1972 (3) TMI 78 - HC - VAT and Sales Tax

Issues Involved:
1. Does the work of "sizing, bleaching and dyeing of raw cloth" amount to "textile manufacturing"?
2. If so, will the material purchased by the company on the basis of its certificate for the purpose of doing the job-work of sizing, dyeing, bleaching, etc., for other dealers, be goods purchased "for use by it in the manufacture or processing of goods for sale" within the contemplation of clause (b) of sub-section (3) of section 8 of the Act?

Detailed Analysis:

Issue 1: Does the work of "sizing, bleaching and dyeing of raw cloth" amount to "textile manufacturing"?

The court noted that the expression "manufacture of goods" is not defined in the Act, so its ordinary dictionary meaning was considered. According to Webster, "to manufacture" means "to work, as raw or partly wrought materials, into suitable forms for use." The process of manufacture involves some transformation or change in the material as a result of the application of art or mechanical manipulation.

The appellant argued that "manufacture" does not necessarily imply the complete process by which raw materials are turned into "finished" goods but may also mean that process by which the "unfinished" goods are further substantially changed into what is called "commercial goods." Therefore, "sizing, bleaching and dyeing" of raw cloth amounts to "manufacture of textile." This contention was supported by cases such as Hiralal Jitmal v. Commissioner of Sales Tax and Kapur Textile Finishing Mills, Amritsar v. The Regional Provident Fund Commissioner.

Contrarily, the respondents argued that "sizing, dyeing and bleaching" is mere processing and does not constitute "manufacture" as it does not wholly transform raw materials into finished goods. They relied on cases like Union of India and Another v. Delhi Cloth and General Mills and Others, and Commissioner of Sales Tax, U.P., Lucknow v. Harbilas Rai and Sons.

The court concluded that "sizing, bleaching and dyeing of raw and unfinished cloth" amounts to "manufacture" as it has the effect of "bringing into existence a new substance known to the market." The court endorsed the ratio of Hiralal Jitmal's case, which was incidentally approved by the Supreme Court, establishing that such processes turn raw cloth into a different marketable commodity, thus amounting to "manufacture."

Issue 2: Will the material purchased by the company on the basis of its certificate for the purpose of doing the job-work of sizing, dyeing, bleaching, etc., for other dealers, be goods purchased "for use by it in the manufacture or processing of goods for sale" within the contemplation of clause (b) of sub-section (3) of section 8 of the Act?

The court examined the statutory provisions and rules, including the definitions of "dealer" and the relevant clauses of section 8. The appellant contended that the phrase "for use by him in the manufacture or processing of goods for sale" should be strictly construed without adding or subtracting anything, in accordance with the well-settled canon governing the interpretation of fiscal statutes.

The respondents argued that the words "use by him" should govern not only "manufacturing or processing of goods" but also "goods for sale." They maintained that sub-section (3)(b) of section 8 is in the nature of an "exemption" and should be construed narrowly.

The court ruled in favor of the appellant, stating that the phrase "for use by him in the manufacture or processing of goods for sale" should be interpreted in its ordinary grammatical sense. The words "use by him" govern only "manufacturing or processing of the goods" and do not encompass the words "for sale." The requirement would be satisfied if the materials purchased were used by the company in the manufacture of goods intended for sale either by it or by other dealers for whom they were manufactured in the course of inter-State trade.

The court concluded that the interpretation put by the learned single judge could be sustained only if the words "by him" were added after "goods for sale," which is not permissible. The phrase does not require that the goods manufactured with the materials purchased on the basis of the certificate should be sold by the certificate-holder himself.

Conclusion:

The appeal and the writ petition were allowed, and the impugned notice dated 17th September, 1966, and further proceedings on its basis were quashed. The assessing authority may issue a fresh notice to the assessee requiring proof that the materials purchased were used in sizing, bleaching, and dyeing of goods of other dealers and that those goods were for sale or were actually sold in the course of inter-State trade. The company's failure to prove this would then raise the question of contravening the conditions of its certificate or the provisions of clause (b) of section 8(3) of the Act. Each party was ordered to bear their own costs due to the complicated legal questions involved.

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