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Judgment
Rajasekhara Murthy, J.-In these two writ petitions by the common petitioner the proposition notice issued for the years ending 30-6-1984 and 30-5-1985 under Section 16B of the Entry Tax Act (the Act), are challenged.
The first respondent has proposed to levy tax on the purchase turn-over of raw prawns and brought within the local areas. The Assessing Authority has proposed to levy tax on the ground that the raw prawns are used, after the entry into local area, for the purpose of manufacturing frozen prawns which are later sold in sealed containers.
Entry 16-B of the Entry Tax Act reads thus:
"16-B: All raw materials, component parts and inputs which are used in the manufacture of an intermediate or finished product.
(i) when brought into local areas by an industrial unit; or (ii) when brought into local areas by any dealer who, after having so brought, sells or supplies the same to an industrial unit located either within the same local area or outside it.
EXPLANATION-I
The words ''Industrial Unit'' mean a Manufacturing unit which falls within the definition of a ''factory'' under the Factories Act, 1948 (Central Act No. LXIII 1948) but excludes (i) Handicrafts Manufacturing Units (ii) Handlook Weaving Units and (iii) any other group or class of industries which may with reference to their nature, competitiveness, employment potential or such other factors, be notified by the State Government.
EXPLANATION-II
The words ''raw-materials, component parts and inputs'' do not include agricultural produce, horticultural produce, timber or wood of any species, silk cocoons, raw, thrown or twisted silk, tobacco (whether raw or cured) cement, paper, electrical goods or such other inputs as may be notified by the State Government for purposes of exemption from tax under item 16-B from time to time, but include aluminium ingots and ores of all kinds."
Under this entry, all raw-materials, component parts and inputs which are used in the manufacture of intermediate or finished products, are subjected to levy of entry tax.
It is argued by Sri Indra Kumar the learned Counsel for the petitioner that the proposition notices seeking to levy tax on raw prawns treating it as raw-material, have to be quashed in view of the decisions of Supreme Court in Canara Exports v State of Karnataka, 66 STC 153 and Sterling Foods v The State of Karnataka and another, 63 STC 239. It is also pointed out that the Supreme Court in the case of this petitioner allowed the appeal (referred to supra) and set aside the Judgment of the High Court and directed that the purchase turn-over of shrimps, prawns and lobsters made by the appellants (petitioners herein) for the purpose of fulfilling the existing contracts for export, shall not be included in the taxable turn-over of the appellants. While allowing the appeal, the Supreme Court followed its earlier decision in Sterling Foods case, wherein the Supreme Court held that the shrimps, prawns and lobsters purchased by the dealers did not lose their original character and identity merely by for the reason that they were subjected to process of freezing for the purpose of export. It was further held that in commercial parlance or popular usage, they remained the same goods and hence the purchase of raw shrimps, prawns and lobsters by the appellants must be held to be purchase in the course of export and should be exempted from liability to purchase tax under the Karnataka Sales Tax Act.
It was held by the Supreme Court that the raw prawns even after undergoing the process of freezing for purpose of export do not lose their original identity and retain the same character and identity as the original shrimps, prawns and lobsters. The Supreme Court allowed the appeal of the assessees and reversed the judgment of the High Court and directed that the purchase of raw shrimps, prawns and lobsters made by the dealer in those cases shall not be included in the taxable turn-over of the appellants to levy purchase tax.
The Supreme Court in Sterling Food Product''s case reiterated the test laid down in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v Pio Food Packers, 46 STC 63.
In Pio Food Packer''s case, the question that came up for decision was whether there was consumption of the original pineapple fruits in the manufacture of pineapple slices?
Their Lordships held that although a degree of processing was involved in preparing pineapple slices from the original fruit, the commodity continued to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it. It was held by Supreme Court when there is no essential difference in identity between the original commodity and the processed article, it is not possible to say that one commodity has been consumed in the manufacture of another. It was therefore held that all the processes which the original pineapple underwent did not amount to manufacture and thus there was no consumption of the original pineapple fruit for the purpose of manufacture in order to attract purchase tax under the Kerala Act.
In the course of the judgment, dismissing the appeal of the Department, the Supreme Court relied upon the famous observations made by the United States Supreme Court in the case of Anheuser-Busch Brewing Association v United States, U.S.S.C. REPORTS-52 LAW Edn. at page 562 to 564, which is reproduced below;
"Manufacture implies a change, but every change is not manufacture, and yet every change in the 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 distinctive name, character, or use."
It is the case of the Department in these cases that the raw prawns which were purchased by the petitioner and brought within the local areas for subjecting them to the process of freezing and later put in sealed containers for the purpose of export by the petitioners, constitute raw materials used in the manufacture of intermediate or a finished product. It is also argued that the petitioner is an exporter of prawns and the raw-prawns, after they are subjected to the process of peeling, deveining, cleaning and freezing are exported in sealed containers and thus they are a different commodity and do not retain the original character or identity.
This argument has to be rejected outright in the Right of the categorical rulings of the Supreme Court in the cases referred to above and having regard to the undisputable position that the raw prawns in the case do not lose their original identity by undergoing process of freezing.
The question that therefore arises for consideration in this case is, whether raw prawns can be treated as raw materials for purposes of levy of entry tax under Entry-16-B?
The test laid down by the Supreme Court applies in all its force to the proposed levy of entry tax on raw prawns. If frozen prawns cannot be treated as a different commodity for levying purchase tax by Kerala General Sales Tax Act, the same reasoning holds good and should be applied even for determining whether raw prawns can be taxed as raw material for levying entry tax under Karnataka Entry Tax Act. The test cannot be different in view of the finding recorded by the Supreme Court that no manufacture is involved in the process of freezing the raw prawns and shrimps and they cannot be said to be consumed while they undergo a process of freezing for purposes of export and put in sealed containers. Applying the ratio of the decision of the Supreme Court in Sterling Food Products case to these cases, the Department''s action to subject raw prawns to levy of entry tax, as raw material falling under Entry 16-B, cannot be upheld.
In the result, the writ petitions are allowed and the proposition notices issued by the first respondent (Annexures A and B) are quashed. The petitioners shall file their objections with respect to other items referred to in proposition notices within four weeks from this day.
Writ Petitions allowed.