Commissioner Of Sales Tax v. Mahalaxmi Stores

Dr. B.P Saraf, J.:— By this reference under section 61(1) of the Bombay Sales Tax Act, 1959, the Maharashtra Sales Tax Tribunal has referred the following question of law to this Court for opinion at the instance of the revenue:

“Whether on the facts and circumstances of the case and on a true and correct interpretation of the provisions of section 2(17) of the Bombay Sales Tax Act, was the Tribunal justified in holding that crushing of boulders resulting in metal of different sizes commercially known as ‘Gitti’ does not amount to manufacture?”

2. As is evident from the above question, the controversy is whether stone in the form of boulders ceases to be stone after undergoing the process of crushing for conversion of the same into stones of smaller sizes known as gitti. The material facts are as follows: The assessee purchased big size stones known as “boulders” from registered dealers and with the help of crushing machine converted the same into stones of smaller sizes, known as “gitti”. He applied to the Commissioner of Sales Tax under section 52(b) of the Bombay Sales Tax Act, 1959 (“Act”) for determination of the question whether the process of crushing stones of bigger sizes known as boulders into gitti would amount to “manufacture”. The Deputy Commissioner, who took up the determination, held it to be a process of manufacture within the meaning of section 2(17) of the Act. Against the above order, the assessee appealed to the Maharashtra Sales Tax Tribunal (“Tribunal”). The contention of the assessee before the Tribunal was that the process of crushing boulders into stones of smaller sizes known as gitti did not amount to manufacture within the meaning of section 2(17) of the Act, inasmuch as no new commercial commodity, different and distinct from the boulders which were crushed, emerged as a result of the said process. The Tribunal accepted the contention of the assessee and held that crushing of stones does not amount to manufacture. Hence this reference at the instance of the revenue.

3. The sole controversy in this case is whether conversion of boulders into gitti amounts to manufacture. The determination of the same will depend upon the answer to the question whether the gitti produced as a result of the process undertaken by the assessee is different and distinct from the boulders which had been processed or crushed. According to the revenue, the process undertaken by the assessee amounts to “manufacture” within the meaning of section 2(17) of the Act, as gitti is a commodity different and distinct from boulder. Reliance is placed in support of the above contention on the decisions of the Madhya Pradesh High Court in G.R Kulkarni v. State, (1957) 8 STC 294; Kher Stone Crusher v. G.M Dist. Indus. Centre, (1990) 79 STC 149, Rajasthan High Court in CTC v. Bhonrilal Jain, (1994) 94 STC 118, and the Supreme Court in Modern Proteins Ltd. v. State of A.P, (1994) 95 STC 181.

4. We have carefully considered the submissions of the learned counsel. “Manufacture” has been defined in section 2(17) of the Act as follows:

“‘Manufacture’, with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating, or adapting any goods; but does not include such manufactures or manufacturing process as may be prescribed;”

5. Though the above definition is couched in very wide terms and construed literally may lake within its ambit the activity of breaking or crushing boulders to reduce their size, it cannot be so construed in view of the decision of the Supreme Court in State of Maharashtra v. Shiv Datt and Sons, reported in (1992) 84 STC 497. In that case the Supreme Court repelled the argument made on behalf of the State that the definition of “manufacture” contained in section 2(17) of the Act was very wide and unrestricted and hence any process with reference to the goods would amount to a process of manufacture and observed (at p. 502):

“Prima facie, this argument looks very attractive. But, On careful consideration, we are of the opinion that the terms of section 2(17) should not be given such a wide interpretation. If such a wide interpretation is given there may be very absurd results flowing as a consequence thereof. For instance, the definition includes the word “ornamenting”. If a dealer purchases certain goods and merely adds some decorative material thereto, according to the State's interpretation, there will be a “manufacture”. For instance, if a car is purchased and some lights or some special gadgets are added thereto, the interpretation will result in rendering the resale of the same car the resale of a different commodity. Again, if a piece of furniture is sold in a dismantled condition and the distributor puts the parts together and sells it, the definition, if construed as widely as interpreted by the State, can be said to amount to manufacture and render the furniture sold a different item of goods from the furniture purchased. This clearly is not the intention of the Legislature…. This provision should be interpreted in a practical and workable manner. The mere fact that the words used in the definition of “manufacture” are very wide should not lead us to so widely interpret them as to render the provision practically meaningless and so as to treat the goods sold as different merely because some slight additions or changes are made in the goods which are purchased before they are sold. It is true that under the section it is not necessary that there should be “manufacture” in the sense that a new commodity has been brought into existence as would have been required if that word is interpreted in its literal sense. But, at the same time, the section should be so interpreted to mean only such of the various processes referred to in the definition and applied to the goods as are of such a character as to have an impact on the nature of the goods. This is indeed made clear by the closing words of the definition which refer to “manufacture or manufacturing processes….”

6. The Supreme Court also referred to the decision of this Court in Nilgiri Ceylon Tea Supplying Co. v. State of Bombay reported in (1959) 10 STC 500 and quoted with approval (at p. 503) the following passage appearing therein:

“In our view, the quantities of tea purchased by the assessees cannot, since the date of the purchases, be regarded as processed within the meaning of the proviso to clause (a) of section 8 of the Act. There is not even application of mechanical force so as to subject the commodity to a process, manufacture, development, or preparation. The commodity has remained in the same condition. It is true that in the preparation of the tea mixture which is marketed, there may be some skill involved. But that, in our judgment, cannot be regarded as processing within the meaning of the proviso…..

…. It cannot however be said that in the preparation of the tea mixture there is any alteration in the goods. Undoubtedly by mixing up the different varieties of tea purchased by the assessees there resulted a mixture in which the individuality of the components was obscured, but that, in our judgment, is not alteration within the meaning of the Act. The alteration contemplated by the Legislature is some alteration in the nature or character of the goods.”

7. And observed:

“…. though the words used by the statute, namely, “processed or altered in any manner after such purchase” were very wide, the court read down the scope of this expression and considered that, for the purposes of the definition, there should be some alteration in the nature or character of the goods….”

8. The Supreme Court approved the above approach of this Court and held: (at p. 504):

“….In our opinion, the interpretation of section 2(17) calls for a like limitation on the words used by the statute. As we have already pointed out, that if a very wide interpretation is given, it may lead to impractical consequences…”

9. The ratio of the above decision is, clear: Only such of the processes referred to in section 2(17) of the Act and applied to the goods as are of such a character as to have an impact on the nature of the goods could be regarded as “manufacture”.

10. To the same effect is the decision of the Supreme Court in Dy. CST v. Pio Food Packer's, (1990) 46 STC 63 where it was held that it is only when the change, or a series of changes take a commodity to a point where commercially it can no longer be regarded as the original commodity but instead recognised as a new distinct article that a manufacture can be said to take place. The same test was applied by the Supreme Court in Chowgule and Co. Pvt. Ltd. v. Union of India, (1981) 47 STC 124 to decide whether blending of different qualities of ore to produce ore of the contractual specifications involved any process of manufacture and in Sterling Foods v. State of Karnataka, (1986) 63 STC 239 to decide whether the process of cutting of heads and tails, pealing, deveining, cleaning and freezing of lobsters amounted to a process of manufacture. In both these cases, it was held that the process applied to the goods by the assessee did not amount to manufacture. In Sterling Foods, the Supreme Court also held that the test for the purpose of determining whether a commodity subjected to processing retains its original character and identity is whether the processed commodity is regarded in the trade by those who deal in it as distinct in identity from the original commodity or it is regarded commercially and in the trade, the same as the original commodity.

11. Applying the above tests, it was held by the Supreme Court:

(i) Blending of different qualities of ore possessing differing chemical and physical composition so as to produce ore of contractual specifications cannot be said to involve any process of manufacture, since the ore that is produced cannot be regarded as a commercially new and different commodity from ore of different specifications blended together. It is commercially the same article, namely, ore, though with different specifications than the ore which is blended. Hence it cannot be said that any process of manufacture is involved in the blending of ore (Chowgule and Co., supra)

(ii) Preparation of pineapple slices for sale in sealed cans does not amount to manufacture though for that purpose pineapples purchased by the assessee are sliced after washing and removing the portion, the end crown, the skin and the inner case, and filled in cans and after adding preservatives sealed under temperature and then put in boiling water for sterilisation. Because, there is no essential difference between pineapple fruit and canned pineapple slices. (Pio Food Packer's, supra)

(iii) Processing of raw shrimps to the process of cutting of heads and tails, pealing, deveining, cleaning and freezing does not amount to manufacture because processed and frozen shrimps, prawns and lobsters are commercially regarded the same commodity as shrimps, prawns and lobsters. (Sterling Foods, supra)

12. In the present case, we are called upon to decide whether the crushing of stones (boulders) into “gittis” (stones of smaller sizes) amounts to manufacture. To answer the same it is necessary to determine whether “boulders” and “gitti” are commercially regarded as the same commodity, namely, stone which falls under entry 25 of Part II of Schedule C to the Act or they are regarded as two distinct and different commodities. Applying the tests laid down by the Supreme Court, it is obvious that the process of crushing boulders to obtain stones of smaller sizes termed as “gitti” cannot be regarded as a process of manufacture. The taxable item is “stone”. Boulders and gitti are different sizes of the same. Breaking of boulders, which are pieces of stones of bigger size, into pieces of relatively smaller size known as gitti does not alter the nature and character of stone. They remain stone, which falls under entry 25 of Part II of Schedule C to the Act which, so far as relevant, reads:

Sr. No. Description of the goods Rate of Sales tax Rate of purchase tax 1. 2. 3. 4. 25 (i) Building material including lime, sand, stone, rubble, refractory bricks but excluding those specified elsewhere. 8 paise in the rupee eight paise in the rupee

13. The admitted position is that boulders are “stone” falling under the above entry. In our opinion, such stones do not cease to be stones, merely by reason of the fact that they have been reduced in size by the process of crushing or breaking. The process of crushing therefore, cannot be regarded as a process of manufacture.

14. We are supported in our above conclusion by the decision of the Supreme Court in State of Orissa v. Titaghar Paper Mills Ltd., (1985) 60 STC 213. The controversy before the Supreme Court in that case was whether planks and rafters were timber or different commercial commodity manufactured out of timber. The Supreme Court held that planks and rafters were nothing but timber. Ratio of the above decision squarely applies to the crushing of boulders into gitti. Despite crushing, gitti would continue to be stone.

15. We have carefully perused the decision of the Supreme Court in Modern Proteins Ltd. v. State of A.P, (1994) 95 STC 181 supra. We find that the ratio thereof is not applicable to the facts of the present case. We have also carefully perused the decision of the Madhya Pradesh High Court in Kher Stone Crusher v. G.J Dist. Indus. Centre, (1990) 79 STC 149 and the Rajasthan High Court in CTO v. Bhonrilal Jain, (1994) 94 STC 118 where it has been held that crushing of boulders to obtain stones of smaller size called as gitti amounts to manufacture. In view of the decisions of the Supreme Court, particularly in State of Maharashtra v. Shiv Datt, Pio Food Packer's, Chowgule and Co. and Sterling Foods, (supra), and for the reasons set out above, we find it difficult to agree with the opinion of the Madhya Pradesh High Court and the Rajasthan High Court. In the light of the above, we answer the question referred to us in the affirmative and in favour of the assessee.

16. Under the facts and circumstances of the case, we make no order as to costs.

Order accordingly.