2008 (12) TMI 695 - HC - VAT and Sales Tax

Whether conversion of plastic sheets/tubings into plastic covers would amount to manufacture? Held that - With the available facts before us, the only conclusion that can be reached is, that, while processing plastic sheets/tubings into plastic covers/ bags, no new commercially different commodity would emerge and therefore, there is no manufacture as such and since purchase of plastic sheets has already suffered tax, the sales turnover of plastic covers/bags is a second sale and therefore, not liable for payment of tax under the Act. Thus the questions of law framed by the Revenue requires to be answered against the Revenue and in favour of the assessee

Summary

Issues:
1. Legality of the order passed by the Sales Tax Appellate Tribunal
2. Whether conversion of plastic tubes into plastic bags involves a manufacturing process
3. Whether the process of converting plastic tubes into plastic bags amounts to manufacture

Analysis:
1. The Revenue challenged the order passed by the Sales Tax Appellate Tribunal, which rejected the appeal filed by the State Government and confirmed the order passed by the first appellate authority. The questions raised were related to the legality of the Tribunal's order in light of a previous court decision.

2. The assessee, a dealer in plastic bags and covers, claimed exemption from sales tax for converting plastic tubings into plastic bags, arguing it was a second sale. The assessing authority disagreed, considering the conversion as a manufacturing process. The High Court analyzed the definition of "manufacture" and concluded that the activity of converting plastic sheets/tubings into bags did not result in a new commercially different commodity, thus not constituting manufacturing.

3. The High Court emphasized that for an activity to be considered manufacturing, the original material must undergo a transformation leading to a new and distinct product. Referring to relevant court decisions, the judgment highlighted that mere processing or changes in the article do not necessarily amount to manufacturing unless a new commodity emerges. In this case, the process of converting plastic sheets into bags did not create a new commercial commodity, leading to the conclusion that it did not involve manufacturing.

Overall, the High Court ruled in favor of the assessee, rejecting the Revenue's arguments and upholding that the conversion of plastic tubes into bags did not constitute manufacturing. As a result, the sales turnover of plastic bags was considered a second sale and deemed exempt from tax under the Act. The revision petition was dismissed, with costs not awarded to any party.