2003 (10) TMI 619 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Non-consideration of written arguments and prior decisions by the Tribunal.
2. Taxability of "paint and varnishes" under Notification No. 2375 dated November 23, 1998, and whether the process of adding color to white paint constitutes manufacturing.

Detailed Analysis:

Issue 1: Non-consideration of Written Arguments and Prior Decisions
The applicant contended that the Tribunal failed to consider the written arguments and various decisions of the High Court and Supreme Court. The Tribunal was accused of misrepresenting the counsel's admission regarding the base material being paint. The applicant's counsel argued that the base material was complete white paint, and adding color did not amount to manufacturing. However, the Tribunal's decision indicated that the written arguments were considered, and the instructions on the packing of the base material were noted. The Tribunal concluded that the base material was not a final product and required tinting to become paint.

Issue 2: Taxability under Notification No. 2375 and Manufacturing Process
The applicant argued that the white paint purchased within the State of U.P. was already taxed, and the process of adding color did not create a new commercial commodity. The assessing authority, however, determined that the base material was semi-manufactured and not white paint. The process of mixing color in an automatic machine resulted in a new commercial commodity, thus constituting manufacturing under Section 2(e-1) of the U.P. Sales Tax Act.

The Deputy Commissioner (Appeals) and the Tribunal upheld this view, noting that the base material could not be sold without tinting, and the final product was obtained only after adding colorant. The Tribunal referenced the Supreme Court's decision in Ashirwad Ispat Udyog v. State Level Committee, which defined manufacturing as producing a new commodity through processing.

The applicant cited several Supreme Court cases, such as Divisional Deputy Commissioner of Sales Tax v. Bherhaghat Mineral Industries and Commissioner of Sales Tax, U.P. v. Lal Kunwa Stone Crusher (P.) Ltd., arguing that mere processing does not constitute manufacturing if it does not create a new commodity. However, the Tribunal found that the base material did not have the characteristics of paint and required further processing to become a marketable product.

The High Court agreed with the Tribunal's findings, stating that the base material was not a final product and the process of tinting created a new commercial commodity. The court also referenced other Supreme Court decisions, such as B.P. Oil Mills Ltd. v. Sales Tax Tribunal, which supported the view that processing leading to a new product constitutes manufacturing.

Conclusion
The High Court dismissed the revision, upholding the Tribunal's decision that the process of adding color to the base material constituted manufacturing, resulting in a new commercial commodity subject to tax. The court found no merit in the applicant's argument regarding the non-consideration of written submissions and prior decisions. The findings of the Tribunal and lower authorities were deemed factual and not erroneous.