2002 JTR(SC) 1128
2002 AIR(SCW) 4902 ; 2003 1 AllMR(SC) 749 ; 2003 152 ELT 30 ; 2002 9 JT 633 ; 2003 1 KLT(SN) 12 ; 2003 27 MTJ 79 ; 2002 8 Scale 625 ; 2003 1 SCC 70 ; 2002 Supp4 SCR 292 ; 2003 129 STC 79 ; 2003 1 UJ 748 ; 2003 KHC 194 ; 2002 8 Supreme 417
2002(8) Supreme 417
SUPREME COURT OF INDIA
(From Mumbai High Court)
Syed Shah Mohammed Quadri & Arijit Pasayat, JJ.
State of Maharashtra -Appellant
versus
Mahalaxmi Stores -Respondent
Civil Appeal No. 9157 of 1995
Decided on 20-11-2002
Counsel for the Parties :
For the Appellant : Arun Pednekar, S.S. Shinde and V.N. Raghupathy, Advocates.
IMPORTANT POINT
High Court was right in holding that conversion of boulders into gitti did not amount to manufacture u/s 2(17) of Bombay Sales Tax Act.
Act Referred :BOMBAY SALES TAX ACT : S.2(17)
(A) Section 2(17) of the Bombay Sales Tax Act, 1959, defines "manufacture" as producing, making, extracting, alternating, ornamenting, finishing, or otherwise processing, treating, or adapting any goods, but excludes processes that may be prescribed. This definition is determinative in assessing whether an activity falls within the taxable ambit of the statute. The provision must be interpreted in light of settled precedents to determine whether the conversion of raw material into a different form results in the emergence of a new commercial commodity, which is a key threshold for characterizing an activity as manufacture.
(B) The core legal principles include that mere physical transformation or size reduction of a raw material does not necessarily constitute manufacture if no new commercial product is created. The scope of "manufacture" is narrowly construed to exclude processes that are merely preparatory or that do not result in a change of commercial character. The principle of statutory interpretation requires aligning the factual matrix with the definition of manufacture, and courts must follow superior precedent where analogous facts have been previously characterized.
Facts of the case:
The assessee purchased large boulders from registered dealers and crushed them into smaller sizes, commonly known as Gitti. The assessee sought a determination from the Commissioner of Sales Tax as to whether this conversion amounted to manufacture under the Act. The Deputy Commissioner held that it did amount to manufacture, but the Sales Tax Tribunal accepted the assessee's contention that it did not involve any manufacturing process. The High Court, upholding the Tribunal's view, held that the process did not result in the emergence of a new commercial commodity.
Findings of Court:
The High Court found that the conversion of boulders into Gitti did not constitute manufacture because the activity did not produce a new commercial commodity. The court relied on prior judgments, including Commissioner of Sales Tax, Uttar Pradesh vs. Lal Kunwa Stone Crusher (P) Ltd., which held that crushing stone boulders into chips, gitti, and ballast cannot be termed as manufacture. The court also noted that the impugned order of the High Court did not suffer from any illegality.
Issues:
The primary issue was whether the crushing of boulders into Gitti amounts to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act, 1959.
Ratio Decidendi:
The court held that since the process of crushing boulders into Gitti does not result in the emergence of a new commercial commodity, it does not fall within the definition of manufacture under the Act. The decision was consistent with the ratio of earlier precedents that distinguish between mere physical transformation and manufacture that creates a new commercial product.
Result:
The civil appeal was dismissed, and the impugned order of the High Court was upheld.
(A) Section 2(17) of the Bombay Sales Tax Act, 1959, defines "manufacture" as producing, making, extracting, alternating, ornamenting, finishing, or otherwise processing, treating, or adapting any goods, but excludes processes that may be prescribed. This definition is determinative in assessing whether an activity falls within the taxable ambit of the statute. The provision must be interpreted in light of settled precedents to determine whether the conversion of raw material into a different form results in the emergence of a new commercial commodity, which is a key threshold for characterizing an activity as manufacture.
(B) The core legal principles include that mere physical transformation or size reduction of a raw material does not necessarily constitute manufacture if no new commercial product is created. The scope of "manufacture" is narrowly construed to exclude processes that are merely preparatory or that do not result in a change of commercial character. The principle of statutory interpretation requires aligning the factual matrix with the definition of manufacture, and courts must follow superior precedent where analogous facts have been previously characterized.
Facts of the case:
The assessee purchased large boulders from registered dealers and crushed them into smaller sizes, commonly known as Gitti. The assessee sought a determination from the Commissioner of Sales Tax as to whether this conversion amounted to manufacture under the Act. The Deputy Commissioner held that it did amount to manufacture, but the Sales Tax Tribunal accepted the assessee's contention that it did not involve any manufacturing process. The High Court, upholding the Tribunal's view, held that the process did not result in the emergence of a new commercial commodity.
Findings of Court:
The High Court found that the conversion of boulders into Gitti did not constitute manufacture because the activity did not produce a new commercial commodity. The court relied on prior judgments, including Commissioner of Sales Tax, Uttar Pradesh vs. Lal Kunwa Stone Crusher (P) Ltd., which held that crushing stone boulders into chips, gitti, and ballast cannot be termed as manufacture. The court also noted that the impugned order of the High Court did not suffer from any illegality.
Issues:
The primary issue was whether the crushing of boulders into Gitti amounts to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act, 1959.
Ratio Decidendi:
The court held that since the process of crushing boulders into Gitti does not result in the emergence of a new commercial commodity, it does not fall within the definition of manufacture under the Act. The decision was consistent with the ratio of earlier precedents that distinguish between mere physical transformation and manufacture that creates a new commercial product.
Result:
The civil appeal was dismissed, and the impugned order of the High Court was upheld.
ORDER
This appeal arises from the judgement of a Division Bench of the High Court at Bombay passed in Sales Tax Reference No.1 of 1995 dated 22nd February, 1995.
2. The Maharashtra Sales Tax Tribunal referred the following question under Section 61(1) of the Bombay Sales Tax Act, 1959 (for short, the Act ) to the High Court:
"Whether on the facts and circumstances of the case and on a true and correct interpretation of the provision 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 ordinarily known as Gitti does not amount to manufacture?"
3. The facts, insofar as they are relevant for our purpose, are as follows:
The assessee purchases big sized stones- boulders - from registered dealers and crushes them into small sizes, known as Gitti . It approached the Commissioner of Sales Tax for determination of the question whether converting bigger size boulders into gitti would amount to manufacture. The Deputy Commissioner held that the process of conversion amounts to manufacture within the meaning of Section 2(17) of the Act. Against the order of the Deputy Commissioner, the assessee went in appeal before the Maharashtra Sales Tax Tribunal. The contention of the assessee that converting boulders into gitti does not involve any manufacturing process within the meaning of the Act, was accepted by the Tribunal. From that order, the afore-mentioned question was referred to the High Court at Bombay. Following the judgments of this Court in Deputy Commissioner of Sales Tax vs. Pio Food Packers (46 S.T.C. 63), Chowgule & Co. Pvt. Ltd. & Anr. vs. Union of India & Ors. (47 S.T.C. 124) and Sterling Foods vs. State of Karnataka & Ors. (63 S.T.C. 239), the High Court held that the conversion of boulders into gitti did not amount to manufacture . It is this view of the High Court that is assailed in this appeal by the Revenue.
4. Section 2(17) of the Act defines the term manufacture and it reads thus:
"Manufacture with all the grammatical variations and cognate expressions means producing, making, extracting, alternating, ornamenting, finishing or otherwise processing, treating on adapting any goods but does not include such manufacture or manufacturing processes as may be prescribed."
5. From a perusal of the definition, extracted above, it is clear that the processes of producing, making, extracting, alternating, ornamenting, finishing or otherwise processing, treating or adapting of any goods fall within the meaning of the term manufacture . But it may be pointed out that every type of variation of the goods or finishing of goods would not amount to manufacture unless it results in emergence of new commercial commodity. In the instant case, the very nature of the activity does not result in manufacture because no new commercial commodity comes into existence.
6. This Court in Commissioner of Sales Tax, Uttar Pradesh vs. Lal Kunwa Stone Crusher (P) Ltd. (2000 (3) S.C.C. 525), on an identical question, expressed the view that when stone boulders were crushed into stone chips, gitti and stone ballast, the process could not be termed as manufacture . That case arose under the Uttar Pradesh Sales Tax Act, 1948 (for short, the Act ). The definition of manufacture in Section 2(e-1) of the U.P. Act appears to be similar to the definition under consideration.
7. In view of the judgement of this Court in Lal Kunwa Stone Crusher (P) Ltd. (supra), with which we are in respectful agreement, we find no illegality in the impugned judgement of the High Court. In the view that we have taken, the judgement of the High Court of Madhya Pradesh in Kher Stone Crusher vs. General Manager, District Industries Centre, Jabalpur & Anr. (79 S.T.C. 149) cannot be treated as good law.
8. The civil appeal is, therefore, dismissed. No costs.
(N.K.R.) Appeal dismissed.
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