Bombay High Court
Commissioner Of Sales Tax, Maharashtra ... vs Oil Processors Private on 14 August, 1997
Equivalent citations: 1997(3)MHLJ776
Author: D.G. Deshpande
Bench: D.G. Deshpande
JUDGMENT Dr. B.P. Saraf, J.
1. By this reference under section 61(1) of the Bombay Sales Tax, 1959, at the instance of the revenue, the Maharashtra Sales Tax Tribunal has referred the following question of law to this Court for opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the activity of converting of used waste lubricating oil into usable lubricating oil is not a refining process and as such is not covered by Explanation II, to section 2(17) of the Bombay Sales Tax Act, 1959 and consequently allowing to the opponent dealer the benefit of resale claim under section 8(ii) in the respect of such refined oil ?"
2. The facts relevant for deciding above question, briefly stated, are as follows :
The assessee, M/s. Oil Processors Private Limited, is a dealer registered under the Bombay Sales Tax Act, 1959 ("the Act"). It purchased used Waste lubricating oil, removed impurities therefrom and resold the same as lubricating oil. The first sale was made by it on 17th February, 1987. On 29th March, 1987, the assessee applied to the Deputy Commissioner of Sales Tax under section 52 of the Act calling upon him to decide the following question :
"Whether, the lubricating oil sold by us vide our invoice dated 17th February, 1989 after removing the impurities from the used lubricating oil is liable to sales tax and if so what rate ?"
In its application to the Deputy Commissioner of Sales Tax, the assessee described the process applied by it to the used lubricating oil for removing the impurities and making the same fit for sale as lubricating oil as under :
"Lubricating oils during service, get contaminated with abrasive materials like metal particles - sediments, carbon particles from combustion in auto engines, dust particles from atmosphere as also water and fuel. Therefore, as per the recommendation of machine manufactures, the lubricating oil is drained out of the machine at some fixed time. The oil does not cease to have its lubricating property but due to aforesaid abrasive contaminates it has to be drained. Once the contaminants are removed the oil is as good as the original oil. In order to lauder-reclaim, re-refine or purify the used lubricating oil, it is chemically treated to breakdown the additives that are in the oil. The oil is neutralised by alkali and water dilutants, etc., are removed by distillation. It is then bleached with earth to improve the colour. The oil is then blended with additives to bring back to its original performance level."
The case of the assessee before the Depute Commissioner was that it had purchased used lubricating oil from registered dealers, refined the same by removing impurities and re-sold thereafter. The assessee also undertook the job of re-refining used lubricating engine oil for B.E.S.T. Undertaking, Maharashtra State Road Transport Corporation, Bhabha Automic Research Centre and other public sector undertakings. According to the assessee, the process undertaken by it for re-refining the used lubricating oil did not amount to a process of manufacture and hence the re-sale of the re-refined lubricating oil was not exigible to tax under the Act.
3. The Deputy Commissioner of Sales Tax, who heard the application of the assessee under section 52 of the Act, did not accept the above contention of the assessee as he was of the opinion that the lubricating oil obtained as a result of the process of re-refining undertaken by the assessee was a new and different commercial commodity and in that view of the matter, the process undertaken by the assessee amounted to manufacture. For arriving at the above conclusion, reliance was placed on the retrospective amendment of the definition of "manufacture" in section 2(17) of the Act by insertion of Explanation II which provided that for the purpose of that clause refining of oil should be deemed to be manufacture.
4. Against the above decision of the Deputy Commissioner, the assessee appealed to the Maharashtra Sales Tax Tribunal ("the Tribunal"). Before the Tribunal, it was contended by the assessee that despite the amendment of the definition of "manufacture" in section 2(17) of the Act, the process of re-refining the used lubricating oil to make it again usable as lubricating oil did not amount to "manufacture" and hence, sale of the refined lubricating oil by the assessee was a "resale" which was not exigible to tax under the Act. According to the assessee, no new or different commercial commodity emerged as a result of the process applied by it to the used lubricating oil for removing impurities to make it re-usable, because despite the removal of impurities, lubricating oil continued to be lubricating oil. In support of this contention, reliance was placed on the decision of the Supreme Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827. The case of the Revenue before the Tribunal, on the other hand, was that the process undertaken by the assessee being quite elaborate, as a result of which the lubricating oil which had became unusable after use became fit for re-user, it amounted to "manufacture". The re-refined manufactured product and the sales thereof taxable under the Act, more so, in view of the insertion of Explanation II in the definition of "manufacture" in section 2(17) of the Act with retrospective effect. The Tribunal did not accept the contention of the Revenue that the process of re-refining the used lubricating oil to make it usable again as a lubricating oil amounted to a process of manufacture even under the amended definition of "manufacture". According to the Tribunal, despite the process undertaken by the assessee, the lubricating oil remained lubricating oil and hence re-sale of the same by the assessee could not be subjected to tax. The Tribunal, therefore, allowed the appeal of the assessee. Aggrieved by the above order, Revenue applied to the Tribunal under Section 61(1) of the Act for reference of the question of law arising out of its order to this Court for opinion. Hence, this reference.
5. We have heard Mr. R. V. Desai, learned counsel for the revenue, who submits that the process undertaken by the assessee to purify the used lubricating oil amounts to manufacture within the meaning of the definition of manufacture contained in section 2(17) of the Act read with Explanation II thereto and that being so, the assessee is liable to pay tax under the Act on the sale thereof. Mr. Arun Sathe, learned counsel for the assessee, on the other hand, submits that the process of converting used lubricating oil into usable lubricating oil cannot be regarded as a process of manufacture as it has not impact on the nature of the lubricating oil which remains lubricating oil even after the process. According to Mr. Sathe, despite the definition of "manufacture" in section 2(17) of the Act which is couched in wide terms and Explanation II thereto, each and every process cannot be regarded as a process of manufacture. In support of this contention, reliance is placed on the decisions of the Supreme Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827 and State of Maharashtra v. Shiv Datt & Sons [1992] 84 STC 497 and the decisions of this Court in Commissioner of Sales Tax v. Mahalaxmi Stores [1995] 97 STC 601, Technova Graphic Systems Private Limited v. Commissioner of Sales Tax [1995] 99 STC 77 and Commissioner of Sales Tax v. Rajshree Electronics [1995] 98 STC 403.
6. We have given our careful consideration to the rival submissions. The real controversy in this case is about the true meaning of the expression "manufacture", as defined in section 2(17) of the Act, because the benefit of section 8 of the Act would not be available to the assessee if anything is done to the goods sold which amounts to or results in manufacture. Section 8 of the Act, as it stood at the material time, reads :
"Section 8: Single point levy of sales tax on goods specified in Schedule C. - There shall be levied a sales tax on the turnover sales of goods specified in Schedule C at the rate set out against each of them in column 3 thereof, but after deducting from such turnover -
(i) resales of goods on the purchase of which the dealer is liable to pay purchase tax under section 14;
(ii) resales of goods, purchased by the dealer on or after the appointed day from a registered dealer, otherwise than on a declaration furnished under section 11 or 12, if the requirements of section 12A are satisfied;"
"Resale", has been defined in clause (26) of section 2 of the Act mean :
"a sale of purchased goods -
(i) in the same form in which they were purchased, or
(ii) without doing anything to them which amounts to, or results in a manufacture."
"Manufacture" has been defined in clause (17) of section 2 in the following terms :
'''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."
The following explanation was added to the above definition by Maharashtra Act 9 of 1989 with retrospective effect from the inception of the Act :
"Explanation II. - For the purpose of this clause, refining of oil shall be deemed to be manufacture."
7. From a conjoint reading of section 8 and clauses (17) and (26) of section 2, it is clear that the benefit of section 8 would not be available if the dealer does anything to the goods which amounts to, or results in manufacture. The revenue relies heavily on the definition of "manufacture" as contained in the clause (17) of section 2 which is in very wide and unrestricted terms. It is on that basis that it is contended that the process applied by the assessee in the instant case to the used lubricating oil to make it reusable amounts to "manufacture". However, the effect of the wide and unrestricted definition of "manufacture" in section 2(17) of the Act on the true meaning of "manufacture" is no more res integra in view of the decision of the Supreme Court in State of Maharashtra v. Shiv Datt & Sons [1992] 84 STC 497. In that case also it was contended on behalf of the revenue that the definition of "manufacture" contained in section 2(17) of the Act being very wide and unrestricted, any process with reference to the goods purchased would amount to a process of manufacture and consequently render the goods resold, goods of different class altogether. Repelling this contention, the Supreme Court observed :
"Prima facie, this argument looks very attractive. But, on careful consideration, we are of the opinion that the terms of section 2(17) should not be given such a wide interpretation. If such a wide interpretation is given there may be very absurd results flowing as a consequence thereof. For instance, the definition includes the word 'ornamenting'. If a dealer purchases certain goods and merely adds some decorative material thereto, according to the State's interpretation, there will be a 'manufacture'. For instance, if a car is purchased and some lights or some special gadgets are added thereto, the interpretation will result in rendering the resale of the same car the resale of a different commodity. Again, if a piece of furniture is sold in a dismantled condition and the distributor puts the parts together and sells it, the definition, if construed as widely as interpreted by the State, can be said to amount to manufacture and render the furniture sold a different item of goods from the furniture purchased. This clearly is not the intention of the Legislation.......This provision should be interpreted in a practical and workable manner. The mere fact that the words used in the definition of 'manufacture' are very wide should not lead us to so widely interpret them as to render the provision practically meaningless and so as to treat the goods sold as different merely because some slight additions or changes are made in the goods which are purchased before they are sold. It is true that under the section it is not necessary that there should be 'manufacture' in the sense that a new commodity has been brought into existence as would have been required if that word is interpreted in its literal sense. But, at the same time, the section should be so interpreted to mean only such of the various process referred to in the definition and applied to the goods as are of such a character as to have an impact on the nature of the goods."
The Supreme Court read down the scope of words used by the Legislature in section 2(17) of the Act and held that for the purposes of the definition there should be some alteration the nature or character of the goods.
8. So far as the meaning of the expression "manufacture" is concerned, it is well-settled by a catena of decisions of the Supreme Court and this Court that every process undertaken by a dealer on the goods to make them fit for the market or improving their marketability does not amount to a process of "manufacture". "Manufacture" implies a change but every change is not manufacture. Something more is necessary. There must be a transformation as a result of the process undertaken on the product and a new and different article, having a distinctive name or character, must emerge. The true test for determining whether manufacture has taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in the trade as a new and distinct commodity. The difference between "processing" and "manufacture" is by now well understood and well recognized. "Processing" means subjecting a commodity to a process or treatment so as to develop it or make it fit for market. With each process, the original commodity undergoes a change. But it is only when the change takes the commodity to a point where it can be no longer regarded as the original commodity but is recognized in the trade as a new and distinct commodity that a manufacture can be said to take place. Where the commodity retains a continuing substantial identity through the processing stage, it cannot be said that there has been a "manufacture". [See Deputy Commissioner of Sales Tax (Law) v. Pio Food Packers , Chowgule & Co. Pvt. Ltd. v. Union of India , State of Orissa v. Titaghur Paper Mills Co. Ltd. , Sterling Foods v. State of Karnataka , Commissioner of Sales Tax v. Mahalaxmi Stores [1995] 97 STC 601 (Bom), Technova Graphic Systems Private Limited v. Commissioner of Sales Tax [1995] 99 STC 77 (BOM) and Commissioner of Sales Tax v. Rajshree Electronics [1995] 98 STC 403 (BOM).]
9. The legal propositions emerging from the various decisions were summed up by this Court in Commissioner of Sales Tax v. Ruby Surgical and Allied Products Private Limited [1997] 106 STC 26 as follows :
" (i) Manufacture implies a change, but every change is not manufacture. Something more is necessary. There must be transformation and a new different article must emerge, having a distinctive name, character or use. (ii) The true test for determining whether manufacture can be said to have taken place is whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity, but is recognised in the trade as a new and distinct commodity. (iii) Where the commodity retains a continuing substantial identity through the processing stage, it cannot be said that it has been manufactured."
10. Applying the above principles to the facts of the present case, it is abundantly clear that the process undertaken by the assessee on the used lubricating oil to make the same fit for reuse as lubricating oil cannot, be regarded as a process of "manufacture". Nothing was manufactured as a result of the process. Lubricating oil remained lubricating oil even after processing, with the only difference that on removal of impurities, etc., by the process undertaken by the assessee it became fit for reuse as lubricating oil. Both before and after the processing, it was regarded as "lubricating oil". That being so, in our opinion, the Tribunal was fully justified in holding that the activity of converting the used waste lubricating oil into usable lubricating oil is not a refining process and as such not covered by the Explanation II to section 2(17) of the Bombay Sales Tax Act and allowing the assessee the benefit of resale claim in respect of the sale of such refined lubricating oil.
11. We are supported in our above conclusion by the decision of the Supreme Court in Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827 where hydrogenated groundnut oil (commonly called vanaspati) was held to be groundnut oil. In that case, the Supreme Court held that processing of groundnut oil in order to render it more acceptable to the customer by improving its quality would not render it a commodity other than groundnut oil.
12. In view of the above discussion, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. In the facts and circumstances of this case, we make no order as to costs.
13. Reference answered in the affirmative.