2020 (1) TMI 196 - HC - VAT / Sales Tax

Process amounting to manufacture or not - TN VAT - purchase of minced tobacco in bulk quantity and repacking the same with added flavour in small packs - HELD THAT - The petitioners are in the business of purchasing minced tobacco on whole sale basis, add some scent, repack it in small packs and sell it. The respondent has taxed them, on the ground that adding scent and making in small packs involves manufacturing process and the tobacco is converted from raw tobacco to chewing tobacco, which is a different commercial product and, therefore, they are liable for paying tax. Reliance placed in the case of CRANE BETEL NUT POWDER WORKS VERSUS COMMR. OF CUS. C. EX., TIRUPATHI 2007 (3) TMI 6 - SUPREME COURT where it was held that The process involved in the manufacture of sweetened betel nut pieces does not result in the manufacture of a new product as the end-product continues to retain its original character though in a modified form. From the facts of the cases, it is clearly seen that the minced tobacco, which is purchased in larger quantity, is repacked and sold in smaller packs. The identity of the product remains the same and it does not get changed to a different commercial product or distinct commodity - As held by the Hon ble Supreme Court in the case of Crane Betel Nut Powder Works, adding scent or flavour did not result in a new and distinct product having a different character and use. Therefore, in the considered opinion of this Court, there is no manufacturing process involved in the activities of the petitioners. Petition allowed - decided in favor of petitioner.

Summary

Issues involved: Determining whether purchasing minced tobacco in bulk, adding flavor, and repacking it in small packs constitutes a manufacturing process for tax purposes.

Analysis:

Issue 1: Interpretation of the term "manufacture" under Section 2(27) of the Tamil Nadu Value Added Tax Act, 2006
The core issue in these cases revolves around whether the activities of purchasing minced tobacco in bulk, adding scent, repacking it in small packs, and selling it amount to a manufacturing process. The definition of "manufacture" under Section 2(27) of the Act includes processes like altering, ornamenting, finishing, assembling, or processing goods to create a distinct commodity. The petitioners argue that merely repacking minced tobacco with added scent does not constitute a manufacturing process based on a judgment of the Hon'ble Supreme Court in Crane Betel Nut Powder Works v. Commissioner of Customs and Central Excise.

Issue 2: Determination of whether the repacked product constitutes a different commercial product
The respondent contends that the question of whether the activities amount to manufacturing is a question of fact, and once authorities have determined it as such, it cannot be challenged in writ proceedings. However, upon examination of the facts, it is evident that the repacked minced tobacco does not transform into a different commercial product or distinct commodity. The identity of the product remains the same even after repacking, as highlighted in the judgment of Crane Betel Nut Powder Works.

Issue 3: Application of legal precedent to the current case
Drawing from the judgment in Crane Betel Nut Powder Works, the court concludes that adding scent or flavor to minced tobacco and repacking it does not result in a new and distinct product with a different character or use. Therefore, the court opines that there is no manufacturing process involved in the petitioners' activities. Consequently, the demand made by the respondent for tax payment on the grounds of manufacturing process is deemed unsustainable, leading to the setting aside of the impugned orders.

In conclusion, the court allows the writ petitions, with no costs imposed, and closes the connected miscellaneous petitions. The judgment emphasizes that the repacking of minced tobacco with added scent does not amount to a manufacturing process, as the product's identity remains unchanged, aligning with legal precedent and the definition of "manufacture" under the relevant tax legislation.