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Collector Of Sales-Tax v. Abdul Rehman Alladin
Summary of Opinion: Reference under section 34(1) of the Bombay Sales Tax Act, 1953
Factual and Procedural Background
The reference arises under section 34(1) of the Bombay Sales Tax Act, 1953. The respondents, Messrs Abdul Rehman Alladin, were engaged in purchasing old motor-cars, dismantling them, deriving spare parts for sale without moulding, repairing or changing them, and selling old motor-cars and scrap. The respondents applied for registration on 11 July 1955, asserting that by that date their turnover had exceeded Rs. 25,000.
The Sales Tax Officer, by an order dated 11 July 1955, held that the respondents were liable as dealers who processed goods with effect from 1 April (when their turnover was taken to have exceeded Rs. 10,000). On appeal the Assistant Collector of Sales Tax set aside that assessment by his order dated 9 July 1956. The Additional Collector of Sales Tax, exercising revisionary powers, restored the Sales Tax Officer's assessment by his order dated 19 May 1958. The Sales Tax Tribunal thereafter set aside the Additional Collector's order and affirmed the Assistant Collector's order, observing that change of the original goods was the essence of processing and, given the description of the respondents' work, they had not engaged in processing. At the instance of the Collector of Sales Tax a reference was made to the Court for determination of three questions arising from the Tribunal's order.
Legal Issues Presented
- Whether in respect of their business in spare parts the respondents are "processors" within the meaning of clause (ii) of section 5(1)(b) of the Bombay Sales Tax Act, 1953?
- Whether in any event in respect of their business in spare parts the respondents are producers or manufacturers within the meaning of clause (ii) of section 5(1)(b) of the Bombay Sales Tax Act, 1953?
- Whether on the facts and in the circumstances of the case the respondents are liable to pay tax under section 5 of the Bombay Sales Tax Act, 1953, with effect from 1 April 1954?
Arguments of the Parties
Appellant (Collector of Sales Tax / Advocate-General)
- The Advocate-General drew attention to prior case law, notably Anwarkhan Mehboob Co. v. State of Bombay and Chrestien Mica Industries Ltd. v. State of Bihar, in support of interpretations of "consumption", "processing" and "production".
- For the second question (production), the Advocate-General confined his submissions to the proposition that parts taken out from a motor-car might be treated as "produced" (i.e., he did not press an argument that such removal amounted to "manufacture").
Respondents
- The respondents' factual position (as set out in the opinion) was that they purchased and dismantled motor-cars and sold parts as spare parts without altering them, and that they applied for registration only on 11 July 1955 when turnover thresholds were alleged to have been exceeded.
- The Tribunal's reasoning, which favored the respondents, emphasized that processing requires change of the original goods and that the respondents' activities did not amount to such change.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Anwarkhan Mehboob Co. v. State of Bombay ([1960) 11 S.T.C. 698) | Whether conversion of a commodity into a different commercial commodity by processing constitutes "consumption" (interpretation of Explanation to Article 286(1)(a) of the Constitution as it then stood). | The Court noted the passage relied upon but held that those observations did not materially assist in construing the phrase "who processes any goods" in section 5(1)(b)(ii) of the Sales Tax Act, 1953. |
| Chrestien Mica Industries Ltd. v. State of Bihar ([1961] 12 S.T.C. 150) | Consideration of "production" within the Bihar Sales Tax Act — held that mining mica and processing it into split mica constituted production. | The Court observed the decision but recorded that it did not define what constitutes "processing of goods" for purposes of section 5(1)(b)(ii) of the Bombay Act. |
| North Bengal Stores Ltd. v. Board of Revenue, Bengal (1 S.T.C. 157) | Whether a dispensing chemist "produces" goods for sale when dispensing prescriptions. | The Court distinguished that case from the present facts, concluding that the chemist's production of drugs for sale cannot be compared with removing spare parts from second-hand cars. |
| State of Madhya Pradesh v. Wasudeo (VI S.T.C. 30) | Whether cutting trees into logs/rafters amounted to manufacture/production within the relevant Sales Tax Act. | The Court noted the reasoning that shaping trees into logs altered commercial value and constituted production; it distinguished the present case on its facts and language of the section. |
| G. R. Kulkarni v. The State (VIII S.T.C. 294) | Whether breaking boulders into metal was "manufacture" under the Madhya Pradesh Sales Tax Act, 1946. | The Court observed the decision but held that extraction of metal from boulders is not analogous to removal of parts from a car; the precedent did not assist in classifying the respondents' activities as production or manufacture. |
Court's Reasoning and Analysis
The Court proceeded by examining the plain meaning of the key expressions and applying them to the undisputed factual description of the respondents' business.
- The Court interpreted "process" as a transitive verb. It relied on dictionary definitions (cited from Webster's New World Dictionary and Iyer's Law Lexicon) that describe "process" as preparing by or subjecting to treatment or transforming/reducing a substance to a different state.
- Applying that meaning, the Court considered whether dismantling a motor-car and removing identifiable parts (intended to be sold as spare parts) constituted subjecting goods to a treatment/process. The Court concluded that the act of removing a part to sell it as a spare cannot, from a common-sense viewpoint, be regarded as "processing any goods" because the removed parts retain their identity and are not transformed into a different commodity by treatment.
- The Court reviewed the precedent Anwarkhan Mehboob Co. and noted its observation that conversion by processing could be regarded as consumption; however, the Court found that those observations did not materially clarify the meaning of "who processes any goods" in section 5(1)(b)(ii).
- The Court examined Chrestien Mica Industries (mining and processing mica into split mica) and recognized that production had been found there, but observed that the decision did not define "processing of goods" for purposes of the Bombay Act.
- On the question of production/manufacture, the Court accepted that removed spare parts have identity distinct from the car but held that removal is not equivalent to producing something: nothing new is created out of the car; parts are merely separated from a complex object.
- The Court reviewed three further authorities (North Bengal Stores — chemist; Wasudeo — timber shaped into logs; G.R. Kulkarni — breaking boulders into metal) and explained why each was distinguishable from the present facts. The authorities where alteration or shaping produced a distinct commercial commodity (e.g., split mica, logs/rafters, metal from boulders) did not support treating removal of spare parts as processing or production.
- On this basis, the Court concluded that neither "processing" nor "production/manufacture" within the meaning of clause (ii) of section 5(1)(b) applied to the respondents' described activities.
Holding and Implications
Holding:
The Court answered the reference as follows: the respondents are not "processors" within the meaning of clause (ii) of section 5(1)(b) of the Bombay Sales Tax Act, 1953, and they are not producers or manufacturers within the meaning of that provision; consequently the respondents are not liable to pay tax under section 5(1)(b)(ii) of the Bombay Sales Tax Act, 1953.
Implications:
- Direct effect on the parties: The respondents are not liable to pay tax under section 5(1)(b)(ii) with effect from 1 April 1954, and the applicant (Collector of Sales Tax) was ordered to pay the costs of the reference to the respondents.
- Broader implications: The opinion did not purport to establish a new broad precedent beyond its application to the facts before the Court; the decision rests on the construction of the words "process" and "produce/manufacture" as applied to dismantling motor-cars and removing parts for sale as spare parts.
Reference answered accordingly.
1. This is a reference under section 34(1) of the Bombay Sales Tax Act, 1953. The business of Messrs Abdul Rehman Alladin, the respondents herein, consisted of purchasing old motor-cars and dismantling the same and deriving spare parts therefrom and parts which could not be used as spare parts and of selling the spare parts without moulding, repairing or changing them in any way. The respondents also sold old motor-cars and scrap. The respondents applied for registration on 11th July, 1955, as by that date, according to them their turnover had exceeded Rs. 25,000. The Sales Tax Officer in his order dated 11th July, 1955, took the view that the respondents were liable as dealers who processed goods with effect from 1st April when their turnover was taken to have exceeded Rs. 10,000. The matter went in appeal before the Assistant Collector of Sales Tax who set aside the assessment by his order dated 9th July, 1956. Thereafter the Additional Collector of Sales Tax in exercise of his powers of revision, by his order dated 19th May, 1958, held that the respondents were dealers who processed goods and restored the assessment order passed by the Sales Tax Officer. The matter was carried further before the Sales Tax Tribunal. The Tribunal set aside the order of the Additional Collector of Sales Tax and affirmed the order of the Assistant Collector of Sales Tax. The Tribunal observed that in its opinion change of the original goods in some way or other was the essence of processing and that having regard to the description of the work done by the respondents, it could not be said that the respondents had done any work of processing. At the instance of the Collector of Sales Tax, a reference has been made to us for the determination of the following questions which arise out of the order of the Tribunal.
"(1) Whether in respect of their business in spare parts the respondents are 'processors' within the meaning of clause (ii) of section 5(1)(b) of the Bombay Sales Tax Act, 1953 ?
(2) Whether in any event in respect of their business in spare parts the respondents are producers or manufacturers within the meaning of clause (ii) of section 5(1)(b) of the Bombay Sales Tax Act, 1953 ?
(3) Whether on the facts and in the circumstances of the case the respondents are liable to pay tax under section 5 of the Bombay Sales Tax Act, 1953, with effect from 1st April, 1954 ?"
2. Section 5(1)(b)(ii) of the Bombay Sales Tax Act, 1953, which is required to be construed for the purpose of answering the aforesaid questions runs as under :-
"5. Incidence of tax. - (1) Every dealer whose turnover either of all sales or of all purchases made during -
3. The question that we have to determine is whether it could be said that the respondents in this case have processed any goods or produced or manufactured any goods. The term "process" has been used in the section as a transitive verb. In Webster's New World Dictionary, the meaning of the word "process" used as a transitive verb has been given as "to prepare by or subject to treatment or process". In Iyer's Law Lexicon that word has been stated to mean "treatment of substance in transforming or reducing it to a different state". We have, therefore, to consider whether when a person purchases old motor-cars and dismantles the same and takes out their parts which could be sold as spare parts, he could be said to have processed any goods. Can it be said that when a car is dismantled, it is subjected to a treatment for the purpose of taking thereout spare parts ? The expression "spare parts" itself indicates that the reference is to such parts of the car which are identifiable by name and which are capable of being removed from a car and replaced in a car. The action of removing a part from out of the car in order that it may be used as a spare part for fitting it into another car cannot from any common sense point of view be regarded as "processing any goods".
4. The learned Advocate-General drew our attention to the case reported in Anwarkhan Mehboob Co. v. State of Bombay ([1960) 11 S.T.C. 698). That was a case in which the Supreme Court had to consider the word "consumption" as appearing in the Explanation to Article 286(1)(a) of the Constitution, which existed before the passing of the Constitution (Sixth Amendment) Act, 1956. A passage in that judgment on which reliance has been placed, which appears at page 704, runs as under :-
"This conversion of a commodity into a different commercial commodity by subjecting it to some processing, is consumption within the meaning of the Explanation to Article 286 no less than the final act of user when no distinct commodity is being brought into existence but what was brought into existence is being used up."
5. It is further stated as follows :-
"We think it proper and reasonable to say that whenever a commodity is so dealt with as to change it into another commercial commodity there is consumption of the first commodity within the meaning of the Explanation to Article 286."
6. These observations of the Supreme Court do not much assist us in determining the meaning of the expression "who processes any goods" appearing in section 5(1)(b)(ii) of the Sales Tax Act, 1953.
7. Another decision on which reliance was placed is the decision in Chrestien Mica Industries Ltd. v. State of Bihar ([1961] 12 S.T.C. 150). In that case the Supreme Court had to consider the meaning of the expression "production" within the meaning of the Bihar Sales Tax Act, 1947. The Supreme Court held in that case that the process of mining mica is a process of production within the meaning of section 2(g) of the Bihar Sales Tax Act, 1947, as amended by Bihar Act VI of 1949. At page 152, the Supreme Court has observed as under :-
"The appellant company is carrying on mica mining operations by which crude mica is taken out of the mine and processed into split mica which is a commercial commodity. What happens is that there is winning of crude mica from the earth which is split into thinner plates and cut into commercial sizes."
8. Thereafter they processed to state that neither of the words "production" or "manufacture" is defined in the Bihar Sales Tax Act, but according to the Oxford English Dictionary, "production" meant amongst other things that which is produced; a thing that results from any action, process or effort, a product, a product of human activity or effort and that in that case there was "production" within the meaning of the Sales Tax Act under consideration. This decision does not define what constitutes "processing of goods".
9. In our view the expression "who processes any goods" refers to the subjecting of any goods to a treatment or process adopting the language of Webster's New World Dictionary. It cannot be said in the present case that when parts of a motor-car are removed so that they may be sold as spare parts, goods have been subjected to a treatment or process. The act of dismantling some parts of a motor-car cannot be treated as the processing of any goods within the meaning of the said section. In the result, our answer to the first question is in the negative.
10. That brings us to the second question whether it could be said that any goods are produced or manufactured when some parts from a car are taken out therefrom. The learned Advocate-General very fairly has not urged before us that any goods are manufactured when parts are taken out from a car. He has confined his case to the question of production of goods when parts are taken out from a motor-car. It is no doubt true that the parts which are taken from the motor-car with the intention of selling the same as spare parts cannot be equated with the car. The spare parts so taken out would have their own separate identity from the car. Even when some of the said parts were fitted into the car, they had retained their identity and when they are taken out of the car, they continue to retain their identity. It is not as if out of one thing another thing is produced. It is the removal of things from a car which contains many other things. In our view, when a part is separated from a car for the purpose of being used as a spare part for fitting into another car, it cannot be said that the person who is doing so is producing anything.
11. Our attention was called to three cases. The first case was the one reported in 1 Sales Tax Cases, page 157 (North Bengal Stores Ltd. v. Board of Revenue, Bengal). That was the case of a dispensing chemist and the question there raised was whether when a chemist dispenses a prescription of a doctor, he produces any goods for sale within the meaning of the Bengal Finance (Sales Tax) Act, 1941. The Court came to the conclusion that the chemist was producing goods for sale within the meaning of the said section. The action of a chemist in producing goods cannot be compared with the action of a purchaser of a second-hand motor-car who dismantles the same for the purpose of obtaining spare parts therefrom.
12. The second case to which reference has been made is the one reported in VI Sales Tax Cases, page 30 (State of Madhya Pradesh v. Wasudeo). In that case a person was convicted under section 24(1)(a) of the C.P. and Berar Sales Tax Act, 1947, for dealing in timber cut from Government forests without holding a registration certificate. It was urged that he only cut the trees and made them in a transportable form and that he could not be said to be a dealer, who manufactured or produced goods within the meaning of section 2(1)(a) of the Act. It was found that he had made the cut trees into logs or rafters and sold them as such. After referring to the dictionary meaning of the word "manufacture" as "the making of articles or material by physical labour or mechanical power" or as "to work up material into forms suitable for use", it was stated that logs or rafters into which the trees were shaped by the person concerned had a definite commercial value. Without any work of art the trees were liable to be sold only as raw material, whether as fuel or timber, and would have naturally fetched a low price. As logs or rafters they were liable to be used as beams or further shaped into finer furniture. They had, therefore, assumed a different shape or form which made them fit for use either directly or, if necessary, by applying some more labour and skill. It was held that the person concerned was a dealer who manufactured or produced goods within the meaning of the said section 2(1)(a).
13. The case before us stands on a somewhat different footing from the case cited before us. A carburetter or any other part dismantled from a car for the purpose of being used as a spare part cannot be treated as a part which has been produced out of a car within the meaning of the words used in that connection in section 5(1)(b)(ii) of the Sales Tax Act, 1953.
14. The third case is the case reported in VIII Sales Tax Cases, page 294 (G. R. Kulkarni v. The State). In that case it was held that the breaking of boulders into metal was "manufacture" within the meaning of section 2(1)(a) of the Madhya Pradesh Sales Tax Act, 1946. The extraction of metal from a boulder cannot be put on the same footing as the removal of a part from a car as a spare part. These decisions do not very much help us in considering the case which is before us. We have to read the provisions of the section as a whole and having so read them consider whether in plain English language one can ever say that a person who removed a part from a car for use as a spare part could be said to have produced that part. In our view it would be straining the language used in the section if we were to say that the respondents in this case produced any goods when they removed them from a car. In the result our answer to question No. 2 is in the negative.
15. The answer to question No. 3 is purely dependent upon our answer to earlier questions Nos. 1 and 2. Our answer to question No. 3 is that the respondents are not liable to pay tax under section 5(1)(b)(ii) of the Bombay Sales Tax Act, 1953.
16. The applicant will pay to the respondents the costs of the reference.
17. Reference answered accordingly.
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