2023 (3) TMI 943 - SC - VAT and Sales Tax

Process amounting to manufacture or not - mixture of the base paint with different colours, results in a new product or not - Revenue contended that the sale of paints which had undergone mixing (through a computerised process with the aid of a DTS machine) amounted to manufacture , thereby resulting in a new product, which was a fresh incidence of taxation - HELD THAT - In Mahalaxmi Stores 2002 (11) TMI 112 - SUPREME COURT , this court relied on previous decisions such as Commissioner of Sales Tax Vs. Pio Food Packers 1980 (5) TMI 30 - SUPREME COURT , and Chowgule and Company(P) Limited Vs. Union of India 1980 (11) TMI 61 - SUPREME COURT to state that the manufacturing process can vary, and that the process of producing every type of variation, or finishing of goods, would not amount to manufacture as contained in the statute unless it resulted in the emergence of a new commercial commodity. In Sonhbadra 2006 (8) TMI 304 - SUPREME COURT , this court while deciding the facts of the case before it cited a large number of decisions rendered in the context of what was meant by manufacture. This court specifically noticed in Union of India V. Delhi Cloth and General Mills 1962 (10) TMI 1 - SUPREME COURT that manufacture meant bringing into existence a new substance and did not mean merely to bring about some change in the substance. In Mahalaxmi Stores, it was held that processing or variation/finishing of goods would not per se amount to manufacture unless it resulted in the emergence of a new commercial commodity. In the present case, the findings based on the expert s evidence are that the base paint was mixed with colouring as an additive. Both of these had suffered tax. The resultant article i.e., the paint of a different shade, did not result in a new commercial product. In common parlance, the new product was nothing else but paint , and not a different article. The High Court did not fall into error - Appeal dismissed.

Issues:
- Interpretation of the term 'manufacture' under Section 2(e)(i) of the U.P. Trade Tax Act, 1948.
- Whether the process of mixing base paint with different colors amounts to 'manufacture' resulting in a new product.
- Application of established principles to determine if a new recognizable product emerges from the mixing process.
- Consideration of expert opinion regarding the nature of the process and resulting product.
- Comparison of previous judgments on 'manufacture' to assess if the mixing process qualifies.
- Analysis of the definition of 'manufacture' under the Act and its implications.
- Evaluation of the High Court's decision and its alignment with previous rulings on 'manufacture'.

Detailed Analysis:

1. The primary issue in this case revolves around the interpretation of the term 'manufacture' as defined under Section 2(e)(i) of the U.P. Trade Tax Act, 1948. The central question is whether the process of mixing base paint with different colors constitutes 'manufacture' resulting in a new product, thus subject to taxation.

2. The facts of the case highlight that the assessees are dealers in paints, and the Revenue argues that the mixing process, facilitated by a computerized system, amounts to 'manufacture,' creating a new taxable product. The assessees counter that mere mixing does not qualify as 'manufacture' unless it gives rise to a distinct, recognizable product, emphasizing that both base paint and colorants are taxed separately.

3. Expert opinion was sought to assess the nature of the process and the resulting product. The report from Harcourt Butler Technical University concluded that the base paint, even after tinting, remains fundamentally paint and does not transform into a new product. This expert analysis played a crucial role in the subsequent legal deliberations.

4. The High Court, in its decision, relied on previous judgments and distinguished relevant cases to determine that the mixing process did not amount to 'manufacture.' It specifically referenced a judgment concerning coal briquettes to support its conclusion.

5. The Revenue contested the High Court's decision, citing a different judgment where a similar process was deemed 'manufacture.' This led to a comparison of various legal precedents and an in-depth analysis of the definition of 'manufacture' under the Act.

6. The legal discourse delved into the essence of 'manufacture,' emphasizing that the process must result in a commercially recognizable new commodity to qualify. Various judgments were referenced to elucidate that any change or variation in goods does not automatically amount to 'manufacture' unless it gives rise to a distinct, new commercial product.

7. Ultimately, the Supreme Court upheld the High Court's decision, concluding that the mixing of base paint with colorants did not produce a new commercial product but merely a variation of paint. The Court reiterated that for a process to constitute 'manufacture,' it must lead to the emergence of a commercially distinct commodity, which was not the case in this scenario.

8. In light of the expert evidence, legal precedents, and the fundamental principles of 'manufacture,' the Court dismissed the appeals, affirming the High Court's ruling. No costs were awarded, and pending applications were disposed of accordingly.

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