MIS A.P. PRODUCTS ;r ' v. STATE OF ANDHRA PRADESH AND ORS.

The Judgment of the Court was delivered by

DALVEER BHANDARI, J. I. These appeals are directed against the i judgment dated 8th May, 2001 passed by the High Court of judicature, Andhra Pradesh at Hyderabad in Tax Revision Case No.89/94, Tax Revision Case No.90/94 and Writ Petition No. 32154 of 1998. H

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2Copy pinpoint2. Brief facts which are necessary to dispose of these appeals are recapitulated as under:-

3Copy pinpoint3. The appellant is engaged in the business of purchasing various spices like Cumin Seed (Jeera), Fenugreek Seeds (Methi), Cinnamon (Dalchini), Caraway Seeds (Shahijeera) etc. from the registe~ed dealers in the State of B Andhra Pradesh and the said items are subjected to sales tax at the point of first sal.e under Entry No.182 of the First Schedule to the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to as the APGST Act, 1957"). All the said items are called spices. The appellant by mixing and grinding all -I

C these spices together produces masala powder which. is used for enhancing the taste of food. i \ __ _

4Copy pinpoint4. The appellant filed income-tax returns for the assessment years 1990- 91, 1991-92, 1992-93 claiming exemption on the ground that the ingredients used for the preparation of masala powder have already been taxed under Entry 18~ of the First Schedule to the APGST Act, 1957 and as the said D ingredients are chargeable only at the first sale point, the 'masala powder' is not further exigible to sales tax. The contention of the appellant was not accepted by the Commercial Taxes Officer. Being aggrieved by the order of ;. the Commercial Taxes Officer, the appellant preferred an appeal before the Appellate Deputy Commissioner, which was rejected. Thereafter, the appellant filed ari appeal to the Sales Tax Appellate Tribunal (for short the Tribunal). E The Tribunal also rejected the appeal. The Tribunal held that the 'masala powder' is not a mere mixture of some of the spices specified in Entry 182. According to the Tribunal, some of the spices like Cumin Seeds (Jeera), Caraway Seeds (Shahijeera) etc. along with other materials like Salt, Coriander (Dhania) etc. which are not specified in the Entry 182 are powdered and mixed F in specified and required proportion and after_ mixture, these spices lose their original flavour and character and as such cannot be considered as 'spices' falling under Entry 182 of First Schedule.

5Copy pinpoint5. The 'masala powder' prepared after grinding and mixing of various ingredients is commercially a different commodity liable to be taxed. Item 182 G of the First Schedule refers to Spices that is to say Cumin Seed (Jeera), ) Fenugreek Seeds (Methi), Cloves, Cinnamon, Caraway Seeds (Shahijeera}, :,,- Cardamom, Dry Ginger, Aniseed (Saunt), Nakesar (Kabab Chini), Bay Leaf(Tej ' Patta), Poppy Seeds, Nutmeg and Mace (Javitri)". 'Masala po.wder' is not

H specified in the said exhaustive list of goods mentioned in Entry 182. It is the result of grinding or powdering of several ingredients. Some of these spices '

A.P. PRODUCTS v. STATE OF ANDHRA PRADESH [DAL VEER BHANDARI, J .] J29

are specified in Entry 182. The Tribunal upheld the order of the Deputy A Commissioner and dismissed the appeal. On appeal, the High Court upheld the order of the Tribunal.

6Copy pinpoint6. The appellant has preferred these appeals against the impugned judgment of the High Court and submitted that the Entry 182 of the First Schedule to the APGST Act, 1957 should not be given a narrow interpretation. B The mixtures of spices mentioned in the Entry would also amount to 'spices' within the definition of Entry 182. The appellant also submitted that under Vllth Schedule to the Act, only those goods which are not specified in lst to Vlth Schedules can be taxed.

7Copy pinpoint7. The appellant submitted that the Spices Board constituted under the C Spices Board Act has declared a listof 52 items in any form including Curry Powder, Spice Oil, Oleoresins and other mixtures where spices content is pre- dominant as spices as per section 2(n) of the Spices Board Act, 1996. The appellant has set out a list of spices in Annexure 'PS' along with these appeals. It is not necessary to reproduce the names and details of those spices for deciding these appeals.

8Copy pinpoint8. The appellant has submitted that the APGST Act, 1957 does not define the term manufacture. However, it is submitted that there is no chemical or mechanical process except simple grinding and mixing involved in producing the 'masala powder'. The process does not bring about a new commodity which is differently identified in common and commercial parlance. In support of its contention, the appellant placed reliance on the judgment of this Court in Deputy Commissioner of Sales Tax (law), Board of Revenue (Taxes), Ernakulam v. Mis PIO Food Packers, [1980] Supp I SCC 174 and relied on the definition of manufacture as enumerated in the said judgment, which reads as under:

'"Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary ..... There must be transformation; a new and different article must emerge, having a G distinctive name, character or use."

9Copy pinpoint9. The Court in this case held that by cutting the pineapple into slices and thereafter canning it, on adding sugar to preserve it, did not change the identity nor did it bring into existence different goods. H

SUPREME COURT REPORTS [2007] 8 S.C.R. r 130 <:.-

10Copy pinpoint10. The appellant on the basis of aforementioned definition asserted that its activity does not amount to manufacture of a commercially new and distinct commodity liable for payment of tax.

11Copy pinpoint11. The appellant also placed reliance on the following passage from the decision of Alladi Venkateswarlu & Ors. v. Govt. of Andhra Pradesh & Anr., .B [1978) 2 sec 552. In this case, the Court observed thus:

"the only question before us is whether the parched rice and the puffed rice are covered by Item 66(b) which reads: rice obtained from paddy that has met tax under the Act". 'Paddy' is defined in the dictionary as rice in the husk". The question is : Does it cease to be c even "rice" when it is converted into parched rice and puffed rice? It is true that it is no longer rice grain as it emerges from the husk. To make it edible as parched rice and puffed rice it has to go through further processes. These are only products obtained by converting rice grain into a different fonn of it by heating or parching. If such rice D is still rice, even if we confine the term "rice" to grain, is it by going trough these processes of heating or parching converted into separate items for the purposes of Entry 66 in the First Schedule of t~e Act?"

12Copy pinpoint12. This Court answered the aforesaid question as follows:

E '"Atukulu' (parched rice), and "muramaralu" (puffed rice) are rice within the meaning of Entry 66(b) of Schedule I of the Andhra Pradesh General Sales Tax Act, 1957."

13Copy pinpoint13. Reliance has also been placed on the case of Tungabhandra Industries Ltd v. The Commercial Tax Officer, Karna/, [1961) 2 SCR 14. In this F case, the Court rejected the argument based on an analysis of chemical changes produced by absorption of hydrogen atoms in the process of hardening and on the consequent inter-molecular changes in the oil. The Court observed that neither mere absorption of other matter nor inter-molecular changes necessarily affect the identity of a substance as ordinarily understood.

14Copy pinpoint14. The hydrogenated oil was from groundnut and in its essential nature it remained an oil. It continued to be used for the same purposes as groundnut oil which had not undergone the process. A liquid state was not an essential characteristic of a vegetable oil; the mere fact that hydrogenation made it semisolid did not alter its character as an oil.

15Copy pinpoint15. In the case of Commissioner of Sales Tax, U.P. v. Mis Lal Kunwa

A.P. PRODUCTS v. STATE OF ANDHRA PRADESH [DALVEERBHANDARI,J.] 131 Stone Crusher (P) ltd., [2000] 3 sec 525, the question arose for adjudication A before the Court was whether 'gitti,' stone chips and dust continued to be stone or on crushing stone boulders into gitti, stone chips and dust different commercial goods emerged so as to attract sales tax on their sale. The Court opined that the term "stone" is wide enough to include the various forms such as 'gitti,' kankar and stone ballast. A similar view was taken by this B Court in State of Maharashtra v. Mahalaxmi Stores, [2003) 1 SCC 70.

16Copy pinpoint16. Reliance has also been placed on Mis. Crane Betel Nut Powder Works v. Commissioner of Customs and Central Excise, Tirupathi and Anr., (2007] 4 SCC 155. In this case, the Court held that the process of manufactur~ employed by the appellant did not change the nature of the end product because the end product remained the betel nut. The process involved in sweetening the betel nut does not result in manufacture of a riew product. The end product continues to be of original character though in a modifie~ fonn.

17Copy pinpoint17. On the other hand, the learned counsel appearing for the respondents also placed reliance on a number of decisions to strengthen his argumen~ that mixing and grinding of different spices along with other ingredients brings about a commercially different products.

18Copy pinpoint18. This Court in Babu Ram Jagdish Kumar & Co. v. State of Punjab & Ors., [1979] 3 sec 616 held that although rice is produced out of paddy, they are different things in ordinary parlance. When paddy is dehusked and rice produced there is a change in the identity of the goods. Therefore, inclusion of both paddy and rice in Schedule 'C' would not amount to imposition of double taxation under the Act.

19.· The learned counsel appearing for the respondents placed reliance F ·' on a Division Bench judgment of the Madhya Pradesh High Court in the case of Sales Tax Commissioner v. Dhameja Home Industries, Indore, (1983] S4 STC 211: This case was cited primarily because the facts of this case are identical to the facts of the present case. In this case, the question which arose for adjudication was whether the preparation of "Garam Masai~" G amounted to manufacture. The Court came to the conclusion that "Garahl Masala" is made by mixing different condiments in certain proportions. The mixing may take place either before or after grinding of the condiments which J go to make the product "Garam Masala" but mixing of condiments has to take place because the product"'Garam Masala" is not obtained merely by grinding H

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A of condiments. It i~ thus clear that the process of obtaining the product . ,,__ "Garam Masala" 'is not confined to merely grinding of condiments. It involves something more than grinding to bring into existence a product different from those which are mixed. The conclusion is inescapable that the process of obtaining the product "Garam Masala" is not excluded by the Rules from the "definition of manufacture" contained in Section 2(j) of the Act. B

20Copy pinpoint20. The respondents have also placed reliance on a Division Bench judgment of the Kerala High Court in the case of Deputy Commissioner of Sales Tax v. Rani Food Products, (1988) 68 STC 446. This case was also cited because the facts of this case and the case in hand are identical. The question c that arose in this case was whether sambar powder, meat masala, pickle powder etc. are spices under Entry 27 of the First Schedule to the Kerala General Sales Tax Act. The Court in this case observed that it is the original product which is intended as spices and not any manufactured product. The position may be different if there had been only the mixture of coriander and chilly without any process whatsoever. Where coriander and chilly are D powdered and mixed in certain proportion with or without other items, the mixture loses its original flavour and no longer retainr. the character as spices, even though the mixture may be one which is ust:.d in the preparation eif food and for adding flavour. Thus, the Court approved the judgment of the Tribunal and held that the goods specified do not come under Item 27 and could be taxed only as general goods. E

21Copy pinpoint21. The respondents placed heavy reliance on a decision of this Court in Rajasthan Roller Flour Mills Association & Anr. v. State ·Of Rajasthan & Ors., [1994] Supp l SCC 413. In this case, there was difference of opinion amongst the High Courts in the country over the question whether wheat under Section 14(l)(iii) of The Central Sales Tax Act includes flour, Fine Wheat Flour ('maida') and Semolina ('suji'). The Kamataka and the Patna High Courts have held that it is not iricluded, while the Andhra Pradesh, Rajasthan and the Madras High Court's have taken a contrary view. This Court examined the entire case in great detail. This Courts specific findings are reflected in paragraphs 15 and 40 of the said judgment. The relevant portion of para 15 is reproduced as under:

"It must also be remembered that wheat flour-and similarly maida and ... suji-are different commodities from wheat." \

22Copy pinpoint22. Three decisions of this Court have held that rice (it is also derived from paddy just as flour is derived from wheat by the process of milling) is

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A.P. PRODUCTS ,.. STATE OF ANDHRA PRADESH [DAL VEER BHANDARI, J.) J33 A different from paddy .... "

23Copy pinpoint23. This Court, in para 40 of the said judgment, observed as under:

For the above reasons, we hold that flour, maida and suji derived from wheat are not 'wheat' within the meaning of Section 14(i)(iii) of the Central Sales Tax Act. Flour, maida and suji are different and distinct goods from wheat."

24Copy pinpoint24. In Rajasthan Rollers case (supra), this Court referred to a judgment of four-Judge Bench of this Court in the case of State of Tamil Nadu v. Pyare Lal Malhotra & Ors., [1976] I SCC 834. In para 18 of the said judgment, the Court referred to the Statement of Law which, in our opinion, is vital in deciding the present case also, so we deem it appropriate to reproduce the same as under:

"Sales tax law is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities may have been made. As D • soon as separate commercial commodities emerge or come into existence, they become separately taxable goods or entities for purposes of sales tax. Where commercial goods, without change of their identity as such goods, are merely subjected to some processing or finishing or are merely joined together, they may remain commercially the goods E which cannot be taxed again, in a series of sales, so long as they retain their identity as goods of a particular type."

25Copy pinpoint25. In this case, the Court also examined a Constitution Bench judgment of this Court in /shwari Khetan Sugar Mills P. Ltd & Ors. v. State of U.P. & Ors., [1980] 4 SCC 136 and other judgments, such as Ganesh Trading Co., F Karna/ v. State of Haryana & Ors., [1974] 3 SCC 620 and the State of Karnataka v. B. Raghurama Shetty & Ors., [1981] 2 SCC 564.

26Copy pinpoint26. We deem it appropriate to reproduce the relevant observations made by this Court in paras 8,9 and 11 at pages 5(i6-568 in Raghurama Shettys case (supra): G "There is no merit in the submission made on behalf of 1he assesses that they had not consumed paddy when they produced rice from it by merely carrying out the process of dehusking at their mills. Consumption in the true economic sense does not mean only use of goods in the production of consumers' goods or final utilization of H consumers' goods by consumers involving activities like eating of

134 SUPREME COURT REPORTS (2007) 8. S.C.R.

A food, drinking or beverages, wearing of clothes or using of an automobile by its owner for domestic purposes. A manufacturer also - consumes commodities which are ordinarily called raw materials when he prod·uces semi-finished goods which have to undergo further processes of production before they can be transfor.med into consumers' goods. At every such intermediate stage of production, B some utility or value is added to goods which are used as raw materials and at every such stage the raw materials are consumed. Take the case of bread. It passes through the first stage of production when wheat. is grown by the farmer, the second stage of production J when wheat is converted into flour by the miller and the third stage c of production When flour is utilized by the baker to manufacture bread out of it. The miller and the baker have consumed wheat and flour respectively in the course of their busines~. We have to understand the word 'consumes' in Section 6(i) of the Act iin this economic se~se ..... At every stage of production, it is Qbvious there is consumption of goods even though at the end of it there miiy not be D final consumption of goods but only production of goods with higher utility which may be used in further productive processes .... Applying . the above test, it .has to be held that the assessees had consumed the paddy purchased by them when they converted it into rice which is commercially a different commodity."

27Copy pinpoint27. In Ganesh Trading Co. 's case (supra), this Court in para 5 at page 623 observed as under:

"Now, the question for our decision is whether it could be said that when paddy was dehusked and rice produced, its identity remained. It was true that rice was produced out of paddy but it is not true to F say that paddy continued to be paddy even after dehusking. It had changed its identity. Rice is not known as paddy. It is a misnomer to call rice as paddy. They are two different things in ordinary parlance. Hence quite clearly when paddy is dehusked and rice produced, there has been a change in the identity of the goods." G

28Copy pinpoint28. We have heard the learned counsel for the parties at length and carefully examined various judgments cited by the appellant and the respondents. Jt is an admitted position that the ingredients which are used in preparation ofmasala after grinding and mixing lose their own identity and ~ character and a new product separately known to the commercial world comes into existence. According to the ratio in Pyare Lal Malhotra 's case (supra)

A.P. PRODUCTS 11. STATE OF ANDHRA PRADESH [DAL VEER BHANDARI, J.) 135 that the sales tax is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities may have been made. Since separate commercial commodities emerge int9 existence; they become separately taxable goods or entities for the purpose of sales tax .

.29. In view oftrie settled legal position as forcefully articulated in Pyare B Lal Malhotra and ·Rajasthan Roller Flour Mills Association's cases (supra), the 'masala powder' prepared after grinding ~ mixing of various spices and condiments in certain proportion is commercially a different commodity liable to be taxed.

30Copy pinpoint30. In -view of our clear conclusion, based on a series of decisions of C this Court, the appeals filed by the appellant, being devoid of any merit, are accordingly dismissed. In the facts and circumstances of the case, we direct the parties to bear their own costs. ·

RP. Appeal dismissed .

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