Bombay High Court
Commissioner Of Sales Tax, Maharashtra ... vs N.L. Mehta on 17 February, 1986
Equivalent citations: [1986]61STC362(BOM)
Bench: M.H. Kania, Sujata V. Manohar
JUDGMENT
Kania, A.C.J.
1. These are two references under section 61(1) of the Bombay Sales Tax Act, 1959 (referred to hereinafter as "the said Act"). Both the references have been made at the instance of the Commissioner of Sales Tax. The two questions referred to us in both the references are the same, and there is a common statement of the case. In view of this, both the references are being disposed of by this common judgment.
2. The assessee was assessed as an unregistered dealer for the periods 18th October, 1970, to 31st March, 1971, and 1st April, 1971, to 16th March, 1972, respectively. These assessments were made by the Sales Tax Officer, A Ward, Unit IV, Bombay, on 8th March 1976, under section 33(6) of the said Act. The assessee is a firm which started its business as a building contractor from 18th October, 1970. The turnover of the assessee exceeded the prescribed limit on 29th March, 1971. However, the assessee filed an application for registration under the said Act as late as 17th March, 1972. Thus there was a delay of about 11 months in filing the application for registration. The aforesaid Sales Tax Officer assessed the assessee to tax in the sum of Rs. 101 for the period 18th October, 1970, to 31st March, 1971, and levied a penalty of Rs. 50 under section 36(2)(a) of the said Act for wilful failure to apply for registration. For the period 1st April, 1970, to 16th March, 1972, the tax assessed by the Sales Tax Officer was Rs. 4,827 and a penalty of Rs. 4,500 was levied on the assessee under section 36(2)(a) of the said Act. The assessee preferred appeals against these orders to the Assistant Commissioner of Sales Tax. The Assistant Commissioner dismissed both the appeals, but he reduced the quantum of penalty for the period 1st April, 1971, to 16th March, 1972, to Rs. 2,250. The assessee then preferred second appeals before the Sales Tax Tribunal. From the facts found by the Tribunal, it appears that the business of the assessee is that of a building contractor and for the purpose of this business, the assessee performs the activity of mixing cement, metal and sand in water so as to obtain concrete mixture for immediate use in building construction. The Tribunal followed its judgment in Revision Application No. 11 of 1973, Messrs. Antia & Irani v. State of Maharashtra, decided on 24th February, 1977. In that case it was held that the evidence on record, which was in the shape of a letter, made it clear that the mixing of cement, sand, metal and water which was carried out by the assessee resulted in the production of concrete which is not a marketable commodity, that is to say, it is not readily available nor is it being marketed as a building material which can be purchased by any person desiring to use concrete as such and that any person who wishes to use concrete has to make the concrete at the site of the work. It seems to be the undisputed position that for the purpose of building construction cement, sand, metal and water are mixed in the requisite proportions as specified by the R.C.C. consultant or architect. This mixture is prepared at the site of construction for immediate use, because if any surplus concrete is left over at the end of the day, it would harden and rendered useless to the builder. In view of this evidence, the Tribunal took the view that the concrete mixture which was produced or prepared by the assessee could not be said to be carrying on the activity of manufacture. On the basis of these conclusions, the Tribunal allowed the second appeals and set aside the levy of tax as well as the imposition of penalty under section 36(2)(a). From the aforesaid decisions of the Tribunal, the following two questions have been referred to us in both the references :
"(1) Whether on a true and proper interpretation of the expression 'uses them within the State in the manufacture of goods', appearing in section 13 of the Bombay Sales Tax Act, 1959, as it stood at the material time, the Tribunal was justified in holding that the activity of mixing sand, metal and cement in water so as to prepare concrete mixture was not covered by that expression and, therefore, no purchase tax was leviable under that section ?
(2) Whether the Tribunal erred in law in holding that before any activity can amount to manufacture, it must result in a marketable commodity different from the commodity or commodities to which the activity was applied ?"
3. Before setting out the submissions urged by respective counsel, it is necessary to refer to some of the relevant provisions of the said Act. Under sub-section (11) of section 2 of the said Act, very briefly stated, "dealer" means a person who carries on business of buying or selling goods in the State. Under section 3 of the said Act, a liability to pay tax is imposed on every dealer whose turnover either of sales or of purchases made during the period referred to therein exceeds the relevant limit specified in sub-section (4) of that section. Section 13 of the said Act deals with the levy of tax on purchases. The relevant portion of that section, as it stood at the material time, run as follows :
"13. Purchase tax payable on certain purchase of goods from an unregistered dealer. - Where a dealer who is liable to pay tax under this Act purchases any goods specified in Schedule B, C, D, or E from a person or a Government who or which is not a registered dealer, and -
(a) uses them within the State in the manufacture of goods or in the packing of goods (whether manufactured by him or not), or
(b) ..........................
then, there shall be levied, subject to the provisions of sub-section (3) of section 7, a purchase tax on the turnover of such purchases at the rate set out against each of such goods in the aforesaid Schedules."
In the present case, it is common ground that the assessee purchased sand which falls under item 21A(e) of Schedule E from unregistered dealers. Thus, if the assessee carried on the business of using the said sand in the manufacture of goods, the assessee would be liable to pay purchase tax. Sub-section (17) of section 2 contains an extensive definition of the term "manufacture", and the said sub-section runs as follows :
"'Manufacture', with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating, or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed."
4. It was submitted by Mr. Jetly that in order to attract the levy of purchase tax under section 13, all that was required was that it should be established that a dealer who had purchased taxable goods from an unregistered dealer had used the said goods for the manufacture of other goods. It was submitted by him that it was not necessary for an activity to amount to manufacture that the goods resulting from or produced by the said activity should be commercially marketable and it was enough that the goods produced should be different from the goods which went into process or activity sought to be described as manufacture. It was submitted by him that as a result of the activity of mixing sand with cement, metal and water, a distinct commodity, namely, concrete mixture, came into existence, and in view of this, the assessee who carried on the said activity was liable to be taxed on the footing that he had manufactured concrete mixture. In support of this submission, Mr. Jetly placed reliance on the decision of a Division Bench of this Court in Famous Cine Laboratory & Studio Ltd. v. State of Maharashtra reported in [1975] 36 STC 104 to which one of us was a party. We are afraid this decision is hardly of any assistance to Mr. Jetly in his submission. The main point at issue in that case was whether in order to constitute manufacture within the meaning of section 2(17) of the said Act, it was necessary that the goods subjected to the activity alleged to be manufacture should belong to the assessee personally and it was held that the activities which are comprehended in the term "manufacture" may be carried out by a person either in respect of his own goods or goods belonging to another. In fact, in that case, the activity carried out by the assessee was of processing raw exposed film, and it was held that the processed film which was prepared by the assessee was a different commercial commodity from the raw film before it was processed.
5. We find, on the other hand, that the case is largely covered by the decision of a Division Bench of this Court in the case of Commissioner of Sales Tax v. Dunken Coffee Mfg. Co. reported in [1975] 35 STC 493 to which also one of us was a party. In that case, the assessee carried on the business of selling an article commercially known as "French coffee". The activities of the assessee consisted of purchasing coffee seeds, roasting and grinding them and preparing coffee powder out of the seeds. The assessee also purchased ready-made chicory powder and thereafter mixed and blended the coffee powder prepared by the assessee with the chicory powder purchased by it and produced the mixture known as "French coffee". It was found by the Tribunal (1) that French coffee in its characteristic was different from pure coffee powder, (2) that the coffee powder when mixed with chicory powder might change in colour and odour, (3) that what was produced was a new mixture in which some of the original components might have been merged. The question was whether the assessee had carried on an activity which amounted to manufacture. In that case, the Division Bench referred to several decisions and inter alia cited with approval the observations of Das, J., in North Bengal Stores Ltd. v. Member, Board of Revenue, Bengal [1946] 1 STC 157. The relevant portion of the said observations runs thus :
"'To manufacture goods' in common parlance means 'to bring goods into being'. To manufacture or produce goods for sale means to bring into being or to produce something in a form in which it will be capable of being sold or supplied in course of business. The essence of manufacturing, I apprehend, is that something is produced or brought into existence which is different from that out of which it is made, in the sense that the thing produced is by itself commercial commodity which is capable as such of being sold or supplied. It does not mean that the materials with which the thing is manufactured must necessarily lose their identity or become transformed in their basic or essential properties."
The Division Bench pointed out that the said observations of Das, J., had been accepted as correct by the various High Courts as well as the Supreme Court. The Division Bench pointed out that in Commissioner of Sales Tax, U.P., Lucknow v. Harbildas Rai & Sons [1968] 21 STC 17 (SC) made an observation to the effect that the word "manufacture" has various shades of meaning and in the context of sales tax legislation, if the goods to which some labour is applied remain essentially the same commercial article, it cannot be said that the final product is the result of manufacture. After discussing the aforesaid decisions and some other decisions, the Division Bench of this Court in Commissioner of Sales Tax v. Dunken Coffee Mfg. Co. [1975] 35 STC 493 at 500 held as follows :
"The above discussion shows that the ratio of decided cases is that for an activity to amount to manufacture it must result in a different commercial article or commodity. It must not be a commodity which is commercially the same as it was before the activity was applied to it. In a given case, it may be that the ingredients are totally transformed and, in another given case, it may be that they undergo some change, alteration or transformation and yet retain their essential character and properties. The test in all cases, therefore, is to ascertain whether the result is commercially a different commodity and it is irrelevant whether this result is produced by a mechanical or chemical process or otherwise."
In that case it was held that the assessee did carry on the business of manufacturing goods. The French coffee produced by the assessee was a different commercial commodity from pure coffee powder.
6. In Chowgule & Co. Pvt. Ltd. v. Union of India , the Supreme Court has inter alia held that the test for determining whether the manufacture can be said to have taken place is : did the processing of the original commodity bring into existence a commercially different and distinct commodity ?
7. In the present case, the evidence on record makes it clear that the cement mixture produced by the assessee by mixing sand with cement and metal in water cannot be regarded as a commercial commodity at all, because it is a commodity which has to be used as soon as it is manufactured and is not a commercial article capable of being sold or normally sold in the market. It is a commodity produced by a builder for his immediate use and by the very nature of the product, it is not capable of being generally sold in the market. This cement mixture produced cannot be regarded as a commercial commodity, and hence the assessee cannot be regarded as having carried on the activity of manufacture in respect of the sand which goes into the making of the cement mixture.
8. In the result, question No. (1) referred to us must be answered in the affirmative and the question No. (2) must be answered in the negative. Both the questions are answered in favour of the assessee.
9. The revenue to pay to the assessee the costs of these two references in one set.