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TMI Blog2004 (9) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... iew that the same did not constitute raw material for the purpose of entry 16-B of the Schedule given to the Act. To come to the said conclusion, the assessing authority relied upon the order passed by the Joint Commissioner of Commercial Taxes (Legal), Bangalore, wherein the Joint Commissioner of Commercial Taxes under similar circumstances in the case of M/s. Habib Oil Mills, Srirangapatna, had taken the view that when the goods like oil cake and rice bran are brought into the local area and oil extracted therefrom, the activity should be treated only as one of processing and not manufacturing; and therefore, it will not come within the ambit of entry 16B of the Schedule. However, in the impugned order the Joint Commissioner of Commercial Taxes took the view that the rice bran brought within the local area is liable for payment of tax as the assessee has admittedly used the rice bran for the purpose of extraction of oil out of the rice bran. As noticed by us earlier, the said order is called in question by the assessee in this appeal. Sri R.V. Prasad, learned counsel appearing for the appellant challenging the correctness of the impugned order made three submissions. Firstly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, it is the submission of the learned counsel that if a subordinate authority like the assessing authority follows the order passed by the appellate or a higher authority, the said order cannot be said to be an erroneous order and prejudicial to the interest of the Revenue. In support of this submission, he relied upon the decision of the Division Bench of the Calcutta High Court in the case of Russell Properties Pvt. Ltd. v. A. Choudhury, Addl. Commissioner of Income-tax, West Bengal reported in [1977] 109 ITR 229. However, Sri Anand, learned Additional Government Advocate while strongly supporting the impugned order pointed out that since undisputedly oil is produced out of the rice bran, the revisional authority was fully justified in taking the view that the oil was produced as a result of manufacturing activity carried on by the assessee. According to the learned Government Advocate, when oil is extracted out of the rice bran, a new product is produced and the production of the new product takes place only on account of the manufacturing process involved. He pointed out that the production of a new material does not take place merely by way of processing of the rice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brought, sells or supplies the same to an industrial unit located either within the same local area or outside it. Explanation I. The words 'industrial unit' mean a manufacturing unit which falls within the definition of a 'factory' under the Factories Act, 1948 (Central Act No. LXIII of 1948), but excludes, (i) handicrafts manufacturing units (ii) hand-loom weaving units and (iii) Any other group or class of industries which may with reference to their nature, competitiveness, employment potential or such other factors, be notified by the State Government. Explanation II. The words 'raw materials, component parts and inputs' do not include agricultural produce, horticultural produce, timber or wood of any species, silk cocoons, raw, thrown or twisted silk, tobacco (whether raw or cured), cement, paper, electrical goods or such other inputs as may be notified by the State Government for purposes of exemption from tax under item 16B from time to time, but include aluminium ingots and ores of all kinds. Prior to the incorporation of entry 16B of the Act, entry 18 given to the Schedule came to be incorporated by Act No. 38 of 1984 with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llection of tax on entry of any goods specified in the First Schedule into the local area for consumption, use or sale therein at the rates specified in the Schedule. The Schedule given to the Act provides for various items in respect of which tax is made leviable under section 3 of the Act. Entry 16B is one of the items in respect of which entry tax is made leviable as provided under section 3 of the Act. The entry 16B referred to above provides that the raw materials, component parts and inputs which are used in the manufacture of an intermediate or finished product, (i) when brought into local areas by an industrial unit; or (ii) when brought into local areas by any dealer who sells or supplies the same to an industrial unit located either within the same local area or outside it are liable for levy of tax. Explanation II provides that raw materials, component parts and inputs excludes agricultural produce, horticultural produce, timber or wood of any species, silk cocoons, raw, thrown or twisted silk, tobacco (whether raw or cured), cement, paper, electrical goods or such other inputs notified by the State Government. The submission of Sri Prasad, learned counsel appearing f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd de-oiled rice bran are one and the same and therefore, it should be held that there is no manufacturing process involved in the extraction of oil out of the rice bran brought within the local area. The real question is as to whether there is any manufacturing process involved while producing oil from the rice bran? There cannot be any dispute that the oil produced out of the rice bran is a different product from the rice bran. When out of an article a new product like oil is produced, in our considered view, the production takes place and the fresh finished product/goods are produced on account of the manufacturing process involved. The Chambers 21st Century Dictionary refers to manufacture: (1) to make something from raw materials, especially in large quantities using machinery (2) to invent or fabricate something (3) to produce something in a mechanical fashion. In our considered view, so long as finished goods produced is different and distinct from the original goods or articles, the process by which the resultant product or finished goods produced could only be by way of manufacturing process involved. The distinction between processing and manufacturing is that in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shows that this court only held that refined oil produced out of seeds was only an intermediate stage in the manufacture and was, therefore, not liable to excise duty. On the other hand, the dictionary meaning of 'manufacture' is 'transform or fashion raw materials into a changed form for use'. When oil is produced out of the seeds the process certainly transforms raw material into different article for use. We cannot, therefore, accept this contention. (emphasis Here italicised supplied) In the case of Modern Proteins Ltd. [1994] 95 STC 181; [1994] 2 suppl. SCC 496, the Supreme Court has observed that since a separate commercial commodity comes into existence or emerges from the production or manufacture, it becomes a separate taxable entity or goods for the purpose of sales tax and the word manufacture has got various shades of meanings and there may be a manufacture of a complicated object like the super constellation or there might be manufacture of a simple object like a toy kit and, etc. At paragraph 4 (page 184 of STC) of the judgment, the Supreme Court has observed as follows: 4. Having given our anxious and careful consideration and thought to the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fabricated forms of metal 'all kinds of metals' including minerals, ores, metals, alloys and sheets. this court held that metal was used under section 3A(2) of the U.P. Sales Tax Act, 1948, in its primary sense, i.e., in the form in which it is marketable as the primary commodity and that the primary form and the forms fabricated from the primary form constitute two distinct commodities marketable as such and must be regarded as different commercial commodities . . . In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Coco Fibres [1991] 80 STC 249 (SC); [1992] Supp. 1 SCC 290, the question was whether coconut fibre is a separate entity from the coconut husk. This court laid the test thus: 'The essential point to remember is whether something is brought into existence which is different from that originally, existing, in the sense that the thing produced is by itself a commercial commodity and is capable as such of being sold or supplied. It is not necessary that the stuff or the material or the original article must lose its character or identity or it should become transformed in its basic and essential properties'. The test is whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile considering the said question, the Supreme Court took the view that the duty having been paid on earth , no duty was leviable on spent earth as the earth and the spent earth remained the same product. The principle enunciated by the Supreme Court in the said case has no bearing to the facts of the present case. Similarly, the case of Saraswati Sugar Mills AIR 1992 SC 224 is also of no assistance to Sri Prasad. In the said decision, the question that came up for consideration before the Supreme Court was what is meant by processing . Further, the observation made by the Supreme Court in the case of Saraswati Sugar Mills AIR 1992 SC 224, at paragraph 15 of the judgment supports our view that the word manufacture is generally understood to mean bringing into existence a new substance and does not mean merely to produce some change in the substance. In the case of Chowgule Co. [1981] 47 STC 124, the question that came up for consideration before the Supreme Court was what was manufacturing and processing of ore. While considering the said question, the court pointed out that commonly manufacture is the end result of one or more processes through which the origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent and distinct commodity? On an application of this test, it is clear that the blending of different qualities of ore possessing differing chemical and physical composition so as to produce ore of the contractual specifications cannot be said to involve the process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. What is produced as a result of blending is commercially the same article, namely, ore, though with different specifications than the ore which is blended and hence it cannot be said that any process of manufacture is involved in blending of ore. (emphasis Here italicised. supplied) The observation made by the Supreme Court extracted above, as noticed by us earlier, instead of supporting the contention of the learned counsel appearing for the appellant, it supports our view that if new products or goods are produced, the process used for production of such a new product should be considered as a manufacturing process. In the light of the discussion made above, we are of the view that the first and second contention urged by Sri Prasad requires to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, it was permissible for the Joint Commissioner to call for records and examine the correctness of the order of assessment made by the Entry Tax Officer and modify the same, provided he was satisfied that the order passed by the entry tax officer was erroneous in so far it was prejudicial to the interest of the Revenue. If the order passed by the assessing authority was contrary to law and on account of that, if the tax which was leviable was unjustifiably exempt from levy of tax, there cannot be any doubt that the order passed by the assessing authority would be prejudicial to the interest of the Revenue. Merely because the assessing authority has relied upon a decision of the Joint Commissioner in the case of Habib Oil Mills (Pvt.) Ltd., in our view, would not prevent the revisional authority from examining the correctness of the order passed by the assessing authority. The wrong order made by an assessing authority cannot remain uncorrected on the ground that the assessing authority has followed an order made by an higher officer and the same binds the subordinate officers. Such principle, if upheld as correct in law, it will have serious consequence so far as the State revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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