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CASE NO.: Appeal (civil)  1790 of 2005

PETITIONER: M/s. Sonebhadra Fuels

RESPONDENT: Commissioner,Trade Tax, U.P.Lucknow

DATE OF JUDGMENT: 01/08/2006

BENCH: Ashok Bhan & Markandey Katju

JUDGMENT: J U D G M E N T (with C.A. Nos. 1791/2005, 1792/2005 and 1793/2005)

MARKANDEY KATJU, J.

       Civil Appeal  No. 1790 of 2005 has been filed against  the judgment and order dated 25.6.2004 of the learned  Single Judge of the Allahabad High Court in Trade Tax  Revision No. 1261 of 2004 M/s. Sonebhadra Fuels,  Ravinagar, vs. Commissioner, Trade Tax, U.P., Lucknow.

       Heard learned counsel for the parties.

       The appellant is carrying on business in coal and also  manufactures ’coal briquettes’, popularly known as ’coal  tikli’.

       The assessee applied for exemption/rebate of sales tax  claiming that the coal briquettes are the same commodity   as coal which had already been subjected to tax.  However,  his claim was rejected by the Assessing Authority vide  Assessment Order dated 31.3.1999.  Aggrieved, he filed an  appeal which was dismissed by the Appellate Authority vide  order dated 19.7.2001.  His further appeal to the Tribunal  was referred to a larger Bench of five members which  decided against the assessee vide its order dated 16.3.2004.

The short argument submitted by Shri Rakesh Dwivedi,  learned senior counsel  for the appellant, was that coal  briquettes are as same as coal and hence no liability of tax  can be fastened on the sale of coal briquettes.

Learned counsel for the appellant submitted that  Notification No. ST-II-5782 dated 7.9.1980, issued under  Section 3-A of the UP Trade Tax Act provided that coal  included coke in all its forms, but excluded charcoal. The  same meaning was given to the word ’coal’ in the  subsequent Notification No. ST-II-3685 dated 31.7.1986.  In  both the Notifications, the rate of tax was @ 4%.  A similar  meaning has been given in Notification No. ST-TIF-II-2372  dated 23.3.1998.  Coal is a declared commodity under  Section 14 of the Central Sales Tax Act, 1956 and the entry  given in clause (i-a) reads "coal including coke in all its  forms, but excluding charcoal".  Learned counsel submitted

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that under Section 15 of the Central Sales Tax Act, tax  cannot be imposed on declared goods at more than one  stage.  As the coal-dust has already been subjected to tax,  he submitted that ’coal tiklies’ are not taxable.

In reply, learned counsel for the respondent submitted  that coal briquettes is a different commercial commodity  from coke or coal, and since coal tiklies are made from coal  dust by processing or manufacturing in which the coal dust   loses its original form, quality etc, it amounts to  ’manufacture’.

The definition of ’manufacture’ in Section 2(e-1) of the  U.P. Trade Tax Act is as under:

"Manufacture means producing, making,  mining, collecting, extracting, altering,  ornamenting, furnishing or otherwise  processing, treating or adapting any  goods, but does not include such  manufactures or manufacturing process  as may be prescribed."

       The above definition is very wide as held by this Court  in M/s. B.P. Oil Mills Ltd. vs. Sales Tax Tribunal and  others - AIR 1998 SC 3055.  The definition of ’manufacture’  in Section 2(e-1) of the Act includes ’processing, treating or  adapting any goods’.  Thus, the meaning of ’manufacture’ in  the UP Trade Tax Act is wider than that in the Central Excise  Act, 1944.  A dealer will be liable to pay tax on sale of any  goods he makes by processing, treating, or adapting the  goods he purchased by complying with the requirements of  clause (ii) of Section 3(b) of the UP Trade Tax Act.

       In M/s. B.P. Oil Mills (supra), this Court referred to a  large number of earlier rulings on this point and it is not  necessary for us to refer to all of them here.  We may,  however, refer to the decision in Chowgule & Co. Pvt. Ltd.  vs. Union of India (AIR 1981 SC 1014) where this Court  observed 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.  The Court  further observed that whatever be the means employed for  carrying out the processing operation, it is the effect of the  operation on the commodity that is material for the purpose  of determining whether the operation constitutes processing.

       In B.P. Oil Mills (supra), the Supreme Court observed  that refining crude oil amounts to a ’manufacture’.

A Constitution Bench in Devi Das Gopal Krishnan  etc. vs. State of Punjab & others, AIR 1967 SC 1895,  while considering the case of extracting the oil from oil- seeds, held that the edible oils produced were different from  the oil seeds,  and hence the edible oil produced is taxable  though tax has already been paid on the oil seeds.  This   Court referred to the dictionary meaning of the  ’manufacture’ as ’to transform or fashion raw material  into a changed form for use’ and held that oil is produced  out of the seeds.  The process certainly transforms the raw

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materials into different articles for use, and therefore is  taxable as a new commercial commodity.  This Court further  explained that in a case where the scrap iron ingots undergo  a vital change in the process of manufacture and are  converted into different commodities, i.e. rolled steel  sections, during the process the scrap iron loses its identity  and becomes a new marketable commodity and, therefore,  the process is certainly one of manufacture.

       In Ashirwad Ispat Udyog & others vs. State Level  Committee & others, 1998 (8) SCC 85, this Court  considered the scope of the definition of the term  ’manufacture’ under the provisions of Section 2(j) of the  Madhya Pradesh General Sales Tax Act, 1958, which is in   para-materia with Section 2(e-1) of the Act, and held that  manufacture is not confined to a new marketable commodity  but also includes old articles made saleable.  The Court held  as under:

"Decisions construing the meaning  of the word ’manufacture’ as used in  other statutes do not apply unless the  definition of that word in the particular  statute under consideration is similar to  that construed in the decisions. The  plain construction of the special  definition of the word in a particular Act  must prevail. In the special definition  given in Section 2(j) of the said Act  ’manufacture’ has been defined as  including a process or manner of  producing, extracting, preparing or  making any goods.  There can be no  doubt whatsoever that ’collecting’ goods  does not result in the production of a  new article.  There is, therefore,  inherent evidence in the definition itself  that the narrow meaning of the word  ’manufacture’ was not intended to be  applied in the said Act.  Again the  definition speaks of ’the process of  lopping of branches (of trees), cutting  the trunks’.  The lopping of branches  and the cutting of trunks of threes also,  self evidently, does not produce a new  article.  The clear words of the definition  therefore, must be given due weight  and cannot be overlooked merely  because in other contexts the word  ’manufacture’ has been judicially held to  refer to the process of manufacture of  new articles."

In Deputy Commissioner of Sales Tax (Law),  Board of Revenue (Taxes), Ernakulam vs. M/s. Coco  Fibres, AIR 1991 SC 378, this Court considered the  provisions of the Kerala General Sales Tax Act, 1984  wherein the term ’manufacturing process’ was considered  and held that conversion of coconut husk into a coconut  fibre was a manufacturing process.  This Court held that by  the process of manufacture, something is produced and  brought into existence which is different from that out of  which it is made, in the sense that the thing produced is by  itself a commercial commodity capable of being sold or  supplied.  The material from which the thing or product is

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manufactured, may necessarily lose its identity or may  become transformed into the basic or essential properties.   The article that would emerge as a result of the process of  manufacture must be a distinct and new article recognized  or known as such in the commercial parlance for sale or  supply.      

In M/s. Saraswati Sugar Mills vs. Haryana State  Board & others, AIR 1992 SC 224, this Court explained the  distinction between manufacture and processing observing  that the construction of words and the meaning to be given  for such words shall normally depend on the nature, scope  and purpose of the Statute in which it is occurring and to the  fitness of the matter to the Statute.  This Court held that if a  matter is processed, the product may not lose its original  character.  For example, the vegetables may be processed  which even after processing, retain its character as  vegetable while in manufacturing, something is necessarily  to be brought into existence which is different from that  which originally existed in the sense that the thing produced  is a commercially different article.  Thus, a Statute is  required to be interpreted strictly and the definition clause  must be examined in a correct perspective giving the  meaning of each word contained therein.  The Court held as  under:

"Manufacture implies a change but  every change is not manufacture, and  yet every change of an article is the  result of treatment, labour and  manipulation.  The essential point thus  is that in manufacturing, something is  brought into existence which is different  from that which originally existed in the  sense that the thing produced is by  itself a commercially different  commodity whereas in the case of  processing, it is not necessary to  produce a commercially different article.   Processing essentially effectuates a  change in the form, contour, physical  appearance or chemical combination or  otherwise by artificial or natural means  and in its more complicated form  involves progressive action in  performing, producing or making  something. (Vide Corn Products Refining  Co. vs. Federal Trade Commission,  (1944) CCA 7)."  

In Union of India & another vs. Delhi Cloth &  General Mills Co. Ltd., AIR 1963 SC 791, this Court  explained the word ’manufacture’ used as a verb which is  generally understood to mean bringing into existence of a  new substance and does not mean merely to bring some  change in a substance, however, minor in consequence the  change may be.  In a manufacture, there must be  transformation and a different article must emerge having a  distinctive name, character or use.

A similar view has been reiterated in Rajasthan State  Electlricity Board vs. Associated Stone Industries &  another (2000) 6 SCC 141.

In State of Maharashtra & another vs. Mahalaxmi

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Stores, (2003) 1 SCC 70, this Court held that processing or  variation of the goods or finishing of goods would not  amount to manufacture unless it results in emergence of a  new commercial commodity.

In Aspinwall & Co. Ltd vs. Commissioner of  Income Tax, Ernakulam, (2001) 7 SCC 525, this Court  considered the meaning of the word ’manufacture’ as it  occurred in Section 32-A(1) & (2)(iii) in Income Tax Act and  held that the word must be understood in common parlance  and it may mean production of articles for use from raw or  prepared materials by giving such materials new forms,  qualities or combination whether by hand labour or  machines.  If the change made in the article results in a new  and different article, then it would amount to a  manufacturing activity.  In the said case, the assessee after  plucking or receiving the raw coffee berries made it undergo  nine processes to give it the shape of coffee beans.  The net  product was absolutely different and separate from the  input.  The change made in the article resulted in a new and  different article which was recognized in the trade as a new  and distinct commodity.

Similar views have been reiterated in Ujagar Prints &  others vs. Union of India & others, (1989) 3 SCC 488;  Decorative Laminates (India) Pvt. Ltd. vs. Collector of  Central Excise, (1996) 10 SCC 46; and Gramophone Co.  India Ltd. vs. Collector of Customs, 2000 (1) SCC 549.

In Laminated Packings (P) Ltd. vs.  Collector of  Central Excise, (1990) 4 SCC 51, this Court held that  lamination amounts to manufacture as it is made out of the  laminated kraft paper by a manufacturing process of  lamination using polyethylene etc. and, therefore, an  entirely different good comes into existence.  

       We may mention that, as noted above, decisions  construing the word ’manufacture’ in other statutes are not  necessarily applicable when interpreting Section 2(e-1) of  the UP Trade Tax Act.  As stated above, the definition of  ’manufacture’ in Section 2(e-1) of the UP Trade Tax Act is  very wide, which includes processing, treating or adapting  any goods.  Hence, in our opinion, the expression  ’manufacture’ covers within its sweep not only such activities  which bring into existence a new commercial commodity  different from the articles on which that activity was carried  on, but also such activities which do not necessarily result in  bringing into existence an article different from the articles  on which such activity was carried on.  For example, the  activity of ornamenting of goods does not result in  manufacturing any goods which are commercially different  from the goods which had been subjected to ornamentation,  but yet it will amount to manufacture within the meaning of  Section 2(e-1) of the UP Trade Tax Act since an artificial  meaning of ’manufacture is given in Section 2(e-1).  Hence,  whether the commercial identity of the goods subjected to  the processing, treating or adapting changes or not, is not  very material.   

The method of making coal briquettes is as follows:   

"The raw material for coal briquettes is  coal ground to generally, below 2 mm.  size.  The crushed coal is mixed with  suitable binders and pressed in

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briquetting press out of which regular  shape required, briquettes may be  carbonized in suitable carboniser.  The  size of coal (30-100mm) required for  manufacturing Special Smokeless Fuel  (SSF) is coal briquettes.  No hinder is  required to be used for production of  SSF)."

       In our opinion, the process mentioned above is  clearly processing, treating or adapting the coal.  Hence, in  our opinion, it is a ’manufacture’.    

Learned counsel for the appellant Shri Rakesh Dwivedi  submitted that coal briquettes are produced merely by using  a binding material such as clay or molasses along with the  coal, and hence he submitted that the identity does not  change.  We regret, we cannot agree with his submission.   Firstly, we do not agree that the coal briquettes are the  same commercial commodity as coal.  In our opinion, coal is  a raw material for making coal briquettes.  The method of  manufacturing coal briquettes has been stated above, and  this certainly is a processing, treating or adapting the coal.  The appellant manufactures coal briquettes by compiling the  hard coke breeze mechanically with the help of cinders  which is usually 5% of the total hard coke breeze.  In the  compilation of the hard coke breeze, 95% of the hard coke  breeze, which is known as coal-dust or breeze coke is taken  which is compiled with the help of clay and molasses.   Hence, in our opinion, coal briquettes is a different  commercial commodity from coal.  Moreover, even if it is not  a different commercial commodity, the process of making  coal briquettes will amount to a ’manufacture’ as it is  processing, treating or adapting coal.  In our opinion, by the  processing of coal to make coal briquette, the coal dust loses  its identity.  Coal briquettes and coal dust are two different  commodities in substance as well as in characteristics.  The  coal briquettes are altogether in different shape, form and  moisture as well as characteristics, as compared to coal  dust.       

A finding of fact has been given by the Tribunal that  ’coal dust’ and ’coal briquettes’ are entirely different  commercial commodities and we cannot interfere with this  finding of fact. The appeal is accordingly dismissed. No  costs.

Civil Appeal No. 1791-1793/2005

In view of the decision in Civil Appeal No. 1790/2005,  these appeals are accordingly dismissed. No costs.