2000 (2) TMI 820 - HC - VAT and Sales Tax

Summary

Issues:
Whether the process applied by the respondent-dealer to produce gypsum powder at the quarry site qualifies as manufacturing for concessional tax rate under section 5-C of the Rajasthan Sales Tax Act, 1954.

Analysis:
The case revolves around the question of whether the process of producing gypsum powder at the quarry site by the respondent-dealer can be classified as a manufacturing activity for the purpose of availing a concessional tax rate. The dealer purchased gypsum from the quarry owner, declaring it as raw material for manufacturing another commodity. The dealer then processed the gypsum into powder through dehydration, selling the end-product to fertilizer and other industries, claiming to also manufacture plaster of paris from the gypsum.

The assessing officer considered the process as mere processing, not amounting to manufacture, as the commodity remained essentially the same in its raw and powder forms. However, the Deputy Commissioner (Appeals) and the Rajasthan Tax Board supported the dealer's contention, stating that converting gypsum into fine powder after dehydration constitutes a manufacturing process, as plaster and gypsum are qualitatively different commodities based on functional utility.

The court referred to descriptions of gypsum and plaster in the Encyclopaedia Britannica to highlight the differences between the two materials. Gypsum, a sulfate mineral, transforms into plaster through dehydration, altering its character and functional utility. The court emphasized that when a commodity undergoes a process resulting in a distinct functional utility and identity, it should be considered a manufacturing process for tax purposes.

Citing precedent, the court reiterated that if a process leads to the creation of a commodity with different functional utility, known distinctly in commercial circles, it qualifies as a manufacturing process. Considering the findings on the process employed by the dealer and the distinct nature of the end-product, the court upheld the decision that the process in question amounts to manufacturing. Consequently, the dealer was not liable for additional tax or penalties, leading to the dismissal of the revision.

In conclusion, the court dismissed the revision, affirming that the process of producing gypsum powder at the quarry site qualifies as manufacturing under the Rajasthan Sales Tax Act, 1954, entitling the dealer to the concessional tax rate. The judgment highlights the importance of functional utility and distinct identity in determining manufacturing processes for taxation purposes.