1964 (3) TMI 79 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the conversion of oil into hydrogenated oil (vegetable ghee) constitutes a process of manufacture under the Punjab General Sales Tax Act, 1948.
2. The applicability of purchase tax on the acquisition of oil for manufacturing vanaspati.
3. The interpretation of the term "manufacture" within the context of the Punjab General Sales Tax Act.

Issue-wise Detailed Analysis:

1. Whether the conversion of oil into hydrogenated oil (vegetable ghee) constitutes a process of manufacture under the Punjab General Sales Tax Act, 1948:
The primary contention raised in this petition under Article 226 of the Constitution is that the conversion of oil into hydrogenated oil, i.e., vegetable ghee, does not involve a process of manufacture. The petitioner relies on the Supreme Court decision in Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool, where it was observed that hydrogenated oil still continues to be 'groundnut oil' notwithstanding the processing. The Supreme Court noted that "hydrogenated oil serves the same purpose as a cooking medium and has identical food value as refined groundnut oil." Therefore, it was argued that the conversion does not change the essential nature of the oil, and thus, no manufacture is involved.

2. The applicability of purchase tax on the acquisition of oil for manufacturing vanaspati:
The State Government imposed purchase tax by amending the provisions of the East Punjab General Sales Tax Act, 1948, through the East Punjab General Sales Tax (Amendment) Act, 1958. The amended provisions under which the purchase tax was sought to be imposed are sections 2(ff) (definition section) and 4 (charging section). The petitioner-company objected to the imposition of purchase tax on various grounds, including the argument that the conversion of oil into vanaspati does not amount to manufacture. The Assessing Authority, however, rejected these contentions and directed the company to file purchase tax returns.

3. The interpretation of the term "manufacture" within the context of the Punjab General Sales Tax Act:
The court examined previous decisions to interpret the term "manufacture." In Raghbir Chand Som Chand v. Excise and Taxation Officer, Bhatinda, it was held that ginned cotton obtained from raw cotton did not involve any process of manufacture. Similarly, in Puran Chand Gopal Chand v. State of Punjab, the conversion of old gold and silver ornaments into bullion was considered to involve manufacture. The court also referred to the Supreme Court decision in Union of India v. Delhi Cloth and General Mills Co. Ltd., which held that excise duty was leviable on vegetable ghee because it was the result of manufacture. The court concluded that the conversion of oil into vegetable ghee amounts to "manufacture" as it produces a new substance known to the trade apart from oil. The court observed that "in trade circles as well as to the common man, the oil and the vegetable ghee produced from that oil are two different substances."

Conclusion:
The court dismissed the petition, holding that the conversion of oil into vegetable ghee constitutes a process of manufacture under the Punjab General Sales Tax Act, 1948. The purchase of raw groundnut oil for the manufacture of vegetable ghee is considered the acquisition of goods for use in the manufacture of goods for sale, thereby making it liable for purchase tax. The court relied on the broader interpretation of "manufacture" and the practical distinctions between oil and vegetable ghee in trade and common usage. The petition was dismissed with no order as to costs.