1983 (12) TMI 270 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the activity of mixing herbs and kirana goods to prepare medicines constitutes "manufacture" under the U.P. Sales Tax Act.
2. Whether the dealers can be considered "manufacturers" for the purpose of sales tax liability.
3. Interpretation of the term "manufacture" under section 2(e-1) of the U.P. Sales Tax Act.

Issue-Wise Detailed Analysis:

1. Whether the activity of mixing herbs and kirana goods to prepare medicines constitutes "manufacture" under the U.P. Sales Tax Act:
The primary issue revolves around whether the activity of the two dealers, who mixed herbs and kirana goods based on a hakim's prescription, constitutes "manufacture" under section 2(e-1) of the U.P. Sales Tax Act. The Sales Tax Tribunal initially held that the dealers were not manufacturers because the medicines were prepared for individual patients and not on a large scale, relying on the precedent set in Commissioner of Sales Tax v. Bharat Oxygen, Lucknow 1980 UPTC 686. However, the High Court clarified that the definition of "manufacture" under section 2(e-1) includes activities such as producing, making, altering, and adapting goods. The Court emphasized that the definition does not require the creation of a new commercial commodity. Thus, the activity of mixing ingredients to prepare medicines falls within the ambit of "manufacture."

2. Whether the dealers can be considered "manufacturers" for the purpose of sales tax liability:
The Court examined whether the dealers could be considered "manufacturers" under section 2(ee) of the Act, which defines a manufacturer as the dealer who makes the first sale of the goods in the state after their manufacture. The Court concluded that since the dealers mixed various ingredients to prepare pharmaceutical preparations, they adapted the ingredients for specific use by patients, thereby engaging in a manufacturing activity. Consequently, when the dealers sold these manufactured medicines, they fell within the definition of "manufacturer" and were liable for sales tax on the turnover of such sales.

3. Interpretation of the term "manufacture" under section 2(e-1) of the U.P. Sales Tax Act:
The Court addressed the interpretation of "manufacture" under section 2(e-1) of the Act. It noted that the term has been given an artificial meaning in the Act, encompassing a wide range of activities beyond the common parlance understanding of the term. The Court rejected the argument that "manufacture" requires the creation of a new commercial commodity, stating that the legislative intent was to include various processes such as altering, ornamenting, and adapting goods. The Court referenced several cases, including Dr. Sukh Deo v. Commissioner of Sales Tax and Commissioner of Sales Tax v. Bechu Ram Kishori Lal, but clarified that these cases were decided before the definition of "manufacture" was expanded in the Act. The Court concluded that the activities of the dealers in preparing medicines constituted "manufacture" as defined in section 2(e-1) of the Act.

Conclusion:
The High Court allowed the revision applications, set aside the order of the Sales Tax Tribunal, and restored the orders passed by the Sales Tax Officer and affirmed by the Assistant Commissioner (Judicial), Moradabad. The Court held that the dealers' activities of mixing ingredients to prepare medicines constituted "manufacture" under the U.P. Sales Tax Act, making them liable for sales tax on the turnover of such sales.