STATE OF KARNATAKA versus B. RAGHURAMA SHETTY ETC.

Citation: [1981] 3 S.C.R. 280 · Decided: 24-03-1981 · Supreme Court of India · Bench: V.D. TULZAPURKAR · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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280 
STATE OF KARNATAKA 
v. 
B. RAGHURAMA SHETTY ETC. 
March 24, 1981 
[V.D. TULZAPURKAR, E. S. VENKATARAMJAH AND 
A. N. SEN, JJ. ] 
Karnataka Sales Tax Act, 1957 Section 6(i) Paddy-and rice-Whether distincl 
commodities-Milling of Paddy-whether involves manufacturing process-Con-
sumption-meaning of. 
The assessees (respondents) are the owners of rice mills and are registered 
dealers under the Karnataka Sales Tax Act, J 957. In the course of their business, 
they purchase paddy and after milling paddy, sell the resultant rice. During 
the assessment years, fhe assessees purchased paddy from agriculturists who 
were not liable to pay sales tax. 1 he assessing authority under the Act levied 
on the assessee in each of these cases purchase tax on th~ purchase turnover 
of paddy under section 6(i) of the Act. The appeals filed by the assessees were 
dismissed by the Appellate Authority except the one, holding that the conver-
sion of paddy into rice. did not involve any manufacturing process and that the 
purchase turnovers of paddy in those cases were not liable to tax under section 
6(i) of the Act. In the case of the other assessee, the Tribunal held that the 
turn over was liable to be taxed as he had manufactured milled rice out of the 
paddy purchased by him. 
The appellant filed revision petitions in the High Court and the assessee 
filed revision petition in the last case. 
The High Court after holding that the 
turn overs in questiou were not liable to tax under section 6(i) of the Act dis-
missed the petitions filed by the appellant and allowed the petition of the last 
assessee. The High Court granted a certificate of fitness to this Court. 
The appellant argued that the sale price of paddy which is a taxable commo-
dity having not been subjected to tax under section 5, the assessees were liable 
to tax under section 6(i) of the Act as they had consumed it in the manufacture 
of rice which was a different commodity for sale. The respondent argued that 
they had not consumed paddy when they produced rice from it by merely carry-
ing out the process of dehusking at their mills. 
Allowing the appeals, 
HELD : 1. {i) Paddy and rice are two distinct commodities. 
The milling 
of paddy involves a manufacturing process. [284 B] 
(ii) The levy in question is not impermissible even though paddy and rice 
are liable to be taxed at a single point, as in fact there is no double taxation on 
the same commodity. [286 F-G] 
KARNATAKA v. B.R. SHETTY (Venkataramiah, J.) 
281 
Ganesh Trcding Co. Karna/ v. State of Haryana and Anr. 32 S.T.C. 623, 
Babu Ram Jagdish Kumar and Co. v. The State of Punjab and Anr. 44 S.T.C. 
J 59 affirmed. 
2. Consumption in the true economic sense does not 
mean only use 
of goods in the production of consumer goods or final utilisation of consumer 
goods by consumers involving activities like eating of food, drinking of bevera-
ges, wearing of clothes or using of an autom~bile by its owner for domestic 
purposes. A manufacturer also consumes commodities which are ordinarily 
called raw materials when he produces semifinished goods which have to undergo 
further processes of production before they can be transformed into consumer 
goods. At every such intermediate stage of production, some utility or value is 
added to goods which are used as raw materials and at every such stage the raw 
materials are consumed. [284 D-E] 
3. At every stage of production there is consumption of goods even though 
at the end of it there may not be final consumotion of goods but only production 
of goods with higher utility which may be used in further productive processes. 
[285 B-B] 
M/s. Anwar Khan Mahboob Co. v. The State of Bombay and Ors. [1961] 2 
S.C.R. 709 at pp. 715-716; Economics (Tenth Edition 1976) at page 168 by Pro-
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fessor' Paul A. Samuelson, referred to. 
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In the instant case, the assessees had consumed that paddy purchased by 
them when they converted it into rice which is commercially a different commo-
dity for sale. The case of assessees therefore, squarely falls under section 6(i) 
the Act. 
[286 CJ 
State of Tcmil Nedi v. M. K. N. Kandaswami etc. etc. [1976] I S.C.R. 38, 
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Ganesh Prasad Dixit v. Commissioner of Sales Tax, [1969] 3 S.C.R. 490, referred 
to. 
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1801-1805 
of 1975. 
From the Judgments and Orders dated the 27th January and 
3rd February 1975 of the Karnataka High Court at Bangalore in 
STRPs Nos. 14,

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