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Commissioner Of Sales Tax, U.P v. Lal Kunwa Stone Crusher (P) Ltd. .
Factual and Procedural Background
The respondent-dealer purchases stone boulders and crushes them into smaller products—gitti, stone chips and dust—for resale. The dealer asserted that sales tax had already been paid on the original boulders and that the crushed products, being physically and chemically identical to the boulders, should not be taxed again. The assessing authority rejected this contention. On first appeal, the Assistant Commissioner of Sales Tax allowed the claim, holding that no tax was attracted. The Sales Tax Tribunal, by majority, affirmed that view. The Department sought revision before the High Court, which dismissed the petition in a brief order. The Department subsequently appealed to the Supreme Court.
Legal Issues Presented
- Whether crushing stone boulders into gitti, stone chips and dust results in “different commercial goods” so as to attract sales tax under Entry 40 of the notification dated 7-9-1981.
Arguments of the Parties
Department’s Arguments
- The crushing process constitutes “manufacture” within Section 2(e-1) of the U.P. Sales Tax Act, 1948, because it involves “processing” of goods.
- Once a manufacturing process takes place, the resulting products (gitti, chips and dust) become distinct commercial commodities liable to tax.
Respondent-Dealer’s Arguments
- Sales tax was already paid when the boulders were purchased; taxing the crushed products would amount to double taxation.
- Even if crushing amounts to manufacture, the end products are not commercially different from the original stone; therefore, no new taxable goods emerge.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of Tamil Nadu v. Pyare Lal Malhotra (1976) 1 SCC 834 | Separate commercial commodities are taxable when they emerge; mere processing without change in identity does not create new taxable goods. | The Court relied on this ruling to emphasize that only if crushed products are commercially distinct from stone boulders would additional tax apply; it concluded they are not. |
| Reliable Rocks Builders & Suppliers v. State of Karnataka (1982) 49 STC 110 (Kant.) | Purchase tax becomes payable when original goods are “consumed” in creating new commercial goods. | The Court distinguished this case, noting the Karnataka decision involved a different statutory entry and concepts of consumption not present here. |
Court's Reasoning and Analysis
1. Entry 40 of the 7-9-1981 notification lists “stone” and its variants (gitti, kankar, ballast, etc.) as taxable at the consumer-sale point. The Court observed that the notification contemplates taxing different varieties of the same substance, not taxing the substance twice at different stages.
2. Applying the principle from Pyare Lal Malhotra, the Court stated that tax attaches when a new commercial commodity, distinct in identity, emerges. Conversely, if goods retain their identity after processing, further tax does not arise.
3. The Court found that crushed products—gitti, stone chips and dust—remain “stone” within the ordinary and commercial meaning. Differences in size do not create a new commodity for tax purposes.
4. The minority view in the Tribunal relying on Reliable Rocks was unpersuasive because that case revolved around purchase tax and a different statutory context. The Supreme Court held that Entry 40’s language is broad enough to include stone in all its forms.
Holding and Implications
Appeal dismissed; special leave petition dismissed.
The Supreme Court affirmed the majority view of the Tribunal and the High Court that crushed stone products are not commercially different goods and therefore are not subject to additional sales tax. The ruling maintains the status quo for dealers in Uttar Pradesh and does not create new precedent beyond clarifying the application of Entry 40 to stone in its various forms.
S. Rajendra Babu, J.— We are concerned in this case with the notification dated 7-9-1981 bringing to sales tax the following items at the point of sale to the consumer:
“Ramraj, geru, surkhi, sand, lime, bajri, marble chips, moram, gitti, kankar, stone ballast, stone and articles of stone except of glazed stone.”
2. The respondent is a dealer engaged in purchasing of stone boulders and crushing them into stone chips, gitti and dust for the purpose of further sale. The contention put forth by the dealer is that at the time of purchase of boulders, sales tax had been paid and hence goods emerging out of the same as small stones, dust, etc. are not liable to be taxed again. The process adopted by him in conversion of boulders to the aforesaid goods may be manufacture, still tax cannot be imposed as what has been produced by him is physically and chemically not different from the original goods. The assessing authority rejected the contention of the dealer. On appeal, the Assistant Commissioner of Sales Tax noticed that the trader had neither manufactured gitti nor has sold it having crushed boulders into small stones and dust. He is of the view that tax was not attracted on both the transactions. On second appeal, the Tribunal, by majority, upheld the view of the Assistant Commissioner of Sales Tax. The Department carried the matter further in revision to the High Court and the High Court in a very cryptic order dismissed the petition. The Department is in appeal before us.
3. The question raised before us is whether gitti, stone chips and dust continue to be stone or on crushing stone boulders into gitti, stone chips and dust different commercial goods emerge so as to attract tax on their sale. On behalf of the Department, it was contended that the process adopted by the dealer would amount to manufacture as per the definition of “manufacture” under Section 2(e-1) of the U.P Sales Tax Act, 1948. Under the said provision, “manufacture” has been defined to mean producing, making, mining, collecting, extracting, altering, ornamenting, finishing or otherwise processing, treating or adopting (sic adapting) any goods. Thus it was submitted that the definition used for the purpose of manufacture in the Act makes it very clear that every activity in relation to goods not only altering the same but also processing of the same has also been included.
4. Here in the present case, the goods that are brought into taxation are enumerated in Entry 40 of the notification dated 7-9-1981 which we have adverted to earlier. Each one of the items enumerates various goods, which could be brought to tax. The purpose of sales tax is to levy tax on sale of goods of each variety and not the sale of the substance out of which they may have been made. As soon as separate commercial commodities emerge or come into existence, they become separately taxable goods for purposes of sales tax. Where commercial goods, without change of their identity as such goods, are merely subjected to some processing or finishing, they may remain commercially the same goods which cannot be taxed again, in a series of sales, so long as they retain their identity as goods of a particular type. We are fortified in this view by the decision in State of T.N v. Pyare Lal Malhotra (1976) 1 SCC 834. What is to be seen in the present case is whether stone gitti, chips, etc. continue to be identifiable with the stone boulders, which have been bought by the dealer.
5. The view taken by the Tribunal as affirmed by the High Court is that the goods continue to be stone and they are not commercially different goods to be identified differently for the purposes of sales tax. The decision relied on by the minority view in the Tribunal in Reliable Rocks Builders & Suppliers v. State of Karnataka (1982) 49 STC 110 (Kant) turned on the concept of consumption of goods for the purpose of bringing into existence new goods. In that case the Court was not concerned with an entry of the nature with which we are concerned in the present case. Where the dealer had brought into existence new commercial goods by consuming the boulders to bring out small pieces of stone, it was held that such activity attracted purchase tax. In the present case, however, stone, as such, and gitti and articles of stones are all of similar nature though by size they may be different. Even if gitti, kankar, stone ballast, etc. may all be looked upon as separate in commercial character from stone boulders offered for sale in the market, yet it cannot be presumed that Entry 40 of the notification is intended to describe the same as not stone at all. In fact the term “stone” is wide enough to include the various forms such as gitti, kankar, stone ballast. In that view of the matter, we think that the view taken by the majority of the Tribunal and affirmed by the High Court stands to reason. We are, therefore, not inclined to interfere with the same.
6. In the result, the appeal and the special leave petition are dismissed. In the circumstances of the case, there shall be no orders as to costs.
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