2006 (8) TMI 304 - SC - VAT and Sales Tax

Whether coal briquettes are as same as coal and hence no liability of tax can be fastened on the sale of coal briquettes? Held that - Appeal dismissed. The process as mentioned here is clearly processing, treating or adapting the coal. Hence, it is a manufacture . Appellant s submission that coal briquettes are produced merely by using a binding material such as clay or molasses along with the coal, and hence the identity does not change cannot agreed as the coal briquettes are the same commercial commodity as coal. The appellant manufactures coal briquettes by compiling the hard coke breeze mechanically with the help of cinders which is usually 5 per cent of the total hard coke breeze. In the compilation of the hard coke breeze, 95 per cent of the hard coke breeze, which is known as coal-dust or breeze coke is taken which is compiled with the help of clay and molasses. Hence, coal briquettes is a different commercial commodity from coal. Moreover, even if it is not a different commercial commodity, the process of making coal briquettes will amount to a manufacture as it is processing, treating or adapting coal.

Issues Involved:
1. Whether coal briquettes are the same commodity as coal for tax purposes.
2. Whether the process of making coal briquettes constitutes "manufacture" under the U.P. Trade Tax Act.

Detailed Analysis:

1. Whether coal briquettes are the same commodity as coal for tax purposes:

The appellant, engaged in the business of coal and manufacturing coal briquettes (coal tikli), claimed exemption from sales tax on the grounds that coal briquettes are the same commodity as coal, which had already been taxed. This claim was rejected by the assessing authority, and subsequent appeals were also dismissed. The appellant argued that notifications under the U.P. Trade Tax Act and the Central Sales Tax Act defined coal to include coke in all its forms but excluded charcoal. He contended that since coal-dust had already been taxed, coal briquettes should not be taxable.

The respondent countered that coal briquettes are a different commercial commodity from coal. The process of making coal briquettes involves processing coal dust with binders, which changes its original form and characteristics, thus constituting "manufacture."

2. Whether the process of making coal briquettes constitutes "manufacture" under the U.P. Trade Tax Act:

The court examined the definition of "manufacture" under section 2(e-1) of the U.P. Trade Tax Act, which includes producing, making, altering, ornamenting, finishing, or otherwise processing, treating, or adapting any goods. This definition is broader than that in the Central Excise Act, 1944. The court referred to several precedents, including B.P. Oil Mills Ltd. v. Sales Tax Tribunal, where it was held that refining crude oil amounts to "manufacture." The court also cited Devi Dass Gopal Krishnan v. State of Punjab, where extracting oil from oil-seeds was considered a transformation into a new commercial commodity and thus taxable.

The court noted that the process of making coal briquettes involves grinding coal to a specific size, mixing it with binders, and pressing it into briquettes, which constitutes processing, treating, or adapting the coal. This process changes the coal's form and characteristics, making coal briquettes a different commercial commodity from coal. The court emphasized that the definition of "manufacture" in the U.P. Trade Tax Act is very wide and includes activities that do not necessarily result in a new commercial commodity but involve processing, treating, or adapting goods.

The court concluded that coal briquettes are a different commercial commodity from coal and that the process of making coal briquettes constitutes "manufacture" under the U.P. Trade Tax Act. Therefore, the appellant's claim for exemption from sales tax was rejected, and the appeal was dismissed.

Conclusion:

The Supreme Court dismissed the appeal, holding that coal briquettes are a different commercial commodity from coal and that the process of making coal briquettes constitutes "manufacture" under the U.P. Trade Tax Act. Consequently, coal briquettes are subject to sales tax.

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