Judgment

SHAH, J.:- These appeals raise a common question. The respondents are dealers in groundnut oil. In the assessment years 1959-60 and 1060-61 they sold quantities of groundnut oil set out in the table below to the Hindustan Lever Ltd.:

C. A. No. Name of respondent Period of sale Value of groundnut oil

2282 R. N. Krishnaswami Naidu & Sons. 1959-60 Rs. 3,73,229.06

2283 A. S. Arunachalam Chettiar 1959-60 Rs. 5,14,106.01

2284 K. Mummudi Chettiar and Co. 1960-61 Rs. 10,27,939.32

2285 K. S. Mohammed Ghani Rowther. 1959-60 Rs. 2,03,709.96

2286 V. Krishna Chettiar and Bros. 1960-61 Rs. 2,48,445.95

2287 V. N. M. A. Rajendra Nadar and Bros. Co. 1959-60 Rs. 1,51,241.24

The groundnut oil supplied to the Hindustan Lever Ltd. was intended to be and was used for manufacturing vanaspati.

2. In proceedings for assessment to sales-tax, the respondents claimed that they were liable to pay tax at a concessional rate under Section 3 (3) of the Madras General Sales Tax Act, 1959. That contention was rejected by the Additional Commercial Tax Officer and the order was confirmed by the Sales Tax Appellate Tribunal. The High Court set aside the orders holding that the respondents were entitled to claim the concessional rate under Section 3 (3) of the Act. The State of Madras has appealed to this Court with certificate granted by the High Court.

3. The relevant provisions of the Act may first be set out. Section 3 provides, insofar as it is relevant:

(1) Every dealer x x x whose total turnover for a year is not less than ten thousand rupees x x x shall pay a tax for each year at the rate of two per cent. of this taxable turnover:

Provided that -

xx xx xx xx

(2) Notwithstanding anything contained in sub-section (1) in the case of goods mentioned in the First Schedule, the tax under this Act shall be payable by a dealer, at the rate and only at the point specified therein on the turnover in each year relating to such goods whatever be the quantum of turnover in that year.

(3) Notwithstanding anything contained in sub-section (1) or sub-section (2), the tax payable by a dealer in respect of any sale of goods mentioned in the First Schedule by such dealer to another for use by the latter as component part of any other goods mentioned in that Schedule, which he intends to manufacture inside the State for sale shall be at the rate of only one and a half per cent. of the turnover relating to such sale:

Provided xx xx xx

Explanation.- For the purposes of this sub-section, component part means an article which forms an identifiable constituent of the finished product and which along with other goods to make up the finished product.

The First Schedule to the Act contains a large number of entries. The entries material at the relevant time were Entry 20 All vegetable oils , and Entry 45 Vegetable products, that is to say, any vegetable oil or fat, which whether by itself or in admixture with any other substance, has by hydrogenation or by any other process been hardened for human consumption . Groundnut oil clearly fell within Entry 20, and vanaspati was covered by Entry 45. There is also no dispute that groundnut oil forms the major component of vanaspati.

4. The taxing authorities rejected the claim of the respondents on the ground that groundnut oil is not a component part of vanaspati because it does not form an identifiable constituent of the finished product i.e. vanaspati. The High Court held that groundnut oil constitutes a component part of vanaspati. The finding of the High Court is supported by clear evidence on the record. Mr. R. Mahadevan, Factory Manager, Hindustan Lever Ltd., has stated in his affidavit that the vanaspati manufactured by the Hindustan Lever Ltd., contained the following three vegetable oils as component parts:

Percentage of oil used

(i) Groundnut oil 85 to 95

(ii) Sesame or Gingelly oil 5

(iii) Cottonseed oil 0 to 10

According to Mr. Mahadevan the groundnut oil is the major component in the manufacture of vanaspati and vanaspa