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TMI Blog1988 (2) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... er under the Act, but the petitioner submitted that it was not obliged to register itself as dealer under the Act as the wax candle being a petroleum product was taxable under the Petroleum Taxation Act. The Superintendent having insisted, the petitioner submitted its application on 1st September, 1972 and the latter was issued Certificate of Registration, No. GAU 3880, with effect from 1st April, 1967 under section 10 of the Act and the petitioner was directed to submit returns. 3.. The books of accounts of the petitioner were seized and verified by the Enforcement Branch of the Sales Tax Department and those were forwarded to the Superintendent before whom the petitioner stated that the firm itself having come into existence with effect from 1st April, 1971, no return could be submitted for periods prior to that date; and that wax candle was nothing but wax and hence not taxable under the Act. However, the Superintendent by the impugned order dated 5th March, 1973 held that wax candle was a manufactured product quite distinct and different from wax and that wax candle with wick was itself a commercial commodity capable of being sold or supplied in course of business and as such t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question whether wax candles are goods distinct from wax, it is necessary to decide precisely if and when wax in the course of production of wax candle out of it ceases to be wax and the candle becomes a separate and distinct goods. 8.. The decisions cited at the Bar can be classified into two categories, namely, production of different varieties of the same edible article, e.g., chira and muri from rice, patasa and alchidana from sugar, vanaspati from groundnut oil and the like; and production of goods out of some raw materials like timber, iron and the like. From these decisions some precise conditions and circumstances may be culled out. They cannot, however, be said to be exhaustive. Each decision must, therefore, depend on the facts and circumstances of the case particularly the nature of the original article, the process of its transformation or manufacture and the nature of the article produced and its recognition as a distinct article in common parlance. The process of manufacture or transformation is an important factor but by itself may not always be a decisive factor. The simplicity or complexity of transforming or manufacturing processes, whether it is done by ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions from taxation must be strictly construed and must not be extended beyond the express requirements of the language used. The taxation laws are not in the nature of penal laws; they are substantially remedial in their character and are intended to prevent fraud, suppress public wrong and promote the public good. They should, therefore, be construed in such a way as to accomplish those objects. It was further observed that if the cereal or rice has been so mixed up with other ingredients or so transformed as not to be reasonably called by that name, the position would be different. Even boiled rice may be described as a cereal though cooked rice of every description may not be described as cereal. "Pulao" is one instance of cooked rice which it would be difficult to describe as a cereal. Thus, whether some other articles are mixed with it and whether the original article has lost its identity in course of transformation into the resultant product are important points in deciding the question. 11.. In Tungabhadra Industries Ltd. v. Commercial Tax Officer [1960] 11 STC 827 (SC) it has been held that hydrogenated groundnut oil (commonly called vanaspati) is "groundnut oil" wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that it was before the hardening, and its nutritional properties continued to be the same, it had acquired new properties in that the tendency to rancidity was greatly removed, and was easier to keep and to transport. In that case both the Tribunal as well as the High Court held that the hydrogenated oil or vanaspati ceased to be groundnut oil by reason of the chemical changes which took place and which resulted in the acquisition of new properties including the loss of its fluidity, and hence vanaspati was not groundnut oil but a product of groundnut oil manufactured out of groundnut oil and therefore not entitled to the benefit of the deduction under rule 18(2). Rejecting the contention, their Lordships held that the processing of the oil in order to render it more acceptable to the customer by improving its quality would not render the oil a commodity other than groundnut oil within the meaning of the rule. The removal of impurities by a chemical process of simple sedimentation did not render groundnut oil any the less a different commodity. The use of chemical process to harden the oil did not also render it a different commodity. Their Lordships, therefore, held that hydroge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied tax on sales and purchases of goods. The First Schedule dealt with matters provided by section 5(2)(a) containing entry 66 under which rice was taxable at the point of sale by the first wholesale dealer. It was held that it was not fair to so interpret a taxing statute as to impute an intention to the legislature to go on taxing what was virtually the same product in different forms over and over again and that such a result would be contrary to the basic axioms of taxation. Unless the language of the taxing statute was absolutely clear, it should not be given an obviously unfair interpretation against the assessee. Keeping in view the various provisions of the Act, together with the history of exemption of "parched rice" and "puffed rice" and its cancellation, it could not be the intention of the State Government suddenly to make the incidence of tax on "parched rice" and "puffed rice" so heavy by subjecting them to multi-point tax under section 5(1). It was held that as there was no separate entries for rice, and rice reduced into an edible form by heating or parching without any addition of ingredients or appreciable changes in chemical composition, the term "rice" was wid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section envisaged the consumption of a commodity in the manufacture of another commodity. The goods purchased should be consumed, the consumption should be in the process of manufacture, and the result must be the manufacture of other goods. It was held that there were several criteria for determining whether a commodity was consumed in the manufacture of another. The general prevalent test was whether the article produced was regarded in the trade, by those who dealt in it, as distinct in identity from the commodity involved in its manufacture. Commonly manufacture was the end result of one or more processes through which the original commodity was made to pass. The nature and extent of processing might vary from one case to another, and there might be several stages of processing and a different kind of processing at each stage. With each process suffered, the original commodity experienced a change. But it was only when the change, or a series of changes, took the commodity to the point where commercially it could no longer be regarded as the original commodity but instead was recognised as a new and distinct article that a manufacture could be said to take place. Where there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 338, where the court said: "Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary......... There must be transformation; a new and different article must emerge, 'having a distinctive name, character or use'." And further: "At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage we cannot say that it has been 'manufactured'." 17.. In Goel Industries (Pvt.) Ltd. v. Commissioner of Sales Tax, U.P. [1971] 28 STC 729 (All.), the question was whether ice was exempt under section 4(1)(a) of the U.P. Sales Tax Act, 1948? Under section 4(1)(a), the sale of water was exempt from tax. The assessee was engaged in the business of manufacture and sale of ice. The question, therefore, was whether ice and water were the same thing? Allahabad High Court held that it was true that ice was manufactured from water without addition of any chemical or substance and that the chemical composition of ice and that of water was the same, but even then ice could not be regarded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e process whereby scrap iron lost identity and became rolled steel sections, a new marketable commodity, was manufacture. The stages through which the raw materials passed would not by itself be material. 20.. In State of Gujarat v. S.V. Motichand [1969] 23 STC 288 (Guj), the question was whether corrugated iron sheets was a form of iron or an article of iron and covered by entry 15 or 80 of Schedule B of the Bombay Sales Tax Act, 1953. Gujarat High Court held that corrugated iron sheets were merely "iron" in another shape and form and they could not be regarded as articles or products manufactured or fabricated out of iron. Merely because iron was given the shape of sheet and was subjected to corrugation for the purpose of giving it rigidity and increased stiffness so as to make it acceptable to a particular class of persons who might want to use it in the form of iron sheet for roofing and walling, it did not cease to be iron; it merely assumed another form, namely, that of a wrinkled sheet but it still continued to retain the essential character of iron. Mehta, J., agreeing with Bhagwati, C.J., observed that "iron" did not lose its essential character when it was put merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghur Paper Mills Co. Ltd. [1985] 60 STC 213, the Supreme Court held that timber and sized and dressed logs were one and the same commercial commodity. Logs were nothing more than wood cut up or sawn and would be timber. Planks, beams and rafters would also be timber. Timber was defined in the Orissa Forest Act, 1972 to include trees fallen or felled and all wood cut up or sawn. The Madras Forest Act, 1882 defined it as including "trees when they have fallen or have been felled, and all wood, whether cut up or fashioned or hollowed out for any purpose or not". Observing that the dictionary meaning largely coincided with the statutory meaning of the word "timber", their Lordships held that planks, beams, rafters would also be "timber". Similarly, in Mukesh Kumar Aggarwal Co. v. State of Madhya Pradesh [1988] 68 STC 324 (SC); 1988 1 SWR T 7, the question was whether stacks of "eucalyptus wood" sold by the Forest Department after separating the "ballies" and "poles" constituted and answered the description of "timber" under entry 32A of Part II of Schedule II to the Madhya Pradesh General Sales Tax Act, 1958. It has been held that eucalyptus is a "timber" tree. The next question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new product. In all the above cases the fact that the essential characteristics are not lost would not be material. What is material is whether a distinct article as understood by the people who commonly deal with it has come into being. In other words whether in the market it is regarded as a distinct article. 24.. For the purpose of the law of patents a "manufacture" must have some reference to trade or commerce and that it must be for, or have as its product, something of a material nature. These conditions, however, if necessary, are certainly not sufficient. One test for "manufacture" is whether a vendible product is produced, improved, restored or preserved, and whilst this test is somewhat narrow, absence of a vendible product ordinarily negates patentability. Not all vendible products, however, are produced by manufacture, which is concerned only with the useful as distinct from the fine arts, and with industry as distinct from agriculture and other such applications of natural process. "Manufacture" has been defined as a manner of adapting natural materials by the hands of a man or by man-made devices or machinery, and as the making of an article or material by physic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Alleppey 1965 2 LLJ 369; [1965] 11 FJR 23 (HC). 29.. In State of Kerala v. V.M. Patel 1961 1 LLJ 549 (SC), the court held that the work of garbling pepper by winnowing, cleaning, washing and drying it on concrete floor and a similar process of curing ginger dipped in lime and laid out to dry in a warehouse were manufacturing processes. It is sufficient to say with regard to the decision in Col. Sardar C.S. Angre v. State AIR 1965 Raj 65 that the work of sorting and drying potatoes and packing and repacking them into bags was not held to be manufacturing process as the work done for the purpose of cold storage only and not for any of the purposes mentioned in section 2(k)(i). 30.. The definition of "manufacturing process" is widely worded. The moisturing was an adaptation of the tobacco leaves. The stalks were stripped by breaking them up. The leaves were packed by building them up and putting them into gunny bags. The breaking up, the adaptation and the packing of the tobacco leaves were done with a view to their use and transport. All these processes are manufacturing processes. V.P. Gopala Rao v. Public Prosecutor AIR 1970 SC 66; 1970 Lab IC 56. The peeling, washing, etc., ..... X X X X Extracts X X X X X X X X Extracts X X X X
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