ORDER
R.V. Raveendran, J.
1. Petitioner is a registered dealer under the Karnataka Sales Tax Act, 1957 ('Act' for short), carrying on business, inter alia, in buying and selling damaged foodgrains (wheat and rice) from food corporation of India.
2. Food Corporation of India ('FCI' for short)- first respondent herein, periodically issues tender notices for disposal of damaged food grains specifying the purpose for which such damaged foodgrains can be used. The four specified purposes are : (1) fit for cattle/ poultry feed; (2) fit for industrial use as well as for use as manure; (3) fit for use as manure only; and (4) fit for manufacture of inedible starch only. Clause (L) (i) of the general terms and conditions of sale of damaged foodgrains provides thus:
'It is absolutely necessary that the buyer of any particular category of stock shall use the same only for the purpose indicated and shall make no attempt whatsoever for adulteration or misuse of the stocks. The Food Corporation of India will take a serious view of any breach of these conditions of sale. It will also not be open to the buyers to question the categorization of the stock as shown in the tender.'
3. Petitioner made several purchases in pursuance of tender Notices issued by FCI for disposal of damaged rice and wheat fit for cattle and poultry feed between the assessment years 1993-94 to 1998-99. Petitioner contended that even damaged rice and wheat continued to be 'wheat' and 'rice' and therefore they were exempted from payment of tax under schedule V to the Act. It would appeal that FCI was however collecting sales tax at 2% under Part A- Entry 6 of Schedule -II treating the damaged rice/wheat as animal feeds. The petitioner claims to have paid such sales tax at 2% under protest, to obtain release of the goods.
4. When matter stood thus, the Commissioner of commercial Taxes, Karnataka issued a clarification dated 18-8-1994 to FCI stating that damaged Rice and wheat, which are unfit for human consumption is taxable at 8% on the first sale point under Section 5(1) of the Act (as goods not falling under any of the schedules). Having regards to the said clarification issued by the Commissioner of commercial tax on 18-8-1994, FCI, by its letter dated 4-9-1995 demanded the difference in tax at 6% in regards to sales under three invoices release orders dated 9-11-1994. Feeling aggrieved, petitioner filed W.P No. 33686/ 1995 for quashing the demand letter dated 4-9-1995. Subsequently, petitioner filed W.P No. 7971/1998 for a declaration that damaged wheat /rice purchased by him from FCI was taxable only at 2% under part A-Entry 6 of Schedule-II and not at the higher rate under Section 5(1) of the Act. Both these writ petition were disposed of by a learned Single Judge, by the following common order dated 25-5-1998 without assigning any reasons:-
' Heard the learned counsel. The circular issued by the commissioner dated 18-8-1994 (Annexure -- C) shall not be acted upon. Petitions stand disposed of with the above observation.'
It is stated that in respect of sales effected subsequent to the receipt of commissioner's classification dated 18-8-1994, FCI was collected sales tax under Sections 5(1) of the Act (initially at 8% later at 12% and at 10% from 1-4-1998)
5. The petitioner by letter dated 18-1-1999 requested the FCI to reimburse Rs. 33,263/- being the sales tax and surcharge paid by him on purchase of damaged Rice / wheat between 14-7-1993 and 10-8-1998, on the ground that no sales tax was payable on such purchases. As the amount was not refunded, the petitioner has filed this petition. Subsequent to the filing of this petition, petitioner received a communication dated 30-5-2000 demanding sales tax at 10% + cess at 5% in regard to sales of damaged rice effected from 28-10-1998. Petitioner amended the petition by adding a relief in respect of the communication dated 30-5-2000. The prayers in the writ petition are:
a) A declaration that damaged wheat and rice purchased from the respondents is nothing but 'wheat' and 'rice', falling under entries 64 and 40-A of the V schedule to the Act prior to 1.4.1998 and entry 15 (wrongly typed as entry 17) of the V schedule to the Act, after 1-4-1998;
b) A direction to first respondent (FCI) to expedite the refund of sales tax; and
c) For quashing the letter date 30-5-2000 demanding sales tax at 10% + cess at 5% in regard to sales of damaged rice with effect from 28-10-1998
6. First respondent (FCI) contends that it had collected sales tax as per the clarification issued by the Commissioner of commercial taxes sale of damaged wheat and rice are taxable under Section 5(1) as general goods not classified under any of the schedules and that the sales tax collected from the petitioner has already been remitted to the commercial tax department. First Respondent also submitted that assessment have been concluded by assessing the turnover relating to sales of damaged wheat/ rice made to petitioner, to tax under Section 5(1) of the Act. It therefore contents that is not liable to refund any tax amount to petitioner.
7. The State has contended that only rice and wheat meant for human consumption are exempt from tax under Schedule V and damaged wheat/rice which are unfit for human consumption cannot be considered as 'wheat / rice' or 'cereals'. It is submitted that wheat and rice which is damaged, loss its original character and identify as 'rice' or 'wheat' meant for human consumption and therefore ceases to be 'wheat' and 'rice' or 'cereal' as understood in common parlance. It is contended that damaged rice/wheat unfit for human consumption, through fit to be used as cattle feed, if not processed, will not fall under part-A Entry 6 of Second schedule. It is stated such goods are taxable under Section 5(1) of the Act.
8. On the contentions raised, the following questions arise for consideration:
(i) Whether damaged wheat and rice fall under Entry -15 of Fifth Schedule (Entry 64 & 40A of Fifth Schedule prior to 1.4.1998) or under Section 5(1) of the Act?
(ii) Whether demand for payment of tax under Section 5(1) of the Act as per FCI's letter dated 30.5.2000 is valid?
(iii) Whether the first respondent is liable to refund the sales tax paid on the purchased of damaged wheat and rice?
Re: Point No. (i):
9. The points for consideration is whether (a) damaged wheat to be used as cattle/poultry feed, is 'wheat'; (b) damaged rice to be used as cattle/poultry feed, is 'rice'; (c) damaged rice/wheat to be used as cattle/poultry feed is 'cereals'; and (d) whether damaged wheat/rice would fall under entry 15 of Fifth Schedule or under Section 5(1) of the Act.
10. The relevant entries in V Schedule from time to time areextracted below:
'Old Entry 40A(1.4.1992 to 31.3.1995) Ragi, Jowar or milo, maize, bajra, navane, same, kadan, Kutaki, rice and paddy.
Old Entry 40A (1.4.1995 to 31.3.1998)
Cereals (with or without husk) excluding barley.
Old Entry 64 (From 19.10.1991 to 31.3.1998)
Wheat and atta, Maida and Soji of wheat
New Entry 15 (From 1.4.1998)
Cereals (with or without husk) excluding barley.'
Rice and wheat were taxable upto 18.10.1991 under entry 9(i) of Schedule IV. Rice was taxable between 19.10.1991 to 31.3.1992 under entry 9(i) of Schedule IV. From 1.4.1992, Rice was deleted from Schedule --IV. From 1.4.1992 to 31.3.1995, Rice was exempted from tax under Entry 40A of V Schedule. From 1.4.1995 it is exempted from tax under Entry 40A under 'cereals'. Wheat was exempted from tax from 19.10.1991 under Entry 64 of V Schedule. From 19.10.1998 both rice and wheat are exempted from tax under Entry 15 of Schedule V as 'cereals'.
11. We may also refer to entry 6 of Part A of Second Schedule which reads thus:
'Animal feed and feed supplements, i.e., processed commodity sold as 'Poultry Feed', 'Cattle Feed' 'Pig Feed', 'Fish Feed', 'Fish Meal' 'Prawn Feed', 'Shrimp Feed' and feed supplements and mineral mixture concentrates, intended for use as feed supplements.'
What is sold by FCI is not a processed commodity. To fall under entry 6 of Part A of Second Schedule, an animal feed should be a processed commodity. As damaged wheat/rice sold by FCI is not a processed commodity, the said goods will not fall under Entry 6 of Part A of the Second Schedule, even though such damaged wheat/ rice is intended to be used as cattle/poultry feed.
12. The term 'Cereals' is not defined under the Act. Section 14 of the Central Sales Tax Act, 1956 defines 'cereals' as paddy, rice, wheat, jowar or milo, bajra, maize, ragi, kodan, kutki and barley. The fact that rice and wheat fall under 'cereals' is not disputed by either side.
13. A learned Single Judge of this Court in YARANA FEEDS AND FARMS v. ASST. COMMISSIONER OF COMMERCIAL TAXES (ASSESSMENTS) HUBLI 77 (1990) STC 144, considered the question as to whether dry fish which was 'non-edible', that is not fit for human consumption but which was fit for being used as poultry feed was 'fish', which was exempted from sales under Entry 6A of V Schedule or whether it was subject to tax under Section 5(1) of the Act. The learned Single Judge held that plain meaning of the word 'fish' in Entry 6A does not admit of any distinction between fresh fish and dry fish or between edible fish and non-edible fish. He further held that to exclude non-edible fish from the purview of Entry 6A would amount to legislating and amending the statutory entry, which is the privilege of the legislature. He therefore quashed the proposal to levy tax under Section 5(1) of the Act on the turnover relating to non-edible dry fish. The learned Single Judge held:
'Reverting back to the entry 6-A of the Fifth Schedule, the entry is to be understood and interpreted as found in the entry which speaks of 'fish' in general. If it was the intention of the legislature to carve out any exception for the purpose of levy of tax on any particular kind of fish whether dry or fresh, edible or non-edible, it was for the legislature to make such distinction and to provide for levy of tax subject to the exceptions or provisions.
Having regard to the plain meaning of 'fish' in entry 6-A, which has got to be interpreted as it stands and the meaning which it conveys, it does not admit of any further distinction being made for the purpose of treating dry fish or non edible fish as taxable goods. That an entry in the schedule to the taxation act should be interpreted having regard to the plain language used by the legislature, is the settled principle of interpretation. Giving any other meaning or to exclude non edible fish from the purview of the entry would amount to legislating and amending the statutory entry, which is the exclusive privilege of the legislature.'
14. In THE STATE OF TAMILNADU v. SRI VENKATESWARA AND COMPANY, 41(1978) STC 28 a Division Bench of the Madras High Court held that inedible starch made from contaminated rice is as much as 'rice product' as rice flour or rice bran. The Madras High Court held:
'The contention of the learned Additional Government Pleader is that a reading of the entire proviso would show that a concessional rate of tax of one per cent is intended to be levied only in respect of edible and not in respect of inedibles. He submitted also that this inedible starch made out of contaminated rice is not a rice product so as to come within the scope of this proviso. We are unable to agree ..... We do not find any warrant in the proviso for restricting the scope of the expression 'rice product' only to edibles. If that proviso had stated that it would apply only to edibles, then the contention of the learned Government Pleader would be correct.
However, in the absence of any such restriction in the proviso we consider that the proviso cannot be construed as if it related only to edible items. It is common knowledge that even edible items are sometimes used for non-food purposes. Therefore, the way in which the particular product is used is not the criterion but it is the quality of the product that determines its eligibility to come within the proviso. The quality of the present product is such that it falls within 'rice product'.
15. The COMMISSIONER OF SALES TAX, UP v. PRAG RICE AND OIL MILLS, 35(1975) STC 520 a division Bench of the Allahabad High Court considered the question whether non-edible groundnut oil which contained large quantity of impurities would be 'groundnut oil' liable to be taxed at the concessional rate of one percent. It was held:
'It appears that the residual oil becomes unfit for human consumption due to oxidative charge because of which the rancidity increases to a considerable extent. The fact that nothing is done to arrest this process will not change the character of the commodity. If it was groundnut oil to start with, it none the less remained groundnut oil even though because of the increased rancidity it may become unfit for human consumption.
Groundnut oil is generally used both for human consumption as well as for manufacture of soaps. If because of the oxidation process, it ceases to be available to one of its general use but is none the less still usable for manufacture of soaps, the mere circumstances that it has become non-edible will not change its nature or character as a commercial commodity. It does not, in our opinion, become an oil other than groundnut Oil.'
16. In TUNGABHADRA INDUSTRIES LIMITED v. COMMERCIAL TAX OFFICER, 11 (1960) STC 827 the Supreme Court considered whether hydrogenated groundnut oil was 'groundnut oil'. The Supreme Court observed:
'It is this oxidative change and particularly the conversion into aldehydes that is believed to be responsible for the sharp unpleasant odour, and the characteristic taste of rancid oil. If nothing were done to retard the process the rancidity may increase to such an extent as to render it unfit for human consumption. The change here is both additive and inter-molecular, but yet it could hardly be said that rancid groundnut oil is not groundnut oil. It would undoubtedly be very bad groundnut oil but still it would be groundnut oil and if it does not seem to accord with logic that when the quality of the oil is improved in that its resistance to the natural processes of deterioration through oxidation is increased, it should be held not to be oil.'
(emphasis supplied)
17. The above decisions make it clear 'edibility' or suitability for human consumption is not necessarily a relevant Criterion. A 'cereal' or 'fish' or 'vegetable oil' continues to be a 'cereal' or 'fish' or 'vegetable oil' even if it had become 'bad' and 'inedible' on account of chemical action or reaction, or pest/insect attack. As rightly observed in several decisions, if the exemption or concessional rate of tax was intended only to 'cereals' or 'fish' or 'oil' which is fit for human consumption, the relevant entry would have said so. Where the description is merely 'rice/wheat/ it will refer to inedible rice/wheat also and where the description is merely 'vegetable oil' it will include vegetable oil which has gone bad or rancid and therefore un-edible
18. On behalf of the Revenue, it was contend that a Division Bench of this Court has taken a somewhat different view in S.V. HALAVAPALLI AND SONS v. COMMISSIONER OF COMMERCIAL TAXES. 57 (1984) STC 343 In that case, the Division Bench considered the question whether the term 'cereals' would include 'seeds'? It was contended that seeds of paddy, ragi, jowar, maize etc. were cereals. After referring to Section 14 of the Central Sales Act and the definition in several dictionaries, the Division Bench came to the conclusion that the dictionary meaning of cereal was a 'grain of a grass family yielding starchy seeds suitable for and used as food for man, and livestock'. The Court distinguished between 'food grains' that are grown for being used as human food, and sowing seeds which are not intended to be consumed. The Division Bench held that 'seeds' were not intended for consumption and in fact unfit for consumption having been treated with chemicals and therefore poisonous. The Division Bench therefore concluded that 'cereals' were food grains which were meant for consumption and 'seeds' were grains which were not edible which was meant for sowing, and consequently seeds meant for sowing are not to be considered as 'cereals'. Relying on the said decision, the learned Government advocate contended that edibility, that is being fit for consumption was the test to find out whether a food grain is a 'cereal' and what is inedible ceases to be a 'cereal'.
19. We may with some advantage refer to the several dictionary meanings of the term 'cereal' referred to in Halavapalli's case and other dictionaries.
19.1) Shorter Oxford English Dictionary defines 'cereal' as pertaining to Cereals .. or pertaining to corn or edible grain; any grasses which are cultivated for their seed as human food; commonly comprised under the name of corn or grain.
19.2). Webster's Third New International Dictionary defines 'cereals' as relating to grain or to the plants that produce it, made of grain ... a plant (as a grass) yielding farinaceous seeds suitable for food (as wheat, maize, rice); also the seeds or grains so produced either in their original state or commercially prepared.
19.3) Chambers Twenty first Century Dictionary defines 'cereal' as (1) a member of the grass family that is cultivated as a food crop for its nutritious edible seeds i.e., grains, eg., barley, wheat, rice etc. (2) the grain produced; from Latin 'Cerealis' relating to Cereals, goddess of agriculture.
19.4) Mysore University English -- Kannada Dictionary gave the meaning of 'cereal' as 'Dhanyadha ahardha Kalugalu -- manushyara aharakkagi upyogisuva dhanya...' (that is 'Edible Grains; Grains used for human consumption')
19.5) Encyclopaedia Britannica (Vol. 5 Paged 203) explains 'cereals' thus :
'Cereals, or grains, are members of the grass family that are cultivated primarily for their starchy seeds (Technically dry fruits), which are used for human food, feed for livestock, and as a source of industrial startch. Wheat, rice, maize (called corn in the U.S. and Canada) rye, oats, barley, sorgham and some of the millets are the common cereals.
Wheat, rice, and rye are grown primarily for consumption as human food, while much of the maize, barley, oats and sorghum grown in North America, Europe and Australia is fed to livestock to produce meat, dairy and poultry products.'
19.6) The New Encyclopaedia Britannica (15th Edition Vol. 3 Page 37) gives the following information:
'Cereals' also called grain, any grass yielding starchy seeds suitable for food. The cereals most commonly cultivated are wheat, rice, rye, oats, barley, corn (maize) and sorghum ... As human food, cereals are usually marketed in their raw grain form or as ingredients of various food products; as animal feed, they are consumed mainly by livestock and poultry, which are eventually rendered as meat, dairy and poultry products for human consumption; and they are used industrially in the production of a wide range of substances, such as glucose, adhesives, oils and alcohols.
20. The decision in HALAVAPALLI does not advance the case of the State that the terms 'cereal' refers only to grains meant for human consumption. 'Cereal' in common parlance means a grain of the grass family like wheat, rice, jowar, oats, maize etc, used as food for man and livestock. To put it differently, any grain which is edible is cereal. 'Edible' refers to suitability for consumption by humans. 'Edible' also refers to suitability for consumption by livestock (Domestic animals) and poultry. When a food grain is fit for consumption by both human and livestock, there can be no doubt that it is a cereal. Even where on account of decay or damage, a cereal is found to be unfit for human consumption but still fit for consumption by livestock, it will still continue to be a 'cereal' . If the cereal, on account of its damaged condition is wholly unfit for consumption either by human or by livestock, but is fit to be used only as a manure or at best for production of industrial starch, then it may cease to be considered as a 'cereal'.
21. The contention of the State that only food grains meant for human consumption can be called as 'cereals' cannot be accepted. If such a contention is to be accepted, the same food grain, when earmarked for consumption by human beings will be a 'cereal' and when earmarked for consumption by livestock, will not a 'cereal'. For example, 'Sorghum' and 'Oats' are recognised as 'cereals' all over the world. Normally they are meant for feeding livestock, but also used for human consumption. Maize (corn) is used equally for human consumption and as animal feed. Maize, oats and sorghum of good quality which are fit to be consumed by humans, are given to livestock (as contrasted from 'wheat' and 'rice' which when in good condition are not normally fed for livestock). Good quality cereals like maize is used in manufacturing processed animal feed. Can it be said that good quality maize, oats and sorgham (which are fit for human consumption) cease to 'cereals' when then are used as animal feed or poultry feed. The answer is an emphatic 'No'. We have referred to these aspects only to point out that any food grain that can be used for consumption by humans or livestock continues to retain the characteristic of a 'cereal' and is considered as a 'cereal'. We therefore hold that 'rice' and 'wheat' which are not fit for human consumption but fit for being used as animal feed for livestock and poultry, will still be a 'cereal', subject to any definition to the contrary. Accordingly, we hold that damaged rice and wheat that has been classified and certified by FCI as fit for cattle/poultry feed, will fall under 'cereal' and be exempt from tax under Entry 15 of V schedule. But if FCI categorizes the damaged grains as fit only for manure or fit only for manufacture of inedible Industrial starch, then it will not be a 'cereal' falling under Entry 15 of V Schedule.
22. In the view we have taken, the decision of the Supreme Court relied on by the State in INDIAN EXPRESS PRIVATE LIMITED v. STATE OF TAMIL NADU 67 (1997) STC 474 holding that old newspapers sold as waste paper are not 'newspapers' and the decisions of this Court in PRABHAT ROLLING METAL WORKS v. COMMISSIONER OF COMMERCIAL TAXES 69 (1988)STC 359 holding that old aluminium vessels sold as scrap are not 'aluminium vessels' and in NOVELTY DRESS MANUFACTURING COMPANY v. KARNATAKA APPELLATE TRIBUNAL 109 (1998) STC 14 holding that cotton rags sold as waste are not 'cotton fabrics', are of no assistance in this case.
Re: Point No. (ii):
23. FCI, by its letter dated 30.5.2000 called upon the petitioner to pay Sales Tax at 10% plus 5% of tax as cess in regard to sale of damaged rice already effected. If view of our decision on point (i), it has to be held that FCI is not entitled to claim any tax on damaged Rice/Wheat sold for use as cattle/poultry feed.
Re: Point (iii):
24. The next question is as to whether first respondent should be directed to refund the amount collected as tax. First respondent acted in a bonafide manner in collecting the tax in pursuance of the clarification dated 18.8.1994 issued by the Commissioner. The tax, refund of which is claimed, relates to the period 1993-1994 to 1998-99. First respondent has been assessed to tax in regard to those years and amount recovered by it as tax in regard to the sales in favour of the petitioner have been remitted to the State Government. Therefore, we do not consider it a fit case for directing the first respondent to refund the amount collected as tax. It is open to the petitioner to seek a refund from the State Government under Section 18-AA (4) of the Act. As and when such application is made, the State Government will have to consider and dispose of the same in accordance with law and the observations made above.
25. Accordingly, we allow this Writ Petition in part as follows:
(i) Damaged wheat and rice sold by FCI as fit forcattle/poultry feed will fall under entry 15 of FifthSchedule (from 1.4.1998 and earlier under entry 64 and40A of Fifth Schedule) and therefore exempted fromtax.
(ii) The Demand dated 30.5.2000 made by first respondent for payment of Sales Tax and Cess (Annexure -L) is quashed.
(iii) Liberty is reserved to petitioner to seek and obtain refund of tax from the State Government in accordance with law.
(iv) Parties to bear their respective costs.