Goods used for ancillary purposes like fuel in the manufacturing process do not fall within S.5A(1)(a) of the Kerala General Sales Tax Act, 1963.

1. This is a petition for leave to appeal under Art.136 of the Constitution of India from the judgment and Order of the High Court of Kerala dated December 9,1986. The High Court by the impugned judgment dismissed the revision cases, which were brought at the instance of the revenue.

2. The assessee is a manufacturer and dealer in tiles, terre-cotta wares and ceramic. It was assessed to tax under S.SA of the Kerala General Sales Tax Act, 1963, hereinafter called 'the Act', for the assessment years 1974-75,1975-76 and 1976-77 among other things on the purchase turnover of cashew shells and consumed stores, lime shells etc., purchased by the assessee-company. These are in abundant supply in that area. These are used, as it appears from the judgment of the High Court and from the facts found by the Tribunal, as fuel in the Kiln in the factory of the assessee for the manufacture of tiles and others. It was sought to be assessed to tax. The assessee contended that cashew shells were used by them as fuel for

(emphasis supplied) manufacturing products referred to above and, therefore, by virtue of notification S.R.O 732/73 the purchase turnover of cashew shells were exempt from tax. In the alternative, it was contended by the assessee that the purchases in question were not liable for levy of tax since none of the conditions prescribed in clause (a), (b) or (c) of S.SA of the Act were satisfied

3. The assessee had also purchased during the relevant years in question, lime shell and certain stores described as consumed which had been used in the maintenance of the kiln and the factory. These purchases were also claimed as non-taxable in view of the conditions prescribed in Clause (A), (b) or (C) of S.SA of the Act, being not satisfied. The assessing authority and the First Appellate Authority overruled the contentions of the assessee and brought these purchases to tax under S.SA (1) of the Act.

4. The relevant provisions of S.5A(1) of the Act and Clauses (a), (b) and (c) of the same are as follows:

"5-A. Levy of purchase tax (1) Every dealer who, in the course of his business, purchases from a registered dealer or from any other person any goods the sale or purchase of which is liable to tax under this Act in circumstances in which no tax is payable under S.S, and either

(a) consumes such goods in the, manufacture of other goods for sale or otherwise; or

(b) disposes of such goods in any manner other than by way of sale In the State; or (c) despatches them to any place outside the State except as a direct result of sale or purchase in the course of interstate trade or commerce.

shall, whatever be the quantum of the turnover relating to such purchase for a year, pay tax on the taxable turnover relating to such purchase for the year at the rates mentioned in S.5."

5. In second appeal the Tribunal also did not accept this case of the assessee regarding non-taxability of the purchase turnover of the cashew shells under the said Notification. The Tribunal, however, held that the cashew shells had been used only as fuel in the kiln for the manufacture of tiles and ether goods and, hence, Clause (a) of S.5A(1) of the Act, was not satisfied, there being no consumption of the cashew shells in the manufacture of other goods or otherwise. The Tribunal was of the opinion that these were used for the manufacture. The Tribunal also held that there was no disposal of the lime shells or the consumed stores which were used up for the maintenance of the factory and kiln and that there was also no consumption of those goods in the manufacture of other goods for sale or otherwise. In this view of the matter the Tribunal held that these items were not taxable under S.5A of the Act.

6. The revenue being aggrieved went to the High Court. The High Court upheld the decision of the Tribunal and rejected the revenue's contention.

7. The construction of S.5A of the Act, came up for consideration before this Court in Deputy Commissioner of Sales Tax (Law), Bo