1978 (12) TMI 167 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Justification of purchase tax levy under Section 16 of the Gujarat Sales Tax Act, 1969.
2. Classification of glass ampules as raw materials, processing materials, or consumable stores in the manufacture of goods for sale.
3. Interpretation of the term "use in the manufacture" under the Act.

Issue-Wise Detailed Analysis:

1. Justification of Purchase Tax Levy Under Section 16 of the Gujarat Sales Tax Act, 1969:
The primary issue was whether the levy of purchase tax on glass ampules used by the assessee, a manufacturer of pharmaceuticals, was justified under Section 16 of the Gujarat Sales Tax Act, 1969. The Sales Tax Officer levied purchase tax on the portion of the purchase price of glass ampules used in the manufacture of injections sold on consignment basis outside the state. The Assistant Commissioner of Sales Tax revised this order, levying additional purchase tax, which was upheld by the Gujarat Sales Tax Tribunal. The Tribunal's decision was based on the conclusion that glass ampules were not raw materials or consumable stores used in the manufacture of goods for sale.

2. Classification of Glass Ampules:
The Tribunal held that glass ampules could not be considered raw materials because the injectible liquid medicine does not go into the body of the patient along with the ampules. They also concluded that glass ampules could not be classified as consumable stores since they were used after the injectible liquid medicine was manufactured. However, the High Court disagreed, emphasizing that glass ampules are essential for the storage, transport, and preservation of the injectible liquid medicine, making them integral to the manufacturing process. The Court concluded that glass ampules could be classified as raw materials because they are essential for the injectible liquid medicine to attain the character of the finished product.

3. Interpretation of "Use in the Manufacture":
The High Court referred to the Supreme Court's decision in J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer, which stated that the expression "in the manufacture of goods" encompasses the entire process of converting raw materials into finished goods. The Court emphasized that if a process or activity is integrally related to the ultimate manufacture of goods, making the manufacturing process commercially inexpedient without it, the goods used in that process fall within the expression "goods used in the manufacture of goods." Applying this principle, the Court held that glass ampules are used in the manufacture of injections because they are necessary for the injectible liquid medicine to be safely stored and marketed.

Conclusion:
The High Court concluded that the Tribunal erred in law by holding that purchase tax was leviable on the purchase of glass ampules used in the manufacture of injections sold on consignment basis. The Court answered the referred question in the negative, ruling in favor of the assessee and against the revenue. The State of Gujarat was directed to pay the costs of the reference to the assessee.