Somnath Iyer, J.
1. This is a reference under section 34(1) of the Bombay Sales Tax Act, made by the Sales Tax Appellate Tribunal, at the instance of the Commissioner of Commercial Taxes in Mysore who, for the purpose of that section, is the Collector, referred to in it.
2. During the year 1954-55, the respondent who will be referred to as the assessee and who was a registered dealer, as defined by the Bombay Sales Tax Act, which will be referred to as the Act, purchased butter of the value of Rs. 83,718-1-0 from unregistered dealers. Out of this butter so purchased, a portion of the value of Rs. 38,308 was sold by the assessee to others. The remaining quantity of the value of Rs. 42,969 was made into ghee and then sold. The Sales Tax Officer exempted the turnover of Rs. 38,308 which was the value of the butter sold, but assessed the purchase turnover of Rs. 42,969 attributable to that part of the purchase of butter which was subsequently converted into ghee, under the provisions of section 10(a) of the Act.
3. In an appeal from this assessment, that order of assessment was confirmed by the Deputy Commissioner and in revision by the Commissioner of Commercial Taxes in Mysore. But, in the further revision petition presented by the assessee to the Sales Tax Appellate Tribunal, the assessment made by the Sales Tax Officer was set aside and the matter was remanded to the concerned assessing authority with a direction to reopen the matter, examine the accounts of the assessee and determine the exact taxable turnover. After this order was made, the Commissioner of Commercial Taxes in the new State of Mysore, who was named as the authority corresponding to the Collector, specified in section 34 of the Act, made an application under that section requiring the Tribunal to refer to this Court, the following question of law for its decision :-
'Whether purchase tax is leviable under section 10 of the Bombay Sales Tax Act, 1953, where the butter purchased from an unregistered dealer is sold after converting it into ghee ?'
4. The Tribunal has, accordingly, referred this question to this Court for its decision.
5. The answer to this question rests on the construction to be placed on section 10 of the Act. Clause (a) of that section directs the levy of a purchase tax on the turnover of purchases of goods specified in column 1 of Schedule B to the Act, where such goods are purchased from an unregistered dealer. But, to that clause, there is a proviso which directs that no purchase tax shall be levied under clause (a) on the purchase of goods specified in the first eighteen entries of Schedule B to the Act, if such goods are subsequently sold by the dealer who purchased them.
6. It is thus clear that since the assessee in this case purchased butter from an unregistered dealer and since butter is a milk product and is, therefore, one of the items of goods specified in column 1 of Schedule B to the Act, the assessee was liable to pay purchase tax on the purchase of butter made by him in that way, unless he could contend that on his purchase he is not liable to pay any purchase tax since he in his turn sold the goods purchased by him after he made the purchase. Now, section 10 is :-
'10. Subject to the provisions of section 7, there shall be levied a purchase tax on the turnover of purchases of goods specified in column 1 of Schedule B, at the rates, if any, specified against such goods in column 4 of the said Schedule, - (Levy of purchase tax.)
(a) where such goods are purchased from a person who is not a registered dealer;
* * * * * Provided that no purchase tax shall be levied under clause (a) on the purchase of any goods specified in entries 1 to 18 (both inclusive) of Schedule B if such goods are sold by the dealer after such purchase.'
7. The 17th entry in Schedule B to the Act reads :-
Goods, the sale or purchase of which is subject to tax and the rates of taxes. ---------------------------------------------------------------- Sl. Description of goods. Rate Rate of Rate of No. of General PurchaseSales Sales Tax. Tax Tax. ----------------------------------------------------------------- * * * * 17. Milk products including nil. Six Three butter, ghee, chana and pies pies in khoa (except sweetmeats in the the and excepting butter-milk rupee. rupee. and curds declared as tax-free under entry 4 of Schedule A). ' * * * * -----------------------------------------------------------------
8. It is clear from clause (a) of section 10 that since butter is a milk product within the meaning of that expression occurring in the 17th entry of Schedule B, and, since the assessee purchased butter from unregistered dealers, he was normally liable to pay purchase tax on the purchase of butter made by him. But, it was contended by the assessee that since part of the butter purchased by him was sold by him, in his turn, he was not liable to pay any purchase tax on the purchase of that butter made by him from unregistered dealers. But the assessee did not sell in his turn all the butter which he purchased from unregistered dealers; the value of the butter so sold by him was only Rs. 38,308 out of the butter of the value of Rs. 83,718-1-0 purchased from unregistered dealers.
9. The Sales Tax Officer who came to the conclusion that the purchase turnover relatable to the butter of the value of Rs. 38,308 which had been sold by the assessee in his turn, was not taxable since the proviso to section 10 exempted that part of the turnover from the payment of purchase tax, determined the taxable turnover in respect of the purchase of butter to be Rs. 42,969, which was the value of the butter converted into ghee and sold in that form. According to the Sales Tax Officer, the proviso to section 10 was inapplicable to the purchase of butter which was converted into ghee and sold. He, therefore, readied the conclusion that the assessee was liable to pay purchase tax on that purchase.
10. Although this view taken by the Sales Tax Officer was affirmed by the Deputy Commissioner and the Commissioner of Commercial Taxes, the Tribunal thought that the sale of the ghee which the butter purchased by the assessee yielded, was a sale which fell within the ambit of the proviso, and that by reason of that sale, the assessee became absolved of his liability to pay tax on the antecedent purchase of butter.
11. Now, the proviso to section 10 on which the Tribunal depended for this view directs that although a dealer is liable to pay purchase tax under clause (a) on the purchases made by him of the goods specified in column (1) of Schedule B to the Act, that tax is not payable if the goods purchased by the assessee are sold by him. If, therefore, it could be said, as the Tribunal thought, that when the assessee in this case sold the ghee produced from the butter which he purchased from unregistered dealers, what he did was to sell the goods which he had purchased from unregistered dealers, it is obvious that the assessee was protected by the proviso and was not liable to pay any tax under clause (a).
12. It will be seen from section 10 of the Act that if a dealer purchased any of the eighty categories of goods enumerated in Schedule B to the Act, from an unregistered dealer, he becomes liable to pay purchase tax on such purchase. But, there is a qualification placed on this liability which is to the effect that if the purchase is of any of the goods specified in the first eighteen entries of that schedule, and the goods are sold after such purchase, no purchase tax is exigible.
13. Since the goods specified in the 17th entry of Schedule B are described as milk products, and it is indisputable, as that entry itself makes it very clear that butter is also a milk product, it is obvious that when the assessee purchased butter from unregistered dealers, he became liable under clause (a) of section 10 to pay the purchase tax specified in that clause. It is equally clear from the proviso to that section that if he sold that butter to someone else after he purchased it, he ceased to be liable to pay that tax, such purchase tax being no longer exigible. That is the reason why in respect of the turnover to the extent of Rs. 38,308 the Sales Tax Officer found no difficulty in coming to the conclusion that it was not taxable.
14. But, the difficulty which presented itself before the Sales Tax Officer was that the other part of the turnover of the assessee to the extent of Rs. 42,969 was not attributable to butter sold by the assessee, since he did not sell the butter purchased by him but only sold the ghee produced from it. Ho was of opinion that since what was sold by the assessee was not butter which he had purchased from unregistered dealers but was a different substance, namely, ghee, although that ghee was produced by melting the butter which he purchased, the proviso to section 10 was inapplicable.
15. The Tribunal was, however, of the view that since what was purchased by the assessee from the unregistered dealers was a milk product, namely, butter, and what was sold by him after he purchased it was also a milk product, namely, ghee, which was produced by melting the first milk product so as to bring into existence the second milk product, the proviso was attracted since what was done by the assessee was to sell a milk product which was produced from the milk product which he had purchased from an unregistered dealer.
16. It is the correctness of this conclusion reached by the Tribunal which requires investigation in this reference.
17. Mr. Government Pleader has urged that the meaning of the proviso to section 10 of the Act is that although a dealer who purchases a milk product from an unregistered dealer is liable to pay purchase tax on the purchases so made by him, he ceases to be liable to pay that tax, and that tax cannot be demanded, only if the identical milk product purchased by the dealer is sold by him. The contention advanced is that since the milk product purchased by the assessee in this case was not the milk product sold by him inasmuch as what was purchased by the assessee was butter whereas what he sold was ghee, what was sold by the assesses was something different from what he purchased, thereby making the proviso inapplicable to his case.
18. Mr. Krishnaswamy Rao has, however, urged that the emphasis of the proviso is on the goods sold being a milk product, whether or not it is the same milk product which had been purchased. The expressions 'such goods' and 'such purchase' occurring in the proviso, according to him, are expressions which do not insist upon the identity between the goods purchased and the goods sold, but are only expressions laying stress upon the goods sold and the goods purchased, possessing the characteristics of a milk product whether or not they are the same or different kind of milk product.
19. It seems to me that it is not possible to place upon the proviso to section 10 of the Act, the construction which Mr. Krishnaswamy Rao asks us to place upon it. It will be seen from clause (a) of section 10 that, as in the case of the other goods referred to in the first seventeen items of Schedule B to the Act, in the case of a milk product also if that milk product is purchased from an unregistered dealer, the dealer is liable to pay purchase tax on the purchase made by him. But the proviso to section 10 exempts the payment of such tax if what the dealer has done is no more than to purchase the goods and pass on those goods to another purchaser in his turn. It is clear from the language of the proviso that that exemption does not become available to the dealer unless the goods sold by him are the identical goods which he had purchased. That, in my opinion, is the plain import of the expressions 'such goods' and 'such purchase' occurring in the proviso. The intendment of the proviso is to except out of clause (a) a dealer liable to pay purchase tax under it, in a case where he does no more than to act as a conduit pipe for the transference of goods from the unregistered dealer to the second purchaser, by making an intermediate purchase for that purpose. That being so, the benefit of the proviso is available only in cases in which a dealer sells the very goods which he purchased. If, on the contrary, the goods sold by him are different from those purchased by him, it becomes plain that the proviso can have no application.
20. Mr. Krishnaswamy Rao, nevertheless, contended that we should come to the conclusion that although the assessee in this case converted the butter which he purchased into ghee, and, what was sold by him was ghee and not butter, since what was sold by the assessee was a milk product and since the ghee which was sold in that way was produced from the butter previously purchased, which was also a milk product, the proviso was attracted. He further submitted that when the assessee converted butter purchased by him into ghee, it did not result in any such radical alteration in the chemical composition of the butter as to justify the conclusion that it became transmuted into a different substance since all that was done was to eliminate from the 'butter its water content.
21. I do not find it possible to accede to these contentions. It may be that, as can be seen from the 17th entry of Schedule B, butter is a milk product and likewise ghee. But, it is clear that to attract the proviso to section 10, it is not enough if the goods sold are some kind of milk product, although different from the milk product purchased. Its requirement is, as already pointed out, that the milk product sold must be the identical milk product purchased. In that view of the matter, the fact that both butter and ghee are milk products cannot assist the assessee in his endeavour to earn the exemption created by the proviso.
22. I do not also find it possible to assent to the argument that after the butter was converted into ghee it continued to be the same substance which was purchased by the assessee. The assessee purchased butter and what was sold was ghee. No material was placed before the Sales Tax Officer to demonstrate that after the butter was converted into ghee, its chemical composition continued to be very much the same as that of the butter from which it was produced. It is also common knowledge that whereas there is a certain percentage of milk-curd in butter and also a small percentage of water, those are not the component parts of the ghee into which butter is converted.
23. In my opinion, it is not correct to say that if a person buys butter and sells the ghee produced from it, what is sold by him is what he purchased. The words 'ghee' and 'butter' as ordinarily understood by those who use them are different substances and in commercial usage they are regarded as different classes of goods. The purposes for which the one is used are not the same as the purposes for which the other is employed. If, therefore, what the assessee purchased was butter and what he sold was ghee, what he sold was not the same as what he purchased, notwithstanding the fact that what he sold was what he produced by merely melting what he purchased.
24. In my opinion, the fact that the butter purchased and the ghee sold both belong to the category of milk products referred to in the 17th entry of Schedule B can make no difference since the benefit of the proviso to section 10 does not enure to the dealer unless the milk product sold by him is the very milk product which he had previously purchased. The fact that the 17th entry of Schedule B refers to milk products generally cannot support the argument that a dealer purchasing one kind of milk product but selling another variety of milk product is as much entitled to the benefit of the proviso as one who sells the very milk product which he had previously purchased. The expression 'milk products' contained in the 17th entry is a compendious description of those species of goods to the purchase of each of which the proviso to section 10 becomes applicable, provided the sale is of the identical goods which were purchased. In my opinion, it would be going altogether too far to suggest that the dealer who purchases one kind of milk product but sells another kind of milk product can be heard to contend that the goods sold by him are the goods purchased by him since both what he sold and what he purchased were one kind of milk product or another.
25. I shall now refer to the decisions on which Mr. Krishnaswamy Rao placed reliance in support of his contention to the contrary. The first of these is Tungabhadra Industries Ltd., Kurnool v. Commercial Tax Officer, Kurnool : 2SCR14 , in which their Lordships of the Supreme Court expressed the view that raw groundnut oil which was subjected to a process of hydrogenation was still groundnut oil for the purposes of rule 18(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. Their Lordships had no occasion in that case to consider a question similar to the one which arises in this case.
26. In Kailash Nath and Another v. State of U.P. and Others : AIR1957SC790 , the question was whether for purposes of a notification issued under section 4 of the Uttar Pradesh Sales Tax Act, 1948, cloth which had been purchased with a view to export and which had been subjected to a dyeing and printing operation was the same as the cloth which had been purchased so as to attract the exemption created by that notification. What was contended on behalf of the Department in that case was that since the cloth purchased by the assessee was subjected to a colouring, printing and dyeing operation, it got transformed into some other material, and that, therefore, what was exported by the assessee in that case was not the same cloth as that which had been purchased by him. That contention was repelled and their Lordships came to the conclusion that notwithstanding the fact that the cloth was subjected to those processes, it continued to be the same cloth which was purchased for the purpose of export and, therefore, fell within the notification.
27. The distinguishing feature of that case was that even after the various processes to which the cloth was subjected, it continued to remain as cloth and there was no transmutation of that cloth into some other kind of goods.
28. The principle really applicable to the case before us, in my opinion, is that enunciated by their Lordships of the Supreme Court in State of Travancore-Cochin and Others v. Shanmugha Vilas Cashew-nut Factory, Quilon : 1SCR53 , in which it was pointed out that cashew-nuts conditioned and processed for export, were not the same as the cashew-nuts purchased for that purpose, and therefore, did not attract the exemption of Article 286 of the Constitution.
29. The conclusion, therefore, to be reached is that the ghee sold by the assessee in this case was different from the butter which he purchased from his unregistered dealers, and that being so, he was not entitled to the benefit of the proviso to section 10(a) of the Act.
30. But, Mr. Krishnaswamy Rao contends that we should decline to answer the question referred to us in this case in that way, since according to him, there is no valid reference before us. He has pointed out to us that although the order of the Tribunal was made on 8th August, 1958, no application for a reference to this Court was made until 27th April, 1959, and that since that application was not made within the period of limitation prescribed under section 34 of the Act, the reference made to us is an incompetent and invalid reference.
31. But, Mr. Chandrasekhar, the learned Government Pleader, has pointed out to us that although a formal application for a reference was made on 27th April, 1959, that application had been preceded by a letter addressed on behalf of the Commissioner of Commercial Taxes to the Tribunal on 27th October, 1958, in which a request was made to the Tribunal to make a reference.
32. It is no doubt true that when that letter was received by the Tribunal, the Tribunal proceeded to consider the maintainability of the application for reference made by the Commissioner, since no formal application for that purpose had been made by him. On 19th May, 1959, the assessee also produced a statement of objections before the Tribunal in which he contended that the application presented by the Commissioner on 27th April, 1959, was barred by limitation, and was, therefore, not maintainable. The matter was posted to 5th August, 1959, and, on that date, the pleader appearing for the assessee made a statement that he would not have any objection to the reference being made to this Court, as requested by the Commissioner. It was thereafter that this reference was made to this Court.
33. It is clear from the fact that the assessee's pleader consented to a reference being made to this Court, that he is clearly precluded from urging any contention to the contrary in this Court. That being so, it is not necessary for us to consider the argument that the letter addressed on behalf of the Commissioner of Commercial Taxes on 27th October, 1958, was not an application presented in accordance with law or that the application made on 27th April, 1959, was barred by limitation.
34. In my opinion, we should answer the question referred to us, in favour of the Department. Our answer should be that purchase tax is leviable under section 10 of the Bombay Sales Tax Act, 1953, where the butter purchased from an unregistered dealer is sold after converting it into ghee.
35. The reference will be answered accordingly. In the circumstances, there will be no order as to costs.
36. I agree.
37. Reference answered accordingly.