1978 (3) TMI 202 - HC - VAT and Sales Tax

Summary

Issues:
Whether the drying and packing of tendu leaves constitutes a manufacturing process under the M.P. General Sales Tax Act, 1958.

Analysis:
The case involved two references under section 44 of the M.P. General Sales Tax Act, 1958, regarding the classification of the process of drying and packing tendu leaves as a manufacturing process. The Board of Revenue referred the question to the High Court to determine if this process falls within the definition of "manufacture" as per the Act.

The Board of Revenue deliberated on the definition of "manufacture" under the Act, which includes any process of producing or making goods. The key consideration was whether the drying and packing of tendu leaves changed the character of the commodity. The Board concluded that these processes did not alter the intrinsic nature of tendu leaves, and therefore, did not amount to manufacturing. This interpretation was supported by Rule 2-A of the M.P. General Sales Tax Rules, 1959, which explicitly excluded processes like drying and bundling tendu leaves from the definition of manufacture.

The judgment referenced precedents from other jurisdictions to support the conclusion that for an activity to be classified as manufacturing, there must be a substantial change in the substance of the goods resulting in a new commercial article. The court highlighted that the tendu leaves remained fundamentally the same even after the drying and packing process, indicating that no manufacturing had taken place.

Drawing on decisions from the Supreme Court and other High Courts, the judgment emphasized the necessity of a distinct change in the character and use of the goods to constitute manufacturing. It was reiterated that minor alterations or processing of goods without a significant transformation did not qualify as manufacturing under the law.

Ultimately, the High Court upheld the Board of Revenue's decision, ruling that the drying and packing of tendu leaves did not amount to a manufacturing process under the M.P. General Sales Tax Act, 1958. The assessee was deemed not to be a manufacturer, and the references were answered in favor of the assessee, who was awarded costs for the references.

In conclusion, the judgment clarified the interpretation of "manufacture" in the context of the Act and established that the drying and packing of tendu leaves did not meet the criteria for a manufacturing process, based on the lack of substantial change in the nature of the goods.