Holding

Groundnut protein flour is a distinct commodity from deoiled cake and is not covered by entry 29; it is liable to sales tax at 4%.

Summary

Modern Proteins Ltd., a dealer under the Andhra Pradesh General Sales Tax Act, dealt in groundnut products including deoiled cake and groundnut protein flour. For the 1977-78 assessment year, the Central Tax Officer taxed the flour at 4% under the Central Sales Tax Act, but the Assistant Commissioner re‑classified it as "deoiled cake" under entry 29 of Schedule I, reducing the rate to 1%. The Deputy Commissioner and the Tribunal upheld the 4% rate, while the High Court reversed, holding the flour fell within entry 29. The Supreme Court examined whether groundnut protein flour is a distinct commercial commodity from deoiled cake. Relying on the principle that a new commodity emerges when its identity and use differ, the Court held that the flour, intended for human consumption, is separate from deoiled cake for animal feed and therefore not covered by entry 29. Consequently, the flour is taxable at 4%. The appeal was allowed, setting aside the High Court judgment and confirming the Deputy Commissioner and CTO orders.

Issues considered

Whether groundnut protein flour constitutes a "deoiled cake" within entry 29 of Schedule I of the Andhra Pradesh General Sales Tax Act and the Central Sales Tax Act.
Whether the flour should be taxed at the reduced rate of 1% applicable to deoiled cake or at the standard 4% rate.

Legislation cited

Andhra Pradesh General Sales Tax Act, 1957s. 20(2), s. 9(2)
Central Sales Tax Act, 1956
Essential Commodities Acts. 3

Subjects

sales taxcentral sales taxgroundnut protein flourdeoiled cakecommodity classificationentry 29commercial commoditytax ratedistinct commodity

Judgment

' . THE STATE OF ANDHRA PRADESH, ETC.
v.
A

MODERN PROTEINS LTD.

APRIL 26, 1994

[K. RAMASWAMY AND N. VENKATACHALA, JJ.] B

Andhra Pradesh .General Sales Tax Act, 1957-Central Sales Tax Act,
1956-Entry 29 Schedule-I-Section If-Tax liability on groundnut protein
flour-Whether groundnut protein flour is deoiled cake within entry 29 of
Schedule I-Held, No. C

The respondent was a dealer under A.P. General Sales Tax Act. It
was dealing ill groundnut, deoiled cake, edible protein flour and other
products. For the assessment year 1977-78, the CTO determined the tax
liability under the Central Sales Tax Act at 4 percent on groundnut protein
flour. On appeal, the Asst!. Commissioner concluded that it is deoiled cake D
• within entry 29 of the first schedule to the Act, exigible to sales tax at 1
percent at the point of first sale in the State. The Dy. Commissioner revised
the Appellate Order and held that the groundnut protein flour was not
deoiled cake lllld affirmed the order of the C.T.O. The Tribunal upheld the
order of Dy. Commissioner. In revision, the High Court held that the E·
groundnut flour is not different and distinct commercial product from the
deoiled groundnut cake, and so It is exigible to sales tax u11der entry 29 of
Schedule I.

In this appeal, the question raised was whether groundnut flour oil
is a deoiled cake within entry 29 of Schedule I of the Act. F
Allowing the appeal, this Court

HELD : 1.1. It is true that both deoiled cake and groundnut protein

- flour contain. common properties but the use and purpose of deoiled cake
aud grouudnut protein flour being different an distinct, they cannot be
construed to be the same commodity. The groundnut protein flour is an
G

edible protein food for human consumption and is a different commer-
cially marketable entity and tliereby is distinct from deoiled cake for
animal feed though obtained in course of same process at different stages.
Both emerge into different and distinct commodities commercially known H
731
732 SUPREME COURT REPORTS [1994] 3 S.C.R.

A for distinct and different use. The groundnut protein Door did not remain
part of the genus i.e. deoiled cake but became a new and different entity
in commercial parlance. Accordingly, it is exigible to C.S.T. at the relevant
time at 4 per cent. [739-D-E]

Ganesh Trading Co. v. State of Haryana, (1973) STC 623; State of
B Kamataka v. Raghurama Shetty, (1981) 47 STC 369; Rajasthan Roller Flour
Mills Association and Anr. v. State of Rajasthan and Ors., (1993) 91 STC
408; Hindustan Aluminum Co1]Joration Ltd. v. State of U.P., (1981) 48 STC
411; Atul Glass Industries (P) Ltd. v. Collector or Central &cise, (1986) 63 '
STC 322; Dy. Commissioner of Sales Tax v. Coco Fibres, (1991) 80 STC 249;
C State of Tamil Nadu v. P.L. Malhotra, (1976) 37 STC 319 at 324 and G.K
Kulkarni v. The State, (1957) 8 STC 294, relied upon.

Dunlop India Ltd. v. Union of India, [1976) 2 SCR 98; Porrits &
Spencer (Asia) Ltd. v. State of Haryana, [1979] 1 SCR (545); Krishan
Chander Dutta v. Commercial Tax Officer, (1994) 1 Scale .711 and Te/engana
D Steel Industries Ltd. v. State of A.P. & Ors., (1994) 1 Scale 894, distinguished.
•
Modem Candle Works v. Commissioner of Taxes, Assam 71 STC p.
362, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 389 of
E 1988 and 1620/90.

From the Judgment and Orders dated 26-6·84 and 23-4-87 of the
High Court of Andhra Pradesh at Hyderabad in Tax Revision Case No. 40
of 1982 and Writ Petition No. 3477 of 1987.
F C. Sitaramiah, TVSN Chari, Nikhil Nayyar and Ms. Promila Chaud-
hary for the Appellant.

H.N. Salve and Mrs. AK. Verma for the Respondent.

G
The Judgment of the Court was delivered by

K. RAMASWAMY, J. 1. A common question of law relating to
assessment of two assessment years, namely, 1977-78 and 1982-83 made
-
under the Andhra Pradesh General Sales Tax Act 6 of 1957, for short 'the
Act' and the Central Sales Tax Act, for short the 'C.S.T. Act' arises for
H decision. The respondent having its factory at Kurnool in AP. is a dealer
STATE OF AP. v. MODERN PROTEINS LTD. [K. RAMASWAMY,J.) 733

' ~· under the Act, in the groundnut, deoiled cake, edible protein flour and A
other products. After decortication and passing through expellars of the
groundnut seeds, groundnut oil and groundnut oil cakes are obtained. The
groundnut oil cake again is subjected to the process in solvent in, which
"food hexane" is sprayed to obtain solvent ground nut oil and ground nut
deoiled cake. The deoiled cake is then granuled by grinding and the end B
product which is "groundnut protein flour" is again subjected to heat and
steam treatment unJer controlled and regulated conditions to ensure
removal of solvent and brought into a uniform composition. Colouring or
flavouring agents are added to this flour so as to conform to the require-
ments mentioned in the fifth schedule to the Solvent Extracted oil, deoiled ·
meal and Edible Flour 'Control; Order 1%7' for short 'the Order' issued C
under s.3 of the Essential Commodities Act.

2. For the assessment year 1977-78, the C.T.O., Kurnool determined
the tax liability in respect of the respondent's net turnover under C.S.T. at
4 per cent on groundnut protein flour. On appeal the Asst!. Commissioner
concluded that it is deoiled cake within entry 29 of the first schedule to the D
Act, exigible to sales tax at 1 per cent at the point of first sale in the State.
The Dy. Commissioner exercising suo motu power under s.20(2) and s.9(2)
of the Act revised the Appellate Order and held that the groundnut protein
flour is not deoiled cake and affirmed the order of the C.T.O. On further
revision to ihe S.T.A.T. the tribunal upheld the order of the Dy. Commis- E
sioner. In revision to the High Court, the division bench by the irnpligned
order, T.R.C. 40 of 1982 dated June 26, 1984. held that the deoiled
groundnut cake can be both edible as well as inedible and in eithet case it
would fall under entry 29. It s immaterial whether the groundnut cake is
in small pieces in shape or big flat cake pieces. The groundnut flour is not
different and distinct commercial product from the deoiled groundnut F
cake. Therefore, it is exigible to sales tax under entry 29 of schedule I.

3. The question, therefore, is whether groundnut protein flour is a
deoiled cake within entry 29 of Schedule I of the Act. The process of
manufactory and the resultant product has already been 'stated. Its sub- G
stance bears reiteration that groundnut seeds obtained after the process of
decortication is of a high grade quality, rich in proteins but free from
harmful materials processed in the ei<pellar and the outcome are of the
groundnut oil and groundnut oil cake. The groundnut oil cake again is
pressed through the solvent in which "food hexane" is sprayed resultantly
groundnut oil and groundnut deoiled cakes are obtained. The deoiled H
734 SUPREME COURT REPORTS [1994] 3 S.C.R.

A groundnut cake again is granuled by grinding and is subjected to heat and
stea .n treatment under controlled and regulated condition to ensure
removal of solvent and brought into a uniform composition. Colouring or
flavouring agents are added to this flour which is named as groundnut
protein flour. This is edible flour fit for human consumption. The
groundnut cake and deoiled cake are of animal feed. This will be apparent
B from the order which regulates not only of the production but also sale by
licence and the products should conform to the standards prescribed in
the respective Schedules. Rule 2(b) defines "deoiled meal" (instead of
naming as cake) to mean the residual material left over when oil is
extracted by a solvent from any oil-b.earing material while "edible flour" is
C defined in Rule 2(c) to mean the ground material prepared from deoiled
meal which is derived from oil cake obtained either by single pressing of
good quality edible oilseeds or as a result of direct extraction of oil from
such. Rule 3 regulates their production by a licence and Rule 9 regulates
sales thereof. Sub-rule (5) of Rule 9 provides that no person shall manufac-
ture, stock for sale, or sell or offer for sale deoiled meal unless in the case
D of meal intended for use as livestock feed, such deoiled meal conforms to
the standards of quality for the appropriate deoiled meal specified in the
Fourth Schedule. Similarly sub-rule (6) of Rule 9 is with regard to edible
groundnut flour. Clause (iv) therein provides that "the edible flour" con-
forms the standards of quality specified in the Fifth Schedule, The qnality,
content and the percentage of the respective deoiled meal and edible
E groundnut flour have been prescribed in Schedule 4 and Schedule 5
respectively, the details of which are not necessary to specify in this
judgment, since across the bar there is no dispute regarding the differences
enumerated therein. But the controversy raised across the bar and also
found accepiable to the High Court in favour of the assessee, is that as per
F the analyst's report deoiled cake and groundnut protein flour bear some
of common ingredients and contents, whether in edible or in non-edible
form it remains the same substance and that therefore, the groundnut
protein flour is exigible to sales tax under entry 29 of Schedule I. The
contention of Sri Sitarmaiah, learned Senior counsel for the appellant is
that deoiled cake is a distinct commodity meant for animal feed while.
G groundnut protein flour admittedly is meant for human consumption. The
prices for the former is Rs. 1077 per metric ton while for the latter is Rs.
2500 per metric ton. Food Corporation of India, to whom the assessee had
sold the groundnut protein flour, placed orders only as a gro)lndnut protein
. flour known in the commercial parlance. It is a distinct commodity fit for
human consumption. Admittedly it was sold by the assessee for human
H
STATE OF AP. v. MODERN PROTEINS LTD. [K. RAMASWAMY,J.] 735

consumption at a higher price treating it is distinct from deoiled cake which A
was also sold by the assessee for animal feed at Rs. 1077 per metric ton.
Thus the two commodities are known in the commercial parlance as
different and distinct commercial commodities. Deoiled cake, thereby, is
different and groundnut protein flour is altogether another commodity
from deoiled cake which does not fall within entry 29 of the first schedule.
Sri Harish Salve, the learned Senior Counsel for the respondent on the B
other hand contended that generic entry "deoiled cake" is exigible to tax
under entry 29, be it edible or non-edible meant for human consumption
or animal. feed so long as it conforms to the generic descriptive entry. It
bears no relevance whether it is used for human consumption or animal
feed. In other words, the user test in the commercial parlance, bears little C
relevance. The process of extracting groundnut oil cake from expellar and
by solvent process removal of the oil and to make the deoiled cake in big
size and thereafter making it into small cakes; the small cake granuled into
pieces down the steam, is a continuous process and the commodity
remained the same without indicating any separate process. Therefore,
groundnut protein flour whether is oiled or deoiled, whet)l.er in bulk or D
small pieces, whether granuled or remained in small pieces make no
difference for exigibility to tax. He gave the illustrations of breweries,
textiles, petrochemicals and glassware as examples. To appreciate the
contentions pragmatically we called upon the assessee to produce .the
samples of deoiled cakes and groundnut protein flour and gave time till
Thursday, i.e. April, 14, 1992. Even till today, i.e. Saturday they were not E
produced. We also indicated to the counsel that non-production may lead
us to draw an adverse inference.

4. Having given our anxious and careful consideration and thought
to the respective contentions, we are of a considered view that the argu- F
ment of Sri Salve, though attractive, does not command itself for accep-
tance. Sales Tax Law is intended to tax sale or supply of different
commercial commodities and not to tax the production or manufacture of
particular substance out of which the commodities may have been made.
As soon as separate commercial commodity comes into existence ·or emer-
ges from the production or manufacture, it become separately taxable G
entity or goods for the purpose of sales tax. When commercial goods
without change of their identity as such goods or merely subjected to some
processing or finishing or are merely joined together, they remain commer-
cially known as same goods, cannot be taxed again in a series of sales, so
long as they retain their identity as goods of a particular original type. In H
736 SUPREME COURT REPORTS [1994\ 3 S.C.R.

A Ganesh Trading Co. v. State of Haryana, (1973) 32 STC 623; this Court --.- . ,
considering whether the rice after dehusking remains lo be paddy or
whether liable to sales tax as rice it was held that it is true that rice was
produce<! out of paddy but it is not true to say that paddy continued to be
paddy even after dehusking. It had changed its identity. Rice is not known
as paddy. It is misnomer to call rice as paddy. They are two different things
B
in ordinary parlance. Hence quite clearly when paddy is dehusked and
rice produced, there has been a change in the identity of the goods.
Accordingly it was taxed as rice. In State of Kamataka v. Raghurama
Shetty, {1981) 47 STC 369, this Court considering the same question gave
in illustration whether wheat flour be called wheat and considered the
c distinction from the economic perspective. This Court laid the test that in •"
the manufacturing, the wheat is converted into flour and thereafter the
flour is utilised to manufacture bread. The wheat produced by the farmer
was converted by the miller into flour and the baker used the flour to make
bread out of it. Thus wheat and flour were consumed to manufacture
D bread. In Rajasthan Roller Flour Mills Association and Anr. v. State of
Rajasthan and Ors., {1993) 91 STC 408, this Court considering whether
flour, maida and suji derived from wheat are not wheat within the meaning
of s.14 of the C.S.T. Act held that flour, maida and suji are different and
distinct goods wheat. In other words, flour, maida and suji are not
E declared goods. Though flour, maida and suji are derived from wheat but
they are not wheat. In Hindustan Aluminum Corporatio11 Ltd. v. State of
U.l'., 1981 48 STC 411, this Court was to consider whether metal takes
within its ambit the fabricated forms of metal "all kinds of metals' including
minerals, ores, metals alloys and sheets. This court held that metal was used
under s.3A(2) of the U.P. Sales Tax Act, 1948 in its primary sense, i.e., in
F · the form in which it is marketable as the primary commodity and !!lat-the ·
primary form and the forms fabricated from the primary form,.c&ilstitute
two distinct commodities marketable -as such and must be 'regarded as
different commercial commodities. Jn Atul Glass Industries (l') Ltd. v.
Collector of Central Excise, {1986) 63 STC 322, the entry in the schedule to
G the Excise Act came up for consideration. The question was whether "glass"
includes "glass mirror" or glassware in the schedule of the Excise Act. This
Court applied the functional test and held that the original glass sheet as
a result of the process through which it undergoes a complete transforma-
tion when it emerges a glass mirror is completdy different from the original
H glass sheet. It was , therefore, held that a glass mirror cannot be regarded
.STATE OF AP. v. MODERN PROTEINS LTD. [K. RAMASWAMY, J.] 737 .

.......... as a glassware. In Dy. Commissioner of Sales Tax v. Coco Fibres, (1991) A
80 STC 249, the question was whether coconut fibre is a separate entity
from the coconut husk. This Court laid the test thus: "the essential point
to remember is whether something is brought into existence which is
different from that originally existing, in the sense that the thing produced
is by itself a commercial commodity and is capable as such of being sold
or supplied. It is not necessary that the stuff or the material of the original
B

.' •
article must lose its character or identity or it should become transformed
in its basic and essential properties." The test is whether the article which
comes into being must be a commercially different from the one from
which it is made or manufactured. In that case it was held that coconut
fibre is a separate entity fiom coconut husk in commercial parlance. In c
State of Tamilnadu v. P.L. Malhotra, (1976) 37 STC 319 at 324, this Court
held that the purpose of enumeration in a statute dealing with sales tax at
a single point in a series of sales would, very naturally, be to indicate the
types of goods each of which would constitute a separate class for a series
of sales. Otherwise, the listing itself loses all meaning and would be without
any purpose behind it. It was held that "Iron and steel" when converted
D
into steel rounds, flats, angles and Bars are separately taxable entity for the
purpose of sales tax, each of them form a separate species in each series
of sales although they may all belong to the genus iron and steel. In G.P.
Kulkarni v. The State, (1957) 8 STC 249, relied upon. Hidayatullah, CJ. (as
he then was) speaking on behalf of the division bench of the Madhya E
Pradesh High Court considered the question whether breaking boulders
into stone is manufacture within the meaning of s.2(i) of the M.P. Sales
Tax Act. It was held that after quarrying if an attempt is made to break
them (stone), may be by manual labour, into sizes for sales or gitti, the
, stone is shaped into an. object of a different size. The word 'manufacture'
F
has got various shades of meanings. There may be manufacture of a
complicated object like the super-constellation, or there might be manufac-
~ ture of a simple object like a toy kite ............. .when they are broken into
metal or gitti there is some process, manual though it may be, for the
purpose of shaping the stones into another marketable commodity. Ac-
cordingly it was held that stone making is a new article exigible to sales G
tax.

5. In Dunlop India Ltd. v. Union of India, [1976] 2 SCR 98 this Court,
' /~
dealing with levy of customs duty on "U.P. Latex", was called upon to
consider the classification of the goods for the purpose of levy of customs H
738 SUPREME COURT REPORTS [1994] 3 S.C.R.

A duty, whether '1raw rubber". U.P. Latex was an essential component to -. ..
manufacture tyres. This court held that it is for the court to consider under
which item a particular item falls but it be left to the authorities to consider
it. A condition of an article is a material factor for classification. In that
context this court pointed out that the test of "end use" is irrelevant. Far
B from helping the assessee it is consistent with the view, this Court expressed
in the aforestated cases. This court said that in interpreting the meaning
of an entry the acceptation by the trade and popular meaning should
commend itself to the authority. How the people in the trade and com-
'
merce understand the meaning in the course of trade is relevant. When an
C article is classified and put under a particular entry it is not appropriate
for : the court to question it. In Ponitts & Spencer (Asia) Ltd. v. State of
Haryana, [1979] 1 SCR 545, the entry 'textiles' for the purpose of Punjab
General Sales Tax Act, 1948 in Item 30 of Schedule 'B' whether 'Dryer
felts' are textiles. In the context whether they are exempt from sales tax,
this Court considered the scope of textiles and held at p.549 F & G that
D textiles need not be of any particular size of strength or weight. It may be
in small pieces or in big rolls. It may be weak or strong, light or heavy,
bleached or .dyed, according to the requirement of the purchaser. The use
to which it may be put is also immaterial and does not bear on its character
as a textile. This Court in Hindustan Ltd. considered this ratio and held
E that the ratio therein would not apply to sales tax and common parlance
principle is to be applied. Equally the word petro chemical which includes
yarn or nylon as a finishing product from petro chemical decided in (130
ITR p. 14) bears no relevance on the facts of the case. The case of Krishna
Chander Dutta v. Commercial Tax Officer, (1994) 1 Scale p. 711, also does
F not help the assessee. In the notification issued for the purpose of sales tax
it included both black pepper and black pepper powder. Consequently, this
Court while considering that both black pepper as well as black pepper
powder is used as a commercial product and levy of separate tax was held
illegal. The case of Telangana Steel Industries Ltd. v. State of A.P. & Ors.,
G (1994) 1 Scale 894, also is of no assislance to the assessee. In that case also
this Court referred to Modem Candle Works v. Commissioner of Taxes,
Assam, 71 STC P.362, wherein Saikia, CJ. and Hansaria, J., as they were
then, considered the decisions involving edible articles and non-edible
articles. The High Court of Assam held that whether "there has been
addition of external agents thereby making it a 'commodity' different and
H
STATE OF AP. v. MODERN PROTEINS LTD. [K. RAMASWAMY, J.) 739

' ~ distinct and whether there has been a process of transformation of such a A
nature and extent as to have resulted in the production of a new article as
conunodity understood in the market where it is dealt with." When these
tests have been satisfied, the court held that the conunodity was exigible to
sales tax. If the commodity did not result in a new article, the nature,
duration and transformation of the original commodity would be im-
B
material. In Telangana Steel's case whether iron .wires are separate com-
> mercial goods from wire rods from which they were produced, this Court
•
did not decide that question but however concluded that the notification
did not allow taxing of the same commodity at a series of sales but only at
a single point sales tax. In that view this Court held that the levy of sales
tax at more than one stage on same goods was illegal. c
6. It is true that the analyst report in this appeal does indicate that
both deoiled cake and groundnut protein flour contain common properties
but the use and purpose being different and distinct, they cannot be
considered to be the same commodity. The groundnut protein flour is an
D
edible protein food for human consumption and is a different commercially
marketable entity and thereby is distinct from deoiled cake for animal feed
though obtained in the course of same process at different stages. Both
emerge into different and distinct commodities commercially known in the
conunon parlance for distinct and different use. Thereby groundnut protein
flour did not remain part of the genus i.e. deoiled cake but became a new E
and different entity known in the commercial parlance. Accordingly it is .
exigible to C.S.T. at the relevant time at 4 per cent. The appeals, therefore,
are allowed. The order of the High Court is set aside and that of the Dy.
Commissioner and C.T.O. and STAT are confirmed, but in the circumstan-
~

~
ces parties are directed to bear their own costs. F
A.G. Appeal allowed.