2010 (7) TMI 892 - HC - VAT and Sales Tax

Whether the Tribunal was correct in holding that the process carried on by the applicant for converting raw tobacco into chewing tobacco does not amount to manufacture within the meaning of section 2(17) of the Bombay Sales Tax Act? Held that - The Tribunal has erred in arriving at the conclusion that the process carried on by the applicant for converting raw tobacco into chewing tobacco (jarda) does not amount to manufacture within the meaning of section 2(17) of the Bombay Sales Tax Act. We therefore answer the question set out in paragraph 2 of this judgment in the negative, i.e., in favour of the applicant.

Summary

Issues:
1. Whether the process of converting raw tobacco into chewing tobacco amounts to manufacture under section 2(17) of the Bombay Sales Tax Act?

Detailed Analysis:
The case involved a reference under section 61(1) of the Bombay Sales Tax Act, 1959, seeking a decision on whether the process of converting raw tobacco into chewing tobacco constitutes manufacturing activity. The applicant, a partnership firm engaged in manufacturing chewing tobacco, claimed a set-off for tax paid on packing materials, which was disallowed by the Sales Tax Officer and the Assistant Commissioner of Sales Tax. The Tribunal also dismissed the appeal, leading to the reference to the High Court.

The applicant's counsel argued that the process involved in converting raw tobacco into chewing tobacco qualifies as manufacturing under section 2(17) of the Act. The process included steps such as drying, analysis, separation, blending, ornamenting, and packing, resulting in a distinct commercial commodity. Reference was made to the Supreme Court decision in State of Madras v. Bell Mark Tobacco Co., where a similar process was held to be manufacturing.

On the contrary, the respondent's counsel contended that the process undertaken by the applicant did not amount to manufacture as per the definition in section 2(17) of the Act. It was argued that the process described in the Bell Mark case differed from the applicant's process, thus not applicable to the present case.

The High Court analyzed the processes involved in the applicant's manufacturing activity, which included drying, analysis, sorting, blending, and packing of raw tobacco into chewing tobacco. Drawing parallels with the Bell Mark case, where various processes transformed raw tobacco into a manufactured product, the Court concluded that the applicant's process also amounted to manufacturing. The Court held that the cumulative effect of the processes changed the identity of raw tobacco into a different commercial commodity, making the applicant eligible for the set-off claimed.

In conclusion, the High Court ruled in favor of the applicant, stating that the process of converting raw tobacco into chewing tobacco constituted manufacturing under the Bombay Sales Tax Act. The Tribunal's decision was overturned, and the applicant was deemed eligible for the set-off claimed, based on the manufacturing activity undertaken.