Karnataka High Court
Mvr Gas vs Commissioner Of Commercial Taxes on 21 February, 2004
Equivalent citations: [2006]144STC446(KAR)
JUDGMENT R.V. Raveendran, J.
1. The appellant, a registered dealer under the Karnataka Sales Tax Act, 1957 ("the Act", for short), engaged in the business of sale of LPG (liquid petroleum gas).
2. The appellant purchases LPG in bulk from M/s. Reliance Industries Limited and fills it in small cylinders of different capacities and sells such gas in cylinders. It is stated that transferring gas from a bulk container into small cylinders is a complicated process involving use of compressors, evacuating systems, filling guns, etc. It is alleged that without the use of such machinery/equipment, it will not be possible to transfer gas which is received by it in bulk to small cylinders. It is submitted that machinery that are used by the appellant for this purpose fall under Entry 1(iii)(a) of Part M of the Second Schedule to the Act.
3. The Government of Karnataka, by notification dated March 31, 2000 issued under Section 8A of the Act reduced the tax payable by a dealer under Section 5 of the Act in respect of sale of machinery and tools specified in Sl. No. 1(iii)(a) of Part M of the Second Schedule to an industrial unit located in the State for use by such unit in the manufacture or processing of goods for sale, to four per cent. Appellant wants to purchase some machinery and equipment falling under entry KiiiXa) of Part M of the Second Schedule for being used in its unit, for transferring LPG from bulk container to small cylinders. The appellant contends that its activity of transferring LPG from bulk container to smaller cylinders amounts to "manufacturing or processing of goods for sale" and any machinery used for that purpose will be eligible for the concessional rate of tax under a notification dated March 31, 2000. To get the position clarified, the appellant made an application to the Authority for Clarification and Advance Rulings under Section 4 of the Act posing the following question :
Whether form 37 can be issued for purchase of the following goods required for breaking of bulk gas to fill in cylinders,--
1. Bullets, 2. Compressors, 3. Pipeline, 4. Evacuating system, 5. Safety valves, 6. Ball valves, 7. Filling guns, 8. Dip testing system, etc.
4. The Authority for Clarification and Advance Rulings made on order dated February 11, 2003 holding that appellant is not entitled to claim concessional rate of tax as the activity of the appellant, that is purchasing bulk gas and filling the gas into cylinders of different capacities, cannot be considered either as manufacturing or processing of any goods.
5. Thereafter, the appellant made an application for rectification of the said clarification order dated February 11, 2003 on the ground that the definition of the term "manufacture of gas" in the Gas Cylinders Rules, 1981 and the definition of "manufacture" in the Indian Explosives Act, 1884 were not considered by the Authority.
5.1 The Explosives Act, 1884 was enacted to regulate the manufacture, possession, use, sale, transport, import and export of explosives. Section 17 enables the Central Government to declare any substance which appears to it to be specially dangerous to life and property, by reason either of its explosive properties or of any process in the manufacture thereof being liable to explosion, shall be deemed to be an "explosive" within the meaning of the said Act. The said section further provides that the provisions of the said Act, shall extend to that substance, as if it were included in the definition of the term "explosive" in the Act. The Central Government in exercise of power under the said provision, has by notification, declared liquid petroleum gas (LPG) compressed in metal cylinders for use for domestic purpose would be covered by the expression "explosives". The Central Government has made the Gas Cylinder Rules in exercise of its rule-making power under the said Act.
5.2 The term "manufacture of gas" is defined under the Gas Cylinders Rules as meaning filling of a cylinder with any compressed gas and also includes transfer of compressed gas from one cylinder to any other cylinder. The term "manufacture" in relation to an explosive includes the process of dividing the explosive into its component parts, or otherwise breaking it up or unmaking the explosive.
5.3 The appellant wanted the Authority to take note of the said definitions and rectify the order by holding that transfer of LPG from bulk container to cylinders by using machinery/equipment consisting of compressors, evacuating systems, etc., as manufacture or processing of LPG, for sale. The Authority has rejected the said request by order dated July 1, 2003 on the ground that application for rectification was not maintainable. The said order is challenged by the appellant in this appeal.
6. The question arising for consideration is whether filling LPG into cylinders from a bulk container, for purposes of sale, amounts to manufacturing or processing of LPG for sale. The term "manufacturing and processing" though not defined in the Sales Tax Act has a clear and definite connotation in sales tax laws.
6.1 The Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63, defined "manufacture" thus :
Commonly, manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article, that a manufacture can be said to take place.
A transformation which results in the emergence of a different article having a distinctive name, character, or use, is thus the sine qua non of manufacture. If the goods retains the original identity, there is obviously no manufacture.
6.2 Processing goods is subjecting the goods to a series of actions or sequence of operations to bring about a change. In Sterling Foods v. State of Karnataka [1986] 63 STC 239, the Supreme Court while considering the effect of processing stated :
The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kinds of processing at each stage. With each process suffered, the original commodity experiences change.
6.3 Thus any operation or series of operations which brings about a change in a commodity, but without changing the identity of the commodity is "processing". Where "processing" converts the original commodity into a commercially distinct commodity which has an identity different from the original commodity, then such processing becomes manufacture. Where any action or operation does not result in any change in the commodity at all, then there is no processing. While any operation involving removal of impurities or making value additions or preservatives may amount to processing, mere repacking or dividing into smaller quantities for purposes of sale or storage is not processing. In the case of solid substances, cutting, trimming, peeling and polishing may amount to processing as they bring about a definite change in the commodity, though not altering the nature or identity of commodity. Such operations are however not possible in the case of liquids and gases. Be that as it may, what is clear is that no processing is involved when a commodity (any solid or liquid or gas) is merely divided into smaller lots or quantities. If a dealer purchases a bag containing 100 kgs. of rice and divides it into 20 bags of rice, each of 5 kgs., it is not processing of rice. If a dealer purchases a tin of 10 kgs. sun flower oil and puts it in 10 plastic sachets of 1 kg. each, it is not processing of oil. Similarly, if a dealer buys gas (LPG) in bulk and fills the gas into different cylinders for sale, there is no processing of gas.
7. The fact that solids and liquids can. be divided into smaller lots manually, whereas machinery or equipment are required to divide gases into smaller lots (that is transfer from a bulk container to smaller containers) does not mean that there is processing of the gas. For example when petrol stations, which store diesel/petrol in huge tanks, sell the petroleum product to customers and fill the same in vehicle tanks by using sophisticated machines/equipment, the activity of such sale and delivery by the petrol station to the customer is not called as "processing" of petrol/diesel. So, to determine whether there is processing or not, what is relevant is not the use of machinery or equipment in any operation relating to a commodity, but whether the operation has brought about a change in the commodity. When a change is brought about in the commodity by any operation, there is processing. If no change is brought about in the commodity by an operation or action, there is no processing, much less any manufacture.
8. The appellant next contended that as the words "manufacture" and "processing" are not defined in the Sales Tax Act, reference can be made to the law dealing with gases and cylinders. It is submitted that having regard to the definition of "manufacture of gas" in Gas Cylinders Rules, even transfer of compressed gas from one cylinder to another, would amount to manufacture of gas ; and that therefore re-filling gas cylinders by mechanical process should be considered as a manufacturing activity, even though it does not involve any change in the commodity (gas). It is now well-settled that a definition of a word given for a specific purpose in an enactment cannot be relied upon to interpret the said word used in a general sense in another enactment. For example, the special definition of the word "transfer" under Section 2(47) of the Income-tax Act, 1961, cannot obviously be used to interpret the word "transfer" in the Transfer of Property Act, 1882. In sales tax law, the words which are not defined in the Act are understood by assigning their normal meaning in commercial or common parlance, as used by persons in the trade. The Explosives Act and the Gas Cylinders Rules are intended to ensure safety of users and general public. In regard to inflammable gases, safety measures are necessary not only when such gases are manufactured, but also when transferring such gases from one container to another or filling such gases into containers (cylinders). To ensure that the protective measures prescribed or associated with "manufacture" are adopted even when transferring gas from container to container, the activity of filling or transferring gas is also brought under "manufacture of gas". The extended special definition of "manufacture of gas" in the Gas Cylinders Rules, cannot obviously be applied to find out the general meaning of the words "manufacture" or "processing" used in sales tax law. Therefore, the definition in Gas Cylinder Rules cannot be applied.
9. The order of the authority is correct. There is no merit in these appeals. The appeals are accordingly dismissed.