STATE OF GUJARAT v. SUKHRAM JAGANNATH — 1982 DIGILAW 8 (GUJ)

B. K. MEHTA, J. ( 1 ) AT the instance of the State the following questions have been referred to us under sec. 69 (1) of the Gujarat Sales Tax Act 1969 (hereinafter referred to as the Gujarat Act) for our opinion: 1 Whether on the facts and circumstances of this case the Tribunal was right in law in holding that mixture of Sopari Variyali Dhana-Dal sweet flavoured powder etc. as affected by the opponent and sold under the popular name of the relevant Pan-Masala did not amount to manufacture within the meaning of that expression as defined in sec. 2 (16) of the Gujarat Sales Tax Act 1969 accordingly in allowing the opponent to deduct the sales thereof as resales of goods purchased from registered dealers in terms of clause (ii) of sec. 7 of the said Act? ( 2 ) WHETHER on the facts and circumstances of this case the Tribunal was right in law in holding that the opponents sales of Pan-masala containing the mixture of Sopari Chuno and tobacco were sales of a form of tobacco within the meaning of Item no. 4 of the first Schedule to the Central Excises and Salt Act 1944 and that therefore they were sales of tobacco within the meaning of Entry 43 of Schedule I to the Gujarat Sales Tax Act 1969 and that. therefore they were free from all taxes ? 2 A few facts need be stated as found by the Tribunal in order to appreciate the contentions urged on behalf of the State Government in support of this reference. The opponent-assessee is a registered dealer under the Gujarat Act and is a carrying on business to sell Pan-Bidi match-boxes cigarettes etc in the city of Ahmedabad. The assessee also sells what is popularly known as Pan Masala which is a mixture of Sopari (betal-nut) Variyali Dhana-Dal and sweet flavoured powder. The assessee also sells another type of Pan-Masala which is again a mixture of tobacco Chuna and Sopari. The assessee also sells what is popularly known as Pan Masala which is a mixture of Sopari (betal-nut) Variyali Dhana-Dal and sweet flavoured powder. The assessee also sells another type of Pan-Masala which is again a mixture of tobacco Chuna and Sopari. ( 3 ) IN the course of the assessment for the period commencing from Kartik Sud 1 to Aso Vad 30 of S. Y. 2030 the Sales Tax Officer found that since there is mixing of these different articles so far as the first type of Pan-Masala is concerned or some treatment so far as the second type of Pan-Masala is concerned there was some activity of processing or adapting and therefore the assessee was held to be liable to pay sales tax and general sales tax under Entry 13 of Schedule Ill to the Gujarat Act on the sales of these two types of Pan-Masala. For purposes of assessing the liability the Sales Tax Officer estimated the sales off Pan-Masala of both the varieties at 20% of sales of all the goods of the assessee and accordingly worked out the turnover of sales of Pan-Masala of both the varieties in sum of Rs. 17 360 and brought the said amount to tax under the aforesaid entry. The Sales Tax officer also imposed a penalty under sec. 45 (6) read with sec. 45 (2) (c) of the Gujarat Act with which however we are concerned in this reference. ( 4 ) THE assesse being aggrieved with the order of the Sales Tax Officer carried the matter in appeal before the Assistant Commissioner of Sales Tax (Appeals ). The Assistant Commissioner of Sales Tax partially allowed the appeal by reducing the estimates of the sales of Panmasala of both the varieties from 20% to 10% and accordingly estimated the turnover of the sales in that behalf in sum of Rs. 8 673 and brought it to tax under the aforesaid Entry 13 of Schedule III to the Gujarat Act. ( 5 ) THE assessee therefore carried the matter in second appeal before the Gujarat Sales Tax Tribunal. 8 673 and brought it to tax under the aforesaid Entry 13 of Schedule III to the Gujarat Act. ( 5 ) THE assessee therefore carried the matter in second appeal before the Gujarat Sales Tax Tribunal. The Tribunal on consideration of the relevant evidence in that behalf found that the constituent ingredients in both the varieties of Pan Masala retain their original characteristics and form and the mere fact that in the first variety of Pan Masala there was a blending of different articles or there was treatment of tobacco by application of Chuno in the second variety would not have 2ny material bearing on the question since the original constituent articles retain their original form and characteristics and therefore the activity would not amount to a manufacture which would expose the assessee to the liability of payment of sales tax. The Tribunal therefore allowed the appeal and set aside the orders of the Sales Tax Officer and of the Assistant Commissioner of Sales Tax. ( 6 ) AT the instance of the State Government as stated above the aforesaid two questions have been referred to us for our opinion. ( 7 ) AT the time of hearing of this reference the learned Assistant Government Pleader appearing on behalf of the State Government contended that the assessee was not entitled to claim deduction on the turnover of sales of Pall-Masala of both the varieties as they would not be resales within the definition of the term resale under sec. 2 (26) of the Gujarat Act inasmuch as the goods were not sold without doing anything to them which did not amount to or result in a manufacture. In other words the submission of the learned Assistant Government Pleader is that since there was some process treatment or adaption of the different articles constituting Pan-Masala of both the varieties there was an element of manufacturing involved in it and therefore the assessee was not entitled to claim deduction of the turnover of sales of Pan-Masala of both the varieties as resales under sec. 7 of the Gujarat Act. The learned Assistant Government Pleader however conceded that the case of the State Government rests on the definition of the term resale read with the definition of the term manufacture in sec. 2 (26) and sec. 2 respectively of the Gujarat Act. 7 of the Gujarat Act. The learned Assistant Government Pleader however conceded that the case of the State Government rests on the definition of the term resale read with the definition of the term manufacture in sec. 2 (26) and sec. 2 respectively of the Gujarat Act. We will therefore read the said two sections for purposes of answering the questions referred to us. ( 8 ) THE material part of sec. 2 (26) reads as under: 2 resale for the purposes of secs. 7 8 10 13 and 15 means a sale of purchased goods :" (i) in the same form in which they were purchased or (II) without doing anything to them which amounts to or results in a manufacture or (III) xx xx xx and the word resale shall be construed accordingly". The term manufacture has been defined in sec. 2 (16) of the Gujarat Act which provides as under:" 2 manufacture with all its grammatical variations and cognate expressions means producing making. extracting collecting altering ornamenting finishing or otherwise processing treating or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed". ( 9 ) WE have therefore to examine whether the contention urged on behalf of the State Government is warranted in the definition of the term resale read with the definition of the term manufacture. It cannot be urged successfully that purchased goods are sold after doing anything to them which amounts to or results in manufacture. If there is any processing treating or adapting any goods the sale of such treated etc. goods cannot be classified or claimed as resale so as to qualify for deduction under sec. 7 of the Gujarat Act. It is also true that in order to claim deduction under sec. 7 of a sale of purchased goods the goods must be sold in the same form in which they were purchased. This legal position is apparent on mere reading sec. 2 (26) (i) and (ii) of the Gujarat Act. So far as the form of the goods is concerned the Tribunal has found as a matter of fact that the constituent elements of Pan-Masala of both the varieties even after their mixture did not change their original form. This legal position is apparent on mere reading sec. 2 (26) (i) and (ii) of the Gujarat Act. So far as the form of the goods is concerned the Tribunal has found as a matter of fact that the constituent elements of Pan-Masala of both the varieties even after their mixture did not change their original form. The Tribunal has in the statement of case in paragraph 9 stated as under in connection with the Pan-Masala of the first variety consisting of Sopari Variyali Dhana-Dal and sweet flavoured powder:"9 that connection the Tribunal had stated that the addition of the above ingredients would not at all effect their original forms in which all those articles were originally purchased and therefore the constituentti ngredients brought together in the above mixture would continue to retain the same forms in which the opponent would have originally purchased them and the mere fact that they were put or brought together under one mixture and sold as Pan-Masala would not affect the original forms of the constituent ingredients at all". Similarly in respect of the second variety of Pan-Masala which was predominantly a mixture of tobacco along with Sopari and Chuno the Tribunal has in paragraph 13 of the statement of case found as under:those facts we had also stated that the purpose for which a customer purchases that Pan-Masala from a dealer is to eat tobacco in that form and as treated with Chuno and accompanied with Sopari just as he would eat tobacco without any other ingredient like Chuno and Sopari. Therefore we had stated that the purpose for which the customer would eat tobacco as such would continue to remain the purpose for which the customer would also eat Pan-Masala of the second variety because that was also a form of tobacco. Accordingly we had observed that the form of tobacco in Pan-Masala did not change inspite of the fact that it was treated with Chuno or accompanied with Sopari". ( 10 ) THE only question which remains to the considered is whether either by the mixture of these different constituent articles and adding flavour in the first variety of Pan-Masala or by the treatment of the tobacco with the application of Chuno in the second variety can it be said that something has been done to the goods which amounts to or results in a manufacture ? The learned Assistant Government Pleader has urged that this would be processing or in any case treating or adapting the goods for the purposes of making them pelatable to different types of customers who are inclined to take different varieties of Pan-Masala. In support of this contention the learned Assistant Government Pleader relied on the definition of term manufacture where in the latter part of the definition the term has been defined so as to mean the activities of processing treating or adapting any goods so as to make them suitable for a given purpose. It is no doubt true that the Legislature has defined the term manufacture in the widest term by taking in besides the activities of producing making extracting collecting altering ornamenting or finishing the activities of processing. treating or adapting any goods so as to make them suitable for a given purpose. But merely because the Legislature has defined the term in such a wide term it would be too spacious to contend that any processing treating or adapting of goods would amount to or result in a manufacture. Any and every process treatment or adaption will not amount to or result in a manufacture It would cease to be a resale only if something is done to the goods which would amount to or result in a manufacture. In other words where some transformation in a sense of a new and a different article emerging as a result of the processing treatment or adaption having different name characteristic or use so that the end-product does not retain a continuing substantial identity that it can be said that a manufacturing has taken place. ( 11 ) THE Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers (1980) 46 STC 63 was concerned with the question whether conversion of pineapple fruit after washing and removing inedible portion the and crown the skin and the inner core with the addition of sugar would amount to consumption of pineapple fruit in the manufacture of those goods so as to be liable to purchase tax under sec. 5a of the Kerala General Sales Tax Act 1963 and it was held as under:. ". . . COMMONLY manufacture is the end result of one or more processes through which the original commodity is made to pass. 5a of the Kerala General Sales Tax Act 1963 and it was held as under:. ". . . COMMONLY manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps a different kind of processing at each stage With each process suffered the original commodity experiences a change. But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing it must be regarded as still retaining its original identity". The Supreme Court in that connection referred to the decision of American Supreme Court in Anheuser-Busoh Brewing Association v. United Slates 52 L. Ed. 336 (338) where what is manufacturing as well as what is the distinction between a processing and a manufacturing has been succinctly indicated. The passages relied upon by the Supreme Court read as under:"manufacture implies a change but every change is not manufacture and yet every change in an article is the result of treatment labour and manipulation. But something more is necessary. There must he transformation; a new and different article must emerge having a distinctive name character or use. . . . AT some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity though the processing stage we cannot say that it has been manufactured. (Emphasis Supplied)"this principle of law has been reaffirmed by the Supreme Court in its subsequent decision in Chowgule and Co. Pvt. Ltd. and Another v. Union of India and Others (1981) 47 STC 124. ( 12 ) OUR attention has been invited to the decision of the Bombay High Court in Commissioner of Sales Tax v. Dunken Coffee Manufacturing Co. (Emphasis Supplied)"this principle of law has been reaffirmed by the Supreme Court in its subsequent decision in Chowgule and Co. Pvt. Ltd. and Another v. Union of India and Others (1981) 47 STC 124. ( 12 ) OUR attention has been invited to the decision of the Bombay High Court in Commissioner of Sales Tax v. Dunken Coffee Manufacturing Co. (1976) 35 STC 493 where a Division Bench of the Bombay High Court was concerned with a similar question as to what would constitute manufacture which is defined in sec. 2 (17) of the Bombay Sales Tax Act 1959 which definition is in pari materia with the definition of the term manufacture in the Gujarat Act. The Division Bench of the Bombay High Court was concerned with the question as to whether the activities of roasting and grinding coffee seeds and preparing coffee powder out of these seeds amounted to activities of manufacture. The Division Bench has taken the same view as we are inclined to take in this matter and we are in respectful agreement with the same view of the Bombay High Court. ( 13 ) IN view of this settled legal position we do not think that the State Government can successfully assail the view of the Tribunal and particularly because the Tribunal has found as a matter of fact that the constituent articles composing both the varieties of Pan-Masala retain their original form and the substantial identity of those articles continues. It cannot be said that there is a transformation of these different constituent elements in the sense of a new or a different article emerging therefrom. The learned Assistant Government Pleader was al pains to emphasise that this mixture is known as Pan-Masala and therefore it has a distinct commercial name and characteristic. We are afraid we cannot agree with the learned Assistant Government Pleader for the obvious reason that though it may be popularly known as Pan Masala the constituent elements of mixture retain their substantial identity and neither as a result of the mixture in the first variety nor as a result of some application of Chuno in the second variety a transformation has taken place so that it can be said that a new and a different article has emerged having different name characteristic or use. The collective compendious name given to the goods does not make them a distinct commercial commodity in view of what we have stated above. Instead of taking these different constituent elements separately if they are eaten together to have the ingredients more palatable it cannot be urged that a transformation of articles has taken place and an end-product having different commercial character use or name has come into being. In view of the above we answer the questions referred to us in the affirmative that is in favour of the assessee and against the State Government. The State Governmeat shall pay costs of this reference to the assessee. Reference dismissed. .