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Commercial Taxes Officer, Special Circle, Udaipur v. M/S. Bikaner Gypsum Ltd. Bikaner (132)
Structured Summary of the Opinion: Excavation of Gypsum and the Meaning of "Manufacture"
Factual and Procedural Background
The Board of Revenue for Rajasthan, Ajmer referred the following question of law to this Court arising out of its order dated 7 August 1979 in Special Appeal No. 1/9/76 (Bikaner): whether, on the facts and in the circumstances of the case, the work of excavating gypsum from the earth involves a manufacturing process.
M/s. Bikaner Gypsum Limited (the non-petitioner / assessee) was engaged in excavating gypsum. It purchased spare parts, machinery, equipment, tyres and tubes against declarations in Form S.T. 17 stating that those goods were required for "manufacturing and mining". The Commercial Taxes Officer, Special Circle, Jodhpur, by order dated 22 March 1968, held that the assessee was not a manufacturer and therefore could not claim concessions under Section 6C of the Rajasthan Sales Tax Act, 1964; consequently the concession was denied. The assessee's appeal was dismissed by the Deputy Commissioner (Appeals), Commercial Taxes, Bikaner by order dated 21 March 1970, which described excavation of gypsum as "simple excavation" and not a process of manufacture.
On revision, a single Member of the Board (order dated 15 October 1974) also held that excavation from earth cannot constitute manufacture. The Division Bench of the Board, however, allowed a special appeal by order dated 7 August 1979 and held that excavation of gypsum does involve a process of manufacture to make it marketable. The Commercial Taxes Officer, Special Circle, Udaipur, applied to refer that question of law to this Court. The reference was pending when the Rajasthan Sales Tax (Amendment) Act, 1984 came into force; by virtue of Section 13(11) of the Amendment Act the reference was heard as a revision and disposed of under Section 15 as substituted by the Amendment Act.
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the work of excavating gypsum from the earth involves a manufacturing process within the meaning of Section 2(k) of the Rajasthan Sales Tax Act, 1964?
Arguments of the Parties
Commercial Taxes Officer (Respondent / Revenue)
- The assessing authority and earlier appellate authorities treated the assessee as not being a manufacturer and denied concessional purchases under Section 6C of the Act. The orders (22 March 1968; 21 March 1970; 15 October 1974) proceeded on the basis that excavation of gypsum is simple excavation and not a process of manufacture.
Non-petitioner / Assessee (M/s. Bikaner Gypsum Limited)
- The assessee contended that excavating gypsum amounts to "extracting" and that the definition of "manufacture" in Section 2(k) expressly includes "extracting"; therefore excavation should be treated as a manufacturing process.
- In its declarations the assessee described purchases as for "manufacturing and mining", and before the authorities asserted that excavation raised gypsum from the mines and hence qualified as manufacture under the Act.
- Counsel for the assessee cited several authorities (e.g., Chrestien Mica Industries Ltd., G. R. Kulkarni, State of Gujarat v. Oil & Natural Gas Commission, Bhagwan Dass, Commissioner v. Indian Oil Corporation Ltd.) to support a broad meaning of "manufacture".
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Assistant Commercial Taxes Officer v. Sitaram Badrilal [1986] 61 STC 258 | Examination of the definition of "manufacture" in Section 2(k); treated as authority on the scope of "manufacture". | The Court noted that this Division Bench had examined Section 2(k) and, after considering several Supreme Court decisions, concluded that if goods remain essentially the same commercial article after application of labour, they are not the product of manufacture. The present Court applied that principle to gypsum. |
| Commissioner of Sales Tax v. Harbilas Rai and Sons [1968] 21 STC 17 (SC) | Considered on the question whether labour applied results in a different commercial article constituting manufacture. | One of the authorities considered in the chain of decisions leading to the proposition that mere application of labour to an article that remains essentially the same does not amount to manufacture; applied to hold excavation not manufacture. |
| Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 (SC) | Considered in context of what constitutes manufacture under sales tax law. | Included among cases supporting the test that no manufacture arises where the commodity remains essentially the same after labour; applied by the Court in rejecting the view that excavation is manufacture. |
| Commissioner of Sales Tax v. Hastimal Ratanlal [1972] 30 STC 484 | Considered in construing the meaning and scope of "manufacture". | Taken into account as part of the jurisprudence that a change in form that does not produce a different commercial article is not manufacture; used to support the Court's conclusion about gypsum. |
| Commissioner of Sales Tax v. Radha Dyeing and Printing Mills [1981] 48 STC 61 | Considered on the scope of "manufacture" and the effect of labour on goods. | Considered among authorities establishing that where goods remain essentially the same, they are not the product of manufacture; applied to the facts here. |
| State v. SdhachariVdhyog Mandir [1986] 61 STC 30 | Considered in construing "manufacture" for sales tax purposes. | Part of the body of authority relied upon for the proposition that no manufacture occurs where the commodity remains essentially identical despite labour; cited in support of the Court's conclusion. |
| Chrestien Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150 (SC) | Cited by counsel for the assessee to illustrate meanings of "manufacture" in other sales tax cases. | The Court observed the citation but held that this and similar cases cited by the assessee did not assist in proving that "extracting" in Section 2(k) includes excavation in the present factual context. |
| G. R. Kulharni v. State [1957] 8 STC 294 | Cited by counsel for a broad understanding of "manufacture". | The Court noted the citation but found it of no assistance for the proposition that excavation is equivalent to extraction under Section 2(k). |
| State of Gujarat v. Oil and Natural Gas Commission [1982] 49 STC 310 | Cited by the assessee for the interpretation of "manufacture" in analogous contexts. | The Court recorded the citation but concluded it did not support the assessee's contention that excavation equals extracting for purposes of Section 2(k). |
| Bhagwan Dass v. State of U.P. 1976 UJ (SC) 418 | Cited by counsel for definition/meaning of "manufacture". | The Court noted the citation; it did not assist in establishing that excavating gypsum is a manufacturing process under the statute. |
| Commissioner of Sales Tax v. Indian Oil Corporation Ltd. [1978] 41 STC 471 | Cited by the assessee to support a broader definition of "manufacture". | The Court acknowledged the citation but found it did not aid the assessee's argument that extraction includes excavation in the present facts. |
Court's Reasoning and Analysis
The Court proceeded by analysing the statutory definition, the factual nature of the assessee's activities, the lexical distinction between key verbs, and the relevant authorities.
- Statutory provision considered: Section 2(k) of the Rajasthan Sales Tax Act (as it stood) defined "manufacture" to include "any process or manner of producing, collecting, extracting, preparing or making any goods."
- The Court considered prior appellate and Supreme Court authorities (as discussed in Assistant Commercial Taxes Officer v. Sitaram Badrilal and other cited cases) and distilled from them the principle that where some labour is applied but the goods remain essentially the same commercial article, the result is not a manufacture. The Court treated that principle as central to the present enquiry.
- The Court examined the factual operation: the assessee dug out lumps of gypsum from the earth and sold those lumps in the market. The gypsum after excavation remained essentially the same commodity as it was underground; there was no transformation into a new article with a different name, character or use.
- The Court analysed semantics: it distinguished "extract" from "excavate". "Extract" was explained as taking something from something of which it was a part (illustrated by extracting juice from fruit), i.e., "drawing out." "Excavate" was explained as "to dig out," "to take out," i.e., creating a hollow by removal. The Court observed the words are not synonymous in meaning or sense and found no dictionary authority supplied by the assessee to equate them.
- Applying the governing principle from the cited authorities to the facts, the Court held that excavation of gypsum — merely digging out lumps that remain the same commercial commodity when sold — does not amount to a manufacturing process within Section 2(k)'s meaning.
- The Court rejected the Division Bench of the Board's reasoning that gypsum was not sold in the form obtained from mines and that a conversion into a different marketable commodity occurred, noting that the product sold was the same as that taken out and it did not lose its identity.
- The Court considered the additional authorities relied upon by the assessee and found they did not assist the proposition that "extracting" necessarily includes "excavating" for the purposes of the statute in the particular facts of the case.
Holding and Implications
Holding: The Court allowed the revision (the reference treated as revision) and concluded that the work of excavating gypsum from the earth does not include a manufacturing process within the meaning of Section 2(k) of the Rajasthan Sales Tax Act.
Consequential orders: The Court set aside the Division Bench's order dated 7 August 1979 and restored the earlier orders: the order dated 22 March 1968 of the Commercial Taxes Officer, Special Circle, Jodhpur; the order dated 21 March 1970 of the Deputy Commissioner (Appeals), Commercial Taxes, Bikaner; and the order dated 15 October 1974 of the single Member of the Board of Revenue. The Court left the parties to bear their own costs.
Implications: As decided, the direct effect is that the assessee is not a "manufacturer" for purposes of the Act and therefore could not claim concessions available to manufacturers under Section 6C. The opinion does not state that it establishes any new, general precedent beyond applying established principles; it confines its conclusion to the interpretation and application of the statutory definition to the facts before the Court.
This summary is based exclusively on the material contained in the provided opinion; no information has been added beyond the text of the opinion.
1. The Board of Revenue for Rajasthan, Ajmer ("the Board" herein), has referred the following question of law for the opinion of this Court, which is said to arise out of its order dated 7th August, 1979, passed in Special Appeal No. 1/9/76 Bikaner :
Whether, on the facts and in the circumstances of the case, the work of excavating gypsum from the earth involves a manufacturing process?
2. The non-petitioner, M/s. Bikaner Gypsum Limited, Bikaner (assessee), was engaged in the work of excavating gypsum. For this purpose, it bought spare parts, machinery and other equipments, tyres and tubes against declaration in form S.T. 17 saying that the aforesaid goods were required for manufacturing and mining. The Commercial Taxes Officer, Special Circle, Jodhpur, by his order, dated 22nd March, 1968, held that the non-petitioner (assessee) is not a manufacturer and under Section 6C of the Rajasthan Sales Tax Act, 1964 (Act No. 29 of 1954) (for short "the Act" hereinafter), purchases of raw material on concessional rate can be made only by these registered dealers of the State who are manufacturers. He, therefore, held that the non-petitioner cannot avail of the concession provided under the Act. In view of this he deleted all the items added by the Assistant Commercial Taxes Officer under Section 6C of the Act. The non-petitioner (assessee) lodged an appeal and the Deputy Commissioner (Appeals), Commercial Taxes, Bikaner, by his order dated 21st March, 1970, dismissed the appeal and observed as under :
In the case before me, excavation of gypsum as it does not involve any elaborate process, will be considered as simple excavation and not a process of manufacture.
3. He arrived at the conclusion that the non-petitioner (assessee) is neither a manufacturer nor the goods purchased by him are raw materials used as ingredients in any manufactured goods. The non-petitioner (assessee) went in revision. The single Member of the Board after taking into consideration the definition of the word "manufacture" as defined in Section 2(k) of the Act in his order dated 16th October, 1974, held that the process of excavation from earth cannot constitute the process of manufacture and so the non-petitioner (assessee) cannot be engaged in the process of manufacture by excavation of gypsum from earth. He, therefore, dismissed the revision. The non-petitioner (assessee) filed a special appeal before the Division Bench of the Board. The Division Bench of the Board by its order dated 7th August, 1979, allowed the appeal and held that excavation of gypsum does involve the manufacturing process in order to make it marketable. It will be pertinent to excerpt the following from the order of the Division Bench of the Board :
We cannot say that gypsum is sold as it is excavated. It does involve a process of manufacture. As per definition given in Section 2(k) of the Rajasthan Sales Tax Act, which is very wide and broad one, it includes a number of processes such as producing, collecting, extracting, preparing or making any good sand even the process of excavation can, under the circumstances, be covered under this definition. Gypsum is not sold in the form in which it is obtained from the mines. The lumps of gypsum constitute raw material and it has to be converted into a different and marketable commodity and this process of change is certainly one of the manufacturing processes.
4. The Commercial Taxes Officer, Special Circle, Udaipur, submitted an application for making reference to the question of law arising out of the order of the Division Bench of the Board dated 7th August, 1979. As such the Board has referred the aforesaid question of law as aforesaid.
5. This reference was pending on 1st May, 1985, when the Rajasthan Sales Tax (Amendment) Act, 1984 (Act No. 20 of 1984) (for short "the Amendment Act"), came into force. By virtue of Section 13(11) of the Amendment Act this reference has been heard as revision and is .disposed of as such under Section 15 of the Act as substituted by the Amendment Act.
6. We have heard Mr. K. C. Bhandari, for the Commercial Taxes Officer, Special Circle, Udaipur, and Mr. B. R. Arora, for the non-petitioner (assessee), and carefully considered the order dated 7th August, 1979, of the Division Bench of the Board. The question of law, which is involved in this revision is the very same which has been referred by the Board of Revenue.
7. We are called upon to determine whether the work of excavation of gypsum from the earth carried by the non-petitioner (assessee) includes a manufacturing process. It may be stated that in the declaration in form S.T. 17 the non-petitioner (assessee) stated that he is purchasing spare parts, machinery, equipments, tyres and tubes as they are required for "manufacturing and mining". A query was made by the Commercial Taxes Officer, Special Circle, Udaipur, in this regard, to which the non-petitioner (assessee) stated that it was raising gypsum from the mines and, therefore, they are manufacturers under the Act. It was submitted before the assessing authority as well as the Deputy Commissioner (Appeals), Commercial Taxes, Bikaner, that the non-petitioner (assessee) has been carrying on the business of "excavating gypsum" from the ground (earth) and that excavation amounts to manufacture. The Division Bench of the Board in disagreement with the assessing authority, the Deputy Commissioner (Appeals), Commercial Taxes, Bikaner, and the single Member of the Board was of the opinion that the definition of "manufacture" as given in Section 2(k) of the Act in the facts and circumstances of this case includes process of excavation. The definition of "manufacture" as stood then in Section 2(k) of the Act was as under:
Section 2. (k) 'manufacture' includes any process or manner of producing collecting, extracting, preparing or making any goods.
8. The definition of "manufacture" as given in Section 2(k) of the Act was examined by the Division Bench of this Court in Assistant Commercial Taxes Officer v. Sitaram Badrilal [1986] 61 STC 258. It was held after considering Commissioner of Sales Tax v. Harbilas Rai and Sons [1968] 21 STC 17 (SC), Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 (SC), Commissioner of Sales Tax v. Hastimal Ratanlal [1972] 30 STC 484, Commissioner of Sales Tax v. Radha Dyeing and Printing Mills [1981] 48 STC 61 and State v. SdhachariVdhyog Mandir [1986] 61 STC 30 that if the goods to which some labour is applied remain essentially the same commercial article, it cannot be said that the final product is the result of the manufacture. In other words, where the commodity essentially remains the same article then it cannot be said that the product which comes out after the application of the labour is the result of the manufacture. In this case the non-petitioner (assessee) is merely engaged in taking out of gypsum in lumps. The gypsum in the ground after taking it out is sold in the market. It remains essentially the same commodity as it was in the ground (earth) though labour has been applied in taking it out. In other words, there is no transformation or a new and different article does not emerge having a different name, character or use, after it is excavated from the ground (earth). Having regard to the meaning of the word "manufacture" as defined in Section 2(k) of the Act, we are unhesitatingly of the opinion that the view that the process of excavating of gypsum also includes manufacturing process is erroneous in law.
9. Mr. B.R. Arora, learned counsel for the non-petitioner (assessee), submitted that "manufacture" as defined in Section 2(k) of the Act includes process of "extracting" and according to him excavating gypsum from the ground (earth) is nothing but extracting gypsum and thus it is a process of manufacturing. On this basic premise, contended the learned counsel, that the process of manufacture is involved in the activities carried by the non-petitioner (assesseee). This has necessitated for us to consider the meaning and connotation of the words "extract" and "excavate". We may at once mention that the words "extract" and "excavate" are not synonymous. The definition of the word "extract" in the context of manufacture would be to take from something of which the thing taken was a part. To illustrate: juices are extracted from fruits, and oil from oil-seeds. "Excavation" means "to make hollow by removing the inside, to dig out leaving a hollow". When we say that there is a process of "drawing out", it is extracting and when we say it is "taken out" it is excavating. The difference between "extracting" and "excavating" can be well-understood as "drawing out" and "taking out". They have different meaning. They have different sense. Mr. B. R. Arora, learned counsel for the non-petitioner, could not show us from any dictionary that these two words are synonymous. Having regard to the definition of the word "manufacture" in Section 2(k), the activities carried on by the non-petitioner (assessee) that of excavation of gypsum, in our considered opinion, cannot be termed as manufacturing process. The Division Bench of the Board was, therefore, not right in holding that the process of extracting envisaged by Section 2(k) of the Act, which defines manufacture, includes the process of excavating. It needs to be mentioned here that the Division Bench of the Board has stated in its order that before gypsum is made marketable it does involve process and which, according to it, is a process of manufacture. What is done by the non-petitioner (assessee) is to dig out the gypsum which is lying underground (earth). By engaging labour, it is taken out, then it is sold in the market. It was put to the learned counsel for the non-petitioner (assessee) as to what was the different form of gypsum other than the one when it is taken out from the ground before it is sold, as the Board has observed that gypsum is not sold in the form it is obtained from the mines. The learned counsel replied that after taking it out it is sold in pieces of different sizes and, therefore, it is in different form. He, however, did not dispute that gypsum under the earth and gypsum after it is taken out from it and sold in the market is the same commercial commodity.
10. The Board has observed that the lumps, of gypsum constitute raw material and it has to be converted into a different and marketable commodity and this process or change is .certainly one of manufacturing process. By engaging labour the gypsum is dug out from the earth and then in pieces it is sold. The commodity which is sold is the very same which is taken out from the earth in lumps. It does not lose its identity. The approach made by the Division Bench of the Board was not at all justified. In these circumstances, the Division Bench of the Board misdirected itself when it observed that gypsum after having been taken out, when sold, is altogether different marketable commodity.
11. Learned counsel for the non-petitioner (assessee) has cited Chrestien Mica Industries Ltd. v. State of Bihar [1961] 12 STC 150 (SC), G. R. Kulharni v. State [1957] 8 STC 294, State of Gujarat v. Oil and Natural Gas Commission [1982] 49 STC 310, Bhagwan Dass v. State of U.P. 1976 UJ (SC) 418 and Commissioner of Sales Tax v. Indian Oil Corporation Ltd. [1978] 41 STC 471, to show the meaning of the word "manufacture" as used in the Act as well as in the other Acts relating to sales tax of other States. There is no controversy with respect to the meaning of the word "manufacture" as defined in Section 2(k) of the Act and none of these cases is of any assistance to the learned counsel for the non-petitioner (assessee) in support of his view of that the process of extracting includes excavation and activities of digging out gypsum from the earth.
12. For the reasons aforesaid, we are of the opinion that the Division Bench of the Board was not right in holding that the work of excavating gypsum from earth includes manufacturing process within the meaning of Section 2(k) of the Act.
13. We, therefore, allow this revision (references treated as revision) and set aside the order dated 7th August, 1979, of the Division Bench of the Board and restore the orders dated 22nd March, 1968, of the Commercial Taxes Officer, Special Circle, Jodhpur, 21st March, 1970, of the Deputy Commissioner (Appeals), Commercial Taxes, Bikaner, 15th October, 1974, of the single Member of the Board of Revenue. We leave the parties to bear their own costs.
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