Holding

The State may levy purchase tax on the paddy; the miller’s purchase does not fall within Section 5(3) and clause 15(ca) does not exempt it.

Summary

Monga Rice Mill, a Haryana-based miller, bought paddy, processed it into rice and sold the rice to an exporter who exported it. The miller claimed exemption from purchase tax on the paddy under Article 286 of the Constitution and Sections 5(3) and 15(ca) of the Central Sales Tax Act, 1956, arguing that the purchase was part of an export transaction. The Supreme Court held that the purchase of paddy was a local sale that did not occasion export and therefore did not fall within Section 5(3); clause 15(ca) creates a limited deeming fiction that exempts only the exporter’s sale of rice, not the miller’s purchase of paddy. Consequently, the Haryana General Sales Tax Act, 1973 could levy purchase tax on the paddy. The Court dismissed the civil appeals and writ petitions.

Issues considered

Whether the purchase of paddy by a miller for sale of rice to an exporter is a purchase that occasions export within the meaning of Section 5(3) of the Central Sales Tax Act, 1956.
Whether Section 15(ca) of the Central Sales Tax Act, 1956 exempts the miller’s purchase of paddy from state sales tax.
Whether the Haryana General Sales Tax Act, 1973 can levy purchase tax on the paddy under Sections 6, 17 and Schedule D.

Legislation cited

Central Sales Tax Act, 1956s. 14, s. 15(a), s. 15(ca), s. 5(1), s. 5(3)
Haryana General Sales Tax Act, 1973s. 17, s. 6, s. Schedule D

Subjects

sales taxpurchase taxexportSection 5(3)Section 15(ca)Haryana General Sales Tax ActCentral Sales Tax Actsingle point levypaddyricedeeming fictionArticle 286

Judgment

MIS. MONGA RICE MILL A
v.
STATE OF HARYANA AND ANR.

APRIL 13, 2004

[RUMA PAL AND S.H. KAPADIA, JJ.] B

Haryana General Sales Tax Act, 1973: Sections 6 and 17 and Schedule
D.

Sales Tax-AYs 1996-97 to 1999-2000-Export sale-Exemptions from 0
sales tax-Rice miller bought paddy, produced rice therefrom within the State
and sold it to the exporter within the State-Held: Such a sale was a local sale
which did not fall under S. 5(3) ofthe Central Sales Tax Act-Hence, purchase
of paddy by the miller not exempt from levy of sales tax-Central Sales Tax
Act, 1956, Ss. 5 & 15(a) & (ca). • . D

Words & Phrases:

"Stage"-Meaning of-In the context of S. 15(a) of the Central Sales
Tax Act, 1956.

The appellant-miller purchased paddy, processed it and produced
E
rice therefrom within the State and sold it to the exporter within the State.
The appellant claimed that in view of Article 286 of the Constitution and
Section 5(3) and 15(ca) of the Central Sales Tax Act, 1956, the State was
not competent to levy purchase tax on the paddy purchased by it for sale
of rice to the exporter. However, the High Court held that the purchase F
of paddy by the appellant for sale of rice to the 'exporter was exigible to
the levy of purchase tax under Sections 6 and 17 read with Schedule D of
the Haryana General Sales Tax Act, 1973. Hence the appeals.

The following question arose before the Court :-
G
Whether the State has power and competency to levy tax on paddy,
purchased by the miller for sale of rice to the exporter, in view of Section
5(3) read with Section 15(ca) of the Central Sales Tax Act, 1956?

Dismissing the appeals, the Court
145 H
146 SUPREME COURT REPORTS (2004] SUPP. I S.C.R.

A HELD: 1. Section 5 of the Central Sales Tax Act, 1956 lays down
the principles for determining as to when a sale or purchase takes place
in the course of export. It defines constitutional inhibition of Article
286(l)(b), namely, that no law of a State shall impose tax on sale or
purchase which takes place in the course of import of goods into or export
of goods out of India. Section 5(1) covers direct export sale, whereas
B Section 5(3) applies to penultimate sale or purchase, which is .deemed to
be sale or purchase in the course of export and consequently falls under
Section 5(1) of the 1956 Act Therefore, in cases where a sale is not directly
connected with exports and where between the seller and the ultimate
buyer, intermediaries are involved, such a sale, if not covered under
C Section 5(3), cannot occasion any export and, therefore, such a transaction
would not fall under Section 5(1). There is a difference between sale for
export and sale which occasions export. When the assessee buys paddy
and converts it into rice, which is sold to the exporter, although purchase
of paddy is a transaction for export, such a transaction does not occasion
export and consequently it does not fall within Section 5(3). Under Section
D 5(3), a penultimate local sale is deemed to be an export sale under Section
5(1) only if such a local sale occasions export [154-D-G)

2.1. In the present case, appellant is a miller within the State; it buys
paddy and procures rice therefrom within the State and sells it to the
E exporter within the State and as such it is a local sale, which does not fall
under Section 5(3). It is a sale for export and not a sale which occasions
export (157-G; 158-A]

2.2. Under Section 15(a) of the 1956 Act, as it stood at the ~aterial
time, the State could levy tax either at the sale end or purchase end of the
F transaction in case of declared goods. Consequently, under Sections 6 and
17 read with Schedule D of the Haryana General Sales Tax Act, 1973, there
is a single point levy of tax and not tax at multiple points. It is the last
purchase of paddy, which is made taxable under the 1973 Act The single
·point levy envisages tax at either ends of the same transaction provided
that the identity of the goods remains unchanged. It is a tax on one single
G commodity. Section 15(a) of the 1956 Act inter a/ia states that the tax
payable under the State law shall not be levied at more than one stage.
The word "stage" in Section 15(a) refers to stages of successive sales and
purchases and not to stages, which raw material undergoes, resulting in
the manufacture of a different commercial commodity. The reason is not
H far to see. Under the 1973 Act, rice and paddy are two different
MONG A RICE MILL v. STATE 147
commodities. They were taxable at different rates. Under Section 15(c) of A
the 1956 Act as also under Sections 15 (proviso (iii)), 15A and 27 of the
1973 Act, the tax paid on the rice stands reduced to the extent of tax paid
on paddy. It is for this reason that Section 15(ca) of the 1956 Act equates
paddy and rice for the purposes of Section 5(3), otherwise it would not be
possible to harmonize the set-off provisions with Section 15(ca) of the 1956 B
Act. Moreover, clause (ca) applies only in cases of export of rice procured
from paddy. In all other situations, paddy and rice remain two different
taxable items. If clause (ca) is read in the manner suggested by the
appellant, Sections 15(a) and 15(c) would be rendered nugatory. Similarly,
proviso (iii) to Section 15, Section 15A and Section 27 of the 1973 Act,
which provide for set-off/adjustment of tax paid on paddy against tax paid C
on rice, would be rendered otiose. The present case'is concerned with levy
of purchase tax under Section 17 read with Schedule D of the 1973 Act.
Schedule D was introduced by notification in line with the provisions of
Section 5(3) of the 1956 Act, which defines last sale or purchase preceding
export sale, as sale or purchase in the course of export. Schedule D refers
to levy of tax on "last purchase", an expression that is borrowed from D
Section 5(3) of the 1956 Act. Schedule D of the 1973 Act is, therefore, in
conformity with the provisions of Section 5 of the 1956 Act. So read, it is
clear that the words "last purchase" in Schedule D connotes purchase,
which occasions export and not purchase of paddy for export. In the case
of Hotel Balaji v. State of A.P., this Court has observed that it is difficult E
to define the words "last purchase" except with reference to the mode of
the use of the purchased goods subsequent to that purchase and in that
sense 'tevy can be crystallized only at the point of time when the goods
have been utilized in a particular way. Applying the test propounded by
this Court in Hotel Balaji's case, it is held that Section 15(ca) contains a
limited deeming fiction by which tax exemption is given only to the sale F i,

of rice by the exporter and not to the sale by the appellant-miller to the
exporter. Clause'(ca) has nullified the effect of the judgment in United
Riceland's case. (155-F; 158-A-G; 159-A-B)

Hotel Balaji v. State of A.P., [1993) Supp. 4 SCC 536, relied on.
G
United Riceland Ltd v. State ofHaryana, (1997) 104 STC 362, referred
to.

3.1. There is no merit in the contention of the appellant that the terms
"rice" and "paddy" were interchangeable under Section 15(ca) of the 1956 H
148 SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A Act from which it followed that what the appellant sold to the exporter
was paddy and, therefore, the last purchaser of such paddy was th~
exporter and not the appellant and consequently the appellant was not
liable for payment of purchase tax. [159-B)

3.2. The purchase of paddy by the appellant is not exempt from the
B levy of tax. Such purchases do not fall within Section 5 of the 1956 Act.
The sale by the exporter is, however, exempt-under Section 5(1) and the
purchase of paddy by the miller-cum-exporter is covered under Section
5(3) of the 1956 Act. [159-E-FJ

C CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3674-3710
of 2002.

From the Judgment and Order dated 28.8.2001 of the Punjab and
Haryana High Court in C.W.P. Nos. 8532/2000, 4379/99, 14200, 17439/
2000, 11064, 713, 1755, 2478, 3323, 3324, 5104, 5112, 5126, 5127, 5132,
D 5136, 5301, 5303, 5852, 5853, 5854, 5855, 5857, 5858, 5859, 5860, 5861,
7479, 7480, 7481, 7482, 7483, 7990, 9040/2001, 17438/2000, 86, 5304 of
2001.

WITH

E C.A. Nos. 2352-2410, 2411, 2412, 2413, 2414, 2416-2454, 2455-2465/
2004, 6163-6180/2002, 1117-1121, 1131-1139, 4333-4337/2003, W.P.(C) Nos.
254, 262, 288/2003 and 15 of 2004

D.A. Dave, S. Ganesh, P.P. Rao, S.P. Chauhan, Amit Gupta, Mrs.
Santosh Gutpa, Serva Mitter, S.P. Singh Chauhan, O.P. Goyal, Sushendra
F Kumar Chauhan, Ravi Prakash Gupta, R.C. Kaushik, Ujjal Singh, J.P. Singh,
Mahabir Singh, Rakesh Dahiya, Ms. Madhusumita Bora, Nikhil Jain,
Gagandeep Sharma, Ms. Mahalakshmi Parani, G. Balaji, A. Sumanth, Neeraj
Kumar Jain, Ms. Kavita Wadia and Vinay Kumar Garg for the appearing
parties.

G The Judgment of the Court was delivered by

KAPADIA, J. Leave granted.

These civil appeals by special leave involve common question of law
as to whether the State has power and competency to levy tax on paddy,
H
MONGA RICE MILL v. STATE [KAPADIA, J.] 149
purchased by the miller for sale of rice to the exporter, in view of section A
5(3) read with section 15(ca) of Central Sales Tax Act, 1956 (hereinafter
referred to as "the 1956 Act").

For the sake of convenience, we may refer to the facts of Civil Appeal
Nos.3674-3710of2002. Appellant is the miller. It produces paddy, processes
it and sells rice to the exporter who exports it out of India. In the assessment B
proceedings, the appellant claimed that in view of Article 286 of the
Constitution and sections 5(3) and 15(~a) of the 1956 Act, the State was not
competent to levy purchase tax on the paddy purchased by it for sale of rice
to the exporter. The appellant filed sales tax returns for four assessment years
1996-1997 to 1999~2000 in accordance with section 25 of the Haryana General C
Sales Tax Act, 1973 (hereinafter referred to as "the 1973 Act"). On August
16, 1999, the sales tax tribunal accepted a similar claim of dealer Mis Veerumal
Monga & Sons vide sales tax appeal No.698 of 1998-99. Later in review by
the State, the tribunal held that the assessee was not entitled to exemption
from payment of purchase tax on paddy. In pursuance of the order passed by
the tribunal, the assessing authority issued notice to the appellant herein to D
show cause why purchase tax be not levied. The appellant appeared before
the assessing authority and produced the necessary forms to show that the
rice had been actually exported out of India by the exporter who had a prior
order from the foreign buyer. The appellant claimed that no tax was, therefore,
leviable. While the matter was pending before the assessing authority, the E
appellant approached the High Court through writ petition no.8532 of 2000.
In the writ petition, the appellant challenged the order of assessment. The
department filed its reply. It was averred that the purchase of paddy by the
miller-cum-exporter, by virtue of legal fiction in section 15(a), became
purchase in the course of export under section 5(3) of 1956 Act, but the legal F
fiction does not extend to the case of the appellant who purchased the paddy
from the market for sale of rice to the exporter. By the impugned judgment
and order dated 28.8.200 I, the High Court held that the purchase of paddy
by the appellant for sale of rice to the exporter is exigible to the levy of
purchase tax under the 1973 Act. Hence, these civil appeals.
G
Before dealing with the arguments advanced by the learned counsel for
the parties, four concepts arising from sections 5 and 15 of 1956 Act are
required to be understood. These are local sale, sale in the course of exports,
export sale and single point levy of tax for declared goods. These are inbuilt
in sections 6 and 17 read with schedule-D to the 1973 Act. For sake of
convenience, we quote hereinbelow sections 5 a:nd 15 of the 1956 Act along H
150 SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A with sections 6 and 17 read with schedule 'D' of 1973 Act:

Sections 5 and 15 of the 1956 Act:.

Section 5. When is a sale or purchase of goods said to take place
in the course of import or export.-{ I) A sale or purchase of goods
B shall be deemed to take place in the course of the export of the goods
out of the territory oflndia only ifthe sale or purchase either occasions
such export or is effected by a transfer of documents of title to the
goods after the goods have cros~ed the customs frontiers of India.

(2) A sale or purchase of goods shall be deemed to take place in the
c course of the import of the goods into the territory of India only if
the sale or purchase either occasions such import or is effected by a
transfer of documents of title to the goods before the goods have
crossed the customs frontiers of India.

(3) Notwithstanding anything contained in sub-section (1), the last
D sale or purchase of any goods preceding the sale or purchase
occasioning the export of those goods out of the territory of India
shall also be deemed to be in the course of such export, if such last
sale or purchase took place after, and was for the purpose of complying
with, the agreement or order for or in relation to such export.
E Section 15. Restrictions and conditions in regard to tax on sale or
purchase of declared goods within a State.-Every sales tax law of
a State shall, insofar as it imposes or authorizes the imposition of a
tax on the sale or purchase of declared goods, be subject to the
following restrictions and conditions, namely : -
F (a) the tax payable under that law in respect of any sale or purchase
of such goods inside the State shall not exceed four per cent of
the sale or purchase price thereof;
(b) where a tax has been levied under that law in respect of the sale
or purchase inside the State of any declared goods and. such
G goods are sold in the course of inter-State trade or commerce,
and tax has been paid under this Act in respect of the sale of
such goods in the course of inter-State trade or commerce, the
tax levied under such law shall be reimbursed to the person
making such sale in the course of inter-State trade or commerce
H in such manner and subject to such conditions as may be provided

I
MON GA RICE MILL v. STATE [KAPADIA, J.] 151

in any law in force in that State; A
(c) where a tax has been levied under that law in respect of the sale
or purchase inside the State of any paddy referred to in sub-
clause (i) of clause (i) of section 14, the tax leviable on rice
procured out of such paddy shall be reduced by the amount of
tax levied on such paddy; B
(ca) where a tax on sale or purchase of paddy referred to in sub-
clause (i) of clause (i) of section 14 is leviable under the la~ and
the rice procured out of such paddy is exported out of India,
then, for the purposes of sub-section (3) of section 5, the paddy
and rice shall be treated as a single commodity; C
(d) each of the pulses referred to in clause (via) of section 14, whether
whole or separated, and whether with or without husk, sh11ll be
treated as a single commodity for the purposes of levy of tax
under that law.

Sections 6 and 17 of the 1973 Act: D
Section 6. Incidence of Taxation.--(l) Subject to other provisions
of this Act, every dealer whose gross turnover during the year
immedjately preceding the 27th day of May 1971 and every ,other
dealer shall, on the expiry of thirty days after the date on which his
gross turnover first exceeds the taxable quantum, be liable to pay tax E
under this Act on the sale or purchase of goods by him in the State
at the stage hereinafter provided:

(a) on declared goods at the stage specified under section 17;
(b) on goods notified under section 18 at the stage of first sale as F
specified under that section;
(c) on all other goods at the stage of -

(i) last sale when the goods are sold to any person other than
a registered dealer who furnishes declaration as specified
under section 27 or as notified under section 13 dr as G
prescribed under section l3B of this Act;

(ii) last purchase in all other cases except when the purchase is
made on payment of tax;

Provided that this sub-section shall not apply to a dealer H
152 SUPREME COURT REPORTS [2004) SUPP. 1 S.C.R.

A who deals exclusively in goods specified in Schedule B or who
executes a sub-contract with a contractor who is liable to pay tax
in respect of the works contract of which the sub-contract is a
part.
Provided further that in the case of a dealer-
B (a) Who imports any goods for sale or for use in manufacturing or
processing any goods for sale, the liability to pay tax shall
commence from the date on which he imports such goods.
(b) Who manufactures or processes any goods for sale, the liability
to pay tax shall commence, from the date on which his gross
c turnover, during any year, first exceeds the taxable quantum.
(c) Who exports any goods purchased within the State, the liability
to pay tax shall commence from the date on which he purchases
such goods.
(d) Who deals in declared goods, the liability to pay tax shall
D
commence from the date on which his gross turnover of such
goods exceeds the taxable quantum;
(e) Who deals in foreign liquor (Indian made foreign liquor and
foreign liquor), the liability to pay tax shall commence from the
date on which he deals in such goods.
E
(t) Who deals in textiles exclusively, the liability to pay tax shall -:
commence from the date on which the sales of goods other than
those specified in Schedule B exceeds rupees one lac in a year.
(g) Who is a contractor doing the work of construction, fitting,
F improvement or repair of any building, road, wall, bridge,
embankment, dam or other immovable property and has not
charged tax or has not made use of the authority of his registration
certificate under this Act or the Central Sales Tax Act, 1956
during the period from 1st day of April, 1987 to 31st day of
March, 1989, shall not be liable to pay tax under this Act during
G aforesaid period on the goods involved in the execution of works
contract.
.
(h) who transfers the right to use tents, kanats, chholdari, crockery,
utensils, furniture and all other goods for decoration and lighting
purposes, and has not charged tax or has not made use ·of the
H
MONGA RICE MILL v. STATE [KAPADIA, J.] 153
authority of his registration certificate under this Act or the Central A
Sales Tax Act, 1956, during the period from 1st day of April,
1987 to 31st day of March, 1989 and opts for the payment of
lump sum as may be prescribed, in lieu of sales tax; shall not be
liable to pay tax under this Act during the aforesaid period and
his liability to pay tax under this Act on the transfer of right to B
use any goods for cash, deferred payment or other valuable
consideration shall commence from 1st day of April, 1989 and
shall remain in force upto 31st March, 1995.

(3) Every dealer who has become liable to pay tax under this Act
shall continue to be so liable until the expiry of three consecutive C
years during each of which his gross turnover has failed to exceed the
taxable quantum and such further period after the date of such expiry,
as may be prescribed, and on the expiry of this latter period his
liability to pay tax shall cease.

(4) Every dealer, whose liability to pay tax has ceased under the D
provisions of sub-section (3) shall again be liable to pay tax under
this Act in accordance with the provisions of sub-section (1).

(5) Notwithstanding anything to the contrary contained in this Actlor
any other law or judgment or order of any court or authority I in
respect of cases relating to assessments for the period from the lth E
September, 195 5 up to the commencement of this Act, every de11;Ier
who was assessed under the Punjab General Sales Tax Act, 1~48
shall be deemed to have been assessed under this· Act as if this Act
was in force during the said period.

Section 17. Tax on declared goods.-Tax on declared goods shall F
be leviable and payable at the stage of"sale or purchase, as the case
may be and under the circumstances specified against such goods in
Schedule D;

Provided that where the goods have not been subjected to tax at
any of the stages of sale or purchase specified in Schedule D, the tax G
shall be levied on and paid by a dealer liable to pay tax under this
Act at the stage of last purchase of such goods by him;

Provided further that the tax under this section shall be levied,
charged and paid after providing deductions admissible under section
H
154 SUPREME COURT REPORTS [2004) SUPP. I S.C.R.

A 27 of this Act.

SCHEDULE 'D ':

SI. Name of declared Circumstances Stage of levy
No. goods under which tax is
to be levied
B
I. Cotton, paddy and oil (i) When imported. First sale within the
seeds other than cotton State by a dealer
seeds, as are defined in liable to pay tax
section 14 of the under this Act.
Central Sales Tax Act,
c 1956.
(ii) When purchased Last purchase within
within the State. the State by a dealer
liable to pay tax
under this Act.
D In these civil appeals, we are not concerned with imports and, therefore,
in the course of our judgment we have only emphasized the concept of sale
or purchase in the course of export. Section 5 of the 1956 Act lays down
principles for determining as to when a sale or purchase takes place in the
course of export. It defines constitutional inhibition of Article 286(l)(b),
E namely, that no law of a State shall impose tax on sale or purchase which
takes place in the course of import of goods into or export of goods out of
India. Section 5(1) covers direct export sale, whereas section 5(3) applies to
penultimate sale or purchase, which is deemed to be sale or purchase in the
course of export and consequently falls under section 5(1) of the 1956 Act.
F Therefore, in cases where a sale is not directly connected with exports and
where between the seller and the ultimate buyer, intermediaries are involved,
such a sale, if not covered under section 5(3), cannot occasion any export
and, therefore, such transaction would not fall .under section 5(1). There is a
difference between sale for export and sale which occasions export. When
the assessee buys paddy and converts it into rice which is sold to the exporter,
G although purchase of paddy is a transaction for export, such transaction does
not occasion export and ·consequently it does not fall within section 5(3).
Under section 5(3), a penultimate local sale is deemed to be an export sale
under section 5(1) only if such local sale occasions export.

H
MONGARICEMILL v. STATE[KAPADIA,J.] 155
Now coming to the question of single point tax, it is important to bear A
" in mind that in law every transaction has two ends sale end and purchase end ..
Section 14 of the 1956 Act enumerates declared goods including paddy and
rice. It does not impose any liability. Section 15(a) of the 1956 Act, as it
stood at the relevant time, makes it mandatory for the State to tax either the
sale point or the purchase point. Accordingly, under sections 6 and 17 read , B
with schedule-D of the 1973 Act, a single point tax is levied on rice and
paddy separately provided there is sale and purchase of identical goods.
Section 15(c) of the 1956 Act inter alia provides for adjustment/set-off of tax
paid on paddy against tax paid on rice procured therefrom. To the same
effect are the provisions in sections 15 proviso (iii), 15A and 27 of the 1973
Act. Hence, the legislature had all along treated rice and paddy as two separate ·C
taxable items for all purposes till 28.9.1996 when clause (ca) was introduced
to get over the effect of the judgment of the High Court in the case of United
Riceland Ltd. and Anr. v. State of Haryana and Ors., reported in ( 1997) 104
STC 362. In that case, it was held that paddy and rice, both being declared
goods under section 14 of the 1956 Act, are different taxable commodities D
subject to tax under. sections 6 and 17 read with schedule-D of the 1973 Act
and consequently, tl\e exporter who buys paddy, converts it to rice and exports
it, is liable to pay ~ax on purchase of paddy under the said 1973 Act. This
resulted in cost plus effect on exports, which made the exports very costly
as the exporter had to pay the purchase tax. In order to make exports more
competitive, globally, clause (ca) was inserted in section 15 of the 1956 Act, E'
under which rice and paddy are equated by a deeming fiction for the purposes
of section 5(3) of the said 1956 Act. The effect of clause (ca) was two fold.
Firstly, both the commodities were equated so that the State cannot tax them
at multiple stages. Secondly, in view of the said equation by a deeming
fiction, the last purchase of paddy for sale of rice to be exported could not
be taxed in view of section 5(3) of the said 1956 Act. But for clause (ca) of F
section 15, the exporter was liable to pay purchase tax on the last purchase.
Hence, clause (ca) has nullified the effect of the judgment in United Riceland's
case (supra).

Mr. Dushyant Dave, learned senior counsel appearing on behalf of the
appellant contended that export sales involve a series of integrated activities G
commencing from agreement of sale with the foreign buyer and ending with
delivery of goods to a common carrier for transport out of India. Such a sale
cannot be disassociated from the export. Therefore, sale of rice by the appellant
to the exporter, procured from paddy was a part of export sales and
H
156 SUPREME COURT REPORTS [2004] SUPP. 1 S.C.R.

A consequently exempt from tax. It was urged that section 5(1) of the 1956 Act
applies to export sales. They are sales which occasion export. On the other ·"
hand, section 5(3) of that Act refers to penultimate sale preceding export
sale, which is deemed to be "sale in the course of exports" and not exigible
to tax. It was urged that prior to 28.9.1996, paddy and rice were taxed
separately as two different commodities under the 1973 Act and consequently
B the full bench of the High Court in the case of United Riceland Ltd (supra)
took the view that purchase of paddy by miller-cum-exporter was exigible to
purchase tax under sections 6 and 17 read with schedule-D of the 1973 Act.
The result was that although the penultimate sale was not liable to tax in
terms of section 5(3) of the 1956, the exporter had to pay purchase tax on
C purchase of paddy under the 1973 Act. Consequently, rice exported from
India lost its competitive edge as its export became costlier in the international
market as compared to rice exports from neighbouring countries. In the
circumstances, clause (ca) was inserted in section 15 on 28.9.1996 under
which paddy and rice were made taxable at one stage so that purchase of
D paddy could be exempted from tax under the local law thereby enabling the
exporter to reduce the cost of export. It was contended that today we live in
the age of globalization where revenue from exports help the national economy
and, therefore, this Court should read the above provisions in the widest
possible terms keeping in mind the global competition in the world market.
It was submitted that purchases and sales are two sides of the same coin and
E where such purchases and sales have been made prior to and not subsequent
to placement of export orders by the foreign buyer, such transactions should
get benefit of exemption under section 5(3) read with section 15(ca) of the
1956 Act. It was submitted that the High Court had erred in restricting the
deeming fiction under clause (ca) only to the miller-cum-exporter; that it had
failed to appreciate the scope and content of clause (ca) under which paddy
F and rice have been equated for the purposes of section 5(3) so that purchase
of paddy by the appellant for sale of rice to the exporter would also be
exempt from payment of purchase tax under the 1973 Act.

Mr. S. Ganesh, learned senior counsel appearing on behalf of the
G appellant in civil appeal Nos.1117-1121 of 2003, in addition to the above
arguments, submitted that in view of clause (ca) of section 15, the term
"paddy" and the term "rice" are interchangeable. He submitted that in the
present case, we are concerned with two sales namely, sale from appellant to
the exporter and sale by the exporter to the foreign buyer. It was urged that
under the impugned judgment, the High Court has restricted the benefit of
H
MONGA RICE MILL v. ST ATE [KAPADIA, J.] 157
tax exemption only to sale by the exporter and not to the sale by the appellant A
to the exporter. According to the learned counsel since the terms "paddy" and
"rice" were interchangeable under clause (ca), it must follow that what the
appellant sold to the exporter is paddy and therefore the last purchaser of
.• I such paddy was the exporter and not the appellant and consequently the
wl appellant was not liable for payment of purchase tax on purchase of paddy B
f
and sold as ric.e to the exporter.
----4
Lastly, it was urged that tax levied on purchase value of paddy was
adjustable against tax liability on the sale of rice under sections 12, 15 and
27 of the 1973 Act and since there was no tax on export of rice, the liability
of tax on the appellant was nil. C
At the outset, we state that none of the judgments cited by the learned
counsel for the parties deal with the points which arises for determination in
these civil appeals. As stated above, there are two ends in every transaction,
namely, the sale end and the purchase end. Section 5 of the 1956 Act lays
down principles for determining when a sale or purchase occasions export. D
It inter alia defines the constitutional inhibition of Article 286(1)(b), namely,
that no .law of a State shall impose tax on sale or purchase which occasions
export. To constitute a purchase, exempt from State purchase tax, the purchase
must occasion export. The que,stion which we have to decide in these civil
appeals is : whether purchase of paddy by the appellant (miller), who procures E
rice from it and sells the rice to the exporter is a purchase which occasions
export or is it a purchase for export? Section 5(1) of 1956 Act exempts
export sales. There are three categories of sales, nam~ly, fecal sale, inter-
State sale and export sale. Section 5(1 ), therefore, covers direct export whereas
section 5(3) covers last sale or purchase preceding direct export which is
deemed to be in the course of export. The last sale or purchase preceding the F
direct export is deemed to be in the course of export as the two are so closely
connected that breach of one may result in breach of the composite contract.
It is for this reason that section 5(3) inter alia requires such sale or purchase
transaction being entered into after and in compliance with the export order
being placed by the foreign buyer. The underlying rationale of section 5(3)
is that such penultimate sale or purchase must occasion export in order to G
constitute sale or purchase in the course of export. Section 5(3) does not
cover the penultimate transaction which occasions sale in the local market,
nor does it cover sale for export. In the present case, appellant is a miller
within the State; it buys paddy and procures rice therefrom within the State
and sells it to the exporter within the State and as such it is a local sale which H
158 SUPREME COURT REPORTS [2004] SUPP. I S.C.R.

A does not fall under section 5(3). It is a sale for export and not a sale which
occasions export. There is one more way of looking at the question in hand.
Under section 15(a) of 1956 Act, as it stood at the material time, the State t
could levy tax either at the sale end or purchase end of the transaction in case
of declared goods. Consequently, under sections 6 and 17 read with schedule-
D of -1973 Act, we have single point levy of tax and not tax at multiple
B points. It is the last purchase of paddy which is made taxable under 1973 Act.
The single point levy envisages tax at either ends of the same transaction
provided that the identity of the goods remains unchanged._ It is a tax on one
single commodity. Section 15(a) inter a/ia states that the tax payable under
the State law shall not be levied at more than one stage. The word "stage"
C in section l 5(a) refers to stages of successive sales and purchases and not to
stages, which raw material undergoes, resulting in the manufacture of a
~ifferent commercial commodity. The reason is not far to see. Under the t-
1973 Act, rice and paddy are two different com~odities. They are taxable at
different rates. Under section 15(c) of 1956 Act as also under sections 15 r
D [proviso (iii)], 15A and 27 of 1973 Act, the tax paid on the rice stands I
reduced to the extent of tax paid on paddy. It is for this reason that clause
(ca) in section 15 of 1956 Act \'lquates paddy and rice for the purposes of
section 5(3), otherwise it would not be possible to harmonize the set-off
provisions, stated above, with clause (ca) of section 15 of 1956 Act. Moreover,
clause (ca) applies only in cases of export of rice procured from paddy. In
E all other situations, paddy and rice remain two different taxable items. If
clause (ca) is read in the manner suggested by the appellant, sections lS(a)
and 15(c) would be rendered nugatory. Similarly, proviso (iii) to section 15,
section ISA iµid section 27of1973 Act, which provides for set-off/adjustment
of tax paid on paddy against tax paid on rice, would be rendered otiose. The
High Court was, therefore, right in holding that clause (ca) of section 15 of
F 1956 Act provides for a limited deeming fiction attached to purchased
commodity, namely, paddy purchased by the mille~-~um-exporter. In the
present matter, we are concerned with levy of purchase tax under section 17
read with schedule-D of 1973 Act. Schedule-D was introduced by notification
dated 1.8.1988 in line with the provisions of section 5(3) of 1956 Act, which
G as stated above, defines last sale or purchase preceding export sale, as sale
or purchase in the course of export. Schedule-D refers to levy of tax on "last
purchase", an expression which is borrowed from secticm 5(3) of 1956 Act.
Schedule-D of 1973 Act is, therefore, in-conformity with the provisions of
section 5 of 1956 Act. So read, it is clear that the words "last purchase" in
schedule-D connotes purchase which occasions export and not purchase of
H
MONGARICEMILL v. STATE [KAPADIA,J.] 159
paddy for export. In the case of Hotel Balaji and Ors. v. State of A.P. and A
Ors., reported in [1993] Supp. ·4 SCC 536 this Court has observed that it is
difficult to define the words, "last purchase" except with reference to the
mode of the use of the purchased goods subsequent to that purchase and in
that sense levy can be crystallized only at the point of time when the goods
have been utilized in a particular way. Applying the test propounded by this B
Court in Hotel Balaji's case, we hold that clause (ca) of section 15 contains
a limited deeming fiction by which tax exemption is given only to the sale
qf rice by the exporter and not to the sale by the appellant miller to the
exporter.

At one stage, it was sought to be contended on behalf of the appellant C
in civil appeal Nos.1117-1121 of2003 that terms "rice" and "paddy" were
interchangeable
.
under clause
.
(ca) from which it follows that what the appellc;mt
'

sold to the exporter was paddy and, therefore, the last purchaser of such
paddy was the exporter and not the appellant and consequently the .appellant
was not liable for payment of purchase tax. We do not find merit in this
argument. Clause (ca) of section 15 inter alia states that where a tax on D
purchase of paddy is leviable under the State law and the rice procured ~ut
of such paddy is exported, then for the purposes of section 5(3), paddy ahd
rice shall be treated as a single commodity. As stated above, clause (ca)
contains a limited deeming fiction, which only applies to sale of rice by the
exporter. This fiction is attached to the purchased commodity which is paddy E
from which rice is procured and not the exported commodity. Clause (ca)
equates the two commodities only in cases where rice procured from pad~y
is exported and not to any other case. Accordingly, we hold that the purchase
of paddy by the appellants in these cases is not exempt from the. levy of a
tax. Such purchases d9 not fall within section 5 of 1956 Act. The sale by the
exporter is, however, exempt under section 5(1) and the purchase of paddy F
by the miller-cum-expo'rter is covered under section 5(3) of 1956.Act. 1

Before concluding, we notice the concluding argument advanced on
behalf of the appellants in civil appeal nos.1117-1121 of 2003, It was urged
that tax levied on the purchase value of padd:Y was adjustable against taX
liability on sale of rice .under sections 12, 15 [proviso (iii)], ISA and 27 of G
1973 Act and since there was no tax on export of rice, the liability of tax "Jn
the appellant was nil. In this matter, as can be seen from the impugned
judgment, the High Court has granted liberty to the appellant to file appeal
against the assessment order(s). Since the above contention needs adjudication

H
160 SUPREME COURT REPORTS [2004) SUPP. l S.C.R.

A on facts, we do not wish to deal with this contention, at this stage, leaving
it open to the appellant to raise all such contentions before the Assessing/
Appellate Authority.·

Subject to above, civil appeals and writ petitions herein fail and are
accordingly dismissed with no order as to costs.
B
v.s.s. Appeal/Petition dismissed.