2009 (10) TMI 835 - HC - VAT and Sales Tax

Turnover of hard coke - whether non-taxable as held by Tribunal? - Held that - The process of conversion of coal into hard coke amounts to manufacturing within the ambit of section 2(ee) of the Act. The applicant is liable to tax on the sale of hard coke being the manufacturer. Revision is allowed. The order of the Tribunal is set aside and the order of the assessing authority is restored.

Summary

Issues Involved:
1. Tax liability on the sale of hard coke.
2. Definition and scope of "manufacture" under the U.P. Trade Tax Act, 1948.
3. Whether hard coke and coal are the same commodity for tax purposes.

Issue-wise Detailed Analysis:

1. Tax Liability on the Sale of Hard Coke:
The applicant, engaged in the manufacture and sale of hard coke, claimed that hard coke was not liable to tax since it was produced from tax-paid coal and both coal and hard coke were the same commodities. This claim was denied on the grounds that coal and hard coke are different commodities, and the applicant, as a manufacturer of hard coke, was liable to tax. The Tribunal initially ruled in favor of the applicant, declaring the turnover of hard coke as non-taxable. However, upon revision, it was determined that the process of converting coal into hard coke constitutes manufacturing, making the sale of hard coke taxable.

2. Definition and Scope of "Manufacture" under the U.P. Trade Tax Act, 1948:
The term "manufacture" is defined under section 2(e1) of the Act to include "producing, making, mining, collecting, extracting, altering, ornamenting, finishing, or otherwise processing, treating or adapting any goods." This definition is broad, encompassing various processes that alter the original goods. The court cited several precedents, including B.P. Oil Mills Ltd. v. Sales Tax Tribunal and Chowgule & Co. Pvt. Ltd. v. Union of India, to emphasize that manufacturing involves a process where the commodity undergoes a change, resulting in a different commercial product. The court concluded that the process of burning coal to produce hard coke involves manufacturing as it changes the nature of the commodity.

3. Whether Hard Coke and Coal are the Same Commodity for Tax Purposes:
The court examined whether coal and hard coke are the same for tax purposes. It was found that coal breezes are burnt at a specific temperature to remove impurities, resulting in hard coke, which is highly combustible and used for specific purposes. The court referenced several cases, including Devi Dass Gopal Krishnan v. State of Punjab and Sonebhadra Fuels v. Commissioner, Trade Tax, U.P., to illustrate that the transformation of a commodity through a manufacturing process results in a new commercial product. Thus, hard coke, being a result of processing coal, is a different commercial commodity and is taxable.

Conclusion:
The court concluded that the conversion of coal into hard coke constitutes manufacturing under section 2(e1) of the Act. Therefore, the sale of hard coke by the applicant is liable to tax. The Tribunal's order exempting the turnover of hard coke from tax was set aside, and the order of the assessing authority was restored. The revision filed by the Revenue was allowed, affirming the tax liability of the applicant on the sale of hard coke as a manufacturer.