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PETITIONER: M/S.  B.  OIL MILLS LTD.

       Vs.

RESPONDENT: SALES TAX TRIBUNAL & ORS.

DATE OF JUDGMENT:       03/09/1998

BENCH: S.P.BHARUCHA, M.K. MUKHERJEE, G.T. NANAVATI.

ACT:

HEADNOTE:

JUDGMENT: J U D G E M E N T M.K.  MUKHERJEE, J. The appellant carries on business in manufacture and sale  of  oils  at  Agra  in  the  State  of  Uttar  Pradesh (U.P.).  As a part of their business they purchase crude oil of different varieties,  such  as  linseed-oil,  castor-oil, mustard-oil  and,  after  refining, sell as refined oil. The refinement is brought about by first treating the  oil  with alkali  to  remove the acid contents, then bleaching it with absorbent cotton or activated carbon and lastly  deodorising it with steam. To ascertain whether they were liable to pay tax  on the  sale  of  refined  oil as they had already paid tax for purchase of the crude oil and, if so, what would be the rate thereof, the appellant approached the Commissioner of  Sales Tax, U.P.  Invoking the provisions of Section 35 of the U.P. Trade Tax  Act,  1948 (’Act’ for short).  By his order dated June 19, 1985, the Commissioner held that the appellant  was liable  to  pay sales tax notwithstanding the fact that they had paid tax on the purchase of the crude oil and  that  the rate of  tax  would  be  4%.    Assailing  the  order of the Commissioner the appellant preferred an  appeal  before  the Sales Tax   Tribunal   which   was  dismissed.    They  then approached the Allahabad High Court  by  filing  a  petition under  Article  226  of  the Constitution of India which was also dismissed.  Hence this appeal by special leave. Mr.   Swarup,  the learned counsel appearing for the appellant, firstly submitted that they were  not  liable  to pay tax on the sale of refined oil for even after refinement it   continues   to  retain  its  basic  character  as  oil. According to Mr.  Swarup, mere processing of the  crude  oil for  its  conversion  to  refined  oil, cannot be said to be ’manufacture’ of new goods  so  as  to  make  the  appellant liable  for  tax thereupon under Section 3(3)(b)(iii) of the Act.  In support  of  his  contention  he  relied  upon  the judgements of this Court in MS.  Tungabhadra Industries Ltd. V.   The  Commercial  Tax Officer, Kurnool (1961) 2 SCC 141, MS.  Sterling Foods V.  State of Karnataka & Anr.  [(1986) 3 SCC 4691 and State of Maharashtra V.  M./s.    Shiv  Datt  & sons and Ors.  (1993 supp.  (1) SCC 2221."

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In   response   Mr.   Misra,   appearing   for   the respondent-State, submitted that the appellant was liable to pay  tax on the refined oil inasmuch the meaning of the word ’manufacture’ in Section 2(e-1) of the Act clearly envisages any  sort  of  processing.  Therefore,  he  contended,   the question  whether  the crude oil maintained its character as oil even after refinement was redundant. Under section 2(e-I) of the Act ’manufacture’  means producing, making, mining, collecting, extracting, altering, ornamenting,  finishing or otherwise processing, treating or adapting any goods; but does not include such manufacture or manufacturing processes as may be prescribed. Section  3  of the  Act, so far as it is relevant for our purposes reads as under:               3, Liability to tax under the Act.               (1) Subject to the  provisions  of  this  Act,               every dealer shall, for each assessment years,               pay  a  tax  at the rates provided by or under               Section 3-A or Section 3-D on his turnover  of               sales or purchases or both, as the case may be               which  shall  be  determined in such manner as               may be prescribed.               (2)  No  dealer  shall,  except  as  otherwise               provided in Section 18, be liable to tax under               sub-section  (I)  if,  during  the  assessment               years, the aggregate of his turnover of-               (a).........               (b).........               (c).........               (d).........               3.  Nothing  in sub-section (2) shall apply in               respect of-               (a)........               (b) the sale by a dealer of -               (i).........               (ii)    goods   purchased   or   imported   by               furnishing   and  declaration  or  certificate               prescribed under any provision  of  this  Act;               and               (iii) goods manufactured by him by  using  the               goods   referred   to  in  sub-clause  (I)  or               subclause (ii).               4...........               5...........      When  the  provisions  of the above Section are read in juxtaposition with the definition of the word  ’manufacture’ it  is  abundantly clear that a dealer will be liable to pay tax on sale of any goods he manufactures by  processing  the goods  he  purchased  by  complying with the requirements of clause (ii) above. The word ’processing’ has, however, not been defined under  the  Act  but  it  has  been  the  subject  matter of interpretation by this Court in various cases including that of CHOWGULE & CO.  PVT.  LTD.  & ANR.  V.  UNION OF INDIA  & Ors.  [1981)  1  SCC 653].  Taking a cue from the definition of the word ’process’  in  Webster  Dictionary,  this  Court observed  therein that where any commodity is subjected to a process or treatment with  a  view  to  its  development  or preparation  for  the  market it would amount to processing. The nature and extent of processing may vary  from  case  to case;  in  one  case  the  processing  may  be slight and in another it may be extensive; but in  each  process  suffered the commodity would experience a change.  This Court further observed  that  whatever  be the means employed for carrying out the processing  operation,  it  is  the  effect  of  the

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operation  on the commodity that is material for the purpose of determining whether the operation constitutes processing. Viewed in the context of the above meaning given to the word ’processing’ by this Court there cannot  be  any  manner  of doubt that the nature and extent of the process to which the crude  oil  is  subjected  to make it refined oil brings the latter  within  the  meaning   of   the   expression   goods manufactured’  in  Section  3(3)(b)(iii) of the Act so as to make the appellant liable to pay tax on its sale. Coming now to the decisions relied upon by Mr.   Swarup,  we find  that none of them has any manner of application to the facts of  the  instant  case.    In  TUNGABHADRA  INDUSTRIES (Supra) the sole question that came up for consideration was whether  consequent  upon its conversion to hydrogenated oil by Improving its quality ground nut oil lost  its  identity. In  answering  this question in the negative this court held that refined groundnut oil (hydrogenated oil)  continues  to be  groundnut  oil  notwithstanding  that  such oil does not possess the characteristic colour, or taste, odor etc.    of the raw groundnut oil.  Indeed, the controversy in that case centered   round   the   interpretation  of  the  expression ’groundnut  oil’  appearing  in  Madras  General  Sales  Tax (Turnover and   Assessment)   Rules,   1939.    Neither  the expression ’manufacture’  nor  the  expression  ’processing’ directly came  up  for  interpretation  in  that  case.   In Sterling  Foods  (supra)  the  question   that   arose   for determination  was  whether  shrimps,  prawns  and  lobsters subjected to processing like cutting  of  heads  and  tails, peeling,  divining,  cleaning  and  freezing cease to be the same commodity and become a different commodity  within  the meaning of  section  5  of  the Central Sales Act, 1956.  In answering  the  above  question  this  Court   applied   the ’commercial  parlance’  test  and  relying  upon its earlier judgment in Dy.  C.S.T.  Vs.  Pio Food Packers [(1980) 3 SCR 1271] held that processed shrimps, prawns and  lobsters  are not  a  new  and distinct commodity but they retain the same character as the original shrimps, prawns and lobsters  even after the  processing.  This case is of no assistance to the appellant for unlike the above commodity, the crude oil does not at all retain its earlier character after processing. In Shiv Datt  and  Sons  (supra)  the  question  was whether  the  dealer was entitled to the concession provided in Section 8 of the Bombay Sales Tax Act, 1959 of such  part of  their  turnover  as  represented the resale of batteries purchased by them from a registered  dealer.    Interpreting the  meaning  of  the word ’resale’ under Section 2(26), and the word ’manufacture’ in that Act and the nature of process applied by the dealer before their  sale,  this  Court  held that  basically  speaking  the goods purchased by the dealer from the manufacturers as well as  the  goods  sold  by  the former  are  one  and  the  same for nothing was done to the goods afresh which had not been done  already.    The  above case also  does  not come in aid of the appellant:  firstly, because  it  considered  the  definition  of   ’manufacture’ (which,  of  course,  is identical with its definition under the Act) in the context of ’resale’ of goods as  defined  in that  Act  and secondly, because of the nature and extent of the process which  the  crude  oil  undergoes  to  radically change itself to marketable refined oil. The other  contention raised by Mr.  Swarup was that they had purchased the crude oil after payment  of  tax  and hence  they  cannot  be made liable to pay tax again for its sale.  This contention has to be stated only to be  rejected for  the  Act  expressly  provides  imposition of multistage taxation under clauses (ii) and (iii) of Section  3(3)(0  of

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the Act. For the foregoing discussion the appeal fails and is hereby dismissed. There will be no order as to costs.