Section 3 (1))
66. Packing materials namely :-
(i) fibre board cases, paper boxes, folding cartons, paper
bags, carrier bags and card board boxes, corrugated board boxes
and the like.
(ii) tin plate containers (cans, tins and boxes) tin sheets,
aluminium foil, aluminium tubes, collapsible tubes, aluminium or
steel drums, barrels and crates and the like ;
(iii) plastic, poly-vinyl chloride and polyethylene films
bottles, pots, jars, boxes, crates, cans, carboys, drums, bags
and cushion materials and the like ;
(iv) wooden boxes, crates, casks and containers and the like;
(v) gunny bags, bardan (including batars), hessian cloth, and
the like ;
(vi) glass bottles, jars and carboys and the like ;
(vii) laminated pacing materials such as bitumanised paper and
hessian based paper and the like;
80. Raw materials component parts and inputs which are used in
the manufacture of an intermediate or finished product.”
3. Under Section 11A of the Act, a Notification dated 31.3.1993,
exempting raw materials, component parts, and inputs entering a local
area for use in the manufacture of an intermediate or finished
product, was promulgated. It reads as under:
“Entry tax on raw materials, etc. for use in manufacture of
goods by new industrial units – Exemption (Karnataka)
Notification III No.FD.11.CET 93 dated the 31st March,1993
[Public in Karnataka Gazette, Extraordinary No. 201, Part 4-
C(ii) dated 31st March, 1993]
In exercise of the powers conferred by section 11-A of the
Karnataka Tax on Entry of Goods Act, 1979 the Government of
Karnataka being of the opinion that it is necessary in the
public interest so to do, hereby exempts with effect from the
first day of April, 1993 the tax payable under the said act, on
the entry of raw materials, component parts and inputs and
machinery and its parts into a local area for use in the
manufacture of an intermediate or finished product by the new
industrial units mentioned in column (2) of the Table below
located in the zones specified in column (3) and for the period
mentioned in Column (4) thereof.
TABLE
|Sl.No.|Type of Industry |Location of Industry |Period of exemption |
|1 |2 |3 |4 |
| | | | |
|1. |Tiny/Small/medium|Situated in Zone-III |4 years from the date of|
| |and large scale |specified in annexure-I|commencement of |
| |industrial units |to Government Order No.|commercial production or|
| | |CI/138 SPC/90, dated |4 years from the date of|
| | |27.9.1990 |commencement of this |
| | | |notification whichever |
| | | |is later. |
|2. |Tiny/small/medium|Situated in Zone-IV |5 years from the date of|
| |and large scale |specified in annexure I|commencement of |
| |industrial units |to Government Order No.|commercial production or|
| | |CI/138/SPC/90, dated |5 years from the date of|
| | |27.9.1990 |commencement of this |
| | | |notification whichever |
| | | |is later. |
|3. |Tiny/small scale/|Situated in Zone-III |5 years from the date of|
| |Medium and large |specified in annexure I|commencement of |
| |scale industrial |to Government Order No.|commercial production |
| |units in the |CI/138/SPC/90, dated |OR |
| |thrust sector as |27.9.1990 |5 years from the date of|
| |defined in | |commencement of this |
| |annexure-II to | |notification whichever |
| |G.O. No. | |is later. |
| |CI.138/SPC/90, | | |
| |dated 27.9.1990 | | |
|4. |Tiny/small scale/|Situated in Zone-IV |6 years from the date of|
| |Medium and large |specified in annexure-I|commencement of |
| |scale industrial |to Government Order No.|commercial production, |
| |units in the |CI/138/SPC/90, dated |OR |
| |thrust sector as |27.9.1990 |6 years from the date of|
| |defined in | |commencement of this |
| |Annexure II to | |notification whichever |
| |G.O. No. | |is later. |
| |CI.138/SPC/90, | | |
| |dated 27.9.1990 | | |
____________________________________________________________________________
_________
Explanation – (1) For the purpose of this notification “a new
industrial unit” shall have the same meaning assigned to it in
Notification No. FD 239 CSL 90(1) dated 19th June, 1991, issued
under Section 8-A of the Karnataka Sales Tax Act, 1957.
(2) The provisions of the notification shall not apply to a
unit to which the provisions of Notification No. FD 239 CSL
90(1) dated 19th June, 1991 issued under Section 8-A of the
Karnataka Salex Tax Act, 1957 shall not apply.
(3) The procedure specified in Notification No. FD 239 CSL
90(1), dated 19th June, 1991 issued under Section 8-A of the
Karnataka Sales Tax Act, 1957 for claiming exemption under that
notification shall mutates mutandis apply to a industrial unit
claiming exemption under this notification.”
4. By a notification dated 31.3.1994, various goods which entered a
local area were charged at different rates of entry tax. This
notification was struck down by the High Court as violating Article
301 of the Constitution, and hence, the State Government came out with
notification dated 23.9.1998 to cure the defects pointed out by the
High Court, and was for the period dated 1.4.1994 to 6.1.1998. The
aforesaid notification reads as follows:
“SI No.104
No. FD 112 CET 98, Bangalore, dated 23rd September, 1998
In exercise of the powers conferred by sub-section (1) of
Section 3 of the Karnataka Tax on Entry of Goods Act, 1979
(Karnataka Act 27 of 1979), the Government of Karnataka, hereby
specify that with effect from the First day of April, 1994 and
upto 6th day of January, 1998, tax shall be levied and collected
under the said Act on the entry of goods specified in column (2)
of the table below into a local area from any place outside the
State of consumption or use therein, at the rates specified in
the corresponding entries in column ; (3), thereof:-
TABLE
Sl. No. Commodity
Rate of tax
1 2 3
3. Packing material namely:
(i) Fibre board cases, paper boxes, Folding 2%
cartons, paper bags, carrier bags and
card board boxes, corrugated board boxes
and the like;
(ii) Tin plate containers (cans, tins and 2%
boxes), tin sheets, aluminium foil,
aluminium tubes, collapsible tubes,
aluminium or steel drums, barrels and crates
and the like:
(iii) Plastic, polyvinyl chloride and polyethylene
2%
firms, bottles, pots, jars, boxes, crates, cans,
carboys, drums, bags and cushion materials
and the like;
(iv) Wooden boxes, crates, casks and containers
2%
and the like;
(v) Gunny bags, bardan (including batars) hessian 2%
cloth and the like;
(vi) Glass bottles, jars and carboys and the like;
2%
(vii) Laminated packing materials, such as bluminised 2%
paper and hessian-based paper and the like;
4. Raw materials, component parts and inputs 1%
are used in the manufacture of an intermediate
of finished product.
Explanation I – The words “raw materials, component parts and
any other inputs” do not include exempted goods which are
specified in the Schedule, horticultural produce, cereals,
pulses, oil seeds including copra and cotton seeds, timber or
wood of any species, newsprint, silk cocoons, raw, thrown or
twisted silk, tobacco (whether raw or cured) and blended yarn,
man-made filament yarn, man-made fibre yarn, man-made fibre,
woolen yarn and woolen blended yarn, washed cotton seed oil, non-
refined edible oil, rice bran and oil cake and such other goods
as may be notified by the State Government from time to time.
Explanation II – If any of the goods liable to tax under this
Act are brought into a local area for use or consumption as raw
materials, component parts and inputs in the manufacture of an
intermediate or finished product, the tax payable on such goods
shall be at the rate of one percent.”
5. All the authorities under the Entry Tax Act i.e. the Assessing
Authority, the First Appellate Authority and the Karnataka Appellate
Tribunal have held that packing material cannot be regarded as raw
material, component parts or inputs used in the manufacture of finished
goods and, therefore, in the context of the Entry Tax Act read with
Schedule I, such packing material is neither exempt nor chargeable at the
rate of 1% on a true construction of the aforesaid notifications of 1993
and 1998. The High Court in turn has dismissed the revision petitions
filed under the statute by the assessee following their own judgment in
Nestle India Ltd. v. State of Karnataka, a Division Bench judgment of the
Karnataka High Court dated 22.3.2006. This is how the appellants have come
before us in the present civil appeals.
6. Shri Arvind Datar and Shri Kavin Gulati, learned senior
advocates, strenuously argued before us that the judgment in the
Nestle case, which was followed in the instant case, was incorrect
inasmuch as according to them “packing material” is clearly an
“input”, if not a component part of manufactured tea, and would,
therefore, qualify for exemption and/or lesser rate of tax as the case
may be. They also argued that Explanation II to the Notification of
23.9.1998 made the position clear that even though packing material
may be covered under item 3 of the said Notification, yet, as it is an
input in the manufacture of the finished product tea, it would be
covered by Explanation II, and therefore would be taxable at the rate
of 1% and not 2%. They further argued that words and expressions that
are not defined under the Entry Tax Act but which are defined in the
Karnataka Sales Tax Act, 1957 would have to be borrowed for the
purpose of the Entry Tax Act. In this regard, in particular, they
relied upon Section 5A of the Karnataka Sales Tax Act, and in
particular Explanation I to the aforesaid Section which defined
“industrial inputs” as meaning either a “component part” or “raw
material” or “packing materials”, and argued that packing material has
been recognized as an input under the Karnataka Sales Tax Act, and
should be so recognized under the Entry Tax Act read with the two
notifications aforesaid. They also cited a large number of judgments
of this Court and of the High Court to buttress their submission that
packing material would certainly come within the expression “input”
and would therefore be covered by the aforesaid two notifications.
Shri Kavin Gulati also specifically pointed out the Tea Marketing
Control Order, 2003 made under Section 30 of the Tea Act, 1953 in which,
“manufacturer” has been defined as a person who also produces value added
products commercially known as tea, that is packet tea, tea box, etc., and
therefore went on to argue that it is obvious that packing material used to
market tea would necessarily be included.
7. Shri Patil, learned senior advocate appearing on behalf of the State
of Karnataka, countered these submissions, and stated that the High Court
was absolutely correct in interpreting the Entry Tax Act and the two
notifications in the manner that it did in Nestle case. He argued that the
context of the Entry Tax Act is most important and that decisions relatable
to the Central Excise Act and to Sales Tax statutes would not therefore
apply. His primary argument was that Schedule I of the Entry Tax Act
itself made a clear distinction between packing materials, on the one hand,
and raw materials, component parts and inputs, on the other, the Schedule
making it clear that they were distinct and separate goods. He further
adverted to the definition of the expression “goods” contained in the Entry
Tax Act and argued that unlike in the Central Excise Act and in Sales Tax
statutes, goods need not be marketable, the definition confining goods to
“movable property” without more. He also argued that adverting to Section
5A of the Karnataka Sales Tax Act would be of no help in the facts of the
present case inasmuch as we are not concerned with “industrial inputs” but
inputs as understood by the Entry Tax Act read with Schedule I. According
to him all the judgments cited by the appellants were distinguishable in
that none of them pertain to any entry tax statute but were all under the
Central Excise Act or Sales Tax statutes.
8. Having heard learned counsel for the parties, it is important to go
back to a few fundamentals. As has been explained in Escorts Limited v.
CCE, (2015) 9 SCC 109, the definition of “manufacture” in the Central
Excise Act is dependent upon the definition of “goods” defined by the
Constitution in Article 366(12). This Court has therefore held:-
“It is clear on a reading of this Entry that a duty of excise is
only leviable on “goods” manufactured or produced in India.
“Goods” has been defined under Article 366(12) as follows:
“366.Definitions.—In this Constitution, unless the context
otherwise requires, the following expressions have the meanings
hereby respectively assigned to them, that is to say—
***
(12) ‘goods’ includes all materials, commodities and
articles;”
Each of these three expressions has been defined in Shorter
Oxford English Dictionary as follows:
“Materials”.—the matter of which a thing is or may be made;
the constituent parts of something.
“Commodities”.—a thing of use or value; a thing that is an
object of trade; a thing one deals in or makes use of.
“Articles”.—a particular item of business.
Although the definition of “goods” is an inclusive one, it is
clear that materials, commodities and articles spoken of in the
definition take colour from one another. In order to be “goods”
it is clear that they should be known to the market as
materials, commodities and articles that are capable of being
sold.
In the basic judgment which has been referred to in every excise
case for conceptual clarity, namely, Union of India v. Delhi
Cloth & General Mills Co. Ltd. [(1977) 1 ELT 199 : AIR 1963 SC
791 : 1963 Supp (1) SCR 586] , this Court held that for excise
duty to be chargeable under the constitutional entry read with
Section 3 of the Central Excise and Salt Act, two prerequisites
are necessary. First, there must be “manufacture” which is
understood to mean the bringing into existence of a new
substance. And secondly, the word “goods” necessarily means that
such manufacture must bring into existence a new substance known
to the market as such which brings in the concept of
marketability in addition to manufacture. …” [paras 8-11]
9. However, on a perusal of the definition of “goods” in Section
2(A)(4a) of the Entry Tax Act, the said definition is an exhaustive one
including all kinds of movable property and livestock. It is obvious from
a reading of this definition that marketability does not appear to be a
sine qua non for something to qualify as “goods” under the Entry Tax Act,
unlike the Central Excise Act, and this basic fact will have to be kept in
view while dealing with some of the judgments that have been cited before
us. This is for the reason that anything that is tangible, without more,
and enters a local area for consumption, sale or use therein is taxable,
the taxable event being ‘entry’ and not ‘manufacture’ of goods, which, as
has been noticed hereinabove, brings in the concept of marketability in the
context of a duty of excise, which is absent in the context of entry tax.
We might also add that Section 2(A)(8a) wherein the “value of the goods” is
defined, also makes a distinction between “goods” as such, and “packing
material”, making it clear that charges borne by a dealer as cost of
packing would have to be included in the “value of goods”. In the context
of the Entry Tax Act, the difference between ‘goods’ used in the
manufacture of goods and “packing material” is also brought out by Schedule
I. Packing materials are separately defined in Entry 66. On the other
hand, raw materials, component parts and inputs, which are used in the
manufacture of an intermediate or finished product, are separately and
distinctively given in Entry 80 thereof. The context of the Entry Tax Act
therefore is clear. When raw materials, component parts and inputs are
spoken of, obviously they refer to materials, components and things which
go into the finished product, namely, tea in the present case, and cannot
be extended to cover packing materials of the said tea which is separately
provided for by the aforesaid Entry 66.
10. The notification dated 23.9.1998 issued under Section 3 uses
identical language as that contained in Entries 66 and 80 of Schedule I to
the Entry Tax Act. Equally, notification dated 31.3.1993 is an exemption
notification issued under Section 11A which also uses the identical
language of Entry 80 of Schedule I. This being the case, it is clear that
neither notification can be read to include “packing material” as “raw
materials, component parts or inputs used in the manufacture” of tea.
11. This brings us to an argument made by learned counsel for the
appellants on the correct construction of Explanation II to the
notification dated 23.9.1998.
12. What has first to be seen is that packing material, and raw
materials, component parts and inputs are separately provided for
under the Schedule to the Act. The same is also true of the aforesaid
Notification. Packing material is contained in Entry 3 of the table
whereas raw materials, component parts and inputs are contained in
Entry 4. The rate at which they are taxed is also different – packing
materials at 2%, whereas raw materials, components parts and inputs
are taxed at 1%. This being so, the reason for inclusion of
Explanation II appears to be that goods which are liable to tax, being
finished goods in themselves, may yet be brought into a local area for
use or consumption as raw material, component parts and inputs in the
manufacture of an intermediate or finished product. It is only such
goods that are liable to be taxed at the rate of 1%. It is difficult
to accept the argument on behalf of the appellants that Explanation II
makes it clear that though packing materials may be liable to tax at
2%, yet if they fall in Explanation II, they would be liable to tax at
the rate of 1%. This would fly in the face of the scheme of Schedule
I of the statute which, as has been held earlier, makes it clear that
in no case can packing materials be said to be raw materials,
component parts or inputs used in the manufacture of finished goods.
For this reason alone we find it difficult to construe the
notification dated 23.9.1998 in the manner suggested by the
appellants.
13. Even otherwise, there is no such Explanation II contained in the
exemption notification dated 31.3.1993. This being the case, if we were to
accept the case of the appellants, they would be liable to tax at the rate
of 1% under the 1998 notification but would not be exempt under the 1993
notification, thus rendering the same packing material liable to tax at the
rate of 2% in the case of the Dharwad unit and 1% in the case of all other
units. This would lead to an anomalous situation which can best be avoided
by not accepting the argument on behalf of the appellants.
14. Equally, the argument based on Section 5A of the Karnataka Sales Tax
Act is fallacious in that it is only for the purpose of “industrial inputs”
that packing materials are included, and forms a separate scheme of
taxation under the Sales Tax statute. We cannot accede to the argument that
de hors the context of the Entry Tax Act, we should accept that industrial
inputs include packing materials and that therefore, by parity of
reasoning, “inputs” under the Entry Tax Act should also include packing
material. This argument has therefore correctly been turned down by the
High Court of Karnataka in the Nestle case.
15. We have now to deal with the judgments cited on behalf of the
appellants. In Government of Andhra Pradesh v. Guntur Tobaccos Ltd., [15
STC 240], this Court had to decide as to whether the use of packing
material should be regarded as execution of a works contract and not as a
sale. This Court held on the facts in that case that packing material was
part of the process of re-drying tobacco as it was necessary to pack it in
a waterproof material to protect it from heat and humidity, so as to store
tobacco for a sufficiently long period to avoid fermentation, and to make
the tobacco mature for use in cigarettes, cigars, etc. The context of the
judgment is entirely different from the facts contained in the present case
and would thus have no relevance. Learned counsel for the appellants tried
to draw succour from this judgment stating that the idea of packing tea is
also to keep out moisture. While that may be so, that single fact cannot
lead to a conclusion that would drive a coach and four through the scheme
of the Entry Tax Act.
16. Brooke Bond Lipton India Ltd. v. State of Karnataka, 109 STC 265, was
cited next. This is a High Court judgment under the Karnataka Sales Tax
Act, in which it was stated that packaging led to value addition for the
purpose of excise and sales tax, and that it was a possible view that
packaged blended tea produced in the industrial unit of the appellant is a
manufactured product in which packing materials are inputs. This was in the
context of exemption notifications under the Sales Tax Act. As can be seen
from paragraph 26 of the aforesaid judgment, the questions involved in that
case were entirely different. Also, the test of what is “manufacture” was
borrowed from the Central Excise Act as can be seen from paragraph 48 of
the judgment. The High Court points to a new dimension to the word
“manufacture” in the context of excise which would therefore include within
it packing material as well in order that the goods be made marketable.
This, as we have seen above, cannot be done in the context of the Entry Tax
Act.
17. In Tata Engineering & Locomotive Co. Ltd. (TELCO) v. State of
Bihar, (1994) 6 SCC 479, this Court had to deal with a notification
issued by the State of Bihar in the context of sales tax. The
expression “raw material” and “input” was used in the notification.
This Court held, following J.K. Cotton Spinning & Weaving Mills Co.
Ltd. v. S.T.O., (1965) 1 SCR 900, that the expression “in the
manufacture of goods” would normally encompass the entire process
carried on by the dealer of converting raw materials into finished
products. The precise question before this Court was whether products
finished in themselves, such as tyres, tubes, batteries, etc., when
purchased by the appellant for use in the manufacture of vehicles,
could be said to be inputs. This Court held that as a vehicle cannot
be operative without tyres, tubes, and batteries, obviously they were
inputs in the sense of the dictionary meaning of what is “put in”.
Both the fact situation and the ratio of this judgment are far removed
from the facts in the present case inasmuch as it is nobody’s case
that without the packing material manufactured tea cannot be said to
exist as a finished product, it being “moveable property” and
therefore “goods” under the Karnataka Entry Tax Act. This judgment is
also therefore of no avail to the appellant.
18. M/s. Star Paper Mills Ltd. v. CCE, Meerut, (1989) 4 SCC 724, is an
excise case in which an exemption Notification exempted goods used as
component parts in manufacture of any goods on which excise duty was
leviable. This judgment defines the word “component” to mean a constituent
part. In this context, it was held that paper core is a component part of
paper delivered to the customer in rolls, but not in sheets as it was not
necessary for manufacture of paper sheets. This case would have no
application to the facts of the present case. It is obvious that packing
material used to pack a product complete in itself, cannot possibly be
included in the word “component” as it is not a constituent part of
manufactured tea.
19. Three other judgments under the Central Excise Act were cited.
The first of them, CCE v. M/s. Eastend Paper Industries Ltd., (1989) 4
SCC 244, was concerned with the marketability aspect of central excise
which, as has been held by us above, would not apply in the context of
the Entry Tax Act. In that judgment, paper wrapping was held to be
essential to make the concerned goods marketable. The second of these
judgments CCE v. Ballarpur Industries Limited, (1989) 4 SCC 566, again
concerned a completely different fact situation. The question in that
case was whether an admitted input, Sodium Sulphate, in the
manufacture of paper, would not be construed to be a raw material only
by reason that in the course of chemical reactions Sodium Sulphate is
consumed and burnt up. This Court held that consumption and burning
up would make no difference, as an ‘input’ need not always manifest
itself in the final product. And in H.M.M. Ltd. V. CCE, (1994) 6 SCC
594, it was held that a screw cap on a bottle containing Horlicks was
a component part of Horlicks, it being an essential ingredient to
complete the process of manufacture to make Horlicks marketable. This
judgment again will not apply for the same reason indicated above,
namely, that marketability is not relevant for the purpose of the
Entry Tax Act.
20. M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax
Officer, Kanpur, (1965) 1 SCR 900, is a judgment in which Section 8 of
the Central Sales Tax Act was pressed into aid on behalf of the
appellant. In this case, the question was whether drawing materials,
photographic materials etc. could be comprehended within the
expression “in the manufacture of goods for sale” within the meaning
of section 8(3)(b) of the Central Sales Tax Act, 1956. In order to
determine whether such materials would qualify as such, this Court
held that where any particular process is so integrally connected with
the ultimate production of goods that, but for that process,
manufacture or process of goods would be commercially inexpedient,
goods required in that process would fall within the expression “in
the manufacture of goods”. What has been said about the excise cases
squarely applies here. The expression used in Section 8 of the Central
Sales Tax Act is not “in the manufacture of goods”, but “in the
manufacture of goods for sale”, bringing in the element of
marketability.
21. It only remains to deal with the argument made on behalf of the
appellant based on the Tea Marketing Control Order. Needless to add, a
manufacturer for the purpose of the said Order is specifically a person who
produces value added products commercially known as tea. The context of
the said definition is for the purpose of registering manufacturers or
producers and buyers of tea, having relevance therefore to the sale aspect
of tea. As has already been held by us, the context of entry tax being
different, we are afraid this argument also does not avail the appellant.
22. We are, therefore, of the view that the High Court was correct
in following its own earlier Division Bench judgment in the Nestle
case. This appeal is, accordingly, dismissed.
..............................J
.
(A.K. SIKRI)
..............................J
.
(R.F. NARIMAN)
New Delhi;
September 2, 2016
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4003 OF 2007
HINDUSTAN LEVER LTD. …APPELLANT
Versus
STATE OF KARNATAKA …RESPONDENT
J U D G M E N T
R.F.Nariman, J.
1. The appellant is a public limited company having a tea manufacturing
unit at Dharwad and various other units which also manufacture tea.
The tea manufactured by the appellant is of three types, namely,
packet tea, tea in tea bags, and quick brewing black tea. It is
claimed that the Dharwad Unit, as opposed to the other units
manufacturing tea, is a new unit and is, therefore, exempt altogether
from payment of entry tax on packing material of tea under a
notification dated 31.3.1993 issued under Section 11A of the Karnataka
Tax on Entry of Goods Act, 1979 (hereinafter referred to as the
“Karnataka Entry Tax Act”). Insofar as the other units are concerned,
it is the case of the appellant they are covered by Explanation II to
a Notification dated 23.9.1998 issued under Section 3 of the said Act,
and “packing material” being covered by the said Explanation would
entitle them to pay entry tax at the rate of 1% and not 2%. In these
appeals, we are concerned with three assessment years 1994-1995, 1995-
1996 and 1996-1997.
2. The question that arises for decision in this appeal is whether
“packing materials” which enter the local area for consumption
therein, that is for packing tea that is manufactured by the
appellant, can be said to be raw material, components, or inputs used
in the manufacture of tea. In order to answer this question, it is
necessary to first set out the relevant provisions of the Karnataka
Entry Tax Act. They are as follows:
“2. Definitions.- (A) In this Act, unless the context otherwise
requires,-
(4a) goods means all kinds of moveable property (other than
newspapers, actionable claims, stocks and shares and securities)
and includes livestock;
(7) “Schedule” means a schedule appended to this Act;
(8) “tax” means tax leviable under this Act;
(8a) ‘Value of the goods’ shall mean the purchase value of
such goods that is to say, the purchase price at which a dealer
has purchased the goods inclusive of charges borne by him as
cost of transportation, packing, forwarding and handling
charges, commission, insurance, taxes, duties and the like, or
if such goods have not been purchased by him, the prevailing
market price of such goods in the local area.
(B) Words and expressions used in this Act, but not
defined, shall have the meaning assigned to them in the
Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957.)
3. Levy of tax.- (1) There shall be levied and collected a
tax on entry of any goods specified in the FIRST SCHEDULE into a
local area for consumption, use or sale therein, at such rates
not exceeding five percent of the value of the goods as may be
specified retrospectively or prospectively by the State
Government by notification and different dates and different
rates may be specified in respect of different goods or
different classes of goods or different local areas.
11A. Power of State Government to exempt or reduce tax.-
(1) The State Government may, if in its opinion it is necessary
in public interest so to do, by notification and subject to such
restrictions and conditions and for such period as may be
specified in the notification, exempt or reduce either
prospectively or retrospectively the tax payable under this Act,-
(i) by any specified class of persons or class of
dealers or in respect of any goods or class of goods; or
(ii) on entry of all or any goods or class of goods into
any specified local area.
(2) The State Government may, by notification cancel or vary any
notification issued under sub-section (1).
(3) Where any restriction or condition specified under sub-
section (1) is contravened or is not observed by a dealer or a
declaration furnished under the said sub-section is found to be
wrong, then such dealer shall be liable to pay by way of penalty
an amount equal to twice the difference between the tax payable
at the rates specified by or under the Act and the tax paid at
the rates specified under the notification on the value of such
goods in respect of which such contravention or non-observance
has taken place or a wrong declaration is furnished:
Provided that before taking action under the sub-section
the dealer shall be given a reasonable opportunity of being
heard.
FIRST SCHEDULE
(See Section 3 (1))
66. Packing materials namely :-
(i) fibre board cases, paper boxes, folding cartons, paper
bags, carrier bags and card board boxes, corrugated board boxes
and the like.
(ii) tin plate containers (cans, tins and boxes) tin sheets,
aluminium foil, aluminium tubes, collapsible tubes, aluminium or
steel drums, barrels and crates and the like ;
(iii) plastic, poly-vinyl chloride and polyethylene films
bottles, pots, jars, boxes, crates, cans, carboys, drums, bags
and cushion materials and the like ;
(iv) wooden boxes, crates, casks and containers and the like;
(v) gunny bags, bardan (including batars), hessian cloth, and
the like ;
(vi) glass bottles, jars and carboys and the like ;
(vii) laminated pacing materials such as bitumanised paper and
hessian based paper and the like;
80. Raw materials component parts and inputs which are used in
the manufacture of an intermediate or finished product.”
3. Under Section 11A of the Act, a Notification dated 31.3.1993,
exempting raw materials, component parts, and inputs entering a local
area for use in the manufacture of an intermediate or finished
product, was promulgated. It reads as under:
“Entry tax on raw materials, etc. for use in manufacture of
goods by new industrial units – Exemption (Karnataka)
Notification III No.FD.11.CET 93 dated the 31st March,1993
[Public in Karnataka Gazette, Extraordinary No. 201, Part 4-
C(ii) dated 31st March, 1993]
In exercise of the powers conferred by section 11-A of the
Karnataka Tax on Entry of Goods Act, 1979 the Government of
Karnataka being of the opinion that it is necessary in the
public interest so to do, hereby exempts with effect from the
first day of April, 1993 the tax payable under the said act, on
the entry of raw materials, component parts and inputs and
machinery and its parts into a local area for use in the
manufacture of an intermediate or finished product by the new
industrial units mentioned in column (2) of the Table below
located in the zones specified in column (3) and for the period
mentioned in Column (4) thereof.
TABLE
|Sl.No.|Type of Industry |Location of Industry |Period of exemption |
|1 |2 |3 |4 |
| | | | |
|1. |Tiny/Small/medium|Situated in Zone-III |4 years from the date of|
| |and large scale |specified in annexure-I|commencement of |
| |industrial units |to Government Order No.|commercial production or|
| | |CI/138 SPC/90, dated |4 years from the date of|
| | |27.9.1990 |commencement of this |
| | | |notification whichever |
| | | |is later. |
|2. |Tiny/small/medium|Situated in Zone-IV |5 years from the date of|
| |and large scale |specified in annexure I|commencement of |
| |industrial units |to Government Order No.|commercial production or|
| | |CI/138/SPC/90, dated |5 years from the date of|
| | |27.9.1990 |commencement of this |
| | | |notification whichever |
| | | |is later. |
|3. |Tiny/small scale/|Situated in Zone-III |5 years from the date of|
| |Medium and large |specified in annexure I|commencement of |
| |scale industrial |to Government Order No.|commercial production |
| |units in the |CI/138/SPC/90, dated |OR |
| |thrust sector as |27.9.1990 |5 years from the date of|
| |defined in | |commencement of this |
| |annexure-II to | |notification whichever |
| |G.O. No. | |is later. |
| |CI.138/SPC/90, | | |
| |dated 27.9.1990 | | |
|4. |Tiny/small scale/|Situated in Zone-IV |6 years from the date of|
| |Medium and large |specified in annexure-I|commencement of |
| |scale industrial |to Government Order No.|commercial production, |
| |units in the |CI/138/SPC/90, dated |OR |
| |thrust sector as |27.9.1990 |6 years from the date of|
| |defined in | |commencement of this |
| |Annexure II to | |notification whichever |
| |G.O. No. | |is later. |
| |CI.138/SPC/90, | | |
| |dated 27.9.1990 | | |
____________________________________________________________________________
_________
Explanation – (1) For the purpose of this notification “a new
industrial unit” shall have the same meaning assigned to it in
Notification No. FD 239 CSL 90(1) dated 19th June, 1991, issued
under Section 8-A of the Karnataka Sales Tax Act, 1957.
(2) The provisions of the notification shall not apply to a
unit to which the provisions of Notification No. FD 239 CSL
90(1) dated 19th June, 1991 issued under Section 8-A of the
Karnataka Salex Tax Act, 1957 shall not apply.
(3) The procedure specified in Notification No. FD 239 CSL
90(1), dated 19th June, 1991 issued under Section 8-A of the
Karnataka Sales Tax Act, 1957 for claiming exemption under that
notification shall mutates mutandis apply to a industrial unit
claiming exemption under this notification.”
4. By a notification dated 31.3.1994, various goods which entered a
local area were charged at different rates of entry tax. This
notification was struck down by the High Court as violating Article
301 of the Constitution, and hence, the State Government came out with
notification dated 23.9.1998 to cure the defects pointed out by the
High Court, and was for the period dated 1.4.1994 to 6.1.1998. The
aforesaid notification reads as follows:
“SI No.104
No. FD 112 CET 98, Bangalore, dated 23rd September, 1998
In exercise of the powers conferred by sub-section (1) of
Section 3 of the Karnataka Tax on Entry of Goods Act, 1979
(Karnataka Act 27 of 1979), the Government of Karnataka, hereby
specify that with effect from the First day of April, 1994 and
upto 6th day of January, 1998, tax shall be levied and collected
under the said Act on the entry of goods specified in column (2)
of the table below into a local area from any place outside the
State of consumption or use therein, at the rates specified in
the corresponding entries in column ; (3), thereof:-
TABLE
Sl. No. Commodity
Rate of tax
1 2 3
3. Packing material namely:
(i) Fibre board cases, paper boxes, Folding 2%
cartons, paper bags, carrier bags and
card board boxes, corrugated board boxes
and the like;
(ii) Tin plate containers (cans, tins and 2%
boxes), tin sheets, aluminium foil,
aluminium tubes, collapsible tubes,
aluminium or steel drums, barrels and crates
and the like:
(iii) Plastic, polyvinyl chloride and polyethylene
2%
firms, bottles, pots, jars, boxes, crates, cans,
carboys, drums, bags and cushion materials
and the like;
(iv) Wooden boxes, crates, casks and containers
2%
and the like;
(v) Gunny bags, bardan (including batars) hessian 2%
cloth and the like;
(vi) Glass bottles, jars and carboys and the like;
2%
(vii) Laminated packing materials, such as bluminised 2%
paper and hessian-based paper and the like;
4. Raw materials, component parts and inputs 1%
are used in the manufacture of an intermediate
of finished product.
Explanation I – The words “raw materials, component parts and
any other inputs” do not include exempted goods which are
specified in the Schedule, horticultural produce, cereals,
pulses, oil seeds including copra and cotton seeds, timber or
wood of any species, newsprint, silk cocoons, raw, thrown or
twisted silk, tobacco (whether raw or cured) and blended yarn,
man-made filament yarn, man-made fibre yarn, man-made fibre,
woolen yarn and woolen blended yarn, washed cotton seed oil, non-
refined edible oil, rice bran and oil cake and such other goods
as may be notified by the State Government from time to time.
Explanation II – If any of the goods liable to tax under this
Act are brought into a local area for use or consumption as raw
materials, component parts and inputs in the manufacture of an
intermediate or finished product, the tax payable on such goods
shall be at the rate of one percent.”
5. All the authorities under the Entry Tax Act i.e. the Assessing
Authority, the First Appellate Authority and the Karnataka Appellate
Tribunal have held that packing material cannot be regarded as raw
material, component parts or inputs used in the manufacture of finished
goods and, therefore, in the context of the Entry Tax Act read with
Schedule I, such packing material is neither exempt nor chargeable at the
rate of 1% on a true construction of the aforesaid notifications of 1993
and 1998. The High Court in turn has dismissed the revision petitions
filed under the statute by the assessee following their own judgment in
Nestle India Ltd. v. State of Karnataka, a Division Bench judgment of the
Karnataka High Court dated 22.3.2006. This is how the appellants have come
before us in the present civil appeals.
6. Shri Arvind Datar and Shri Kavin Gulati, learned senior
advocates, strenuously argued before us that the judgment in the
Nestle case, which was followed in the instant case, was incorrect
inasmuch as according to them “packing material” is clearly an
“input”, if not a component part of manufactured tea, and would,
therefore, qualify for exemption and/or lesser rate of tax as the case
may be. They also argued that Explanation II to the Notification of
23.9.1998 made the position clear that even though packing material
may be covered under item 3 of the said Notification, yet, as it is an
input in the manufacture of the finished product tea, it would be
covered by Explanation II, and therefore would be taxable at the rate
of 1% and not 2%. They further argued that words and expressions that
are not defined under the Entry Tax Act but which are defined in the
Karnataka Sales Tax Act, 1957 would have to be borrowed for the
purpose of the Entry Tax Act. In this regard, in particular, they
relied upon Section 5A of the Karnataka Sales Tax Act, and in
particular Explanation I to the aforesaid Section which defined
“industrial inputs” as meaning either a “component part” or “raw
material” or “packing materials”, and argued that packing material has
been recognized as an input under the Karnataka Sales Tax Act, and
should be so recognized under the Entry Tax Act read with the two
notifications aforesaid. They also cited a large number of judgments
of this Court and of the High Court to buttress their submission that
packing material would certainly come within the expression “input”
and would therefore be covered by the aforesaid two notifications.
Shri Kavin Gulati also specifically pointed out the Tea Marketing
Control Order, 2003 made under Section 30 of the Tea Act, 1953 in which,
“manufacturer” has been defined as a person who also produces value added
products commercially known as tea, that is packet tea, tea box, etc., and
therefore went on to argue that it is obvious that packing material used to
market tea would necessarily be included.
7. Shri Patil, learned senior advocate appearing on behalf of the State
of Karnataka, countered these submissions, and stated that the High Court
was absolutely correct in interpreting the Entry Tax Act and the two
notifications in the manner that it did in Nestle case. He argued that the
context of the Entry Tax Act is most important and that decisions relatable
to the Central Excise Act and to Sales Tax statutes would not therefore
apply. His primary argument was that Schedule I of the Entry Tax Act
itself made a clear distinction between packing materials, on the one hand,
and raw materials, component parts and inputs, on the other, the Schedule
making it clear that they were distinct and separate goods. He further
adverted to the definition of the expression “goods” contained in the Entry
Tax Act and argued that unlike in the Central Excise Act and in Sales Tax
statutes, goods need not be marketable, the definition confining goods to
“movable property” without more. He also argued that adverting to Section
5A of the Karnataka Sales Tax Act would be of no help in the facts of the
present case inasmuch as we are not concerned with “industrial inputs” but
inputs as understood by the Entry Tax Act read with Schedule I. According
to him all the judgments cited by the appellants were distinguishable in
that none of them pertain to any entry tax statute but were all under the
Central Excise Act or Sales Tax statutes.
8. Having heard learned counsel for the parties, it is important to go
back to a few fundamentals. As has been explained in Escorts Limited v.
CCE, (2015) 9 SCC 109, the definition of “manufacture” in the Central
Excise Act is dependent upon the definition of “goods” defined by the
Constitution in Article 366(12). This Court has therefore held:-
“It is clear on a reading of this Entry that a duty of excise is
only leviable on “goods” manufactured or produced in India.
“Goods” has been defined under Article 366(12) as follows:
“366.Definitions.—In this Constitution, unless the context
otherwise requires, the following expressions have the meanings
hereby respectively assigned to them, that is to say—
***
(12) ‘goods’ includes all materials, commodities and
articles;”
Each of these three expressions has been defined in Shorter
Oxford English Dictionary as follows:
“Materials”.—the matter of which a thing is or may be made;
the constituent parts of something.
“Commodities”.—a thing of use or value; a thing that is an
object of trade; a thing one deals in or makes use of.
“Articles”.—a particular item of business.
Although the definition of “goods” is an inclusive one, it is
clear that materials, commodities and articles spoken of in the
definition take colour from one another. In order to be “goods”
it is clear that they should be known to the market as
materials, commodities and articles that are capable of being
sold.
In the basic judgment which has been referred to in every excise
case for conceptual clarity, namely, Union of India v. Delhi
Cloth & General Mills Co. Ltd. [(1977) 1 ELT 199 : AIR 1963 SC
791 : 1963 Supp (1) SCR 586] , this Court held that for excise
duty to be chargeable under the constitutional entry read with
Section 3 of the Central Excise and Salt Act, two prerequisites
are necessary. First, there must be “manufacture” which is
understood to mean the bringing into existence of a new
substance. And secondly, the word “goods” necessarily means that
such manufacture must bring into existence a new substance known
to the market as such which brings in the concept of
marketability in addition to manufacture. …” [paras 8-11]
9. However, on a perusal of the definition of “goods” in Section
2(A)(4a) of the Entry Tax Act, the said definition is an exhaustive one
including all kinds of movable property and livestock. It is obvious from
a reading of this definition that marketability does not appear to be a
sine qua non for something to qualify as “goods” under the Entry Tax Act,
unlike the Central Excise Act, and this basic fact will have to be kept in
view while dealing with some of the judgments that have been cited before
us. This is for the reason that anything that is tangible, without more,
and enters a local area for consumption, sale or use therein is taxable,
the taxable event being ‘entry’ and not ‘manufacture’ of goods, which, as
has been noticed hereinabove, brings in the concept of marketability in the
context of a duty of excise, which is absent in the context of entry tax.
We might also add that Section 2(A)(8a) wherein the “value of the goods” is
defined, also makes a distinction between “goods” as such, and “packing
material”, making it clear that charges borne by a dealer as cost of
packing would have to be included in the “value of goods”. In the context
of the Entry Tax Act, the difference between ‘goods’ used in the
manufacture of goods and “packing material” is also brought out by Schedule
I. Packing materials are separately defined in Entry 66. On the other
hand, raw materials, component parts and inputs, which are used in the
manufacture of an intermediate or finished product, are separately and
distinctively given in Entry 80 thereof. The context of the Entry Tax Act
therefore is clear. When raw materials, component parts and inputs are
spoken of, obviously they refer to materials, components and things which
go into the finished product, namely, tea in the present case, and cannot
be extended to cover packing materials of the said tea which is separately
provided for by the aforesaid Entry 66.
10. The notification dated 23.9.1998 issued under Section 3 uses
identical language as that contained in Entries 66 and 80 of Schedule I to
the Entry Tax Act. Equally, notification dated 31.3.1993 is an exemption
notification issued under Section 11A which also uses the identical
language of Entry 80 of Schedule I. This being the case, it is clear that
neither notification can be read to include “packing material” as “raw
materials, component parts or inputs used in the manufacture” of tea.
11. This brings us to an argument made by learned counsel for the
appellants on the correct construction of Explanation II to the
notification dated 23.9.1998.
12. What has first to be seen is that packing material, and raw
materials, component parts and inputs are separately provided for
under the Schedule to the Act. The same is also true of the aforesaid
Notification. Packing material is contained in Entry 3 of the table
whereas raw materials, component parts and inputs are contained in
Entry 4. The rate at which they are taxed is also different – packing
materials at 2%, whereas raw materials, components parts and inputs
are taxed at 1%. This being so, the reason for inclusion of
Explanation II appears to be that goods which are liable to tax, being
finished goods in themselves, may yet be brought into a local area for
use or consumption as raw material, component parts and inputs in the
manufacture of an intermediate or finished product. It is only such
goods that are liable to be taxed at the rate of 1%. It is difficult
to accept the argument on behalf of the appellants that Explanation II
makes it clear that though packing materials may be liable to tax at
2%, yet if they fall in Explanation II, they would be liable to tax at
the rate of 1%. This would fly in the face of the scheme of Schedule
I of the statute which, as has been held earlier, makes it clear that
in no case can packing materials be said to be raw materials,
component parts or inputs used in the manufacture of finished goods.
For this reason alone we find it difficult to construe the
notification dated 23.9.1998 in the manner suggested by the
appellants.
13. Even otherwise, there is no such Explanation II contained in the
exemption notification dated 31.3.1993. This being the case, if we were to
accept the case of the appellants, they would be liable to tax at the rate
of 1% under the 1998 notification but would not be exempt under the 1993
notification, thus rendering the same packing material liable to tax at the
rate of 2% in the case of the Dharwad unit and 1% in the case of all other
units. This would lead to an anomalous situation which can best be avoided
by not accepting the argument on behalf of the appellants.
14. Equally, the argument based on Section 5A of the Karnataka Sales Tax
Act is fallacious in that it is only for the purpose of “industrial inputs”
that packing materials are included, and forms a separate scheme of
taxation under the Sales Tax statute. We cannot accede to the argument that
de hors the context of the Entry Tax Act, we should accept that industrial
inputs include packing materials and that therefore, by parity of
reasoning, “inputs” under the Entry Tax Act should also include packing
material. This argument has therefore correctly been turned down by the
High Court of Karnataka in the Nestle case.
15. We have now to deal with the judgments cited on behalf of the
appellants. In Government of Andhra Pradesh v. Guntur Tobaccos Ltd., [15
STC 240], this Court had to decide as to whether the use of packing
material should be regarded as execution of a works contract and not as a
sale. This Court held on the facts in that case that packing material was
part of the process of re-drying tobacco as it was necessary to pack it in
a waterproof material to protect it from heat and humidity, so as to store
tobacco for a sufficiently long period to avoid fermentation, and to make
the tobacco mature for use in cigarettes, cigars, etc. The context of the
judgment is entirely different from the facts contained in the present case
and would thus have no relevance. Learned counsel for the appellants tried
to draw succour from this judgment stating that the idea of packing tea is
also to keep out moisture. While that may be so, that single fact cannot
lead to a conclusion that would drive a coach and four through the scheme
of the Entry Tax Act.
16. Brooke Bond Lipton India Ltd. v. State of Karnataka, 109 STC 265, was
cited next. This is a High Court judgment under the Karnataka Sales Tax
Act, in which it was stated that packaging led to value addition for the
purpose of excise and sales tax, and that it was a possible view that
packaged blended tea produced in the industrial unit of the appellant is a
manufactured product in which packing materials are inputs. This was in the
context of exemption notifications under the Sales Tax Act. As can be seen
from paragraph 26 of the aforesaid judgment, the questions involved in that
case were entirely different. Also, the test of what is “manufacture” was
borrowed from the Central Excise Act as can be seen from paragraph 48 of
the judgment. The High Court points to a new dimension to the word
“manufacture” in the context of excise which would therefore include within
it packing material as well in order that the goods be made marketable.
This, as we have seen above, cannot be done in the context of the Entry Tax
Act.
17. In Tata Engineering & Locomotive Co. Ltd. (TELCO) v. State of
Bihar, (1994) 6 SCC 479, this Court had to deal with a notification
issued by the State of Bihar in the context of sales tax. The
expression “raw material” and “input” was used in the notification.
This Court held, following J.K. Cotton Spinning & Weaving Mills Co.
Ltd. v. S.T.O., (1965) 1 SCR 900, that the expression “in the
manufacture of goods” would normally encompass the entire process
carried on by the dealer of converting raw materials into finished
products. The precise question before this Court was whether products
finished in themselves, such as tyres, tubes, batteries, etc., when
purchased by the appellant for use in the manufacture of vehicles,
could be said to be inputs. This Court held that as a vehicle cannot
be operative without tyres, tubes, and batteries, obviously they were
inputs in the sense of the dictionary meaning of what is “put in”.
Both the fact situation and the ratio of this judgment are far removed
from the facts in the present case inasmuch as it is nobody’s case
that without the packing material manufactured tea cannot be said to
exist as a finished product, it being “moveable property” and
therefore “goods” under the Karnataka Entry Tax Act. This judgment is
also therefore of no avail to the appellant.
18. M/s. Star Paper Mills Ltd. v. CCE, Meerut, (1989) 4 SCC 724, is an
excise case in which an exemption Notification exempted goods used as
component parts in manufacture of any goods on which excise duty was
leviable. This judgment defines the word “component” to mean a constituent
part. In this context, it was held that paper core is a component part of
paper delivered to the customer in rolls, but not in sheets as it was not
necessary for manufacture of paper sheets. This case would have no
application to the facts of the present case. It is obvious that packing
material used to pack a product complete in itself, cannot possibly be
included in the word “component” as it is not a constituent part of
manufactured tea.
19. Three other judgments under the Central Excise Act were cited.
The first of them, CCE v. M/s. Eastend Paper Industries Ltd., (1989) 4
SCC 244, was concerned with the marketability aspect of central excise
which, as has been held by us above, would not apply in the context of
the Entry Tax Act. In that judgment, paper wrapping was held to be
essential to make the concerned goods marketable. The second of these
judgments CCE v. Ballarpur Industries Limited, (1989) 4 SCC 566, again
concerned a completely different fact situation. The question in that
case was whether an admitted input, Sodium Sulphate, in the
manufacture of paper, would not be construed to be a raw material only
by reason that in the course of chemical reactions Sodium Sulphate is
consumed and burnt up. This Court held that consumption and burning
up would make no difference, as an ‘input’ need not always manifest
itself in the final product. And in H.M.M. Ltd. V. CCE, (1994) 6 SCC
594, it was held that a screw cap on a bottle containing Horlicks was
a component part of Horlicks, it being an essential ingredient to
complete the process of manufacture to make Horlicks marketable. This
judgment again will not apply for the same reason indicated above,
namely, that marketability is not relevant for the purpose of the
Entry Tax Act.
20. M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax
Officer, Kanpur, (1965) 1 SCR 900, is a judgment in which Section 8 of
the Central Sales Tax Act was pressed into aid on behalf of the
appellant. In this case, the question was whether drawing materials,
photographic materials etc. could be comprehended within the
expression “in the manufacture of goods for sale” within the meaning
of section 8(3)(b) of the Central Sales Tax Act, 1956. In order to
determine whether such materials would qualify as such, this Court
held that where any particular process is so integrally connected with
the ultimate production of goods that, but for that process,
manufacture or process of goods would be commercially inexpedient,
goods required in that process would fall within the expression “in
the manufacture of goods”. What has been said about the excise cases
squarely applies here. The expression used in Section 8 of the Central
Sales Tax Act is not “in the manufacture of goods”, but “in the
manufacture of goods for sale”, bringing in the element of
marketability.
21. It only remains to deal with the argument made on behalf of the
appellant based on the Tea Marketing Control Order. Needless to add, a
manufacturer for the purpose of the said Order is specifically a person who
produces value added products commercially known as tea. The context of
the said definition is for the purpose of registering manufacturers or
producers and buyers of tea, having relevance therefore to the sale aspect
of tea. As has already been held by us, the context of entry tax being
different, we are afraid this argument also does not avail the appellant.
22. We are, therefore, of the view that the High Court was correct
in following its own earlier Division Bench judgment in the Nestle
case. This appeal is, accordingly, dismissed.
..............................J
.
(A.K. SIKRI)
..............................J
.
(R.F. NARIMAN)
New Delhi;
September 2, 2016
