1991 (4) TMI 379 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the process of sieving grit or stone chips amounts to manufacture within the meaning of section 2(16) of the Gujarat Sales Tax Act, 1969.
2. Whether the sales of stone chips obtained from sieving grit can be considered as "resales" within the meaning of section 2(26) of the Gujarat Sales Tax Act, 1969, and thus eligible for deduction from turnover under section 10(1)(ii) of the said Act.

Issue-wise Detailed Analysis:

1. Whether the process of sieving grit or stone chips amounts to manufacture within the meaning of section 2(16) of the Gujarat Sales Tax Act, 1969:

The court analyzed the nature of the business and the process involved, which included purchasing grit (crushed stones), removing dust, and passing it through sieves to obtain stone chips of various sizes. The court noted that the stone chips obtained were distinct commodities with a separate commercial identity and use, primarily for manufacturing flooring tiles, as opposed to grit, which is generally used as building material.

The court referred to the definition of "manufacture" under section 2(16) of the Act, which includes producing, making, extracting, collecting, altering, ornamenting, finishing, or otherwise processing, treating, or adapting any goods. The court emphasized that the activity of manufacture in fiscal statutes involves a process that results in the transformation of the original article into a new and different article with a distinct name, character, or use.

The court concluded that the process of sieving grit to obtain stone chips results in a new and distinct commercial commodity known as stone chips, which has a different use from grit. Therefore, this process amounts to manufacture as defined under section 2(16) of the Act.

2. Whether the sales of stone chips obtained from sieving grit can be considered as "resales" within the meaning of section 2(26) of the Gujarat Sales Tax Act, 1969, and thus eligible for deduction from turnover under section 10(1)(ii) of the said Act:

The court examined the definition of "resale" under section 2(26) of the Act, which includes the sale of purchased goods in the same form in which they were purchased or without doing anything to them that amounts to manufacture. The court noted that the opponent purchased grit and subjected it to the process of sieving to obtain stone chips, which were then sold.

The court emphasized that for a transaction to qualify as "resale," the goods must be sold in the same visible form in which they were purchased. Since the process of sieving changed the visible appearance and resulted in a new commodity (stone chips) with a distinct commercial use, the court held that the sales of stone chips could not be considered as "resales" of grit.

The court also referred to a previous decision in the case of State of Gujarat v. Bhikhubhai & Sons, where it was held that the separation of unburnt coal from ash through sieving resulted in distinct commercial commodities. The court found that the observations in that case supported the conclusion that the process of sieving grit to obtain stone chips results in a new and distinct commodity.

Conclusion:

The court answered both questions in the negative, ruling in favor of the State and against the assessee. The process of sieving grit to obtain stone chips amounts to manufacture, and the sales of stone chips cannot be considered as "resales" of grit. Therefore, the opponent is not entitled to claim deduction under section 10(1)(ii) of the Gujarat Sales Tax Act, 1969. The reference was answered in the negative, with no order as to costs.