1994 (12) TMI 308 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of whether paper is considered a raw material for preparing exercise books under the Industrial Policy Resolutions of the State of Orissa.
2. Determination of whether the transformation of paper into exercise books constitutes manufacturing or processing.

Analysis:
1. The petitioners, registered dealers under the Orissa Sales Tax Act, intended to use paper for manufacturing exercise books. The Industrial Policy Resolutions provided tax exemption for small industries purchasing raw materials. However, sales tax authorities challenged the exemption, arguing that the conversion of paper into exercise books did not qualify as manufacturing under the Act. Notices were issued to the petitioners for reassessment and amendment of registration certificates. The authorities contended that the transformation did not create a distinct commodity from paper, leading to the petitioners challenging these actions.

2. The factual position revealed that the petitioners engaged in various processes to convert plain paper into bound books, exercise books, etc. Legal precedent, such as the Ujagar Prints case, established that subjecting raw materials to processes resulting in a distinct commercial commodity constitutes manufacturing. The Supreme Court rulings in cases like Ganesh Trading Co. and Indian Cable Company emphasized interpreting terms in fiscal statutes based on common understanding. The judgment highlighted the difference between "manufacture" and "production," with the former involving a change in identity. The petitioners' activities aligned with the definition of manufacturing as per legal precedents.

3. The historical context of the Savitri Industries case was examined, referencing past judgments like Rameswarlal Murlidhar and Maharaja Book Depot. The court in Savitri Industries held that the transformation of paper into bound exercise books amounted to processing, not manufacturing. However, subsequent decisions, such as Commissioner of Sales Tax, U.P. v. Macneill & Barry Ltd., clarified that certain processed paper products may not be considered ordinary paper. The introduction of a definition for "manufacture" in the Act supported the view that the petitioners' activities constituted manufacturing.

4. The judgment concluded that the Savitri Industries case did not establish the correct legal position. The matter was remitted for further consideration in line with the court's findings, emphasizing that the petitioners' activities indeed constituted a manufacturing process.