1982 (1) TMI 170 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the mixture of sopari, variyali, dhana-dal, sweet flavoured powder, etc., sold as pan-masala amounts to "manufacture" under section 2(16) of the Gujarat Sales Tax Act, 1969.
2. Whether the sales of pan-masala containing sopari, chuna, and tobacco qualify as sales of "tobacco" under item No. 4 of the First Schedule to the Central Excises and Salt Act, 1944, and entry 43 of Schedule I to the Gujarat Sales Tax Act, 1969, thereby being exempt from all taxes.

Issue-wise Detailed Analysis:

1. Whether the mixture of sopari, variyali, dhana-dal, sweet flavoured powder, etc., sold as pan-masala amounts to "manufacture" under section 2(16) of the Gujarat Sales Tax Act, 1969:

The Tribunal found that the constituent ingredients in both varieties of Pan-masala retain their original characteristics and form. The blending of different articles or the treatment of tobacco by applying chuna does not materially alter the original form and characteristics of the constituent articles. Therefore, the activity does not amount to "manufacture" under section 2(16) of the Gujarat Sales Tax Act, 1969. The Tribunal's decision was based on the fact that the goods were sold in the same form in which they were purchased, which qualifies them for deduction under section 7 of the Gujarat Act as "resales."

The court examined the definitions of "resale" and "manufacture" under sections 2(26) and 2(16) of the Gujarat Act, respectively. It was emphasized that for an activity to be classified as "manufacture," there must be a transformation resulting in a new and different article with a distinctive name, character, or use. The court referred to the Supreme Court's judgment in Deputy Commissioner of Sales Tax v. Pio Food Packers, which stated that mere processing or treatment that does not result in a new and distinct article does not constitute manufacture.

The court concluded that the mere mixture and addition of flavor in the first variety of pan-masala or the treatment of tobacco with chuna in the second variety do not amount to "manufacture" as the original constituent articles retain their substantial identity. Therefore, the assessee was entitled to claim deduction on the turnover of sales of pan-masala as resales under section 7 of the Gujarat Act.

2. Whether the sales of pan-masala containing sopari, chuna, and tobacco qualify as sales of "tobacco" under item No. 4 of the First Schedule to the Central Excises and Salt Act, 1944, and entry 43 of Schedule I to the Gujarat Sales Tax Act, 1969, thereby being exempt from all taxes:

The Tribunal found that the second variety of pan-masala, which is a mixture of tobacco, sopari, and chuna, retains the form of tobacco. The purpose for which customers purchase this pan-masala is to consume tobacco in that form, treated with chuna and accompanied by sopari. The form of tobacco in the pan-masala does not change despite the treatment with chuna or the addition of sopari.

The court referred to the Tribunal's findings and concluded that the sales of this variety of pan-masala qualify as sales of "tobacco" under item No. 4 of the First Schedule to the Central Excises and Salt Act, 1944, and entry 43 of Schedule I to the Gujarat Sales Tax Act, 1969. Consequently, these sales are exempt from all taxes.

Conclusion:

The court answered both questions in the affirmative, in favor of the assessee and against the State Government. The State Government was directed to pay the costs of the reference to the assessee. The reference was answered in the affirmative.