1964 (10) TMI 2 - SC - VAT and Sales Tax

Whether the Sales Tax Officer had no jurisdiction to revise the certificate of registration issued after due enquiry, and rejected the petition holding that drawing instruments, photographic materials, colours, chemicals, electricals, machinery and building materials such as cement, lime are not comprehended in the expression in the manufacture or processing of goods for sale within the meaning of Section 8(3)(b) read with Rule 13? Held that - We are not prepared to agree with the High Court that in order that electrical equipment should fall within the terms of Rule 13, it must be an ingredient to the finished goods to be prepared, or it must be a commodity which is used in the creation of goods. If, having regard to normal conditions prevalent in the industry, production of the finished goods would be difficult without the use of electrical equipment, the equipment would be regarded as intended for use in the manufacture of goods for sale and such a test, in our judgment, is satisfied by the expression electricals. This would of course not include electrical equipment not directly connected with the process of manufacture. Office equipment such as fans, coolers, air-conditioning units, would not be admissible to special rates under Section 8(1). Set aside the order passed by the High Court and direct that the order passed by the Sales Tax Officer be modified by de

Summary

Issues Involved:
1. Jurisdiction of the Sales Tax Officer to modify the certificate of registration.
2. Interpretation of Section 8(3)(b) of the Central Sales Tax Act, 1956, and Rule 13 framed under Section 13 of the Act.
3. Inclusion of specific items in the certificate of registration under Section 8(3)(b).

Detailed Analysis:

1. Jurisdiction of the Sales Tax Officer to Modify the Certificate of Registration:
The Company initially contended that the Sales Tax Officer acted without jurisdiction in seeking to amend the certificate of registration. However, this argument was not pursued before the Supreme Court. It was clarified that under Section 7(4) of the Central Sales Tax Act, a certificate of registration granted under Section 7(1) may be canceled by the authority granting it for any sufficient reason. The Court stated, "If on account of some error, the certificate specifies articles which did not fall within the terms of Section 8(3)(b) read with Rule 13, the error would manifestly be 'sufficient reason' within the meaning of Section 7(4) authorizing the cancellation of the certificate qua the items which were erroneously included."

2. Interpretation of Section 8(3)(b) of the Central Sales Tax Act, 1956, and Rule 13:
Section 8(3)(b) and Rule 13 were central to the dispute. The Court emphasized that Section 8(3)(b) authorizes the Sales Tax Officer to specify goods intended for use by the dealer in the manufacture or processing of goods for sale. Rule 13 prescribes that such goods must be intended for use as raw materials, processing materials, machinery, plant, equipment, tools, stores, spare parts, accessories, fuel, or lubricants. The Court held that the expression "in the manufacture of goods" encompasses the entire process of converting raw materials into finished goods. It stated, "Where any particular process is so integrally connected with the ultimate production of goods that but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would, in our judgment, fall within the expression 'in the manufacture of goods.'"

3. Inclusion of Specific Items in the Certificate of Registration:
- Drawing and Photographic Materials: The High Court excluded these items, stating they were not directly used in the manufacture of goods. However, the Supreme Court disagreed, noting that designing is an integral part of the manufacturing process. The Court held, "Drawing and photographic materials falling within the description of goods intended for use as 'equipment' in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use 'in the manufacture of goods.'"

- Building Materials (Including Lime and Cement): The Court upheld the exclusion of building materials not used in the manufacture of tiles for sale. It stated, "Building materials used as raw materials for construction of 'plant' cannot be said to be used as plant in the manufacture of goods."

- Electricals: The term "electricals" was deemed somewhat vague. However, the Court recognized that certain electrical equipment is commercially necessary in the manufacturing process. It stated, "If, having regard to normal conditions prevalent in the industry, production of the finished goods would be difficult without the use of electrical equipment, the equipment would be regarded as intended for use in the manufacture of goods for sale."

Conclusion:
The Supreme Court set aside the High Court's order and directed the Sales Tax Officer's order to be modified by deleting the words "drawing materials, photographic materials, and electricals" from the exclusion list. The rest of the Sales Tax Officer's order was upheld. The appeal was allowed with costs, and the Company substantially succeeded in its claims.