Full Judgment Text
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PETITIONER:
CHOWGULE & CO. PVT. LTD. & ANR.
Vs.
RESPONDENT:
UNION OF INDIA & OTHERS(AND VICE VERSA)
DATE OF JUDGMENT25/11/1980
BENCH:
BHAGWATI, P.N.
BENCH:
BHAGWATI, P.N.
TULZAPURKAR, V.D.
PATHAK, R.S.
CITATION:
1981 AIR 1014 1981 SCR (2) 271
1981 SCC (1) 653
CITATOR INFO :
R 1986 SC 662 (33)
RF 1988 SC 113 (5)
R 1988 SC2237 (6)
R 1991 SC2125 (9,11,12)
E 1991 SC2222 (21,22,23)
ACT:
Central Sales tax Act, 1956, section 8(3) (b) and rule
13-Whether the blending of ore whilst loading it in the ship
by means of the Mechanical Ore Handling Plant constituted
manufacture or processing of ore for sale within the meaning
of section 8(3)(b) of the Act and Rule 13-Whether the
process of mining, conveying the mine ore from the mining
site to the river side carrying out by barges to the harbour
and then blending and loading it into the ship through the
Mechanical Ore Handling Plant constituted one integrated
process of mining and manufacture Or process of ore for
sale, so that that items of goods purchased for use in every
phase of these integrated operations could be said to be
goods purchased for use in mining and manufacturing or
processing of ore for sale falling within the scope and
ambit of section 8(3) (b) and Rule 13.
HEADNOTE:
The assessee is a Private Limited Company, carrying on
business of mining iron ore and selling it in the export
market after dressing, washing, screening and blending it.
The extraction of iron ore in some of the mines is carried
on by mechanised process and at others by manual labour. The
entire activity of the assessee consisted of seven different
operations, one following upon the other, namely. (i)
extraction of ore from the mine; (ii) conveying the ore to
the dressing plant; (iii) washing, screening and dressing
the ore; (iv) conveying of the ore from the mine site, to
the river side; (v) transport of the ore from the river side
to the harbour by means of barges; (vi) stacking of the ore
at the harbour in different stock piles according to its
physical and chemical composition; and (vii) blending of the
ore from different stock piles with a view to producing ore
of the required specifications and loading it into the ship
by means of the Mechanised Ore Handling Plant.
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Under Section 8(1)(b) of the Central Sales Tax Act,
1956 the assessee would be liable to pay, in respect of
goods purchased for use "in the manufacture or processing of
goods for sale in mining", a lower rate of sales tax at 3%
of his turnover, if it is granted, under section 7(3), a
Certificate of Registration by Sales Tax Officer specifying
the class or classes of goods for the purpose of sub-section
(1) of section 8 read with Rule 13.
The assessee, therefore, made an application to the
Sales Tax Officer for inclusion of 36 items of goods in the
certificate of registration on the ground that these items
of goods were being purchased by it for use in mining ore
and processing it for sale in the export market, and hence
they were goods falling within section 8(3)(b) of the Act
and Rule 13. The Sales Tax Officer granted certificate only
in respect of 11 items and disallowed 25 items. In revision,
the Assistant Commissioner, Sales Tax, took the same view of
the Sales Tax
272
A Officer, reviewed all the 25 items disallowed and found
that six more items to be eligible for certification. The
further revision before the Government carried by the
assessee failed. Thereupon the assessee filed a writ
petition in the court of Judicial Commissioner, Goa. The
Judicial Commissioner agreed with the views of the Sales Tax
Authorities but on his scrutiny found that 4 more items, out
of 19 items rejected, to be eligible for certification.
Hence, the appeals by special leave, one by the assessee in
respect of all the 15 items and another by the Union of
India regarding the 4 items found to be in order by the
Judicial Commissioner.
Allowing the appeal of the assessee, dismissing the
appeal of Union of India and remitting the matter to the Tax
Authorities for further scrutiny of the 14 items pressed by
the assessee, the Court
^
HELD: (I) Applying the test laid down in M/s. Pio Food
Packers [1980] 3 SCR p. 1271, namely, "Does the processing
of the original commodity bring into existence a
commercially different and distinct commodity ?", it is
clear that the blending of different qualities of ore
possessing different 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 c-re.
[279G, 280B-D]
The Deputy Commissioner of Sales Tax v.M/s. Pio Food
Packers, [1980] 3 SCR p. 1271, applied.
(2) Where any commodity is subjected to a process or
treatment with a view to its "development of preparation for
the market". it would amount to processing of the commodity
within the meaning of sec. 8(3)(b) and Rule 13. The nature
and extent of processing may vary from case to case; in one
case the processing may be slight and in another it may be
extensive; but with each process suffered, the commodity
would experience a change. What is necessary in order
characterize an operation as "processing" is that the
commodity must, as a result of the operation, experience
some change. In this sense word "processing" in section 8(3)
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(b) and Rule 13 should be understood as it has not been
defined in the Act. [280E, G-H, 281A-B]
Om Prakash Gupta v. Commissioner of Commercial Taxes,
16 Sales Tax Cases 935 (Cal.), approved.
(3) The blending of ore in the course of loading
through the Mechanical Ore Handling Plant amounted to
"processing" of ore within the meaning o section 8(3)(b) and
Rule 13 and the Mechanical Ore Handling Plant fell within
the description of "machinery, plant, equipment" used in the
processing of ore for sale. Therefore, if any items of goods
were purchased by the assessee as being intended for use as
"machinery, plant, equipment. tools, spare-parts, stores,
accessories, fuel or lubricants" for the Mechanical Ore
Handling Plant, they would be eligible for inclusion in the
Certificate of Registration of the assessee. [282X 283A-B]
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Diverse quantities of ore possessing different chemical
and physical compositions are blended together to produce
ore of the requisite chemical and physical composition
demanded by the foreign purchaser and obviously as a result
of this blending, the quantities of ore mixed together in
the course of loading through the Mechanical Ore Handling
Plant experience change in their respective chemical and
physical compositions, because what is produced by such
blending is ore of a different chemical and physical
composition. When the chemical and physical composition of
each kind of ore which goes into the blending is changed,
there can be no doubt that the operation of blending would
amount to "processing" of ore within the meaning of sec.
8(3)(b) and Rule 13. It is no doubt true that the blending
of ore of diverse physical and chemical composition is
carried out by the simple act of physically mixing different
quantities of such ore on the conveyor belt of the
Mechanical Ore Handling Plant. But it is immaterial as to
how the blending is done and what process is utilised for
the purpose of blending. What is material to consider is
whether the different quantities of ore which are blended
together in the course of loading through the Mechanical Ore
Handling Plant undergo any change in their physical and
chemical composition as a result of blending. Whatever be
the means employed for the purpose of carrying out the
operation, it is the effect of the operation on the
commodity that is material for the purpose of determining
whether the operation constitutes "processing". [281B-E,
212G-H]
Nilgiri Ceylon Tea Supplying Co. v. State of Bombay, 10
Sales Tax Cases 500 (Bom.) overruled.
(4). The machinery, vehicles, barges and other items of
goods purchased by the assessee for use in carrying the
mined ore from the mining site to the river side and from
the river side to the Marmagoa harbour fall within the
description of goods intended for use in processing of ore
for sale within the meaning of sec. 8(3)(b) and Rule 13. If
any of these items of goods are purchased by the assessee as
being intended for use as "machinery, plant, equipment,
tools, spare-parts, stores, accessories, fuel or lubricants"
in carrying the mined ore from the mining site to the river
side and from the river side to the Marmagoa harbour, they
would qualify for inclusion in the Certificate of
Registration. [285D-E] F
The process of mining comes to an end when ore is
extracted from the mines, washed, screened and dressed in
the dressing plant and stacked at the mining site and the
goods purchased by the assessee for use in the subsequent
operations could not therefore be regarded as goods
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purchased for use "in mining". The requirement of sec. 8(3)
(b) and Rule 13 is that the goods must be purchased for use
"in mining" and not use "in the business of mining". It is
only the items of goods purchased by the assessee for use in
the actual mining operation which are eligible for inclusion
in the certificate of registration under this head and these
would not include good purchased by the assessee for use in
the operations subsequent to the stacking of the ore at the
mining site. [283C-E]
Where a dealer is engaged both in mining operation as
also in processing the mined ore for sale, the two processes
being inter-dependent, it would be essential for carrying on
the operation of processing that the ore should
274
be carried from the mining site, mined ore for sale, the two
processes being inter-dependent, it would be essential for
carrying on the operation of processing that the ore should
be carried from the mining site where the mining operation
comes to an end to the place where the processing is carried
on and that would clearly be an integral part of the
operation of processing and if any machinery, vehicles,
barges and other items of goods are used for carrying the
ore from the mining site to the place of processing, they
would clearly be goods used in processing of ore for sale.
In the present case, the mining of ore is done by the
assessee with a view to processing the milled ore through
the Mechanical Ore Handling Plant at the Marmagoa harbour
and the entire operation of mining ore and processing the
mined ore is one integrated process of which transportation
of the mined ore from the mining site to the Marmagoa
harbour is an essential part. [284A-D]
Indian Copper Corporation Ltd. v. Commissioner of
Commercial Taxes, 15 STC 259 (SC), followed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1632 of
1973 and 167 of 1974.
From the Judgment and Order dated 29th April, 1972 of
the Judicial Commissioner, Goa, Daman and Diu at Panaji in
Special Civil Application No. 60 of 1970.
R. V. Patel and Mrs. Ali Verma for the Appellants in CA
No. 1632/73 and for the Respondent in CA 107/74.
V. S. Desai, B. B. Ahuja and M. N. Shroff for the
Appellants in CA 107/74 and for the Respondent in CA.
1632/73.
The Judgment of the Court was delivered by
BHAGWATI, J. These two appeals by special leave are
directed against a judgment of the Judicial Commissioner,
Goa, Daman and Diu, partly allowing a writ petition filed by
Chowgule & Co. Pvt. Ltd. (hereinafter referred to as the
assessee) for quashing an order of the Lieutenant Governor,
Goa, Daman and Diu dated 22nd August 1970. The question
which arises for determination in these two appeals is a
short one but in order to appreciate the arguments bearing
upon it, it is necessary to state a few facts giving rise to
the controversy between the parties.
The assessee is a private limited company carrying on
business of mining iron ore and selling it in the export
market after dressing, washing, screening and blending it.
The assessee owns mines at Sirigao, Pale and various other
places in the territory of Goa. The extraction of ore from
the mines at Sirigao and Pale is carried on by mechanised
process while the extraction of ore from the other mines is
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done by manual labour. When the ore is extracted from the
mines it
275
is carried to the dressing plant where it is washed,
screened and dressed and then it is stacked at the mining
site from where it is carried by conveyor belts to the river
side for being carried by barges to the Marmagoa harbour.
Before the ore is carried from the mining site to the river
side, its chemical as well as physical composition is
ascertained by taking samples and testing them in the
laboratories at each major mine and this process is carried
on every day round the clock in order to ascertain the
chemical and physical composition of the ore which comes to
Marmagoa, harbour. Since the chemical and physical
composition of the ore varies from mine to mine and even
within the same mine itself, intra mine blending of the ore
is carried out at the mining site with a view to arriving at
a certain specified chemical and physical composition. When
the ore carried by barges arrives at the Marmagoa harbour,
it is stacked in different stockpiles according to its
chemical and physical composition. Since the assessee sells
the ore only in the export market, it has to supply ore to
the foreign buyers in accordance with the specifications
required by them and therefore it is required to carry out
blending of the ore mined by it in such a manner as to
produce ore of the required chemical and physical
composition. This operation of blending is carried out by
the assessee, not before the loading of the ore into the
ship, but in the process of loading itself through the
mechanical ore handling plant. What is done is to draw
different quantities of ore from different stock piles and
put them together in the mechanical ore handling plant so
that they get blended in the process of loading and the
blended ore which is actually loaded into the ship is ore of
the contractual chemical and physical composition. The
mechanical ore handling plant thus performs a dual function,
namely, blending of ore from different stock piles
containing ore of different chemical and physical
composition and loading of the blended ore into the ship for
delivery to the foreign buyers. It will thus be seen that
the entire activity of the assessee is broadly divisible
into seven different operations, one following upon the
other, namely, (i) extraction of ore from the mine; (ii)
conveying the ore to the dressing plant; (iii) washing,
screening and dressing the ore; (iv) conveying of the ore
from the mine site to the river side; (v) transport of the
ore from the river side to the harbour by means of barges;
(vi) stacking of the ore at the harbour in different stock
piles according to its physical and chemical composition,
and (vii) blending of the ore from different stock piles
with a view to producing ore of the required specifications
and loading it into the ship by means of the mechanised ore
handling plant. The question is whether goods purchased by
the assessee for use in the above operations could be said
276
to be goods purchased for use "in the manufacture or
processing of goods for sale or in mining" so as to attract
the lower rate of sales tax under section 8(1)(b) of the
Central Sales Tax Act, 1956.
It would be convenient at this stage to set out the
relevant provisions of the Central Sales Tax Act, 1956
(hereinafter referred to as the Act) which have a bearing on
the question before us. Section 6 provides that, subject to
the other provisions contained in the Act, every dealer
shall be liable to pay tax under the Act on all sales of
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goods other than electrical energy effected by him in the
course of interstate trade or commerce during any year.
Section 7 provides for registration of dealers and sub-
section (1) of this section states that every dealer liable
to pay tax under the Act shall make an application for
registration to such authority in the appropriate State as
the Central Government may specify and every such
application shall contain such particulars as may be
prescribed. Sub-section (3) of section 7 enacts that if the
authority to whom an application under sub section (1) is
made is satisfied that the application is in conformity with
the provisions of the Act and the Rules made thereunder, he
shall register the applicant and grant to him a certificate
of registration in the prescribed form which shall specify
the class or classes of goods for the purposes of sub-
section (1) of section 8. Section 8 provides inter alia as
under and we are setting out here the relevant part of the
section as it stood at the material time:
"Sec. 8(1): Every dealer, who is in the course of
inter State trade or commerce-
(a) sells to the Government any goods; or
(b) sells to a registered dealer other than the
Government goods of the description referred
to in sub section (3),
shall be liable to pay tax under this Act, which
shall be 3 per cent of his turn-over.
(3) The goods referred to in clause (b) of sub-
sec.(1)-
(b) x x x are goods of the class or classes
specified in the certificate of registration
of the registered dealer purchasing the goods
as being in tended for re-sale by him or
subject to any rules made by the Central
Government in this behalf, for use by him in
the manufacture or processing of
277
goods for sale or in mining, or in the
generation or h distribution of electricity
or any other form of power.
Section 13 confers rule making authority on the Central
Government and by clause (e) of sub-section (1) of that
section, the Central Government is authorised to make rules
providing for "the enumeration of goods or class of goods
used in the manufacture or processing of goods for sale or
in mining or in the generation or distribution of
electricity or any other form of power." Pursuant to the
authority conferred by this provision, the Central
Government has made Rule 13 which at the material time was
in the following terms:
Rule 13: The goods referred to in clause (b) of
sub sec.(3) of section 8, which a registered dealer may
purchase, shall be goods intended for use by him as raw
materials, processing materials, machinery plant,
equipment, tools, stores, spare parts, accessories,
fuel or lubricants, in the manufacture or processing of
goods for sale or in mining, or in the generation of
distribution of electricity or any other form of
power."
" The assessee made an application to the Sales Tax Officer
on 14th September 1967 for inclusion of 36 items of goods in
the certificate of registration on the ground that these
items of goods were being purchased by it for use in mining
ore and processing it for sale in the export market, and
hence they were goods falling within section 8(3) (b) and
Rule 13. It is obvious that if this application were granted
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and the items of goods mentioned in the application were
specified in the certificate of registration, the dealer
selling these goods to the assessee in the course of inter-
State trade or commerce would be liable to pay sales tax
only at the rate of 3 per cent of the turnover of these
sales and the assessee in its turn would have to reimburse
the selling dealer only at the rate of 3 per cent of the
sale price, where as otherwise the amount payable would be
at a much higher rate. The assessee therefore pressed this
application before the Sales Tax Officer with a certain
amount of vehemence, but the Sales Tax Officer by his order
dated 4th March 1968 granted specification only in respect
of 11 items and disallowed the remaining 25 items. The view
taken by the Sales Tax Officer was that the blending of ore
which was done in the course of loading through the
Mechanical Ore Handling Plant did not amount to manufacture
or processing of ore and, therefore, the only goods in
respect of which specification could be claimed by the
assessee in the certificate of registration were goods
purchased for use in mining and since the process of mining
came to an end when ore was extracted from the mines and
washed, screened 2-57 SCI/81
278
and dressed in the dressing plant and stacked at the mining
site, the goods purchased by the assessee for use only in
these operations were eligible for being specified in the
Certificate of Registration and no the goods purchased for
use in any of the subsequent operations including bending
and loading through the Mechanical Ore Handling Plant. The
Sales Tax Officer held that only l l items of goods could be
regarded as goods purchased for use in mining and the
remaining 2 I ems of goods did not fall within this
description and hence were not includable in the Certificate
of Registration. The assessee preferred a revision
application, but the Assistant Commissioner of Sales Tax who
heard the revision application, took the same view as the
Sales Tax Officer in regard to me nature of the operations
carried on by the assessee and holding that the assessee was
entitled to inclusion in the Certificate of Registration of
only those items of goods which were purchased for use in
the process of mining (which ended with the stacking of the
ore at the mining site after extraction, washing, screening
and dressing), he examined the 25 items disallowed by the
Sales Tax Officer with reference to this criterion and came
to the conclusion that 6 out of these 25 items were eligible
for inclusion in the Certificate of Registration and he
accordingly allowed the revision application in respect of
these 6 items and rejected it in respect of the remaining 19
items. The assessee thereupon carried the matter further in
revision to the Government of Goa, Daman and Diu, but the
Lieutenant Governor on behalf of the Government agreed with
the view taken by the Assistant Commissioner of Sales Tax
and rejected the revision application by an order dated 22nd
August 1970. This led to the filing of a writ petition by
the assessee in the Court of the Judicial Commissioner for
quashing the Order of the Government and . directing
inclusion of the remaining 19 items in the Certificate of
Registration. The Judicial Commissioner took the same view
as the Sales Tax Authorities in regard to the nature of the
operations carried on by the assessee, but gave relief to
the assessee in respect of 4 items of goods on the ground
that they were goods purchased for use in the process of
mining and were therefore liable to be included in the
Certificate of Registration. The result was that 15 items of
goods ultimately remained unincluded in the Certificate of
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Registration. It is not necessary to reproduce here these 15
items of good in respect of which the application of the
assessee was disallowed but it is sufficient to state that
they were items Nos. 1, 2, 3, 5, 6, 8, 9, 10, 12, 14, 15,
16, 17, 19 and 20 in the list Ex. No. 6. The assessee being
aggrieved by the disallowance of these 15 items preferred
Appeal No. 1632 of 1973 after obtaining certificate from the
Court of the Judicial Commissioner. Item 9 which consisted
of "Safety Boards and
279
Posters" was not pressed at the hearing of the appeal and
hence the controversy between the parties before us centred
round the remaining 14 items of goods only and the question
is whether these 14 items of goods were eligible for
inclusion in the Certificate of Registration. The Union of
India also felt aggrieved by the Order of the Judicial
Commissioner allowing 4 items of goods to be included in the
Certificate of Registration and hence it preferred Appeal
No. 107 of 1974 against the Order of the Judicial
Commissioner to the extent to which it was adverse against
it.
There are two questions which primarily arise for
consideration in these appeals. One is whether the blending
of ore whilst loading it in the ship by means of the
Mechanical Ore Handling Plant constituted manufacture or
processing of ore for sale within the meaning of sec.8(3)(b)
and Rule 13 and the other is whether the process of mining,
conveying the mined ore from the mining site to the river
side, carrying it by barges to the Marmagoa harbour and then
blending and loading it into the ship through the Mechanical
Ore Handling Plant constituted one integrated process of
mining and manufacture or processing of ore for sale, so
that the items of goods purchased for use in every phase of
this integrated operations could be said to be goods
purchased for use in mining and manufacturing or processing
of ore for sale falling within the scope and ambit of
section 8(3) (b) and Rule 13. We shall begin with the
consideration of the first question, not because it has been
formulated as a first question by us, but because on the
answer to it depends to a large extent the decision of the
second question.
The point which arises for consideration under the
first question is as to whether blending of ore in the
course of loading it into the ship through the Mechanical
Ore Handling Plant constituted manufacture or processing of
ore. Now it is well settled as a result of several
decisions of this Court, the latest being the decision given
on 9th May, 1980 in Civil Appeal No. 2398 of 1978-The Deputy
Commissioner of Sales Tax v. M/s Pio Food Packers that the
test for determining whether manufacture can be said to have
taken place is whether the commodity which is subjected to
the process of manufacture can no longer be regarded as the
original commodity, but is recognised in the trade as a new
and distinct commodity. This Court speaking through one of
us (Pathak, J.) pointed out: "Commonly manufacture is the
end result of one or more processes through which the
original com-
280
modity is made to pass. The nature and extent of processing
may vary from one case to another, and indeed there may be
several stages of processing and perhaps a different kind of
processing at each stage. With each process suffered, the
original commodity experiences a change. But it is only when
the change, or a series of changes, take the commodity to
the point where commercially it can no longer be regarded as
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the original commodity but instead is recognised as a new
and distinct article that a manufacture can be said to take
place." The test that is required to be applied is; does the
processing of the original commodity bring into existence a
commercially different and distinct commodity? On an
application of this test, it is clear that the blending of
different qualities of ore processing 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.
It still remains to consider whether the ore blended in
the course of loading through the Mechanical Ore Handling
Plant can be said to undergo processing when it is blended.
The answer to this question depends upon what is the true
meaning and connotation of the word "processing" in
sec.8(3)(b) and Rule 13. The word has not been defined in
the Act and it must therefore be interpreted according to
its plain natural meaning. Websters’ Dictionary gives the
following meaning of the word "process", "to subject to some
special process or treatment, to subject (especially raw
material) to a process of manufacture, development or
preparation for the market etc., to convert into marketable
form as live stock by slaughtering, grain by milling, cotton
by spinning, milk by pasteurizing fruits and vegetables by
sorting and repacking." Where therefore any commodity is
subjected to a process or treatment with a view to its
"development or preparation for the market", as, for
example, by sorting and repacking fruits and vegetables, it
would amount to processing of the commodity within the
meaning of sec.8(3) (b) and Rule 13. The nature and extent
of processing may vary from case to case; in one case the
processing may be slight and in another it may be extensive;
but with each process suffered, the commodity would
experience a change. Wherever a commodity undergoes a change
as a result of some operation performed on it or in regard
to it, such operation would amount to processing of the
commodity. The nature and extent of the change is not mate
281
rial. It may be that camphor powder may just be compressed
into camphor cubes by application of mechanical force or
pressure without addition or admixture of any other material
and yet the operation may amount to processing of camphor
powder as held by the Calcutta High Court in Om Parkash
Gupta v. Commissioner of Commercial Taxes, What is necessary
in order to characterise an operation as "processing" is
that the commodity must, as a result of the operation,
experience some change. Here, in the present case, diverse
quantities of ore possessing different chemical and physical
compositions are blended together to produce ore of the
requisite chemical and physical composition demanded by the
foreign purchaser and obviously as a result of this
blending, the quantities of ore mixed together in the course
of loading through the Mechanical Ore Handling Plant
experience change in their respective chemical and physical
compositions, because what is produced by such blending is
ore of a different chemical and physical composition. When
the chemical and physical composition of each kind of ore
which goes into the blending is changed, there can be no
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doubt that the operation of blending would amount to
’processing’ of ore within the meaning of sec. 8(3) (b) and
Rule 13. It is no doubt true that the blending of ore of
diverse physical and chemical compositions is carried out by
the simple act of physically mixing different quantities of
such ore on the conveyor belt of the Mechanical Ore Handling
Plant. But to our mind it is immaterial as to how the
blending is done and what process is utilised for the
purpose of blending. What is material to consider is whether
the different quantities of ore which are blended together
in the course of loading through the Mechanical Ore Handling
Plant undergo any change in their physical and chemical
composition as a result of blending and so far as this
aspect of the question is concerned, it is impossible to
argue that they do not suffer any change in their respective
chemical and physical compositions.
The Revenue however relied on the decision of the
Bombay High Court in Nilgiri Ceylon Tea Supplying Co. v.
State of Bombay. The assessees in this case were registered
dealers in tea under the Bombay Sales Tax Act, 1953 and they
purchased in bulk diverse brands of tea and without the
application of any mechanical or chemical process, blended
these brands of different qualities according to a certain
formula evolved by them and sold the tea mixture in the
market. The question arose before the Sales Tax Authorities
whether the different brands of tea purchased and blended by
the assessees for the
282
purpose of producing the tea mixture could be said to have
been ’processed’ after the purchase within the meaning of
the proviso to sec. 8(a), so as to preclude the assessees
from being entitled to deduct from their turn-over under
section 8(a) the value of the tea purchased by them. The
High Court of Bombay held that the different brands of tea
purchased by the assessees could not be regarded as
’processed’ within the meaning of the proviso to clause (a)
of sec. 8, because there was "not even application of
mechanical force so as to subject the commodity to a
process, manufacture, development or preparation" and the
commodity remained in the same condition. The argument of
the Revenue before us was that this decision of the Bombay
High Court was on all fours with the present case and if the
blending of different brands of tea for the purpose of
producing a tea mixture in accordance with a formula evolved
by the assessees could not be regarded as ’processing’ of
tea, equally on a parity of reasoning, blending of ore of
different chemical and physical compositions could not be
held to constitute ’processing’ of the ore. Now undoubtedly
there is a close analogy between the facts of Nilgiri Tea
Company’s case and the facts of the present case, but we do
not think we can accept the decision of the Bombay High
Court in the Nilgiri Tea Company’s case as laying down the
correct law. When different brands of tea were mixed by the
assessees in Nilgiri’s Tea Company’s case for the purpose of
producing a tea mixture of a different kind and quality
according to a formula evolved by them, there was plainly
and indubitably processing of the different brands of tea,
because these brands of tea experienced, as a result of
mixing qualitative change, in that the tea mixture which
came into existence was of different quality and flavour
than the different brands of tea which went into the
mixture. There are it is true, some observations in the
judgment of the Bombay High Court which seem to suggest that
if instead of manual application of energy in mixing the
different brands of tea, there had been application of
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mechanical force in producing the tea mixture, the Court
might have come to a different conclusion and these
observations were relied upon by the assessee, since in the
present case the lending was done by application of
mechanical force, but we do not think that is the correct
test to be applied for the purpose of determining whether
there is ’processing’. The question is not whether there is
manual application of energy or there is application of
mechanical force. Whatever be the means employed for the
purpose of carrying out the operation, it is the effect of
the operation on the commodity that is material for the
purpose of determining whether the operational constitutes
’processing’. We are clearly of the view that the blending
of ore in the course of loading through the Mechanical Ore
Handling Plant amounted to ’processing’ of ore within the
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meaning of sec. 8(3) (b) and Rule 13 and the Mechanical Ore
Handling Plant fell within the description of "machinery,
plant, equipment" used in the processing of ore for sale. It
must therefore follow as a necessary corollary that if any
items of goods were purchased by the assessee as being
intended for use as "machinery, plant, equipment, tools,
spare-parts, stores, accessories, fuel or lubricants" for
the Mechanical Ore Handling Plant, they would be eligible
for inclusion in the Certificate of Registration of the
assessee.
The question which then arises is as to whether items
of goods purchased by the assessee for use in carrying the
ore from mining site to the river side and from the river
side to the Marmagoa harbour could be said to be goods
purchased for use in mining or in processing of ore for
sale. Now there can be no doubt, and indeed this could not
be seriously disputed that the process of mining comes to an
end when ore is extracted from the mines, washed, screened
and dressed in the dressing plant and stacked at the mining
site and the goods purchased by the assessee for use in the
subsequent operations could not therefore be regarded as
goods purchased for use ’in mining’. The requirement of sec.
8(3) (b) and Rule 13 is that the goods must be purchased for
use ’in mining’ and not use ’in the business of mining’. It
is only the items of goods purchased by the assessee for use
in the actual mining operation which are eligible for
inclusion in the certificate of registration under this head
and these would not include goods purchased by the assessee
for use in the operations subsequent to the stacking of the
ore at the mining site. This view finds support from the
decision of this Court in Indian Copper Corporation Limited
v. The Commissioner of Commercial Taxes.
But the claim of the assessee for including in the
Certificate of Registration items of goods purchased for use
in carrying ore from mining site to the river side and from
river side to the Marmagoa harbour was not based solely on
the ground that these items of goods are purchased for use
‘in mining’. The alternative contention of the assessee was
that these items of goods are purchased for use in
processing of ore for sale. The assessee submitted that
mining of ore and processing it for the purpose of sale by
carrying out blending through the Mechanical Ore Handling
Plant constitute one integrated process and carrying the ore
from the mining site to the river side and from the river
side to the Marmagoa harbour where the processing is being
done, is part of this integrated process and hence the items
of goods purchased for use in this latter operation are
eligible for inclusion in the Certificate of Registration.
We think there is great force in this submission of the
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assessee. Where a dealer is engaged both in mining operation
as also in processing the mined ore for sale, the two
processes being interdependent, it would be essential for
carrying on the operation of processing that the ore should
be carried from the mining site mined ore for sale, the two
processes being inter-dependent, it would be essential for
carrying on the operation of processing that the ore should
be carried from the mining site where the mining operation
comes to end to the place where the processing is carried on
and that would clearly be an integral part of the operation
of processing and if any machinery, vehicles, barges and
other items of goods are used for carrying the ore from the
mining site to the place of processing, they would clearly
be goods used in processing of ore for sale. It is obvious
that, in the present case, the mining of ore is done by the
assessee with a view to processing the mined ore through the
Mechanical Ore Handling Plant at the Marmagoa harbour and
the entire operation of mining ore and processing the mined
ore is one integrated process of which transportation of the
mined ore from the mining site to the Marmagoa harbour is an
essential part and, in the circumstances, it is difficult to
see how the machinery, vehicles, barges and other items of
goods used for transporting the mined ore from the mining
site to the Marmagoa harbour can be excluded from
consideration on the ground that they are not goods used in
processing of ore for sale. The decision of this Court in
Indian Copper Corporation case (supra) is directly in point
and completely supports this conclusion which we are
inclined to reach on principle. The assessee in that case
was a company which mined copper and iron ore from its own
mines, transported the ore to its factory and manufactured
finished products from the ore for sale. There were several
questions which arose for consideration, before the Court in
regard to the assessees’ claim for inclusion of certain
items of goods in its certificate of registration and one of
them was whether the locomotives and motor vehicles used for
removing ore from the place where the mining operations were
concluded to the factory where the manufacturing process was
going on, could be said to be goods intended for use in the
manufacture or processing of goods for sale within the
meaning of sec. 8(3) (b) and Rule 13. This Court held that
they were goods falling within this description so as to be
entitled to inclusion in the Certificate of Registration of
the assessee and Shah, J. speaking on behalf of the Court
gave the following reasons for taking this view
"We are also of the opinion that in a case where a
dealer is engaged both in mining operations and in the
manufacturing process-the two processes being inter-
dependent-it would be impossible to exclude vehicles
which are used for
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removing from the place where the mining operations are
concluded to the factory where the manufacturing
process starts. It appears that the process of mining
ore and manufacture with the aid of ore copper goods is
an integrated process and there would be no ground for
exclusion from the vehicles those which are used for
removing goods to the factory after the mining
operations are concluded. Nor is there any ground for
excluding locomotives and motor-vehicles used in
carrying finished products from the factory. The
expression "goods intended for use in the manufacturing
or processing of goods for sale" may ordinarily include
such vehicles as are intended to be used for removal of
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processed goods from the factory to the place of
storage. If this be the correct view, the restrictions
imposed by the High Court in respect of the vehicles
and also the spare parts, tyres and tubes would not be
justifiable."
These reasons apply with equal force in the present
case and strongly support the conclusion that the machinery,
vehicles, barges and other items of goods purchased by the
assessee for use in carrying the mined ore from the mining
site to the river side and from the river side to the
Marmagoa harbour fall within the description of goods
intended for use in processing of ore for sale within the
meaning of sec. 8(3) (b) and Rule 13. If any of these items
of goods are purchased by the assessee as being intended for
use as "machinery, plant, equipment, tools, spare-parts,
stores, accessories, fuel or lubricants" in carrying the
mined ore from the mining site to the river side and from
the river side to the Marmagoa harbour, they would qualify
for inclusion in the Certificate of Registration.
It is in the light of this discussion that the question
whether the 14 items of goods disallowed by the Sales Tax
Authorities and the Judicial Commissioner are eligible for
inclusion in the Certificate of Registration has to be
decided. We do not however think any useful purpose will be
served by ourselves examining each of these 14 items for the
purpose of deciding whether, according to the principles
enunciated by us, any of them qualifies for being included
in the Certificate of Registration. That is a matter which
can appropriately be decided by the Sales Tax Officer in the
light of the principles laid down by us and it need not
occupy our time here. We accordingly allow the appeal of the
assessee and direct the Sales Tax Officer to examine these
14 items of goods and determine in the light of the
principles laid down in this judgment whether any of these
14 items of goods is liable to be included in the
Certificate of Registration. So far as the
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appeal of the Union of India is concerned, we do not think
that the Judicial Commissioner was in error in giving relief
to the assessee in respect of 4 items of goods, since these
items of goods were clearly goods intended for use in the
process of mining and were rightly directed to be included
in the Certificate of Registration. The appeal of the Union
of India will accordingly stand dismissed. Since the
assessee has substantially succeeded, the fair order of
costs would be that the Revenue must pay the costs of the
assessee throughout.
V.D.K. C.A. 1632/73 allowed and
C.A. 107/74 dismissed
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