Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6
CASE NO.:
Appeal (civil) 1790 of 2005
PETITIONER:
M/s. Sonebhadra Fuels
RESPONDENT:
Commissioner,Trade Tax, U.P.Lucknow
DATE OF JUDGMENT: 01/08/2006
BENCH:
Ashok Bhan & Markandey Katju
JUDGMENT:
J U D G M E N T
(with C.A. Nos. 1791/2005, 1792/2005 and 1793/2005)
MARKANDEY KATJU, J.
Civil Appeal No. 1790 of 2005 has been filed against
the judgment and order dated 25.6.2004 of the learned
Single Judge of the Allahabad High Court in Trade Tax
Revision No. 1261 of 2004 M/s. Sonebhadra Fuels,
Ravinagar, vs. Commissioner, Trade Tax, U.P., Lucknow.
Heard learned counsel for the parties.
The appellant is carrying on business in coal and also
manufactures ’coal briquettes’, popularly known as ’coal
tikli’.
The assessee applied for exemption/rebate of sales tax
claiming that the coal briquettes are the same commodity
as coal which had already been subjected to tax. However,
his claim was rejected by the Assessing Authority vide
Assessment Order dated 31.3.1999. Aggrieved, he filed an
appeal which was dismissed by the Appellate Authority vide
order dated 19.7.2001. His further appeal to the Tribunal
was referred to a larger Bench of five members which
decided against the assessee vide its order dated 16.3.2004.
The short argument submitted by Shri Rakesh Dwivedi,
learned senior counsel for the appellant, was that coal
briquettes are as same as coal and hence no liability of tax
can be fastened on the sale of coal briquettes.
Learned counsel for the appellant submitted that
Notification No. ST-II-5782 dated 7.9.1980, issued under
Section 3-A of the UP Trade Tax Act provided that coal
included coke in all its forms, but excluded charcoal. The
same meaning was given to the word ’coal’ in the
subsequent Notification No. ST-II-3685 dated 31.7.1986. In
both the Notifications, the rate of tax was @ 4%. A similar
meaning has been given in Notification No. ST-TIF-II-2372
dated 23.3.1998. Coal is a declared commodity under
Section 14 of the Central Sales Tax Act, 1956 and the entry
given in clause (i-a) reads "coal including coke in all its
forms, but excluding charcoal". Learned counsel submitted
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6
that under Section 15 of the Central Sales Tax Act, tax
cannot be imposed on declared goods at more than one
stage. As the coal-dust has already been subjected to tax,
he submitted that ’coal tiklies’ are not taxable.
In reply, learned counsel for the respondent submitted
that coal briquettes is a different commercial commodity
from coke or coal, and since coal tiklies are made from coal
dust by processing or manufacturing in which the coal dust
loses its original form, quality etc, it amounts to
’manufacture’.
The definition of ’manufacture’ in Section 2(e-1) of the
U.P. Trade Tax Act is as under:
"Manufacture means producing, making,
mining, collecting, extracting, altering,
ornamenting, furnishing or otherwise
processing, treating or adapting any
goods, but does not include such
manufactures or manufacturing process
as may be prescribed."
The above definition is very wide as held by this Court
in M/s. B.P. Oil Mills Ltd. vs. Sales Tax Tribunal and
others - AIR 1998 SC 3055. The definition of ’manufacture’
in Section 2(e-1) of the Act includes ’processing, treating or
adapting any goods’. Thus, the meaning of ’manufacture’ in
the UP Trade Tax Act is wider than that in the Central Excise
Act, 1944. A dealer will be liable to pay tax on sale of any
goods he makes by processing, treating, or adapting the
goods he purchased by complying with the requirements of
clause (ii) of Section 3(b) of the UP Trade Tax Act.
In M/s. B.P. Oil Mills (supra), this Court referred to a
large number of earlier rulings on this point and it is not
necessary for us to refer to all of them here. We may,
however, refer to the decision in Chowgule & Co. Pvt. Ltd.
vs. Union of India (AIR 1981 SC 1014) where this Court
observed that where any commodity is subjected to a
process or treatment with a view to its development or
preparation for the market it would amount to processing.
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 in each process suffered
the commodity would experience a change. The Court
further observed that whatever be the means employed for
carrying out the processing operation, it is the effect of the
operation on the commodity that is material for the purpose
of determining whether the operation constitutes processing.
In B.P. Oil Mills (supra), the Supreme Court observed
that refining crude oil amounts to a ’manufacture’.
A Constitution Bench in Devi Das Gopal Krishnan
etc. vs. State of Punjab & others, AIR 1967 SC 1895,
while considering the case of extracting the oil from oil-
seeds, held that the edible oils produced were different from
the oil seeds, and hence the edible oil produced is taxable
though tax has already been paid on the oil seeds. This
Court referred to the dictionary meaning of the
’manufacture’ as ’to transform or fashion raw material
into a changed form for use’ and held that oil is produced
out of the seeds. The process certainly transforms the raw
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6
materials into different articles for use, and therefore is
taxable as a new commercial commodity. This Court further
explained that in a case where the scrap iron ingots undergo
a vital change in the process of manufacture and are
converted into different commodities, i.e. rolled steel
sections, during the process the scrap iron loses its identity
and becomes a new marketable commodity and, therefore,
the process is certainly one of manufacture.
In Ashirwad Ispat Udyog & others vs. State Level
Committee & others, 1998 (8) SCC 85, this Court
considered the scope of the definition of the term
’manufacture’ under the provisions of Section 2(j) of the
Madhya Pradesh General Sales Tax Act, 1958, which is in
para-materia with Section 2(e-1) of the Act, and held that
manufacture is not confined to a new marketable commodity
but also includes old articles made saleable. The Court held
as under:
"Decisions construing the meaning
of the word ’manufacture’ as used in
other statutes do not apply unless the
definition of that word in the particular
statute under consideration is similar to
that construed in the decisions. The
plain construction of the special
definition of the word in a particular Act
must prevail. In the special definition
given in Section 2(j) of the said Act
’manufacture’ has been defined as
including a process or manner of
producing, extracting, preparing or
making any goods. There can be no
doubt whatsoever that ’collecting’ goods
does not result in the production of a
new article. There is, therefore,
inherent evidence in the definition itself
that the narrow meaning of the word
’manufacture’ was not intended to be
applied in the said Act. Again the
definition speaks of ’the process of
lopping of branches (of trees), cutting
the trunks’. The lopping of branches
and the cutting of trunks of threes also,
self evidently, does not produce a new
article. The clear words of the definition
therefore, must be given due weight
and cannot be overlooked merely
because in other contexts the word
’manufacture’ has been judicially held to
refer to the process of manufacture of
new articles."
In Deputy Commissioner of Sales Tax (Law),
Board of Revenue (Taxes), Ernakulam vs. M/s. Coco
Fibres, AIR 1991 SC 378, this Court considered the
provisions of the Kerala General Sales Tax Act, 1984
wherein the term ’manufacturing process’ was considered
and held that conversion of coconut husk into a coconut
fibre was a manufacturing process. This Court held that by
the process of manufacture, something is produced and
brought into existence which is different from that out of
which it is made, in the sense that the thing produced is by
itself a commercial commodity capable of being sold or
supplied. The material from which the thing or product is
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6
manufactured, may necessarily lose its identity or may
become transformed into the basic or essential properties.
The article that would emerge as a result of the process of
manufacture must be a distinct and new article recognized
or known as such in the commercial parlance for sale or
supply.
In M/s. Saraswati Sugar Mills vs. Haryana State
Board & others, AIR 1992 SC 224, this Court explained the
distinction between manufacture and processing observing
that the construction of words and the meaning to be given
for such words shall normally depend on the nature, scope
and purpose of the Statute in which it is occurring and to the
fitness of the matter to the Statute. This Court held that if a
matter is processed, the product may not lose its original
character. For example, the vegetables may be processed
which even after processing, retain its character as
vegetable while in manufacturing, something is necessarily
to be brought into existence which is different from that
which originally existed in the sense that the thing produced
is a commercially different article. Thus, a Statute is
required to be interpreted strictly and the definition clause
must be examined in a correct perspective giving the
meaning of each word contained therein. The Court held as
under:
"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. The essential point thus
is that in manufacturing, something is
brought into existence which is different
from that which originally existed in the
sense that the thing produced is by
itself a commercially different
commodity whereas in the case of
processing, it is not necessary to
produce a commercially different article.
Processing essentially effectuates a
change in the form, contour, physical
appearance or chemical combination or
otherwise by artificial or natural means
and in its more complicated form
involves progressive action in
performing, producing or making
something. (Vide Corn Products Refining
Co. vs. Federal Trade Commission,
(1944) CCA 7)."
In Union of India & another vs. Delhi Cloth &
General Mills Co. Ltd., AIR 1963 SC 791, this Court
explained the word ’manufacture’ used as a verb which is
generally understood to mean bringing into existence of a
new substance and does not mean merely to bring some
change in a substance, however, minor in consequence the
change may be. In a manufacture, there must be
transformation and a different article must emerge having a
distinctive name, character or use.
A similar view has been reiterated in Rajasthan State
Electlricity Board vs. Associated Stone Industries &
another (2000) 6 SCC 141.
In State of Maharashtra & another vs. Mahalaxmi
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6
Stores, (2003) 1 SCC 70, this Court held that processing or
variation of the goods or finishing of goods would not
amount to manufacture unless it results in emergence of a
new commercial commodity.
In Aspinwall & Co. Ltd vs. Commissioner of
Income Tax, Ernakulam, (2001) 7 SCC 525, this Court
considered the meaning of the word ’manufacture’ as it
occurred in Section 32-A(1) & (2)(iii) in Income Tax Act and
held that the word must be understood in common parlance
and it may mean production of articles for use from raw or
prepared materials by giving such materials new forms,
qualities or combination whether by hand labour or
machines. If the change made in the article results in a new
and different article, then it would amount to a
manufacturing activity. In the said case, the assessee after
plucking or receiving the raw coffee berries made it undergo
nine processes to give it the shape of coffee beans. The net
product was absolutely different and separate from the
input. The change made in the article resulted in a new and
different article which was recognized in the trade as a new
and distinct commodity.
Similar views have been reiterated in Ujagar Prints &
others vs. Union of India & others, (1989) 3 SCC 488;
Decorative Laminates (India) Pvt. Ltd. vs. Collector of
Central Excise, (1996) 10 SCC 46; and Gramophone Co.
India Ltd. vs. Collector of Customs, 2000 (1) SCC 549.
In Laminated Packings (P) Ltd. vs. Collector of
Central Excise, (1990) 4 SCC 51, this Court held that
lamination amounts to manufacture as it is made out of the
laminated kraft paper by a manufacturing process of
lamination using polyethylene etc. and, therefore, an
entirely different good comes into existence.
We may mention that, as noted above, decisions
construing the word ’manufacture’ in other statutes are not
necessarily applicable when interpreting Section 2(e-1) of
the UP Trade Tax Act. As stated above, the definition of
’manufacture’ in Section 2(e-1) of the UP Trade Tax Act is
very wide, which includes processing, treating or adapting
any goods. Hence, in our opinion, the expression
’manufacture’ covers within its sweep not only such activities
which bring into existence a new commercial commodity
different from the articles on which that activity was carried
on, but also such activities which do not necessarily result in
bringing into existence an article different from the articles
on which such activity was carried on. For example, the
activity of ornamenting of goods does not result in
manufacturing any goods which are commercially different
from the goods which had been subjected to ornamentation,
but yet it will amount to manufacture within the meaning of
Section 2(e-1) of the UP Trade Tax Act since an artificial
meaning of ’manufacture is given in Section 2(e-1). Hence,
whether the commercial identity of the goods subjected to
the processing, treating or adapting changes or not, is not
very material.
The method of making coal briquettes is as follows:
"The raw material for coal briquettes is
coal ground to generally, below 2 mm.
size. The crushed coal is mixed with
suitable binders and pressed in
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6
briquetting press out of which regular
shape required, briquettes may be
carbonized in suitable carboniser. The
size of coal (30-100mm) required for
manufacturing Special Smokeless Fuel
(SSF) is coal briquettes. No hinder is
required to be used for production of
SSF)."
In our opinion, the process mentioned above is
clearly processing, treating or adapting the coal. Hence, in
our opinion, it is a ’manufacture’.
Learned counsel for the appellant Shri Rakesh Dwivedi
submitted that coal briquettes are produced merely by using
a binding material such as clay or molasses along with the
coal, and hence he submitted that the identity does not
change. We regret, we cannot agree with his submission.
Firstly, we do not agree that the coal briquettes are the
same commercial commodity as coal. In our opinion, coal is
a raw material for making coal briquettes. The method of
manufacturing coal briquettes has been stated above, and
this certainly is a processing, treating or adapting the coal.
The appellant manufactures coal briquettes by compiling the
hard coke breeze mechanically with the help of cinders
which is usually 5% of the total hard coke breeze. In the
compilation of the hard coke breeze, 95% of the hard coke
breeze, which is known as coal-dust or breeze coke is taken
which is compiled with the help of clay and molasses.
Hence, in our opinion, coal briquettes is a different
commercial commodity from coal. Moreover, even if it is not
a different commercial commodity, the process of making
coal briquettes will amount to a ’manufacture’ as it is
processing, treating or adapting coal. In our opinion, by the
processing of coal to make coal briquette, the coal dust loses
its identity. Coal briquettes and coal dust are two different
commodities in substance as well as in characteristics. The
coal briquettes are altogether in different shape, form and
moisture as well as characteristics, as compared to coal
dust.
A finding of fact has been given by the Tribunal that
’coal dust’ and ’coal briquettes’ are entirely different
commercial commodities and we cannot interfere with this
finding of fact. The appeal is accordingly dismissed. No
costs.
Civil Appeal No. 1791-1793/2005
In view of the decision in Civil Appeal No. 1790/2005,
these appeals are accordingly dismissed. No costs.