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TMI Blog2002 (8) TMI 811X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer-II, 3rd Circle, Agricultural Income-tax and Sales Tax Department, Thiruvananthapuram. The petitioner submitted applications for sales tax exemption on December 6, 1995 and for investment subsidy on December 12, 1995. According to the petitioner, the Industries Department granted investment subsidy, but rejected the application for sales tax exemption. The petitioner's application for sales tax exemption was rejected by the District Level Committee for sales tax exemption stating that the activity of processing of rubber wood is not a "manufacturing activity" as clarified by the Government in their communication dated August 16, 1996, exhibit P3, and that the commodity, i.e., timber still retains its original identity. The petitioner's appeal before the State Level Committee for sales tax exemption was also rejected for the same reason as per the minutes dated March 30, 1998 (exhibit P5). The petitioner has filed O.P. No. 15979 of 1998 seeking to quash the orders at exhibits P2, P3, P5 and the assessment orders at exhibits P10 and P11. In O.P. No. 20644 of 1999 the petitioner seeks to quash exhibits P4 and P5 assessment orders and exhibit P6 revenue recovery notice produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly small-scale industrial units, had issued orders granting various incentives to new industrial units set up after April 1, 1979. The earliest of such Government order granting exemption from payment of sales tax was issued by the Government in 1979 which gave blanket exemption from payment of sales tax for a period of five years to new industrial units set up after April 1, 1979. That was not a statutory notification under section 10 of the KGST Act. The Government later issued S.R.O. No. 968 of 1980, which is a notification under section 10 of the Act mentioned above. The said notification gave exemption from payment of sales tax under the said Act on the turnover of sale of goods produced by new industrial units under small-scale industries for a period of five years from the date of commencement of sale of such goods by the said units. As per the said Government order, in order to get exemption under the notification, the units have to produce proceedings of the General Manager, District Industries Centre, declaring the eligibility of the units. In the said notification the term "manufacture" was not used; instead the expression used was "goods produced". There was no defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cals or gas, fumigation or any other process applied for preserving the goods in good condition or for easy transportation. The process of producing desiccated coconut out of coconut shall be deemed to be 'manufacture' for the purpose of this notification." The following process shall not be deemed to be 'manufacture' for the purpose of this notification: (a) Crushing copra and producing coconut oil and coconut oil cake. (b) Converting timber logs into timber sizes. (c) Crushing rubble into small metal pieces. (d) Converting sodium silicate into liquid silicate. (e) Tyre-retreading. (f) Cutting granite or marble slabs into smaller pieces and/ or polishing them. (g) Such other process as may be notified by Government in this behalf. (x) Industrial units manufacturing the following items shall not be eligible for the concession under this notification: (a) Biscuits. (b) Cement paint. (c) Packing cases, tea chests, plywood, splints, veneers, wooden crates and wooden cable drums. (d) Bricks and tiles." It is this Notification-S.R.O. No. 1729 of 1993 which was in force at the time when the petitioner started the small-scale industrial unit and also started co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e second and third respondents, as already noted, had rejected the claim of the petitioner only on the basis of the Government clarification dated August 16, 1996 (exhibit P3). In the instant case the petitioners have claimed that they had employed the process mentioned in paragraph 3 above for converting the raw rubber wood into chemically treated kiln seasoned rubber wood and by the said process the raw rubber wood which has use only as fire wood has been converted into a totally different commercial commodity which has got the use of any other timber and therefore it would amount to manufacture within the meaning of the definition. The petitioner's application was rejected by the respondents simply on the basis of the clarification issued by the Government in their communication dated August 16, 1996 (exhibit P3). The second respondent on the basis of the Government clarification held that the timber still retains its original identity. In fact the third respondent had noted in their order at exhibit P5 that the State Level Committee itself on February 12, 1996 has treated the activity as manufacturing activity and that the Government did not include the said activity in the neg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrial units subject to restrictions and conditions. The said section does not enable the Government to issue clarifications of the nature made in exhibit P3 by executive orders. Section 59-A of the KGST Act conferred power on the Government to determine the rate of tax as per which, if any question arises as to the rate of tax leviable on the sale or purchase of any goods, such question shall be referred to Government for decision and the decision of the Government thereon, notwithstanding any other provision in the Act, shall be final. The constitutional validity of section 59-A of the Act was challenged before this Court in Tranvancore Chemical Manufacturing Company Ltd. v. State of Kerala [1991] 81 STC 313; (1991) 1 KLT 196 and the said section was struck down as violative of article 14 of the Constitution. Thereafter section 59-A was substituted by the Finance Act, 2000 as per which the Commissioner of Commercial Taxes is given power to issue clarifications. The said section clearly gave power to the Commissioner to issue clarification as to whether for the purpose of this Act any activity carried out in any goods amounts to or results in the manufacture of goods. This can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a proceeding before any appellate or revisional authority or in any court or Tribunal, inter alia, as to whether for the purposes of the said Act any activity carried out in any goods amounts to or results in the manufacture of goods. This, as per the section, can be done on an application by a dealer or any other person. The Commissioner while deciding the dispute is bound to afford a reasonable opportunity to the parties to put forward their case and produce evidence and the decision has to be rendered after considering the evidence and after hearing. 14.. In the present case, admittedly there is a dispute as to whether the process of converting raw rubber wood into chemically treated rubber wood would amount to "manufacture" as defined in the Government notification as it stood at the relevant time. Under the Notification S.R.O. No. 1729 of 1993 the competent authority to decide the matter is the District Level Committee in the first instance and the State Level Committee in appeal. 15.. The short cut which I propose to adopt in this case is to direct the Commissioner of Commercial Taxes, Thiruvananthapuram, to exercise his powers under section 59-A of the KGST Act, 1963 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... polishing, cleaning, grading, drying, blending or mixing different varieties of the same goods, sawing, garbling, processing one form of goods into another form of goods by mixing with chemicals or gas, fumigation or any other process applied for preserving the goods in good condition or for easy transportation does not come within the fold of "manufacture". This is for the reason that by the said process no substantial change in the utility of the raw material is brought about. Further no manufacturing activity is involved in packing of the raw materials, polishing, cleaning, grading, drying, blending or mixing different varieties of the same goods. No different commercial commodity in the true sense also emerges in that process. The expressions "processing one form of goods into another form of the same goods by mixing with chemicals or gas, fumigation or any other process" is followed by "applied for preserving the goods in good condition" and therefore it can only mean that unless the process employed brings about a different goods by its user the process cannot be characterised as manufacture. In other words in order to exclude the processing of one form of goods into another ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided in section 59-A(2) of the Act. 21.. In order to decide the issue as to whether a commodity undergoes a change as a result of certain processes employed and brings into existence a different commercial commodity the principles laid down by the Supreme Court in certain decisions have to be borne in mind. 22.. A classic passage in the Permanent Edition of "Words and Phrases" referred to with approval by the Supreme Court in Union of India v. Delhi Cloth and General Mills Co. Ltd. AIR 1963 SC 791 at page 795 reads thus: " 'Manufacture' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use." The Supreme Court in the said decision defined manufacture thus: "The word 'manufacture' used as a verb is generally understood to mean as 'bringing into existence a new substance' and does not mean merely 'to produce some change in a substance', however minor in consequence the change may be." In Empire Industries Ltd. v. Union of India [1987] 64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. The test is whether in the eyes of those dealing in the commodity or in commercial parlance the processed commodity is regarded as distinct in character and identity from the original commodity. See in this connection the observations of this Court in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63; [1980] 3 SCR 1271. Recently the Supreme Court in B.P.L. India Ltd. v. Commissioner of Central Excise, Cochin AIR 2002 SC 2104 observed that the question as to when a manufacture takes place is a mixed question of law and fact and that nature and the extent of process may vary from case to case. It was also observed that "when a change takes place and a new distinct article comes into existence known to the consumers and the commercial community as a commercial product, which can be no longer regarded as the original commodity, such a change constitutes a process of manufacture". 24.. In Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63; AIR 1980 SC 1227 the question before the Supreme Court was "whether the preparation of pineapple slices fall within section 5-A(1)(a) of the Kerala General Sales Tax Act". M/s. Pio Food Packers was carryin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded as a preservative. On a total impression, it seems to us, the pineapple slices must be held to possess the same identity as the original pineapple fruit." These observations of the Supreme Court clinches the issue. Unless there is essential difference between the commodity on which process is applied and the processed product-difference in the name, character or use it cannot be said that "manufacture" has taken place. This is made clear by the Supreme Court after referring to the classic passage extracted in para 22 (supra) observed thus: "the comment applies fully in the case before us. Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it". To a contention raised by the State that when a customer asks for a can of pineapple slices he has in mind something very different from fresh pineapple fruit, the Supreme Court answered it thus: "the distinction in the mind of the consumer arises not from any difference in the essential identity of the two but is deri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordance with law. The petitioner is free to adduce all evidence before the Commissioner of Commercial Taxes, as observed in para 26 (supra). The Commissioner of Commercial Taxes after rendering the findings as directed will forward the same to the General Manager, District Industries Centre, Thiruvananthapuram, immediately who will place the petitioner's application together with the findings before the District Level Committee for sales tax exemption and the said committee will decide the petitioner's application for exemption under the notification S.R.O. No. 1729 of 1993 in the light of the findings rendered by the Commissioner of Commercial Taxes within one month from the date of receipt of the papers from the Commissioner in accordance with law. The recovery of demands under exhibits P10 and P11 in O.P. No. 15979 of 1998 and exhibits P4 and P5 in O.P. No. 20644 of 1999 for the assessment years 1995-96 and 1996-97 will be deferred till a decision is taken as directed hereinabove. These two original petitions are disposed of as above. Order on C.M.P. No. 28440 of 1998 in O.P. No. 15979 of 1998-B dismissed. Order on C.M.P. No. 34084 of 1999 in O.P. No. 20644 of 1999 dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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