1991 (2) TMI 375 - HC - VAT and Sales Tax

Issues Involved:
1. Interpretation of "manufacture" under section 2(16) of the Gujarat Sales Tax Act, 1969.
2. Interpretation of "resale" under section 2(26) of the Gujarat Sales Tax Act, 1969.
3. Applicability of rule 3(xvii) of the Gujarat Sales Tax Rules, 1970.
4. Entitlement to deduction from turnover of sales under section 7(ii) of the Act.

Detailed Analysis:

1. Interpretation of "manufacture" under section 2(16) of the Gujarat Sales Tax Act, 1969:
The term "manufacture" is defined as producing, making, extracting, collecting, altering, ornamenting, finishing, or otherwise processing, treating, or adapting any goods. However, it excludes certain prescribed manufacturing processes. The court examined whether converting iron scrap into iron ingots and subsequently into M.S. round bars constitutes "manufacture."

2. Interpretation of "resale" under section 2(26) of the Gujarat Sales Tax Act, 1969:
The term "resale" is defined as selling purchased goods in the same form, without doing anything that amounts to or results in manufacture, or without changing their description in the specified entries of Schedule II. The court needed to determine if the sale of M.S. round bars, derived from iron scrap, qualifies as a resale.

3. Applicability of rule 3(xvii) of the Gujarat Sales Tax Rules, 1970:
Rule 3(xvii) specifies that "manufacture" does not include activities that do not change the description of the resultant product in Schedule II. The court examined if the conversion of iron scrap into M.S. round bars falls under this rule, thereby not constituting "manufacture."

4. Entitlement to deduction from turnover of sales under section 7(ii) of the Act:
Section 7(ii) allows deduction from the turnover of sales if the sale qualifies as a resale. The court evaluated whether the sale of M.S. round bars by the applicant qualifies for this deduction.

Judgment Summary:

The court first referred to the definitions of "manufacture" and "resale" under the Act. It noted that resale includes selling goods in the same form or without doing anything that amounts to manufacture. Rule 3(xvii) excludes certain processes from being considered as manufacture if they do not change the description of the resultant product in Schedule II.

The applicant argued that converting iron scrap into M.S. round bars did not constitute manufacture because the resultant product still fell under the description of "iron and steel" in entry 3 of Schedule II. The applicant relied on the Bombay High Court decision in Shree Ram Steel Rolling Mills v. State of Maharashtra [1983] 53 STC 202, which supported this interpretation.

The court examined the scheme of the Gujarat Sales Tax Act, which aims to ensure a single point levy of sales tax. It noted that if the resultant product remains within the description of the declared goods in Schedule II, it should be considered a resale.

The court distinguished the Supreme Court decision in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319, which dealt with the taxability of different commercial commodities under the same genus. The court clarified that the Gujarat Act has a different scheme and the issue at hand was whether the resultant product remains within the same description in Schedule II.

The court concluded that since M.S. round bars still fall under the description of "iron and steel" in entry 3, the conversion of iron scrap into M.S. round bars does not constitute manufacture. Therefore, the sale of M.S. round bars qualifies as a resale, entitling the applicant to a deduction under section 7(ii) read with section 2(26) of the Act and rule 3(xvii) of the Rules.

Conclusion:
The court answered the referred question in the negative, in favor of the assessee and against the department, holding that the sale of M.S. round bars is a resale and the applicant is entitled to the deduction. Each party was ordered to bear its own costs.

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