Bombay High Court
Commissioner Of Sales Tax vs Paper Process Works on 20 February, 1986
Equivalent citations: [1986]62STC317(BOM)
Bench: M.H. Kania, Sujata V. Manohar
JUDGMENT
Kania, A.C.J.
1. This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as "the said Act"). The question, which has been referred for our determination in this reference, is as follows :
"Whether, on the facts and in the circumstances of this case, the Tribunal was correct in law in coming to the conclusion that the paper reels of smaller width sold by the respondent under invoice No. SP/1 dated 16th October, 1975, were not a commercially different commodity from the paper rolls of bigger width from which they were prepared by the process of slitting and therefore the said process of slitting the paper did not amount to manufacture under section 2(17) of the Bombay Sales Tax Act, 1959, and consequently no tax was payable on the said sale ?"
2. It is common ground that the respondent-assessee is a registered dealer. The assessee purchased paper in larger reels or rolls and these rolls were cut by the assessee into smaller paper reels by a slitting process. The process carried out by the assessee, as explained before the Sales Tax Tribunal, was as follows :
Machine-made paper is manufactured in reels only. The size of the reels of such paper varies according to the size of the machine on which paper is manufactured. Such size is technically known as deckle width of the machine which varies from 60" to 200". As the paper of the aforesaid deckle width cannot be conveniently handled for the purposes for which the paper is manufactured, these reels are slit into smaller width by the paper mills themselves. Theses reels were of a maximum width of 33" to suit the slitting machine for the purpose of making smaller reels from the bigger reels. The assessee purchased these bigger reels. The open end of the paper reel was unbound and drawn through the rotary slitters which are adjusted to obtain the requisite size for smaller reels. The rotary slitters cut the paper which in the same process is rewound on the paper tubes which are inserted on the rewinding shaft. The cutting of the paper into smaller size and rewinding thereof on the paper tubes is one continuous process as a result of which smaller reels of paper are obtained.
3. The assessee made an application on 4th December, 1975, to the Commissioner of Sales Tax under section 52 of the said Act posing for determination of the Commissioner the question whether cutting of the paper purchased in larger rolls into smaller reels as required by customers would amount to manufacture under section 2(17) of the said Act. There was a second question also posed which we do not propose to set out as it is merely ancillary. Along with that application an invoice bearing No. SP/1 dated 16th October, 1975, was sent to the Commissioner. That invoice is not on record, but, by consent, copies of a few similar invoices have been tendered and form part of the supplemental paper-book. The Deputy Commissioner, who disposed of the application, took the view that the said activity carried on by the assessee amounted to manufacture under section 2(17) of the said Act and held that the sale effected by the assessee under the said invoice dated 16th October, 1975, was liable to be assessed to sales tax in the sum of Rs. 430.50.
4. The assessee preferred an appeal to the Sales Tax Tribunal against the aforesaid decision of the Deputy Commissioner. The Tribunal took the view that the activity carried on by the assessee did not amount to manufacture within the meaning of the said expression under section 2(17) of the said Act as that activity did not result in the production of a new commercial commodity. In coming to this conclusion the Tribunal relied upon the decision of a Division Bench of this Court in Commissioner of Sales Tax v. Dunken Coffee Manufacturing Co. [1975] 35 STC 493. The aforesaid question, which has been posed for our determination, arises from this decision of the Tribunal.
5. It was submitted by Mr. Jetly, learned counsel for the applicant-Commissioner of Sales Tax, that clause (17) of section 2 of the said Act gives an extended definition of the term "manufacture" so as to include within its scope any activity which could be described as a process. It was submitted by him that cutting of larger paper reels into smaller reels by the method described aforesaid would certainly amount to a process and would, therefore, amount to manufacture within the meaning of the said expression in the said Act. It was further submitted by him that the paper produced by the assessee must be regarded as a different commercial commodity, namely, smaller paper reels into which it was converted. It was, on the other hand, submitted by Mr. Patil, learned counsel for the assessee, that although the activity of the assessee, of slitting larger reels of paper into smaller reels, could be described as a process, since that process did not result in the production of any new commercial commodity, it could not be said that the assessee carried on the activity of manufacture within the meaning of the said expression in section 2(17) of the said Act.
6. Clause (17) of section 2 of the said Act gives an extensive definition of the term "manufacture" so as to include within its scope even the processing or treating or adapting of any goods. Rule 3 of the Bombay Sales Tax Rules, 1959, sets out the processes which are not included in "manufacture". It would be sufficient to notice that the process of slitting larger reels of paper into smaller reels, such as was carried on the assessee, has not been excluded from the definition of "manufacture" under this rule. Notwithstanding this, in view of the decision of this Court in Dunken Coffee's case [1975] 35 STC 493, it will have to be considered whether the reels produced by the assessee by applying the aforesaid process could be described as a new commercial commodity, that is, whether the smaller reels of paper, which resulted from the process applied by the assessee on the larger reels of paper, could be said to be a different commodity from the larger reels of paper. In the aforesaid decision a Division Bench of this Court held that the definition of the term "manufacture" in section 2(17) of the said Act is very wide and includes within its scope certain activities which, in ordinary parlance, may not be considered as manufacture. But, even under the very definition, the various activities set out therein must result in a different commercial commodity in order that such activities may amount to manufacture of goods. The definition of the term "manufacture" in section 2(17) of the said Act must be interpreted bearing in mind the fact that it has been inserted in the setting and context of a sales tax legislation of which the pith and substance is a tax primarily on the sales of goods and subsidiarily on the purchases of goods. The various activities enumerated in the definition have been specifically mentioned, lest any contention might arise that one or the other of them would not, in ordinary parlance and according to the ordinary notions, constitute manufacture. Each of these activities, however, before it can amount to manufacture, must result in a commodity commercially different from the commodity or commodities to which the activity was applied. It may be mentioned that this view was taken by the Division Bench after considering several decisions including the decision of the Supreme Court in Commissioner of Sales Tax, U.P., Lucknow v. Harbilas Rai & Sons [1968] 21 STC 17 at page 19 (SC) where the Supreme Court approved the observations of Desai, C.J., of the Allahabad High Court to the effect that for an activity to amount to manufacture, it must result in the production of a commercially different article. It may be mentioned that in Dunken Coffee's case [1975] 35 STC 493 (Bom) the assessees carried on the business of selling of what was known as French Coffee. The activities of the assessees consisted of purchasing coffee seeds, roasting and grinding them and preparing coffee powder out of the seeds. The assessees also purchased ready-made chicory powder and thereafter mixed and blended the coffee powder prepared by them with the chicory powder purchased by them and produced the mixture commercially known as French Coffee. It was held by the Division Bench that the French Coffee produced by the assessees was a different commercial commodity from the coffee powder and chicory powder from which it was prepared. If this test is applied to the facts of the case before us, it is not possible to accept Mr. Jetly's contention. What the assessee purchased was larger reels of paper and the activity applied by the assessee to these reels resulted in the production of smaller reels of paper. It is common ground that the paper in the larger reels of paper could be used for packing, so also the paper in the smaller reels prepared by the assessee. The essential characteristic of the paper remains the same in the larger reels and the smaller reels. Moreover, packing is one of the purposes to which paper is commonly put and, therefore, it is one of the normal uses of the paper. There was no material on record to show that in the paper market larger reels of paper are treated as a different commercial commodity from smaller reels. In these circumstances, we find no reason to take the view that the reels of paper produced by the assessee must be regarded as a different commercial commodity. What was purchased by the assessee was paper in larger reels and what was prepared and sold by the assessee was also paper but in smaller reels. In this regard, we may point out that in Commissioner of Sales Tax v. Bombay Traders [1976] 38 STC 286 (Bom), a question arose before a Division Bench of this Court, to which one of us (Kania, Ag. C.J.) was a party, as to whether the activity of frying and spicing cashew-nuts could be said to be manufacture within the meaning of that term in section 2(17) of the said Act. The assessees in that case bought plain cashew-nuts in tins and after frying and applying spices to the cashew-nuts to make them tasty, packed them in plastic bags and sold them locally. The Tribunal found that the fried and salted cashew-nuts sold by the assessees could not be said to be a different commercial commodity from the plain cashew-nuts purchased by the assessees, and this view was upheld by the Division Bench of this Court. It was held, inter alia, that the question to be considered was whether the fried and salted cashew-nuts prepared by the assessees could be said to be a different commercial commodity from plain cashew-nuts and this was primarily a question of fact to be determined on the evidence before the sales tax authorities. The Tribunal had found that, even after the plain cashew-nuts were fried an salted by the assessees, they still continued to be the same commercial commodity, viz., cashew-nuts, and hence the process or activity applied by the assessees on the cashew-nuts could not be said to be manufacture within the meaning of that term in section 2(17) of the said Act. We find that the position here is similar. On the evidence before the Tribunal, the Tribunal has come to the conclusion that smaller reels of paper prepared by the assessee could not be said to be a different commercial commodity from the larger reels of paper from which they were cut.
7. We may now refer to some of the several cases cited by the counsel before us, although, in our view, very little purpose is served by discussing cases in some of which a view was taken that the two commodities in question are commercially different, and in others, that the commodities in question are commercially the same. Mr. Jetly drew our attention to the decision of a learned single Judge of the Calcutta High Court in Mahabirprasad Birhiwala v. State of West Bengal [1973] 31 STC 628, where it was held that the transformation into powdered form of "whole" black pepper and turmeric purchased from the market on payment of tax did not amount to manufacture but involved an act of processing within the meaning of section 2(b) of the West Bengal Sales Tax Act, 1954, and the sale by a person of such powdered black pepper and turmeric would attract tax under that Act. Suffice it to say that the main question before the court in that case was whether the petitioner before the court was a dealer within the meaning of that term in the aforesaid West Bengal Act. The learned single Judge took the view that powdering black pepper and turmeric was an activity which could be called a process within the meaning of section 2(b) of that Act. We may further point out that this decision has been dissented from in a recent judgment of another learned single Judge of the Calcutta High Court in Rasoi Products v. Commercial Tax Officer [1982] 51 STC 248 where Padma Khastgir, J., took the view that the decision in Mahabirprasad Birhiwala's case [1973] 31 STC 628 (Cal) was rendered per incuriam. We will only observe that we prefer to follow the principle laid down by the Division Bench of this Court in Dunken Coffee's case [1975] 35 STC 493. We may further point out that in State of Orissa v. Titaghur Paper Mills Co. Ltd. , the Supreme Court has observed as follows (page 261) :
"........ We may, however, point out that even where the question is whether a certain process has resulted in a manufacture, the resultant product must be a different commercial commodity and merely because certain articles are known by different names it does not mean that they are different commercial commodities if in fact they are merely different forms of the same commodity."
In the case before us, even assuming that smaller reels of paper prepared by the assessee were known by a different name from larger reels of paper purchased from the mills, still both the items are the same commercial commodity, namely, paper.
8. We may point out that, in any event, it was for the revenue to establish before the Tribunal by leading sufficient evidence that the reels of paper produced by the assessee were regarded as a different commercial commodity from the larger reels of paper purchased by them. This could have been done, inter alia, by showing that these two types of paper were dealt with in different markets or sold by different shops, but the applicant has made no such attempt. In fact, on the evidence before the Tribunal, the Tribunal has come to the conclusion that the two articles in question are commercially the same commodity. There is no warrant to interfere with that finding in this reference.
9. We may point out that the Tribunal has, to a certain extent, erred in propounding the view that a different commercial commodity could be obtained only when the new product is in its characteristics different from the original commodity. In doing this, the Tribunal mentioned that in the Dunken Coffee's case [1975] 35 STC 493 the Division Bench of this Court had found that French Coffee was different in certain essential characteristics from the original coffee. We may, however, point out that this makes no difference. If a process or an activity results in the production of an article which is commercially regarded as a different commodity, it makes no difference whether the new article is the same in its essential characteristics as the article from which it was produced or not. In the present case, however, as we have already pointed out, the Tribunal has, on material before it, come to the conclusion that the commodity produced by the assessee was commercially the same as the commodity purchased by it, viz., the paper, and, in any event, the applicant has failed to establish that the articles were different commercial commodities.
10. In the result, the question referred to us is answered in the affirmative and in favour of the assessee. The applicant to pay to the respondent the costs of this reference.
11. Reference answered in the affirmative.