Gujarat High Court
State Of Gujarat vs Kosan Gas Company on 17 June, 1991
JUDGMENT S.D. Dave, J.
1. The Gujarat Sales Tax Tribunal at Ahmedabad has referred to this High Court the following question of law under section 69 of the Gujarat Sales Tax Act, 1969.
"Whether, on the facts and in the circumstances of this case, the Gujarat Sales Tax Tribunal was right in law in holding that the process of transferring and/or collecting and/or filling liquid petroleum gas (L.P.G.) from a big container into cylinders was not a process of manufacture as defined under section 2(16) of the Gujarat Sales Tax Act, 1969 and that the opponent is entitled to the deduction of resales of gas purchased from registered dealers on their turnover ?"
2. The facts and circumstances under which the present reference has been made by the Tribunal at the instance of the Revenue may be noticed thus. The assessee-company is carrying on the business of reselling liquid petroleum gas (hereinafter to as "L.P.G."). The assessee is a registered dealer under the Gujarat Sales Tax Act, 1969. The assessee used to purchase L.P.G. in bulk from M/s. Hindustan Petroleum Corporation Limited and fill in the same into cylinders and resell them. The question, which had arisen at the time of the assessment orders for the three periods, of which reference shall be made immediately, was as to whether it was a resale or manufacture. The Sales Tax Officer had reached the conclusion that it was a case of resale of the goods purchased from the registered dealers and accordingly deductions were allowed.
3. The assessment period can be divided into three parts. Firstly from 1st July, 1973 to 30th June, 1974 and secondly from 1st July, 1974 to 30th June, 1975. The last period would be from 1st July, 1975 to 30th June, 1976. It appears that the learned Sales Tax Officer had allowed deductions for the abovesaid three periods as under :
First period Rs. 19,54,545 Second period Rs. 56,17,869 Third period Rs. 40,56,828
It appears that the abovesaid matters were taken in suo motu revision by the Assistant Commissioner of Sales Tax. He had reached the conclusion that the deductions allowed on the basis of resale were not proper. He had taken the view that the process to which we will advert later on would amount to manufacturing process. His conclusion, therefore, was that there was no resale and therefore deductions could not have been allowed. The matter was carried before the Sales Tax Tribunal at the instance of the assessee. By order dated 29th January, 1982, the Tribunal had reached the conclusion that there was no process of manufacturing and that, therefore, the deductions were required to be allowed. In other words, the Tribunal has chosen to set aside the orders pronounced by the learned Assistant Commissioner in the proceedings. Later on at the instance of the Revenue, the present question has been referred to this Court.
4. The facts which are not in dispute may be mentioned first. The assessee who is a registered dealer used to receive L.P.G. in bulk containers and refill in small cylinders which can be provided to the customers. It appears that the abovesaid is the only activity which came to be carried out by the assessee before supplying the gas to the customers or the clients. The abovesaid process of filling L.P.G. in small cylinders was being performed with the help of air-compressor and automation.
5. While coming to the conclusion that the abovesaid small process cannot be said to be a manufacturing activity, the Tribunal had derived assistance from two Supreme Court decisions. Firstly the Tribunal had placed reliance on the principles laid down by the Supreme Court in the case of Commissioner of Sales Tax v. Harbilas Rai and Sons [1968] 21 STC 17. In that case it appears that the pig bristles were collected and later on they were boiled and washed with soap and other chemicals and were sorted out according to their size and colour and were tied in separate bundles for being despatched to foreign countries for sale. The question before the Supreme Court was as to whether the abovesaid activity can be branded as manufacturing process. The Supreme Court had taken the view that the abovesaid activities would not convert the pig bristles into something essentially and commercially different. The other decision is the case of Commissioner of Sales Tax v. D.S. Bist [1979] 44 STC 392. In this decision also the Supreme Court has laid down a touchstone on which the question can be examined. The facts before the Supreme Court were that the tea leaves sold by the assessee were subjected to a small process or some activity with a view to save the tea leaves from perishing and making them fit for transporting and marketing them. The Supreme Court had taken the view that even if the abovesaid process was done for the purpose of making fit the commodity for transport and market, such process would never change the character of the article. The question which was drawn by the Supreme Court was as to whether by the abovesaid process, the article undergoes such a vital change by which the article would lose its character which it was having before the abovesaid process.
6. Thus, in view of the abovesaid two decisions of the Supreme Court to which reference has been made by the Tribunal, it becomes clear that even if some process has been adopted, but if after that also the commodity or the article remains the same essentially and commercially, then it cannot be said that manufacturing process was adopted and that some manufacturing activity was carried on on the abovesaid commodity or article.
7. The learned Assistant Commissioner had made reference to a High Court decision in the case of Hindustan Petroleum Corpn. [1979] 43 STC 169. But it appears very clearly that the facts were entirely different in the abovesaid case decided by this Court. The question was regarding the L.P.G. falling within a particular entry or not. The High Court was not concerned with the question with which we are concerned presently in the present reference. It, therefore, becomes clear that the learned Assistant Commissioner could not have derived any assistance from the abovesaid Gujarat High Court decision.
8. Even at the cost of repetition, it may be stated that in the instant case the activity as admitted by both the sides carried on by the assessee is of transferring the L.P.G. from the big or bulk container to small cylinders with a view to effect efficient delivery to the customers or the clients. Examining the facts of the present reference with the touchstone provided by the Supreme Court in the abovesaid two decisions, it becomes clear that it cannot be said that the L.P.G. was brought into any manufacturing activity.
9. A reference may usefully be made to a recent Supreme Court decision in the case of HMM Limited v. Administrator, Bangalore City Corporation [1990] 77 STC 17; AIR 1990 SC 47. It is indeed true that the facts before the Supreme Court in the abovesaid case were slightly different. It appears that milkfood powder known as "Horlicks" was imported in bulk in drums in the city of Bangalore and octroi was being paid at the time of its import. The milkfood powder was later on repacked in small packs and bottles of various sizes and were sent to various places outside Bangalore. The question therefore, was as to whether it could be said that the abovesaid milkfood powder known as Horlicks was used or consumed within the city of Bangalore. The obvious answer to the abovesaid questions was in negative. It appears that the Supreme Court was guided by the fact that the milkfood powder, namely Horlicks, had remained the same and it was not used or consumed within the limits of city of Bangalore and only it was transferred from big packs to small packs. Here in the instant case also, though the question arise altogether under a different statute, it can be said very easily on the basis of the abovesaid Supreme Court decision that the L.P.G. transferred into the small cylinders remains to be L.P.G. In other words there is essentially or commercially no change whatsoever in the basic characteristics of the commodity, namely, the L.P.G.
10. In view of the abovesaid decision, it becomes clear that the Tribunal was perfectly justified in coming to the conclusion that the abovesaid small process could not be said to be a process of manufacture. This question, therefore, requires to be decided in affirmative and in favour of the assessee and against the Revenue. We, therefore, decide and reply the abovesaid question accordingly, with no order as to costs.
11. Reference answered in the affirmative.