1962 (11) TMI 38 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of exemption from sales tax for crushed and sieved tobacco under the U.P. Sales Tax Act.

Detailed Analysis:
The case involves a reference under section 11(1) of the U.P. Sales Tax Act regarding the exemption of crushed and sieved tobacco from sales tax under a specific notification. The applicants, who are tobacco dealers, claim that their product falls under the exemption granted for tobacco leaves not subjected to any manufacturing process. They argue that crushing and sieving tobacco does not constitute a manufacturing process as defined under the Central Excises and Salt Act. The definition of "manufacture" under the Central Excises and Salt Act includes processes incidental to the completion of a manufactured product, which the applicants contend crushing and sieving are not. They assert that further processes are required to consider an act as manufacturing, and crushing and sieving are only preliminary steps for storage compliance, not incidental to the final product.

The court delves into the interpretation of "subjected to any process of manufacture" in the context of the notification issued by the State Government under the U.P. Sales Tax Act. While the Central Excises and Salt Act defines "manufacture" differently, the court emphasizes the ordinary meaning of manufacture for this case. Various legal precedents are cited to illustrate the concept of manufacturing, emphasizing that the essence of manufacturing lies in producing a commercially different article from the original material. Processes like splitting mica, shaping slates, and breaking boulders have been considered manufacturing activities in previous judgments.

The court concludes that crushing and sieving tobacco leaves constitute a manufacturing process based on the principle that the resulting product is a commercially distinct article from the original tobacco leaves. The fact that the nature of the article remains the same is deemed immaterial; what matters is the creation of a different commercial commodity. The court highlights that the crushed and sieved tobacco has a distinct commercial name, indicating its separate identity from unprocessed tobacco leaves. The judgment affirms that the process of crushing and sieving qualifies as a manufacturing process, leading to the conclusion that the product is not covered by the exemption notification for unprocessed tobacco leaves.

The judgment also notes an amendment to the notification exempting crushed and sieved tobacco from sales tax after conflicting instructions from Sales Tax Commissioners. However, the amendment does not alter the court's interpretation that the process of crushing and sieving constitutes manufacturing. The judgment answers the reference question in the negative, affirming that crushed and sieved tobacco is not exempt from sales tax under the U.P. Sales Tax Act.

In a concurring opinion, Justice Pathak agrees with the judgment's analysis and conclusion, adding no further comments. The court orders the transmission of the judgment to the relevant authorities as per statutory requirements, with the Commissioner of Sales Tax awarded costs for the reference proceedings.

Conclusion:
The judgment clarifies that crushed and sieved tobacco is not exempt from sales tax under the U.P. Sales Tax Act as it undergoes a manufacturing process, creating a commercially distinct product from unprocessed tobacco leaves. The court's interpretation emphasizes the commercial differentiation of the final article, aligning with established principles of manufacturing in legal precedents.