1998 (9) TMI 619 - HC - VAT and Sales Tax

Summary

Issues:
1. Classification of water methanol mixture (W.M.M.) under the U.P. Trade Tax Act - whether taxable as methyl alcohol or unclassified goods.
2. Determination of whether water methanol mixture is a distinct commodity from methyl alcohol for commercial purposes.

Analysis:
1. The petitioner argued that the mixture of methanol and water, prepared in specific proportions and used solely for aviation purposes, should be classified as an unclassified item under the U.P. Trade Tax Act. The petitioner contended that the addition of water to methyl alcohol creates a new product that enhances power in airplanes during take-off. The petitioner emphasized the strict quality control and specific purpose of the mixture. On the other hand, the Standing Counsel for the department asserted that while methyl alcohol has various uses, adding water to it only dilutes its strength without creating a new product. The petitioner's representative argued that the process of mixing methyl alcohol with distilled water in specific proportions, followed by laboratory testing and utilization for a specific purpose, constitutes manufacturing under the Act. The representative cited a Bombay High Court decision supporting the creation of a new product through such a process.

2. The petitioner's representative further referenced a decision involving distilled water used in injections being considered a new product, not merely water. The judge considered the arguments and precedents presented by both sides. The judge noted the Bombay High Court decision cited by the petitioner's representative, which concluded that mixing water in exact proportions with methyl alcohol for aviation purposes results in a new commercial commodity. The judge agreed that the process undertaken by the petitioner falls within the definition of 'manufacture' under the Act. The judge emphasized that the resulting mixture, used exclusively for aviation purposes and enhancing power in airplanes during take-off, constitutes a new product commercially. The judge drew parallels with Supreme Court decisions regarding the transformation of spirits through dilution, resulting in a different taxable commodity. Ultimately, the judge ruled in favor of the petitioner, setting aside the Tribunal's decision and classifying the product as an unclassified item under the U.P. Trade Tax Act.

In conclusion, the judgment determined that the water methanol mixture created by the petitioner, through precise mixing and testing for aviation purposes, constitutes a new product distinct from methyl alcohol. The court held that the process undertaken by the petitioner amounts to manufacturing under the Act, resulting in the classification of the product as an unclassified item for tax purposes.