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Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) Vs. C.R. Paul and Sons - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtKerala High Court
Decided On
Case NumberT.R.C. Nos. 73 of 1981 and 62 and 120 of 1983
Reported in[1985]59STC231(Ker)
AppellantDeputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes)
RespondentC.R. Paul and Sons
Appellant AdvocateGovernment Pleader
Respondent Advocate M.N. Sukumaran Nair, P. Radhakrishnan and; T.L. Viswanatha Iyer, Advs.
Cases ReferredCommissioner of Sales Tax v. Marwah
Excerpt: the three cases on hand ? would a factory owner requiring fuel for his kiln, furnace or boiler insist on similar conditions and terms ? the answer can only be in the..........of sales tax questions the correctness of the view taken by the sales tax appellate tribunal that 'firewood' sold by the assessees to the gwalior rayon silk . is to be assessed at the rate of 1 per cent under item 55 of the first schedule to the act, as it stood at the material time.2. the assessee in t. r. c. no. 73 of 1981 is a coupe contractor, and he entered into an agreement with the gwalior rayons for the supply of 'approved variety of firewood'. relevant portions of the letter written by the company to the assessee, incorporating the terms of the agreement, are extracted below : dear sirs, with reference to the discussions we had, we are pleased to give you the contract referred to above, subject to the following terms and conditions :--quantity:you will supply minimum 5000 m......

M.P. Menon, J.

1. In these revisions filed under Section 41 of the Kerala General Sales Tax Act, 1963 the Deputy Commissioner of Sales Tax questions the correctness of the view taken by the Sales Tax Appellate Tribunal that 'firewood' sold by the assessees to the Gwalior Rayon Silk . is to be assessed at the rate of 1 per cent under item 55 of the First Schedule to the Act, as it stood at the material time.

2. The assessee in T. R. C. No. 73 of 1981 is a coupe contractor, and he entered into an agreement with the Gwalior Rayons for the supply of 'approved variety of firewood'. Relevant portions of the letter written by the company to the assessee, incorporating the terms of the agreement, are extracted below : Dear Sirs, With reference to the discussions we had, we are pleased to give you the contract referred to above, subject to the following terms and conditions :--


You will supply minimum 5000 M. Tons of approved variety of firewood duly debarked and splitted, from the above forests to our factory at Mavoor @ minimum 3 lorry loads per day, failing which, penalty @ Rs. 10 per lorry/load fallen short would be levied on you ; however monthly average would be taken while imposing this penalty.


You will be paid the following rates, on per ton basis, all inclusive for the supply of debarked/splitted material at our factory site, Mavoor, from the above forest area on the basis of weight recorded at our factory weigh bridge, Mavoor which would be final and binding upon in this regard :--

1. Rs. 5/- (five per M. Ton) -- cost of material inclusive of sales tax.2. Rs. 15/- (fifteen) -- Extraction/debarking/splitting charges, etc.3. Rs. 27/50 (Rs. twenty-seven and paise fifty only) per M. Ton for transportto factory, Mavoor.Rs. 47/50 Ps. per M. Ton -- Total* * *Specifications:

1. Material (firewood) should be of approved quality only.

2. The firewood should be duly debarked cleanly and split into suitable sizes.

3. Minimum length should be 1 metre and maximum 2 metres. Minimum girth 8' and maximum 24'after splitting/debarking of the firewood.

4. Rubber wood and other varieties of wood, whichever not specified by us, will not be accepted.

5. Firewood should be free from mud, sand and other foreign materials and water contents.* * *

Validity :

This contract is valid only from 15th December, 1969 to 31st May, 1970.

In respect of the supply made under the above agreement, the assessee claimed the concessional rate of 1 per cent in the return submitted for the year. But the Sales Tax Officer rejected the claim because in his opinion, what was supplied was not firewood for fuel purposes, but 'timber pieces of specified sizes' for being used in the manufacture of rayon pulp. The officer was also of the view that freight charges was a component part of the price of the goods supplied, as the sale was completed at the factory site. Accordingly he assessed the turnover, including the amount representing freight charges, at 3%. The assessee appealed to the Appellate Assistant Commissioner, but the appeal was dismissed. A second appeal taken to the Tribunal also met with the same fate. The matter was then taken up in T. R. C. No. 146 of 1977, and this Court remitted the case to the Tribunal for reconsideration in the light of the decision in Kutty and Company v. State of Kerala [1978] 42 STC 294. In Kutty's case [1978] 42 STC 294, this Court had held that:

(i) the question whether what was supplied was firewood or not depended upon the 'subject-matter of the bargain' as disclosed by all relevant documents, and as such, the matter required further investigation involving a scrutiny of the contract, the dealings and the conduct of the parties ; and

(ii) in view of Rule 9(f) of the Kerala General Sales Tax Rules, transport charges were not liable to be included in the taxable turnover.

After remand as above and before the relevant facts could be further investigated by the Tribunal, however, another decision had been rendered by this Court in Deputy Commissioner v. Western India Plywoods (P.) Ltd. [1980] 46 STC 331 holding that:

When once it is found that the commodity which forms the subject-matter of the transaction of sale or purchase is directly covered by an entry in the First Schedule, the benefit of the concessional rate becomes available to the assessee and that will not be lost by reason of the fact that the goods purchased were used by the assessee (purchaser ?) for a purpose other than what is regarded as the predominant or ordinary use of that article.

The Tribunal thought that in view of this statement of the law, and the circumstance that part of the same material sold to another purchaser by the assessee had been treated as 'firewood' by the Sales Tax Officer and the Appellate Assistant Commissioner, there was no need for any further investigation, and that the article supplied had to be treated as firewood in the case of Gwalior Rayons also. And in the light of the decision in Kutty [1978] 42 STC 294 freight charges were also to be excluded from the computation of turnover. The matter was accordingly remitted to the Sales Tax Officer for passing fresh orders on the above basis.

3. In T. R. C. No. 62 of 1983 the assessee is Consolidated Timbers, Kallai, Calicut; but the records disclose that' during the assessment year 1974-75 they were dealing in firewood alone, in connection with a 'coupe' at Mannarghat. After a scrutiny of the returns submitted by the assessee, the Sales Tax Officer wrote to them :

The entire sales as per accounts relate to firewood. But it is seen that goods worth Rs. 97,164.10 were sold to M/s. The Gwalior Rayon Silk ., Mavoor in the year 1974-75. The claim that these goods were firewood cannot be accepted. As per the agreement entered into with the company, the materials to be supplied are of specific varieties with certain standard specifications. The materials should be of approved quality. Minimum and maximum length, minimum and maximum girth, etc., were prescribed. If the materials were to be used as firewood, no such conditions, specifications, etc., would be prescribed. Evidently, the materials supplied to the company are not firewood, but pieces of the timber intended for the manufacture of pulp from the factory of the company. I therefore propose to assess the turnover of goods sold to the company @ 3% and 4% as the case may be and the balance @ 1% as shown below :

The assessee filed objections, but they were overruled. The Appellate Assistant Commissioner agreed with the assessing authority, but the Tribunal took a different view of the matter, again in the light of the Western India Plywoods case [1980] 46 STC 331 and held that the rate of tax could only be 1 per cent. The agreement entered into between the assessee and the Gwalior Rayons is not available among the files, but counsel submits that there was no provision for debarking and for supply at the company's factory site.

4. T. R. C. No. 120 of 1983 also relates to an assessee who had auctioned a coupe and supplied firewood to Gwalior Rayons. The assessing authority and the Appellate Assistant Commissioner were not for recognising the concessional rate in regard to the supply, but the Tribunal reversed their view. The Tribunal's order show that supply in this case was also made on the basis of an agreement containing specifications.

5. According to counsel for the Department the mere circumstance that both the parties to a contract of sale agreed to classify the commodity as 'firewood' is not conclusive of the real question ; it is for the authorities under the Act to probe into the true nature of the bargain and identify what exactly is sold and bought. Counsel for the assessees would however contend that so long as the sellers had acquired and offered for sale 'firewood' obtained from the coupe, the circumstance that the purchaser was prepared to buy only some varieties, answering his specifications, could not affect the character or nature of the commodity sold. The pieces sold to Gwalior Rayons, debarked or otherwise, were capable of being used as 'firewood' despite the specifications, and the sellers had no duty to enquire for what purpose the purchaser was using the material.

6. A number of decisions were cited, and the question was mooted at one stage whether the nature of the use to which a commodity is put by a purchaser is relevant at all. We think that it is neither proper nor desirable to pose the question in such a general form and attempt to answer it in the abstract. With regard to 'firewood' under entry 55 at least, it is not possible to hold that use or user is totally irrelevant under all circumstances. That is because the very term 'firewood' carries with it the concept of a well known use. Wood in any form and of every variety will burn, but only wood prepared for being used as firewood in the hearth or furnace can be so classified. It is reasonable to assume that the Legislature provided for the concessional rate under entry 55 because it knew that fuel was an important item in every family budget. All that this Court said in the Western India Plywoods case [1980] 46 STC 331 was that once it was possible to identify a commodity as firewood with reference to the ordinary purpose for which it is bought and sold, the accident that a buyer was putting it to a different use could not alter the position. The decision did not go further and enquire into a situation where both the seller and the purchaser enter into the transaction with full knowledge that the commodity is being procured for a different purpose, with specifications and restrictions relevant for that special purpose ; in fact specifications relating to variety, size, debarking, etc., were totally absent in the Plywoods case [1980] 46 STC 331, and it was therefore unnecessary to examine such a case.

7. There are decisions to the effect that entries in the Schedule to a sales tax enactment should be construed in their popular sense, and not in the technical sense. In Ramavatar v. Assistant Sales Tax Officer [1961] 12 STC 286 (SC) the Supreme Court said that what is relevant is 'the sense which people conversant with the subject-matter would attribute to it'. And so understood, their Lordships were of the view that 'betal leaves' could not be treated as a 'vegetable' because, as commonly understood, the term included only vegetable matters grown in the kitchen garden and used for the table. The same approach was made by a Full Bench of this Court in Krishna Iyer v. State [1962] 13 STC 838 (FB) when the question arose whether 'green ginger' could be classified as a vegetable. The question asked was somewhat like this : 'would a householder when asked to bring home vegetables for the evening meal, bring green ginger ?' In Commissioner of Sales Tax v. Jaswant Singh [1967] 19 STC 469 (SC) the question was whether 'charcoal' could be regarded as 'coal' for the purposes of entry 1 of Part III of Schedule II of the Madhya Pradesh General Sales Tax Act ; and the Supreme Court said :

A sales tax statute, being one levying a tax on goods, must, in the absence of a technical term or a term of science or art, be presumed to have used an ordinary term as 'coal' according to the meaning ascribed to it in common parlance. Viewed from that angle, both a merchant dealing in coal and a consumer wanting to purchase it would regard coal not in its geological sense but in the sense as ordinarily understood and would include 'charcoal' in the term 'coal'.

In Annapurna Carbon Industries v. State of A. P. [1976] 37 STC 378 (SC) the Supreme Court was called upon to consider the scope of an entry in the A. P. General Sales Tax Act, reading as: 'cinematographic equipment, including and accessories required for use therewith'. The assessee was manufacturing 'cinema arc carbons' and the contention was that as the product was being used for searchlights, signalling, stage lighting, etc., it could not merely be assumed that all that was manufactured was being used as part of cinematographic equipment. The Court held that having regard to the term 'use' employed in the last part of the entry, the general or ordinary use of the article was relevant. Referring to decisions explaining the scope of other and similar entries in sales tax enactments, the Court said :

We do not think that any useful purpose is served by multiplying cases relating to entries which are so very different and could have only a very remote bearing, if any, upon any reasoning which could be adopted to support the submission that the arc carbons, under consideration here, fell within the relevant entry No. 4 of Schedule I of the Act. The meaning of this entry can only be satisfactorily determined in the light of the language of the entry itself considered in the context in which it occurs.

The question in Deputy Commissioner v. Pai & Co. [1980] 45 STC 58 (SC) was whether 'water supply and sanitary fittings' would include heavy G. I. pipes laid as underground mains ; and the Court held :

The entire expression 'water supply and sanitary fittings' is one single expression and the words 'water supply...fittings' must receive

colour from the immediately following words 'sanitary fittings'. We are, therefore, of the view that the expression 'water supply...fittings'

in the context in which it occurs means such pipes or materials as are meant for use for supply of water to or in lavatories, urinals or bath-rooms of private houses or public buildings and they do not include heavy pipes which are laid underground as mains for carrying water supply from one area or place to another.

8. The general principle seems to be that in the case of entries not employing technical terms or terms of art or science, they have to be understood in their ordinary, popular or commercial sense ; and where use of the commodity is relevant either because of the language or by reason of the context, importance should be attached to the purpose or use most commonly known, and not to special purposes. In this view, it is unnecessary to refer to some of the other decisions cited because the principles broadly deducible therefrom could be understood only in the background of the statutory language and context, and the facts found.

9. Turning now to the facts on hand the agreement in T. R. C. No. 73 of 1981 shows that it was entered into after discussions between the seller and the purchaser. It was not a simple case of a purchaser walking into a fuel depot and asking for some firewood, or of a consumer placing an order for bulk-supply. What was to be supplied was not every variety of firewood the coupe contractor could offer, but only 'approved varieties'. 'Rubber wood and other varities of wood not specified by us' were not acceptable at all. The pieces had also to be 'debarked cleanly' and split into suitable sizes conforming to the length and girth specified. The purchaser was not willing to take all 'firewood' the seller could have ordinarily passed on to others. He was also not willing to take the material without debarking a course not commonly followed in the sale and purchase of the commodity. The minimum requirement (from one contractor alone) was 5000 M. Tons, and yet only varieties of wood specified in advance would be accepted. Is it unreasonable to infer from these circumstances that during the discussions that preceded the agreement M/s. Gwalior Rayons and the coupe contractor had agreed to sell and buy not firewood for fuel purposes, but pieces of wood specially suitable for the manufacture of pulp And is it possible to say that where both the seller and the purchaser consciously enter into a bargain for the supply of raw material for the manufacture of rayon pulp, the transaction should still be fictionally regarded as one relating to firewood, simply because the material that changed hands could have been used by others, under other circumstances, as fuel We think not.

10. The Western India Plywoods' case [1980] 46 STC 331 had no doubt indicated that if a commodity was found to fall within entry 55 of the Schedule, it could claim the concessional rate notwithstanding proof of special use by a buyer. But the finding by the assessing and appellate authorities in the present case was that the commodity sold was timber pieces of specified varieties specially prepared for use as raw material; they were definitely of the view that it was not firewood ordinarily used for fuel purposes. And the Tribunal also was not in a position to disturb this finding. If it had any doubt in the matter it should have addressed itself to the following question, as formulated in Kutty [1978] 42 STC 294 and as directed in T. R. C. No. 146 of 1977 :

What was the material that the seller intended to supply and the purchaser intended to buy Was it, as the assessee would contend, 'firewood', or was it, as counsel for the Revenue would have it, something other than firewood...?

In our opinion, the Tribunal should have noticed that the case before it was not of an isolated use by a stray purchaser, but of a pattern whereby a regular consumer of pulpwood was trying to procure huge quantities of that material, and the sellers consciously agreeing to cater to that need.

11. The facts in A. H. K. and Company v. State of Tamil Nadu [1980] 46 STC 117 were similar. It was argued before the Madras High Court, on the basis of certain decisions, that when an article answers the description in the statute with reference to its common use, any special use to which it may be put by a buyer could not enter the reckoning. But the Court rejected the contention and held :

We are of the opinion that the abovesaid observation will have no application to the facts of this case, having regard to the fact that the parties entered into a contract giving minute details as to the specifications of the articles to be supplied by the petitioner to Gwalior Rayons Silk Manufacturing Company Limited, and if the articles were to satisfy those specifications, certainly that could not be called firewood at all.

In P. R. Lakshmi v. State of Tamil Nadu [1983] 52 STC 5 one of the assessees had sold 'blue-gum and wattle pulpwood' to the South India Viscose at Coimbatore, and the other had sold 'debarked and split eucalyptus blue-gum' to the Gwalior Rayons at Calicut, and another Bench of the Madras High Court held that the goods sold could not be regarded as 'firewood'. After referring to the earlier decision in A. H. K. and Company [1980] 46 STC 117, the Court observed :

The basis of this decision governs the present two cases. The specification of the goods in each case showed that what was sold was not firewood or fuel wood. The specifications showed that the blue-gum eucalyptus must be split to size and debarked. What the purchaser in each case obviously desired was that the eucalyptus should serve the intended purpose, namely, to be used in the manufacture of rayon or other kind of man-made fibre. This applies to wattle wood as well. That the goods sold were firewood or fuel wood must have been farthest from the thoughts of both the parties.

Apart from the particular specifications in the sale agreement to which we have referred, we think we must have regard for the colloquy of commerce and the common vocabulary of the market for distinguishing between firewood and other kinds of wood. Firewood, in common commercial parlance and as understood by the trade as well as by the consuming public, is not just any wood that can be used as logs of fuel. Every kind of wood is potential firewood, for you can start a fire with any wood. But this is not the test. Firewood is wood of a kind which has attained notoriety as fuel. Nobody who sells firewood debarks the wood before sale. Nobody who buys firewood requires them to be shaved and debarked. Purchasers may desire the wood to be cut to size. But that is all. There may be eccentric sellers and eccentric buyers who may indulge their fancies in specialities in firewood. But that, again, is not the test. Where the wood is not, in the normally accepted commercial practice, firewood, and more especially, where the wood is sold and purchased subject to specifications which conduce the wood to particular purposes other than fuel, which is the case in the present two revisions, the goods sold cannot be regarded as firewood.

12. The decision in Commissioner of Sales Tax v. Marwah & Co. [1979] 43 STC 435 rested on facts which are clearly distinguishable. The assessee there had sold pieces of wood 10 cms. to 20 cms. in diameter to a paper mill which used it in the manufacture of paper. The article was commonly known as kokat, understood in the area to mean firewood. The appellate and revisional authorities had found that the material was waste wood normally used as fuel, and a learned single Judge of the Allahabad High Court declined to interfere with this finding on the ground that special use by a consumer could not determine the classification of a commodity. It was apparently a case where the material on record was insufficient to hold that the subject-matter of the bargain was anything other than firewood.

13. Finally let us ask a question similar to the one asked in Krishna Iyer's case [1962] 13 STC 838 (FB): would a householder requiring firewood for cooking his evening meal approach the proprietor of a fuel depot and insist on specifications and conditions, like those found in the three cases on hand Would a factory owner requiring fuel for his kiln, furnace or boiler insist on similar conditions and terms The answer can only be in the negative.

14. We therefore set aside the orders of the Tribunal in T. R. C. No. 62 of 1983 and 120 of 1983 and restore the orders of the assessing authorities, as confirmed by the Appellate Assistant Commissioner. In T. R. C. No. 73 of 1981 also the direction of the Tribunal to assess the transaction under entry 55 will stand vacated. No costs.

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