1965 (4) TMI 103 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Definition of "manufacturer" under the Orissa Sales Tax Act, 1947.
2. Interpretation of the term "manufactory" under the Orissa Sales Tax Validation Act, 1961.
3. Eligibility for exemption from sales tax for gold ornament dealers.

Detailed Analysis:

1. Definition of "Manufacturer" under the Orissa Sales Tax Act, 1947:
The primary issue was whether the petitioners, who are merchants selling gold and silver ornaments, could be classified as "manufacturers" and thus be eligible for exemption from sales tax under notification No. 8728-C.T-66/49 F. dated 1st July 1949. The notification exempted sales of gold ornaments from sales tax when sold by the manufacturer who charges separately for the value of gold and the cost of manufacture. The Court initially interpreted "manufacturer" to mean the first owner of the finished product, whether produced by paid employees or independent artisans using raw materials and labor charges provided by the owner. This interpretation allowed the petitioners to claim exemption as they charged separately for gold and manufacturing costs.

2. Interpretation of "Manufactory" under the Orissa Sales Tax Validation Act, 1961:
The Orissa Sales Tax Validation Act, 1961 redefined "manufacturer" to mean a person who by his own labor works up materials into suitable forms or a person who owns or runs a manufactory for business purposes. The Supreme Court remanded the case to the High Court to determine whether the petitioners ran a "manufactory" under this definition. The High Court had to assess if the dealers' operations, involving artisans working both in their premises and at their residences, constituted a "manufactory."

3. Eligibility for Exemption from Sales Tax for Gold Ornament Dealers:
The core question was whether the petitioners' business operations met the criteria of running a "manufactory." The Court examined affidavits and evidence provided by the petitioners, including statements from goldsmiths (karigars) and the petitioners themselves. The evidence showed that 10 artisans worked under the direct supervision of the petitioners in their premises, while others worked at their residences. The Court concluded that the 10 artisans working on-site did form a "manufactory" as defined by the Validation Act, thus entitling the petitioners to the sales tax exemption for the ornaments made by these artisans.

Conclusion:
The High Court quashed the assessment made by the Sales Tax Officer for the relevant quarters and remanded the cases for reassessment based on the determination that the petitioners did run a "manufactory" for the ornaments made by the 10 on-site artisans. The Sales Tax Officer was directed to revise the assessments in line with this finding, separating the work of the 10 artisans from others to determine the exact exemption amount. The writ petitions were allowed without any order for costs.