1975 (2) TMI 102 - HC - VAT and Sales Tax

Summary

Issues:
- Interpretation of the term "manufacture" under section 2(17) of the Bombay Sales Tax Act, 1959.
- Whether reconditioning old drums amounts to manufacturing.
- Applicability of section 10(1) of the said Act in determining liability for sales tax.

Analysis:
The judgment by the Bombay High Court underlines a reference concerning the interpretation of the term "manufacture" as per section 2(17) of the Bombay Sales Tax Act, 1959. The case involved respondents engaged in purchasing old drums, repairing them, and reselling the same. The Sales Tax Officer assessed them as manufacturers, leading to appeals up to the Sales Tax Tribunal, which ruled in favor of the respondents, stating that reconditioning old drums did not amount to manufacturing. The key issue was whether the repaired drums constituted a different commercial commodity from the old drums purchased. The court emphasized that for an activity to qualify as manufacturing, it must result in a commercially distinct commodity. The court referred to a previous decision highlighting that the test is whether the result is a different commodity, irrespective of the process involved. The court concluded that merely repairing old drums did not create a new commercial commodity, thus the respondents were not manufacturers under the Act.

In the judgment, the court addressed the argument presented by the counsel for the applicant, emphasizing that the term "manufacture" should be viewed in the context of a sales tax legislation primarily focused on taxing sales of goods. The court distinguished this fiscal legislation from social welfare legislation, highlighting the importance of interpreting terms within their specific legislative contexts. The court also differentiated the definition of "manufacturing process" under the Factories Act from that under the Sales Tax Act, indicating that activities like repairing were considered manufacturing processes under the former but not under the latter.

Furthermore, the court examined the relevance of section 10(1) of the Act in determining the liability for sales tax. The respondents contended that the repaired drums were different goods from the old drums purchased, allowing them to deduct the turnover of sales. However, the court rejected this argument, reiterating that the repaired drums did not constitute a different commercial commodity, thus the respondents were not entitled to such deductions. Ultimately, the court answered the reference in the affirmative, ruling in favor of the respondents and directing the applicant to bear the costs of the reference.