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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4003 OF 2007

HINDUSTAN LEVER LTD.                 …APPELLANT

Versus

STATE OF KARNATAKA            …RESPONDENT

J U D G M E N T

R.F.Nariman, J.

1. The appellant is a public limited company having a tea

manufacturing unit at Dharwad and various other units which

also manufacture tea.  The tea manufactured by the appellant is

of three types, namely, packet tea, tea in tea bags, and quick

brewing  black  tea.   It  is  claimed  that  the  Dharwad  Unit,  as

opposed to the other units manufacturing tea, is a new unit and

is, therefore, exempt altogether from payment of entry tax on

packing  material  of  tea  under  a  notification  dated  31.3.1993

issued under  Section  11A of  the  Karnataka  Tax  on  Entry  of

Goods  Act,  1979  (hereinafter  referred  to  as  the  “Karnataka

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Entry Tax Act”).  Insofar as the other units are concerned, it is

the case of the appellant they are covered by Explanation II to

a Notification dated 23.9.1998 issued under Section 3 of the

said  Act,  and  “packing  material”  being  covered  by  the  said

Explanation would entitle them to pay entry tax at the rate of

1% and not 2%.  In these appeals, we are concerned with three

assessment years 1994-1995, 1995-1996 and 1996-1997.

2. The  question  that  arises  for  decision  in  this  appeal  is

whether  “packing  materials”  which  enter  the  local  area  for

consumption  therein,  that  is  for  packing  tea  that  is

manufactured by the appellant, can be said to be raw material,

components, or inputs used in the manufacture of tea.  In order

to  answer  this  question,  it  is  necessary  to  first  set  out  the

relevant provisions of the Karnataka Entry Tax Act. They are as

follows:

“2.  Definitions.- (A) In this Act, unless the context otherwise requires,-

(4a)  goods  means  all  kinds  of  moveable property (other than newspapers, actionable claims, stocks  and  shares  and  securities)  and  includes livestock;

(7) “Schedule” means a schedule appended to this Act;

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(8)   “tax” means tax leviable under this Act;

(8a)  ‘Value  of  the  goods’  shall  mean  the purchase value of  such goods that  is  to  say, the purchase price at which a dealer has purchased the goods inclusive of charges borne by him as cost of transportation,  packing,  forwarding  and  handling charges, commission, insurance, taxes, duties and the like, or if such goods have not been purchased by him, the prevailing market price of such goods in the local area.

(B)   Words and expressions used in this Act, but not defined, shall have the meaning assigned to them  in  the  Karnataka  Sales  Tax  Act,  1957 (Karnataka Act 25 of 1957.)

3. Levy of tax.- (1) There shall be levied and collected a tax on entry of any goods specified in the  FIRST  SCHEDULE  into  a  local  area  for consumption, use or sale therein, at such rates not exceeding five percent of the value of the goods as may be specified retrospectively or prospectively by the State Government by notification and different dates  and  different  rates  may  be  specified  in respect  of  different  goods  or  different  classes  of goods or different local areas.  

11A. Power of State Government to exempt or reduce tax.-

(1)  The State Government may, if in its opinion it is necessary in public interest so to do, by notification and subject to such restrictions and conditions and for  such  period  as  may  be  specified  in  the notification,  exempt or  reduce either  prospectively or retrospectively the tax payable under this Act,-

(i)   by any specified class of persons or class of  dealers or  in respect  of  any goods or class of goods; or

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(ii) on entry  of  all  or  any goods or  class of goods into any specified local area.

(2)  The  State  Government  may,  by  notification cancel  or  vary  any  notification  issued  under sub-section (1).

(3)  Where  any  restriction  or  condition  specified under  sub-section  (1)  is  contravened  or  is  not observed  by  a  dealer  or  a  declaration  furnished under  the said  sub-section is  found to  be wrong, then such dealer shall  be liable to pay by way of penalty  an  amount  equal  to  twice  the  difference between the tax payable at the rates specified by or under the Act and the tax paid at the rates specified under the notification  on the value of such goods in respect  of  which  such  contravention  or non-observance  has  taken  place  or  a  wrong declaration is furnished:

Provided that  before taking action under the sub-section the dealer shall be given a reasonable opportunity of being heard.

    FIRST SCHEDULE

(See Section 3 (1))

66.  Packing materials namely :-

(i)    fibre board cases, paper boxes, folding cartons, paper  bags,  carrier  bags  and  card  board  boxes, corrugated board boxes and the like.

(ii)   tin plate containers (cans, tins and boxes) tin sheets, aluminium foil, aluminium tubes, collapsible tubes, aluminium or steel drums, barrels and crates and the like ;

(iii)    plastic,  poly-vinyl  chloride  and  polyethylene films  bottles,  pots,  jars,  boxes,  crates,  cans, carboys,  drums,  bags  and  cushion  materials  and the like ;

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(iv)    wooden boxes, crates, casks and containers and the like;

(v)    gunny bags, bardan (including batars), hessian cloth, and the like ;

(vi)   glass bottles, jars and carboys and the like ;

(vii)   laminated  pacing  materials  such  as bitumanised  paper  and  hessian  based paper  and the like;

80.  Raw  materials  component  parts  and  inputs which  are  used  in  the  manufacture  of  an intermediate or finished product.”

3. Under  Section  11A  of  the  Act,  a  Notification  dated

31.3.1993,  exempting  raw  materials,  component  parts,  and

inputs entering a local area for use in the manufacture of an

intermediate or finished product, was promulgated.  It reads as

under:

“Entry  tax  on  raw  materials,  etc.  for  use  in manufacture  of  goods  by  new  industrial  units  – Exemption (Karnataka)

Notification  III  No.FD.11.CET  93  dated  the  31st March,1993

[Public  in  Karnataka  Gazette,  Extraordinary  No. 201, Part 4-C(ii) dated 31st March, 1993]

In exercise of the powers conferred by section 11-A of the Karnataka Tax on Entry of Goods Act, 1979 the Government of Karnataka being of the opinion that it is necessary in the public interest so to do,

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hereby  exempts  with  effect  from  the  first  day  of April, 1993 the tax payable under the said act, on the  entry  of  raw  materials,  component  parts  and inputs and machinery and its parts into a local area for  use  in  the  manufacture  of  an  intermediate  or finished  product  by  the  new  industrial  units mentioned in column (2)  of the Table below located in  the  zones  specified  in  column (3)  and  for  the period mentioned in Column (4) thereof.

TABLE

Sl.No. Type of Industry Location of Industry Period of exemption  1 2 3 4

1. Tiny/Small/medium and  large  scale industrial units

Situated  in  Zone-III specified  in  annexure-I  to Government  Order  No. CI/138  SPC/90,  dated 27.9.1990

4  years  from  the  date  of commencement  of commercial  production or 4 years  from  the  date  of commencement  of  this notification  whichever  is later.

2. Tiny/small/medium and  large  scale industrial units

Situated  in  Zone-IV specified in  annexure I  to Government  Order  No. CI/138/SPC/90,  dated 27.9.1990

5  years  from  the  date  of commencement  of commercial  production or 5 years  from  the  date  of commencement  of  this notification  whichever  is later.  

3. Tiny/small  scale/ Medium  and  large scale  industrial units  in  the  thrust sector as defined in annexure-II to G.O. No. CI.138/SPC/90, dated 27.9.1990

Situated  in  Zone-III specified in  annexure I  to Government  Order  No. CI/138/SPC/90,  dated 27.9.1990

5  years  from  the  date  of commencement  of commercial production  

OR 5  years  from  the  date  of commencement  of  this notification  whichever  is later.  

4. Tiny/small  scale/ Medium  and  large scale  industrial units  in  the  thrust sector as defined in Annexure II to G.O. No. CI.138/SPC/90, dated 27.9.1990

Situated  in  Zone-IV specified  in  annexure-I  to Government  Order  No. CI/138/SPC/90,  dated 27.9.1990

6  years  from  the  date  of commencement  of commercial production,

OR 6  years  from  the  date  of commencement  of  this notification  whichever  is later.

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_____________________________________________________________________________________

Explanation – (1) For the purpose of this notification “a new industrial unit” shall have the same meaning assigned to it in  Notification No. FD 239 CSL 90(1) dated 19th June, 1991, issued under Section 8-A of the Karnataka Sales Tax Act, 1957.

(2) The  provisions  of  the  notification  shall  not apply to a unit to which the provisions of Notification No. FD 239 CSL 90(1) dated 19th June, 1991 issued under Section 8-A of the Karnataka Salex Tax Act, 1957 shall not apply.

(3) The procedure specified in Notification No. FD 239 CSL 90(1), dated 19th June, 1991 issued under Section 8-A of the Karnataka Sales Tax Act, 1957 for claiming exemption under that notification shall mutates mutandis apply to a industrial unit claiming exemption under this notification.”

4. By a notification dated 31.3.1994,  various goods which

entered a local area were charged at different rates of entry tax.

This notification was struck down by the High Court as violating

Article  301  of  the  Constitution,  and  hence,  the  State

Government came out with notification dated 23.9.1998 to cure

the  defects  pointed  out  by  the  High  Court,  and  was for  the

period dated 1.4.1994 to 6.1.1998.  The aforesaid notification

reads as follows:

“SI No.104

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No.  FD  112  CET  98,  Bangalore,  dated  23rd September, 1998

In exercise of the powers conferred by sub-section (1) of Section 3 of the Karnataka Tax on Entry of Goods Act,  1979 (Karnataka Act 27 of  1979),  the Government of Karnataka, hereby specify that with effect from the First day of April, 1994 and upto 6 th day  of  January,  1998,  tax  shall  be  levied  and collected under the said Act on the entry of goods specified  in  column (2)  of  the  table  below into  a local  area  from  any  place  outside  the  State  of consumption or use therein, at the rates specified in the corresponding entries in column ; (3), thereof:-

   TABLE

Sl. No.                Commodity                    Rate of tax

   1      2            3

3.          Packing material namely:

  (i)  Fibre board cases, paper boxes, Folding 2%

       cartons, paper bags, carrier bags and

       card board boxes, corrugated board boxes  

       and the like;

 (ii)  Tin plate containers (cans, tins and 2%

        boxes), tin sheets, aluminium foil,  

        aluminium tubes, collapsible tubes,

        aluminium or steel drums, barrels and crates

         and the like:

(iii)   Plastic, polyvinyl chloride and polyethylene 2%

      firms, bottles, pots, jars, boxes, crates, cans,

      carboys, drums, bags and cushion materials  

      and the like;

            (iv)  Wooden boxes, crates, casks and containers 2%

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                   and the like;

(v)   Gunny bags, bardan (including batars) hessian 2%

      cloth and the like;

 (vi)   Glass bottles, jars and carboys and the like; 2%

(vii)  Laminated packing materials, such as bluminised 2%

       paper and hessian-based paper and the like;

4. Raw materials, component parts and inputs 1%

are used in the manufacture of an intermediate

of finished product.

Explanation  I  –  The  words  “raw  materials, component  parts  and  any  other  inputs”  do  not include exempted goods which are specified in the Schedule, horticultural produce, cereals, pulses, oil seeds including copra and cotton seeds, timber or wood of any species, newsprint, silk cocoons, raw, thrown  or  twisted  silk,  tobacco  (whether  raw  or cured) and blended yarn, man-made filament yarn, man-made fibre yarn, man-made fibre, woolen yarn and woolen blended yarn, washed cotton seed oil, non-refined edible  oil,  rice  bran and oil  cake and such other goods as may be notified by the State Government from time to time.  

Explanation II  –  If  any of  the goods liable  to  tax under this Act are brought into a local area for use or consumption as raw materials, component parts and inputs in the manufacture of an intermediate or finished  product,  the  tax  payable  on  such  goods shall be at the rate of one percent.”  

 5. All  the  authorities  under  the  Entry  Tax  Act  i.e.  the

Assessing  Authority,  the  First  Appellate  Authority  and  the

Karnataka Appellate Tribunal have held that packing material

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cannot be regarded as raw material, component parts or inputs

used in the manufacture of finished goods and, therefore, in the

context of the Entry Tax Act read with Schedule I, such packing

material is neither exempt nor chargeable at the rate of 1% on a

true  construction  of  the  aforesaid  notifications  of  1993  and

1998.   The  High  Court  in  turn  has  dismissed  the  revision

petitions filed under the statute by the assessee following their

own judgment in  Nestle India Ltd. v. State of Karnataka,  a

Division Bench judgment  of  the Karnataka High Court  dated

22.3.2006.  This is how the appellants have come before us in

the present civil appeals.  

6. Shri  Arvind Datar and Shri  Kavin Gulati,  learned senior

advocates, strenuously argued before us that the judgment in

the  Nestle case, which was followed in the instant case, was

incorrect inasmuch as according to them “packing material” is

clearly an “input”, if not a component part of manufactured tea,

and would, therefore, qualify for exemption and/or lesser rate of

tax as the case may be.  They also argued that Explanation II

to  the  Notification of  23.9.1998 made the position  clear  that

even though packing material may be covered under item 3 of

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the said Notification, yet, as it is an input in the manufacture of

the finished product tea, it would be covered by Explanation II,

and therefore would be taxable at the rate of 1% and not 2%.

They further argued that words and expressions that are not

defined under the Entry Tax Act but which are defined in the

Karnataka Sales Tax Act, 1957 would have to be borrowed for

the purpose of the Entry Tax Act.  In this regard, in particular,

they relied upon Section 5A of the Karnataka Sales Tax Act, and

in  particular  Explanation  I  to  the  aforesaid  Section  which

defined “industrial inputs” as meaning either a “component part”

or  “raw  material”  or  “packing  materials”,  and  argued  that

packing material  has been recognized as an input under the

Karnataka Sales Tax Act, and should be so recognized under

the  Entry  Tax  Act  read  with  the  two  notifications  aforesaid.

They also cited a large number of judgments of this Court and

of  the  High  Court  to  buttress  their  submission  that  packing

material would certainly come within the expression “input” and

would therefore be covered by the aforesaid two notifications.  

Shri  Kavin  Gulati  also  specifically  pointed  out  the  Tea

Marketing Control Order, 2003 made under Section 30 of the

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Tea Act, 1953 in which, “manufacturer” has been defined as a

person who also produces value added products commercially

known as tea, that is packet tea, tea box, etc., and therefore

went on to argue that it is obvious that packing material used to

market tea would necessarily be included.  

7. Shri Patil, learned senior advocate appearing on behalf of

the  State  of  Karnataka,  countered  these  submissions,  and

stated that the High Court was absolutely correct in interpreting

the Entry Tax Act and the two notifications in the manner that it

did in Nestle case.  He argued that the context of the Entry Tax

Act is most important and that decisions relatable to the Central

Excise Act and to Sales Tax statutes would not therefore apply.

His primary argument was that  Schedule I of the Entry Tax Act

itself  made a clear  distinction between packing materials,  on

the one hand, and raw materials, component parts and inputs,

on  the  other,  the  Schedule  making  it  clear  that  they  were

distinct  and  separate  goods.   He  further  adverted  to  the

definition of the expression “goods” contained in the Entry Tax

Act and argued that unlike in the Central  Excise Act  and in

Sales  Tax  statutes,  goods  need  not  be  marketable,  the

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definition confining goods to “movable property” without more.

He also argued that adverting to Section 5A of the Karnataka

Sales Tax Act would be of no help in the facts of the present

case inasmuch as we are not concerned with “industrial inputs”

but  inputs  as  understood  by  the  Entry  Tax  Act  read  with

Schedule I.   According to him all  the judgments cited by the

appellants were distinguishable in that none of them pertain to

any entry tax statute but were all under the Central Excise Act

or Sales Tax statutes.  

8. Having  heard  learned  counsel  for  the  parties,  it  is

important  to  go  back  to  a  few  fundamentals.  As  has  been

explained in  Escorts Limited v. CCE, (2015) 9 SCC 109, the

definition  of  “manufacture”  in  the  Central  Excise  Act  is

dependent  upon  the  definition  of  “goods”  defined  by  the

Constitution in Article 366(12).  This Court has therefore held:-

“It is clear on a reading of this Entry that a duty of excise is only leviable on “goods” manufactured or produced in India. “Goods” has been defined under Article 366(12) as follows:

“366.Definitions.—In  this  Constitution,  unless the  context  otherwise  requires,  the  following expressions have the meanings hereby respectively assigned to them, that is to say—

***

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(12) ‘goods’ includes all materials, commodities and articles;”

Each of these three expressions has been defined in Shorter Oxford English Dictionary as follows:

“Materials”.—the  matter  of  which  a  thing  is  or may be made; the constituent parts of something.

“Commodities”.—a thing of use or value; a thing that is an object of trade; a thing one deals in or makes use of.

“Articles”.—a particular item of business.

Although  the  definition  of  “goods”  is  an  inclusive one,  it  is  clear  that  materials,  commodities  and articles spoken of in the definition take colour from one another. In order to be “goods” it is clear that they should be known to the market as materials, commodities and articles that are capable of being sold.

In the basic judgment which has been referred to in every  excise  case  for  conceptual  clarity, namely, Union  of  India v. Delhi  Cloth  &  General Mills Co. Ltd. [(1977) 1 ELT 199 : AIR 1963 SC 791 : 1963 Supp (1) SCR 586] , this Court held that for excise  duty  to  be  chargeable  under  the constitutional  entry  read  with  Section  3  of  the Central Excise and Salt  Act,  two prerequisites are necessary. First, there must be “manufacture” which is understood to mean the bringing into existence of a new substance. And secondly, the word “goods” necessarily  means  that  such  manufacture  must bring into existence a new substance known to the market  as  such  which  brings  in  the  concept  of marketability in addition to manufacture. …” [paras 8-11]

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9. However,  on  a  perusal  of  the  definition  of  “goods”  in

Section 2(A)(4a) of the Entry Tax Act, the said definition is an

exhaustive  one  including  all  kinds  of  movable  property  and

livestock.   It  is  obvious from a reading of  this  definition that

marketability  does  not  appear  to  be  a  sine  qua  non  for

something to qualify as “goods” under the Entry Tax Act, unlike

the Central Excise Act, and this basic fact will have to be kept in

view while dealing with some of the judgments that have been

cited before us.   This is  for  the reason that  anything that  is

tangible, without more, and enters a local area for consumption,

sale or use therein is taxable, the taxable event being ‘entry’

and not  ‘manufacture’ of  goods,  which,  as has been noticed

hereinabove,  brings  in  the  concept  of  marketability  in  the

context of a duty of excise, which is absent in the context of

entry tax.  We might also add that Section 2(A)(8a) wherein the

“value  of  the  goods”  is  defined,  also  makes  a  distinction

between  “goods”  as  such,  and  “packing  material”,  making  it

clear that charges borne by a dealer as cost of packing would

have to be included in the “value of goods”.  In the context of

the Entry Tax Act, the difference between ‘goods’ used in the

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manufacture of  goods and “packing material”  is  also brought

out by Schedule I. Packing materials are separately defined in

Entry 66.  On the other hand, raw materials, component parts

and  inputs,  which  are  used  in  the  manufacture  of  an

intermediate or finished product, are separately and distinctively

given  in  Entry  80  thereof.  The  context  of  the  Entry  Tax  Act

therefore is clear.  When raw materials, component parts and

inputs  are  spoken  of,  obviously  they  refer  to  materials,

components  and  things  which  go  into  the  finished  product,

namely, tea in  the present  case, and cannot be extended to

cover  packing  materials  of  the  said  tea  which  is  separately

provided for by the aforesaid Entry 66.  

10. The notification dated 23.9.1998 issued under Section 3

uses identical language as that contained in Entries 66 and 80

of Schedule I to the Entry Tax Act.  Equally, notification dated

31.3.1993  is  an  exemption  notification  issued  under  Section

11A which  also  uses  the  identical  language  of  Entry  80  of

Schedule  I.  This  being  the  case,  it  is  clear  that  neither

notification can be read to include “packing material” as “raw

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materials, component parts or inputs used in the manufacture”

of tea.   

11. This brings us to an argument made by learned counsel

for the appellants on the correct construction of Explanation II

to the notification dated 23.9.1998.  

12. What has first to be seen is that packing material, and raw

materials, component parts and inputs are separately provided

for under the Schedule to the Act.  The same is also true of the

aforesaid Notification. Packing material is contained in Entry 3

of the table whereas raw materials, component parts and inputs

are contained in Entry 4.  The rate at which they are taxed is

also different – packing materials at 2%, whereas raw materials,

components parts and inputs are taxed at 1%.  This being so,

the reason for  inclusion of  Explanation  II appears to be that

goods  which  are  liable  to  tax,  being  finished  goods  in

themselves,  may yet  be brought  into a local  area for  use or

consumption as raw material,  component parts and inputs in

the manufacture of an intermediate or finished product.   It  is

only such goods that are liable to be taxed at the rate of 1%.  It

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is difficult to accept the argument on behalf of the appellants

that Explanation II makes it clear that though packing materials

may be liable to tax at 2%, yet if they fall in Explanation II, they

would be liable to tax at the rate of 1%.  This would fly in the

face of the scheme of Schedule I of the statute which, as has

been held earlier, makes it clear that in no case can packing

materials  be  said  to  be  raw  materials,  component  parts  or

inputs  used  in  the  manufacture  of  finished  goods.   For  this

reason alone we find it difficult to construe the notification dated

23.9.1998 in the manner suggested by the appellants.  

13. Even otherwise, there is no such Explanation II contained

in the exemption notification dated 31.3.1993.  This being the

case,  if  we were  to  accept  the  case  of  the appellants,  they

would  be  liable  to  tax  at  the  rate  of  1%  under  the  1998

notification  but  would  not  be  exempt  under  the  1993

notification, thus rendering the same packing material liable to

tax at the rate of 2% in the case of the Dharwad unit and 1% in

the case of all other units.  This would lead to an anomalous

situation  which  can  best  be  avoided  by  not  accepting  the

argument on behalf of the appellants.  

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14. Equally,  the  argument  based  on  Section  5A  of  the

Karnataka Sales Tax Act is fallacious in that it is only for the

purpose  of  “industrial  inputs”  that  packing  materials  are

included, and forms a separate scheme of taxation under the

Sales Tax statute. We cannot accede to the argument that  de

hors  the context of the Entry Tax Act,  we should accept that

industrial inputs include packing materials and that therefore, by

parity of reasoning, “inputs” under the Entry Tax Act should also

include packing material.  This argument has therefore correctly

been turned down by the High Court of Karnataka in the Nestle

case.  

15. We have now to deal with the judgments cited on behalf

of  the  appellants.   In  Government  of  Andhra  Pradesh  v.

Guntur Tobaccos Ltd., [15 STC 240], this Court had to decide

as to whether the use of packing material should be regarded

as execution of a works contract and not as a sale.  This Court

held on the facts in that case that packing material was part of

the process of re-drying tobacco as it was necessary to pack it

in a waterproof material to protect it from heat and humidity, so

as  to  store  tobacco  for  a  sufficiently  long  period  to  avoid

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fermentation,  and  to  make  the  tobacco  mature  for  use  in

cigarettes, cigars, etc.  The context of the judgment is entirely

different from the facts contained in the present case and would

thus have no relevance.  Learned counsel for  the appellants

tried to draw succour from this judgment stating that the idea of

packing tea is also to keep out moisture.  While that may be so,

that single fact cannot lead to a conclusion that would drive a

coach and four through the scheme of the Entry Tax Act.  

16. Brooke Bond Lipton India Ltd. v. State of Karnataka,

109 STC 265, was cited next. This is a High Court judgment

under the Karnataka Sales Tax Act, in which it was stated that

packaging led to value addition for the purpose of excise and

sales  tax,  and  that  it  was  a  possible  view  that  packaged

blended tea produced in the industrial unit of the appellant is a

manufactured  product  in  which  packing materials  are  inputs.

This  was in  the context  of  exemption notifications under  the

Sales  Tax  Act.   As  can  be  seen  from paragraph  26  of  the

aforesaid judgment, the questions involved in that case were

entirely different.  Also, the test of what is “manufacture” was

borrowed from the  Central  Excise  Act  as  can  be  seen from

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paragraph 48 of the judgment. The High Court points to a new

dimension to the word “manufacture” in the context of excise

which would therefore include within it packing material as well

in order that the goods be made marketable. This, as we have

seen above, cannot be done in the context of the Entry Tax Act.  

17. In Tata Engineering & Locomotive Co. Ltd. (TELCO) v.

State of Bihar, (1994) 6 SCC 479, this Court had to deal with a

notification issued by the State of Bihar in the context of sales

tax.  The expression “raw material” and “input” was used in the

notification. This Court held, following J.K. Cotton Spinning &

Weaving Mills Co. Ltd. v. S.T.O., (1965) 1 SCR 900, that the

expression  “in  the  manufacture  of  goods”  would  normally

encompass  the  entire  process  carried  on  by  the  dealer  of

converting raw materials  into finished products.   The precise

question  before  this  Court  was  whether  products  finished  in

themselves,  such  as  tyres,  tubes,  batteries,  etc.,  when

purchased  by  the  appellant  for  use  in  the  manufacture  of

vehicles, could be said to be inputs.  This Court held that as a

vehicle cannot be operative without tyres, tubes, and batteries,

obviously  they  were  inputs  in  the  sense  of  the  dictionary

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meaning of what is “put in”.  Both the fact situation and the ratio

of this judgment are far removed from the facts in the present

case inasmuch as it is nobody’s case that without the packing

material manufactured tea cannot be said to exist as a finished

product,  it  being  “moveable  property”  and  therefore  “goods”

under  the  Karnataka  Entry  Tax  Act.   This  judgment  is  also

therefore of no avail to the appellant.  

18. M/s.  Star  Paper  Mills  Ltd.  v. CCE,  Meerut,  (1989)  4

SCC 724, is an excise case in which an exemption Notification

exempted goods used as component parts in manufacture of

any goods on which excise duty was leviable. This judgment

defines the word “component”  to mean a constituent part.  In

this context, it was held that paper core is a component part of

paper delivered to the customer in rolls, but not in sheets as it

was not necessary for manufacture of paper sheets.  This case

would have no application to the facts of the present case.  It is

obvious that packing material used to pack a product complete

in itself, cannot possibly be included in the word “component”

as it is not a constituent part of manufactured tea.  

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19. Three other judgments under the Central Excise Act were

cited.   The  first  of  them,  CCE  v.  M/s.  Eastend  Paper

Industries Ltd.,  (1989) 4 SCC 244, was concerned with the

marketability aspect of central excise which, as has been held

by us above, would not apply in the context of the Entry Tax Act.

In that judgment, paper wrapping was held to be essential to

make the concerned goods marketable.  The second of these

judgments CCE v. Ballarpur Industries Limited, (1989) 4 SCC

566, again concerned a completely different fact situation.  The

question in that case was whether an admitted input, Sodium

Sulphate, in the manufacture of paper, would not be construed

to  be  a  raw  material  only  by  reason  that  in  the  course  of

chemical reactions Sodium Sulphate is consumed and burnt up.

This Court held that consumption and burning up would make

no difference, as an ‘input’ need not always manifest itself in the

final product. And in H.M.M. Ltd. V. CCE, (1994) 6 SCC 594, it

was held that a screw cap on a bottle containing Horlicks was a

component part of Horlicks, it being an essential ingredient to

complete  the  process  of  manufacture  to  make  Horlicks

marketable.  This judgment again will  not apply for the same

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reason  indicated  above,  namely,  that  marketability  is  not

relevant for the purpose of the Entry Tax Act.  

20. M/s. J.K. Cotton Spinning & Weaving Mills Co. Ltd. v.

Sales Tax Officer, Kanpur, (1965) 1 SCR 900, is a judgment in

which Section 8 of the Central Sales Tax Act was pressed into

aid on behalf of the appellant.  In this case, the question was

whether drawing materials, photographic materials etc. could be

comprehended  within  the  expression  “in  the  manufacture  of

goods  for  sale”  within  the  meaning  of  section  8(3)(b)  of  the

Central  Sales Tax Act,  1956.   In order  to  determine whether

such materials would qualify as such, this Court held that where

any  particular  process  is  so  integrally  connected  with  the

ultimate  production  of  goods  that,  but  for  that  process,

manufacture  or  process  of  goods  would  be  commercially

inexpedient, goods required in that process would fall within the

expression “in the manufacture of goods”.  What has been said

about the excise cases squarely applies here. The expression

used in Section 8 of the Central Sales Tax Act is not “in the

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manufacture of  goods”,  but  “in the manufacture of  goods for

sale”, bringing in the element of marketability.  

21. It only remains to deal with the argument made on behalf

of  the  appellant  based  on  the  Tea Marketing  Control  Order.

Needless to add, a manufacturer for the purpose of the said

Order  is  specifically  a  person  who  produces  value  added

products commercially known as tea.  The context of the said

definition  is  for  the  purpose  of  registering  manufacturers  or

producers and buyers of tea, having relevance therefore to the

sale aspect of tea.  As has already been held by us, the context

of  entry tax being different,  we are afraid this argument also

does not avail the appellant.  

22. We are, therefore, of the view that the High Court was

correct in following its own earlier Division Bench judgment in

the Nestle case.  This appeal is, accordingly, dismissed.  

..............................J. (A.K. SIKRI)

..............................J.

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(R.F. NARIMAN) New Delhi; September 2, 2016

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