Gujarat High Court
Surgichem vs State Of Gujarat on 19 July, 1991
JUDGMENT A.P. Ravani, J.
1. The applicant is a partnership firm and is a dealer registered under the provisions of the Gujarat Sales Tax Act, 1969. During the course of assessment proceedings for Samvat Years 2031 and 2032, the assessee was granted set-off in respect of the tax paid by it for the purchase of plastic spools used in the manufacture of adhesive plaster tapes. The Assistant Commissioner of Sales Tax took the matter in suo motu revision. According to the Assistant Commissioner of Sales Tax, the plastic spools were packing material. In his opinion since the plastic spools were polythene packing materials, they were "prohibited goods" falling within entry 12 of Schedule II, Part A. Therefore, the Assistant Commissioner of Sales Tax held that the dealer was not entitled to set-off. Accordingly he ordered to remove the set-off granted to the dealer which was for an amount of Rs. 11,479.48 and for Rs. 8,682 for samvat years 2031 and 2032, respectively.
2. Against the orders passed by the Assistant Commissioner of Sales Tax, revisions were filed by the dealer before the Tribunal. The Tribunal confirmed the decision of the Assistant Commissioner of Sales Tax and rejected the revision applications. The assessee preferred application for making reference to this Court for its opinion. The Tribunal framed two questions and referred the same for the opinion of this Court. The questions referred and our answers are indicated hereinbelow :
Questions Answers 1. Whether in the facts and circumstances In negative, in of the case, the Tribunal was justified in favour of the holding that the plastic spools in question assessee and were covered by entry 12(vii) of Schedule II, against the Part A to the Gujarat Sales Tax Act, 1969 Revenue. and not by entry 13 of Schedule III to the said Act ? 2. Whether in the facts and circumstances In negative, in of the case, the Tribunal was justified in favour of the holding that the applicant was not entitled assessee and to the set-off under rule 42 of the Gujarat against the Sales Tax Rules, 1970 to the tune of Revenue. Rs. 11,479.48 in respect of Samvat Year 2031 and Rs. 8,682 in respect of Samvat year 2032 ?
3. The applicant-dealer is manufacturing plaster tapes. As stated by the Tribunal in the Statement of the case, these adhesive plaster tapes can only be sold after wrapping them on plastic spools. If that be so, the short question arises is - are the plastic spools on which the adhesive plaster tapes are wrapped form component part of the goods or can they be said to be packing material ? In order that a commodity could be said to be goods it should become marketable. Unless an article becomes marketable it may not be labelled as goods. Even in excise law, an article cannot be said to be goods unless it has become marketable. This is the view taken by the Supreme Court in the case of Collector of Central Excise v. Eastend Paper Industries Ltd. [1990] 77 STC 203. The excise law, the taxing event is manufacture and not sale. Even so the Supreme Court held that the manufacture of goods will be complete only when goods become marketable. In the aforesaid case, the Supreme Court has, inter alia, observed as follows :
"It is law now that excise is a duty on manufacture. Manufacture is the process or activity which brings into existence new identifiable and distinct goods. Goods have been understood to be articles known as identifiable articles, known in the market as goods and marketed or marketable in the market as such."
After explaining as to what will be the marketable goods, the Supreme Court considered the question as regards the articles which were under consideration. The article under consideration was paper. The Supreme Court observed as follows :
"........... market in which articles in question were sold were paper, packed and wrapped in paper. Therefore, anything that enters into and forms part of that process must be deemed to be raw material or component part of the end-product and must be deemed to have been used in the completion or manufacture of the end-product."
Therefore, considering its earlier decision, the Supreme Court further observed :
"To be able to be marketed or to be marketable, it appears to us, in the light of facts in the appeals, that it was an essential requirement to be goods, to be wrapped in paper. Anything required to make the goods marketable, must form part of the manufacture and any raw material or any materials used for the same would be component part for the end-product."
4. In view of the aforesaid decision, it is clear that anything that goes into the product till the product becomes marketable, such thing becomes part and parcel of that product or article. Applying this test in the instant case, the plastic spools over which the adhesive plaster tapes are wrapped have to be considered as one of the component parts of the goods marketed, i.e., adhesive plaster tapes. It is not disputed that adhesive plaster tapes can be marketed only after wrapping them on plastic spools. Therefore, plastic spools are to be held component part of the adhesive plaster tapes, that is, the goods marketed. Hence plastic spools cease to be packing material. Once it ceases to be packing material, it cannot be considered to be an item falling in entry 12(viii), i.e., polythene packing material. In view of this position of law as laid down by the Supreme Court, the question has got to be answered in the negative, in favour of the assessee and against the Revenue.
5. The learned counsel for the Revenue submitted that the actual manufacturing of the adhesive plaster is over when the same is wrapped on the plastic spools. Therefore it should be held that the plastic spools do not lose the character of packing material. Even if they are held to be raw material or component part of the goods marketable, namely, adhesive plaster tapes, the plastic spools would retain the character of packing material. The contention cannot be accepted in view of the decision of the Supreme Court in the case of Collector of Central Excise v. Eastend Paper Industries Ltd. [1990] 77 STC 203. This is so because the adhesive plaster tapes do not come into existence so as to become marketable unless the same is wrapped on plastic spools. In this process the plastic spools become component part of the adhesive plaster tapes. Thus it loses its character as packing material in the process of manufacture of goods. The manufacturing process can be said to be over only after the goods become marketable. It is inconceivable that adhesive plaster tapes can be sold without the same being wrapped on plastic spools or on some such other item over which it can be conveniently and safely wrapped.
6. In the result, the reference is answered as indicated in para 2 of this judgment. Reference stands disposed of accordingly with no order as to costs.
7. Reference answered in the negative.