1981 (9) TMI 265 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of the term "resales of goods" under the Gujarat Sales Tax Act, 1969 in the context of adding substances to dyes for resale and claiming deduction from turnover.

Detailed Analysis:
The case involved a question referred to the High Court by the State Government regarding whether the sales of dyes, after mixing them with certain substances like gobar salt, soda-bi-carb, and soda-ash, amount to resales of goods or sales of manufactured goods under the Gujarat Sales Tax Act, 1969. The assessee, a dealer, diluted the concentration of dyes by adding these substances and resold them at a reduced price, claiming deduction of the purchases from registered dealers from the turnover of sales under the Act.

The Sales Tax Officer disallowed the deduction, considering the dilution of dyes as manufacturing, and levied tax on the sales. The Tribunal, however, held that the process of dilution did not change the essential characteristic of the dyes to the extent of constituting manufacturing, based on established legal principles from Supreme Court decisions. The High Court concurred with the Tribunal's decision, citing the tests laid down by the Supreme Court in cases like Deputy Commissioner of Sales Tax v. Pio Food Packers and Chowgule & Co. Pvt. Ltd. v. Union of India.

The High Court emphasized that for an act to be considered manufacturing, a new and distinct commodity must emerge, which is commercially recognized as such. In this case, the addition of substances to reduce dye strength did not result in a new commodity with different characteristics. The Court rejected the State Government's argument that any change due to processing constitutes manufacturing, stating that not every change amounts to manufacturing; there must be a transformation into a new, distinct commodity.

Ultimately, the High Court held that the addition of substances to the dyes for resale did not amount to manufacturing, and the reselling of dyes with reduced strength qualified as resales. As a result, the assessee was entitled to claim the deduction as sought before the Sales Tax Officer. The reference was rejected, and the Court ruled in favor of the assessee, directing the State Government to pay the costs of the reference.

In conclusion, the High Court's judgment clarified the distinction between manufacturing and resale under the Gujarat Sales Tax Act, emphasizing the need for a new, commercially distinct commodity to be created for an act to constitute manufacturing. The decision aligned with established legal principles from Supreme Court cases, providing clarity on the tax treatment of goods subjected to processing or dilution before resale.