1973 (11) TMI 73 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether the business of firewood carried on by the assessee-firm can be considered a manufacturing business?
2. Whether the assessee-firm can be termed as a manufacturer?
3. What is the liability of the assessee to pay tax - Rs. 50,000 or Rs. 10,000?

Analysis:
The judgment pertains to Sales Tax References related to an unregistered dealer in firewood for the assessment years 1959-60 and 1960-61. The Assessing Authority held the assessee liable to pay sales tax, which was upheld with modifications by the highest revisional authority. An application under section 22(1) of the Punjab General Sales Tax Act was dismissed as time-barred. The matter was brought to the court through petitions under section 22(2) for direction to refer questions of law. The key question referred was whether the business of firewood can be considered a manufacturing business and if the assessee is liable to pay tax at Rs. 50,000 or Rs. 10,000. The relevant provisions of the Act were analyzed to determine the liability of the dealer.

The court considered the argument that the assessee-firm should not be classified as a manufacturer but as a general dealer. The court referred to the definition of "manufacture" as bringing into existence a new substance, emphasizing that a mere change in the article is not sufficient for it to be considered a manufactured product. The court cited precedents to support the interpretation of the term "manufacture" in the context of sales tax legislation. It was established that the process of chopping and selling firewood did not result in a new substance with a distinctive name or character, therefore not meeting the criteria for manufacturing.

The court analyzed the nature of the trees used for firewood, highlighting that even after chopping or cutting them into pieces, the essential character of the material remained the same. The court distinguished the process of selling trees as raw material for fuel or timber from actual manufacturing activities. Various judicial decisions were referenced to support the conclusion that the business of firewood does not qualify as a manufacturing business. The court disagreed with a previous decision that considered chopping timber into firewood as a manufacturing process, asserting that such an activity did not result in a new article with a distinct character.

In conclusion, the court held that the business of firewood conducted by the assessee-firm could not be categorized as a manufacturing business, and the assessee could not be labeled as a manufacturer. The liability of the assessee to pay tax was determined to arise at Rs. 50,000. The court answered the question referred in the negative, ruling against the department. The assessee-firm was awarded costs in both references.