COMMISSIONER OF SALES TAX, LUCKNOW vs. D. S. BIST &. ORS.

CIVIL APPEAL No. 2361/1972Supreme Court[1980] 1 S.C.R. 59311 September 1979Bench: 2 JudgesAuthor: N.L. UNTWALIA, R.S. PATHAK11 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court, dismissing the appeal, held that the High Court was correct in its decision. The commodity sold was not different from the commodity produced in agriculture, and therefore, the proviso to Section 2(i) of the U.P. Sales Tax Act, 1948, was attracted. The Court reasoned that most agricultural produce requires some processing to be non-perishable, transportable, and marketable. The test is whether the process is minimal or so extensive that the produce loses its agricultural character. In this case, the processes applied to the tea leaves were considered minimal and necessary for preservation and marketability, without altering their essential substance. The potential qualities of flavor and color were inherent in the leaf from the outset and were merely brought to the surface by the processes. The Court distinguished the case from situations where a product is fundamentally transformed into a different commodity. The tea leaf remained fundamentally agricultural produce throughout.

What were the facts?

The assessee, an agriculturist owning tea gardens in Uttar Pradesh, sold tea leaves after undergoing a series of processes: withering in shade, crushing, roasting, fermentation, grading, and final roasting for flavor and color. The assessee contended that these processed tea leaves remained agricultural produce and were thus exempt from sales tax under the proviso to Section 2(i) of the U.P. Sales Tax Act, 1948. The Sales Tax Authorities rejected this contention. The High Court, however, ruled in favor of the assessee. The Commissioner of Sales Tax appealed this decision to the Supreme Court.

What were the issues?

1. Whether the tea leaves, after undergoing the processes of withering, crushing, roasting, fermentation, grading, and final roasting, ceased to be agricultural produce and thus became exigible to sales tax under the U.P. Sales Tax Act, 1948? Assessee's contention: The tea leaves sold were agricultural produce grown by the assessee, and the processes applied were minimal to make them marketable and preserve them, without changing their essential character. Therefore, the proviso to Section 2(i) of the Act, exempting sales of agricultural produce, should apply. Revenue's contention: The processes applied transformed the tea leaves into a manufactured product, thereby losing their character as agricultural produce and becoming exigible to sales tax. The revenue relied on the distinction between agriculture and manufacture, citing the Calcutta High Court's view in Killing Valley Tea Company Ltd. v. Secretary to State.

Which sections of the Income-tax Act were involved?

Section 2(i),Section 3

AI-generated summary — verify with the full judgment below

) • COMMISSIONER OF SALES TAX, LUCKNOW v. D. S. BIST &. ORS.

September 11, 1979 [N. L. UNTWALIA AND R. S. PATHAK, JJ] 593 U . .P. Sales Tax Act, 1948-S. 2(i) proviso-Tea leaves after drying and pTocessing-Whether re1nained agricultural produce not exigible to sales tax under the proviso.

The proviso to s. 2(i) of the U.P. Sales Tax Act, 1948 excludes from the term "turnover" proceeds of sale of agricultural or horticultural prcxluce grown by a person on any land in which he has interest.

The assessee, who was an agriculturist, O\Vlled tea gardens in the State. After being plucked from tea shrubs tea leaves are withered iili shade in rooms, crushed by hand or foot, roasted for 15 minutes, then covered by wet sheets for the purpose of generating fertnentation, graded and finally roasted again with charcoal for obtaining :flavour and colour.

The final product is sold in the market.

Before the Sales Tax Authorities the assessee contended that tea leaves sold by him were agricultural produce grown by him on his own land and that, therefore, the sale of tea effected by him was exempt from sales tax under the proviso to s. 2(i) of the Act.

The Sales Tax Authoriti

The order continues below.

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