Gujarat High Court
Variety Steel Industries vs State Of Gujarat on 7 August, 1992
Author: G.T. Nanavati
Bench: G.T. Nanavati
JUDGMENT S.D. Dave, J.
1. The Gujarat Sales Tax Tribunal, Ahmedabad, at the instance of the assessee has referred the following question to this High Court for opinion under section 69 of the Gujarat Sales Tax Act, 1969 (now hereinafter referred to as "the Act).
Whether, on the facts and in the circumstances of this case, this Tribunal was right in law in holding that the applicant was the manufacturer and not the reseller in respect of unfinished cupboards purchased by it from M/s. Prabhat Industries of Patan inasmuch as the unfinished cupboards (skeletons) were only purchased from M/s. Prabhat Industries and after they were brought to Vadodara the applicant gave the unfinished cupboards a coat of paint and affixed handles and locks and fixed mirrors to them and sold to customers, and whether the Tribunal was right in holding that the applicant was not entitled to claim deduction of sales made thereof as registered dealer resales under section 7(ii) of the Gujarat Sales Tax Act, 1969 ?
The assessee, Messrs. Variety Steel Industries, Baroda, deal in steel furniture at Baroda and they are registered as the dealer under the Act. The premises of the dealer were inspected by the Sales Tax Officer on November 9, 1976 and certain documents and other materials were seized. Later on, on the scrutiny of the seized materials the assessment were carried out as regards various transactions of purchase and sales for Samvat years 2031, 2032 and 2033. In the course of the assessment proceedings, the Sales Tax Officer had taken the view that the regular account books maintained by the dealer were not reliable and they were not maintained by the recognised method. The Sales Tax Officer had disregarded the claim of the dealer as a reseller and not as a manufacturer and had estimated the turnover of sales and purchase of the abovesaid three years at the figures higher than claimed by the dealer. The assessing officer had also imposed certain penalties but later on, the matters were carried before the Assistant Commissioner of Sales Tax, who had allowed the appeals partly and had reduced the amounts of turnovers and had also reduced the penalties proportionately. Anyhow, the dealer not being satisfied with the abovesaid orders, had preferred three second appeals before the Tribunal. The said appeals were disposed of by the Tribunal by common judgment dated March 29, 1982.
2. The case of the dealer was that they had a sister concern doing similar business of furniture at Patan under the name and style of Messrs. Phabhat Industries. It was the case of the dealer that Messrs. Phabhat Industries used to purchase the cupboards of steel in the skeleton form and later on they were purchased by the dealer and were sold after painting, set the mirrors, locks, handles, etc. It was therefore, the case of the assessee that it was a mere resale without involving any activity of manufacture as understood within the meaning of the Act and, therefore, the sales tax authorities were not justified in treating the abovesaid transactions as the transaction of manufacture and not the resale. It requires to be pertinently appreciated that the Tribunal has recorded a finding of fact that the abovesaid contention raised by the assessee was not found to be genuine. The Tribunal had expressed the opinion in respect of the fact in unequivocal terms that the unfinished cupboards which are called as "skeleton" had no market potentiality and that such unfinished cupboards were never purchased by the customers, but they were being purchased by the dealer of steel furniture and after finishing them by giving a coat of paint and fixing locks, mirrors, etc., they were being sold to the customers. In view of this finding, the Tribunal had taken the view that there was the element of manufacture within the meaning of the Act of 1969 and therefore, the case of the dealer that it was an activity of mere resale could not be accepted. Being aggrieved and feeling dissatisfied with the abovesaid orders of the Tribunal that the three applications came to be made by the assessee-dealer for the reference. As noticed above, the abovesaid question has been referred to this Court for the opinion by the Tribunal under section 69 of the Act of 1969.
3. The learned counsel Mr. Joshi who appears on behalf of the assessee, has urged that the abovesaid question requires to be replied and answered in favour of the assessee because the cupboards in the form of skeleton were being purchased by the dealer and that thereafter they were being sold only after applying paint and affixing handles, mirrors and locks and that the abovesaid minor activity or change cannot be regarded as a manufacture. Mr. Joshi has also urged that looking to the facts and circumstances of the case and looking to the abovesaid minor activity being carried out by the dealer, it is a clear cut case of resale. Anyhow, Miss. Doshit, learned counsel who appears on behalf of the Revenue, has urged that there is a clear finding of fact recorded by the Tribunal that such skeleton cupboards are never purchased by the customers, but they are being purchased by the steel dealers and they are being sold in the market only after painting and affixing of handles, locks and mirrors and that if one looks to the statutory definitions of resale and manufacture under the relevant provisions of the Act of 1969, it becomes clear that it would be the activity of manufacture.
4. Before proceeding further to examine the rival contentions of the learned counsel for the assessee and the learned counsel for the Revenue, it requires to be recalled the Tribunal has recorded certain findings of fact which go to the root of the question in controversy. It has been pointed out that the partner of the dealer firm had stated in the written statement given on behalf of the firm at the time of the inspection that the cupboards came to the dealer from Messrs. Prabhat Industries in a form which is popularly known as "skeleton" and thereafter, they were being painted and fitted with mirrors, handles and locks, etc., at the expenditure of the Patan manufacturer. But the sales tax authorities had noticed that there was no evidence to warrant such a conclusion. On the contrary, it was further noticed by the Sales Tax Officer that the expenditures incurred by the dealer for the purchase and the affixing of the abovesaid material were kept out of the regular account books. Even during the written arguments submitted by the learned sales tax practitioner appearing on behalf of the assessee before the Tribunal, it was conceded that the locks and handles to the cupboards and the mirrors were fixed on the same by the dealer. It was sought to be contended before the Tribunal that the application of the paints and the fitting of the mirrors, etc., would not constitute a separate commercial commodity distinct from the cupboard originally supplied to the assessee by the Patan manufacturer, but this contention raised on behalf of the assessee was not accepted by the Tribunal on the ground that the unfinished cupboard which are known as the skeleton have no market as ordinarily understood and that such unfinished cupboards were being purchased by the dealer of the steel furniture and after finishing the same by giving a coat of paint and affixing handles and locks and necessary mirrors, they were being sold to the customers in the market. The abovesaid findings of the fact rendered by the Tribunal therefore, would go to show very clearly that the skeleton cupboards could not be sold in the market to the customer and that certain activities, namely, the application of the paints and the affixing of the handles, the locks and the mirrors were absolutely necessary so as to complete the skeleton to cupboard, which could be sold in the market to the customer. We have to proceed further with the abovesaid findings of fact recorded by the Tribunal.
5. Miss Doshit, the learned counsel who appears on behalf of the Revenue, has urged that in the instant case the question being regarding the manufacture or resale of a particular commodity, we shall have to guide us by the statutory definitions in respect of two items, viz., "manufacture" within the meaning of section 2(16) and of "resale" within the meaning of section 2(26) of the Act of 1969. Doshit invited our attention to the Bombay High Court's decision in Famous Cine Laboratory and Studio Ltd. v. State of Maharashtra [1975] 36 STC 104 with a view to point out that in such cases the court shall have to look to the statutory definitions provided under the relevant provision of the Act. It appears that the Bombay High Court while deciding the abovesaid case has summed up this contention raised by Miss Doshit in the following words :
"The definition of "manufacture" is very wide and includes several activities which, in ordinary parlance, one would not describe as manufacture. We are not concerned with the ordinary meaning of the word "manufacture" but with the statutory meaning given to it by clause (17) of the said section 2. Under the said clause processing any goods is expressly stated to be 'manufacture'. Raw film is a commodity which after being processed becomes processed film, a commodity commercially different from raw film and, accordingly, processing raw films must constitute 'manufacture' within the meaning of the said clause (17) of section 2."
It is, therefore, abundantly clear that when a question arises as to whether a particular activity would fall within the meaning of word "manufacture" or the word "resale" the statutory definitions shall have to be examined first.
Section 2(16) defines term "manufacture" as under :
"manufacture" with all its grammatical variations and cognate expressions, means producing, making, extracting, collecting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed."
Section 2(26) defines term "resale" as under :
"'Resale' for the purposes of sections 7, 8, 10, 13, 15, 19A and 19B means 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, or
(iii) being goods specified in entries 1 to 3 in part A of Schedule II and in entries 1 to 6 in Part B of Schedule II without doing anything to them which takes them out of the description thereof in those entries, and the word 'resale' shall be construed accordingly;"
First, we take the definition of word "manufacture" as occurring in section 2(16) of the Act, as it stood at the relevant time. It requires to be appreciated that the activity of altering, ornamenting, finishing and otherwise processing a commodity would amount to a manufacturing activity within the meaning of section 2(16) of the Act of 1969. A reference to section 2(26) which provides the definition of word "resale" makes it clear that "resale" would mean to sell a commodity or the purchased goods in the same form in which they were purchased or are sold without doing anything to them which amounts to, or results in, a manufacture.
6. The learned counsel Mr. Joshi firstly wanted to urge that he would like to concentrate on section 2(26)(ii) only. Anyhow, during the course of the argument, the learned counsel has placed reliance upon sub-clause (1) also. But on the basis of the above definition of "resale", it is extremely difficult to accept the contention raised by Mr. Joshi that the cupboards were being sold by the dealer in the same form in which they were purchased or that they were being sold without doing anything to them, which amounts to or results in a manufacture. Now, what amounts to a manufacture has been made clear as noticed by us by the definition of word "manufacture" occurring in section 2(16) of the Act of 1969. Any activity of altering, ornamenting, finishing or otherwise processing the commodity would fall within the meaning of term "manufacture". Therefore if the abovesaid two definitions - one the term of "resale" and the second of term "manufacture" - are read together, it becomes clear that it is extremely difficult to accept the contention raised on behalf of the assessee that there was no manufacture, but only a resale in respect of the commodity, viz., the cupboard. As pointed out by us earlier, the Tribunal has noticed as a finding of fact that the so-called skeleton cupboards were being purchased by the assessee and they were being sold in the market only after painting and fixing of the lock, the handles and the mirrors. It is also pointed out by the Tribunal as a finding of fact that ordinarily, such skeleton cupboards would not be purchased by the customers in the market unless and until the abovesaid activities are being carried on by the dealer. In view of this position, it becomes clear that admittedly the abovesaid activities were being carried out by the dealer before the skeleton cupboards were ready for the sale in the market for the customers.
7. Mr. Joshi has tried to urge that the abovesaid activity carried out by the dealer or the assessee are so nominal or insignificant that the skeleton cupboard remains the cupboard and there is no manufacturing activity whatsoever. The abovesaid contention raised by the learned counsel Mr. Joshi cannot be accepted by us on dual grounds. Firstly, as pointed out by us earlier, we shall have to go by the statutory definitions of the words "resale" and "manufacture" under the relevant provisions of the Act of 1969. The second reason is that there is a finding of fact recorded by the Tribunal going against the assessee saying very clear that the skeleton cupboards cannot be sold in the market to the customers unless and until the abovesaid activities are being carried out.
8. Miss. Doshit has also placed reliance on the Supreme Court case in Chowgule & Co. Pvt. Ltd. v. Union of India [1981] 47 STC 124. Placing reliance upon this Supreme Court decision, Miss Doshit has urged that wherever a commodity undergoes a change as a result of some operation performed on it, the nature and the extent of the change is not material. When the reference is made to clear observations of the Supreme Court in this respect at page 131, it becomes clear that the nature and the extent of the change would not be material when a question is being examined as to whether a particular activity amounts to a mere resale or manufacture. The earlier decision of the Bombay High Court on which Miss Doshit has placed reliance, namely, Famous Cine Laboratory and Studio Ltd. [1975] 36 STC 104 makes it clear that in such cases one shall have to proceed further on the basis of the statutory definition. The abovesaid two decisions therefore, would go to show clearly that the contention that there is a nominal or insignificant change even if accepted, would not be material to come to the conclusion that there is no manufacturing activity.
Moreover, even at the cost of repetition, we would like to emphasise that in the instant case, the activity of painting and affixing of handles, locks and mirrors cannot be said to be nominal or insignificant in any manner whatsoever. Unless and until the abovesaid activities are duly performed by the assessee, the commodity cannot be termed as a cupboard. In the absence of these activities, the so-called cupboard would be a mere skeleton which would not be sold in the market. Any customer who wants to purchase a cupboard would not buy a skeleton cupboard from the market which is unpainted or is without the handles, the locks and mirrors affixed on the same. Looking to the nature of these addition, alteration and affixing of the materials on the skeleton cupboard, it cannot be accepted that the above - said activity being carried out by the assessee can be branded as a minor nominal or insignificant activity which would not attract the definition of term "manufacture" within the meaning of the Act of 1969.
9. Mr. Joshi has placed heavy reliance on the Supreme Court decision in the case of Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 and has urged that even though a degree of processing might be involved in preparing some commodity, if the original commodity and the end commodity continue to possess the same identity, there is no activity of manufacture. The abovesaid case before the Supreme Court was in respect of the processed pineapple slices for the purpose of being sold in sealed cans. The question before the Supreme Court was as to whether when the pineapple fruits were so processed and were sealed in the cans, there was no consumption of the original pineapple fruit for the purpose of manufacture. The Supreme Court was considering the scope of section 5A(1)(a) of the Kerala General Sales Tax Act, 1963. It has been laid down that where there is no essential difference in the commodity, i.e., between the original commodity and the processed article, it would not be possible to say that one commodity has been consumed in the manufacture of another. We feel that the abovesaid case law on which the learned counsel Mr. Joshi has placed reliance would not render much assistance to us because of the simple reason that the Supreme Court was concerned with a case of consumption of the original pineapple fruit when the same after processing was being sold in the sealed cans. Moreover, the Supreme Court had noticed on the analysis of the manufacturing process that there was no essential difference in the identity between the original commodity and the processed article, which position is not obtained in the instant case before us. As pointed out by us earlier, because of the activities carried out admittedly by the assessee, the skeleton cupboard which could never have been sold in the market to the customers are being sold to them as finished cupboards. Mr. Joshi has also invited our attention to one more Supreme Court decision in the case of State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213. Mr. Joshi has invited our pointed attention to the paragraphs occurring at page 267 of the abovesaid decision and has urged that the sale of dressed or sized logs by the firm having already been assessed to sales tax, the sales to the first respondent-firm of timber, by the State Government from which logs were made by the respondent-firm cannot be made liable to sales tax as it would amount to levying tax at two points. Anyhow, the principle laid down by the Supreme Court in this decision, which would be material for our purpose is that the timber and sized and dressed logs are one and the same commercial commodity and the logs are nothing more than wood cut up or sawn and would be timber. This decision on which Mr. Joshi has placed reliance and the abovesaid observations on the principle laid down by the Supreme Court would also not assist Mr. Joshi in his submission before us because as pointed out by us earlier, two different commodities emerge after the activity as noticed by us. The case on hand cannot be equated with a case of timber simpliciter and the timber sized and dressed.
10. Mr. Joshi has also placed reliance upon this High Court's decision in State of Gujarat v. Push Colour & Chemical Co. [1982] 49 STC 158. In that case, it has been held that the act of addition of gobar salt, etc., to the dyes of diverse quality and concentration purchased from registered dealers by the assessee was not an act of manufacturing and the reselling of such dyes with reduced strength would amount only to resales within the meaning of section 2(26) of the Act of 1969. Mr. Joshi has also placed reliance on one other decision of this Court in State of Gujarat v. Nareshkumar & Brothers [1982] 49 STC 264, with a view to point out that when the news-print reels were cut into smaller reams, this Court had accepted that the said activity would not result in any change of form and therefore, it would be a case of resale and not a manufacture. Two other decisions on the same line in which Mr. Joshi has placed reliance also merit a consideration at this juncture. In the case of Dar Laboratories v. State of Gujarat [1968] 22 STC 160, this Court has taken a view that a preparation described as "Ipco Dental Creamy Snuff" which was being used for the application to the gums and which contains 55 per cent snuff, 40 per cent water, 2.5 per cent preservative and 2.5 per cent flavouring agents, nonetheless it was a tobacco and was exempt from sales tax under entry 49 in Schedule A to the Act. In the said case, this Court has observed as under :
"....... when a process is adopted for convenience of sale or making the article more acceptable to the customers, if the article in question retains its essential character, it has to be taxed as such article only and the processing will make no difference. The physical state or even the composition may change but so long as the essential character of the article continues to remain in the same, it has to be taxed as that commodity alone."
But the abovesaid principle would not be available in favour of the assessee in the instant case because, it cannot be said that the process was adopted for mere convenience of the sale of making the article more acceptable to the customer. In the instant case without the paint, the handles, the mirror and the locks, the skeleton cupboard would never be acceptable in the market.
The last decision on which Mr. Joshi has placed reliance is also the decision of this Court in the State of Gujarat v. Sukhram Jagannath [1982] 50 STC 76. It was a case of two kinds of panmasala; one being a mixture of sopari, variyali, dhana-dal and sweet flavoured powder, while the another type was a panmasala having a mixture of sopari, chuna and tobacco. This Court on the examination of the above constituents of two types of panmasala, have observed that it would be said that there was a transformation of different constituent elements in the sense of a new or different article emerging therefrom. It requires to be noticed that abovesaid case was in respect of the mixture of certain articles like sopari, variyali, dhana-dhal, sweet flavoured powder, etc. In another commodity there was a mixture of tobacco with chuna and sopari. It is, therefore, looking to these facts that this Court has said that there was no transformation of a different constituent element. For the reasons which is assigned more than once, this authority also would not go to strengthen the case of the assessee before us.
Thus, it appears very clearly that the Tribunal was perfectly justified in saying that the abovesaid activity was an activity of manufacture and cannot be said to be a mere activity of resale. We fully agree with the abovesaid conclusion recorded by the Tribunal. Looking to the settled legal position in this respect and further looking to the finding of the facts recorded by the Tribunal, no other view is possible. We, therefore, answer the above referred question to us in affirmative, against the assessee and in favour of the Revenue with no order as to costs.
Reference answered in the affirmative