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CASE NO.: Appeal (civil)  427 of 2007

PETITIONER: M/s.  Kumar Motors, Bareilly

RESPONDENT: Commissioner of Sales Tax,U.P., Lucknow

DATE OF JUDGMENT: 02/02/2007

BENCH: S.B. Sinha & Markandey Katju

JUDGMENT: J U D G M E N T (Arising out of S.L.P.(C) No. 17280/2004)

        S.B. SINHA, J.

       Leave granted.

       Appellant herein deals in manufacture and sale of Auto Rickshaw.   For the said purpose, it purchases body of Auto Rickshaw from M/s. Apollo  Builders, a sister concern of M/s. Scooters India Ltd. and chassis thereof  from M/s. Scooters India Ltd.

       The question which arises for consideration in this appeal is as to  whether mounting of the body of the Auto Rickshaw on the Chassis thereof  would amount to ’manufacture’ within the meaning of  Section  2 (e-1 ) of  the U.P. Sales Tax Act, 1948 (’the Act’, for short).     

       It is not in dispute that the appellant had purchased ’Vikram three  wheeler Chassis’ upon issuing III-A form from M/s. Scooters India Ltd.   It  did not pay any purchase tax in respect of the purchases made from M/s.  Appolo Builders.  Appellant was held to be liable to pay purchase tax on the  premise that upon mounting the body of Auto Rickshaw on the chassis and  sale having not been made on the same condition and form, purchase tax  was leviable.    

       The contention of the appellant is that having regard to the provisions  contained in Section 3-AAAA of the Act, no purchase tax is payable as the  condition remained the same.  In any event having regard to the Entry 43 B  and having regard to the fact both chassis and body of  three wheelers came  within the purview of ’auto rickshaw’, which  find place in the same entry,  no tax was payable.   Reliance, in this behalf, has been placed on the  decision of Commercial Taxes Officer, Anti Evasion-I  vs.  Rajesh Motors &  Anr.  (1997) 107 STC 468; the  decision of a Rajasthan Taxation Tribunal as  also the decision of  Dy. Commisioner of Salex Tax(Law), Board of  Revenue (Taxes), Ernakulam  vs.  M/s. Pio Food Packers 1980 Supp. S.C.C.  174 and  M/s. Sterling Foods, a Partnership firm represented by its partner  Sh. Amesh Dalpatram v. State of Karnataka & Anr.  (1986) 3 SCC 469.    

       The Act was enacted to provide for levy on the tax of purchase of  goods in the State of U.P.     

       ’Manufacture’ has been defined in section 2(e-1) of the Act to mean :

"(e-1)          ’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

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manufacturing processes as may be prescribed."      

       Section 3-AAAA provides for liability to pay tax on goods under  certain circumstances.    It reads as under:-

"1.    Subject to the provisions of section 3, every dealer  who purchases any goods liable to tax under this Act:-

(a)    from any registered dealer in circumstances in  which no tax is payable by such registered dealer, shall  be liable to pay tax    on the purchase price of such goods  at the same rate at which,   but for such circumstances,  tax would have been payable on  the sale of such goods;

(b)  from any person other than a registered dealer  whether or not Tax is payable by such person, shall be  liable to pay tax on    the purchase price of such goods at  the same rate at which tax  is payable on the sale of such  goods:

Provided that no tax shall be leviable on the purchase  price of such goods in the circumstances mentioned in  clauses (a) and (b) if \026 (i)    Such goods purchased from a registered dealer have  already been subjected to tax or may be subjected to tax  under this Act;

(ii) tax has already been paid in respect of such goods  purchased from any person other than a registered dealer;

(iii)   the purchasing dealer resells such goods within the  State or in the course of inter-State trade or commerce or  exports out of the territory of India, in the same form and  condition in which he had purchased them;

(iv)  such goods are liable to be exempted under Section  4-A of this Act."

       It has been noticed herein before that in regard to the purchases made  from M/s. Scooters India Ltd. Form IIIA has been utilized.   Similar  purchases of Auto Rickshaw body were made from Appolo Builders against  issuance of Form III-A prescribed in terms of Rule 12-A of the U.P. Sales  Tax Rules, 1948, which, inter-alia, provides for the following condition :

"2.     I further certify  that out said form has purchased  for sale in the same condition\005\005\005\005\005 (description of  goods) against  Bill/Cash memo No\005\005\005\005\005,  dated\005\005\005\005from M/s\005...................\005.............  Place \005\005\005 Date\005\005\005.."                            Entry at serial No. 43(1) contained in the Notification dated 7.9.1981  reads as under:

"43(1) Motor vehicles including motor cars, motor taxi  cabs, motor cycles, motor cycle combinations, motor  scooters, mopeds, motorists, motor omnibuses, motor  vans, motor lorries, motor trucks, jeeps, station wagons  and chassis of motor vehicles and bodies or tankers or  motor caravans built or meant for mounting on chassis of  motor vehicles, but excluding tractors whether on wheels  or on tracts."

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       The entry states which goods would come within the purview of the  the ’Motor Vehicle’  for the levy of the tax.   It does not say even if tax had  not been paid, despite changes in the form, no tax would be payable.  In our  opinion, the goods in terms of the aforementioned condition contained in  Form III-A should, thus, have been made for in the same condition.   It is not  in dispute that the appellant sold Auto Rickshaw after the body was mounted  on the chassis with the help of nuts and bolts.   The question which arises for  consideration is as to whether the end product sold by the appellant is a  different commercial commodity which came into existence only upon  undertaking the ’manufacturing process’ as is defined under Section 2(e-i) of  the Act.    The meaning of ’manufacture’ in terms of the statutory provision  is of wide amplitude.  It takes within its sweep not only a new product but  also alterations made in an existing product.         ’Auto Rickshaw’ in ordinary commercial parlance cannot be said to  be its body or chassis.  It has a definite connotation.  The contention that  once those nuts and bolts are removed the chassis and the body would be  restored to their original position, in our considered opinion, is of not of  much significance.    

       The Court is required to give a literal meaning to the expression used  by the Legislature, while interpreting the provisions of a statute.    In terms  of Form III-A, a trader would be exempted from payment of purchase tax  only in the event the terms and conditions thereof are satisfied. Necessary  condition for obtaining such exemption is that the assessee must sell the  commodity it purchased in the same form and condition.   The requirement  of law, thus, is that goods once sold to a registered dealer must be sold in the  same form and condition in which he had purchased.   We have no doubt in  our mind that the sales made by the assessee of chassis with mounted body  would be selling a product which is in different condition from the chassis or  the body, and, thus, the same would be liable to purchase tax under sub- section (a) of Section 3-AAAA of the Act.           The decision of the Rajasthan Taxation Tribunal in Rajesh Motors  (supra) in our opinion does not lay down the correct law.   In that case the  Tribunal proceeded on a wrong premise that on removal of nuts and bolts  fixed the chassis and body would get separated and the original position  would be restored without their change in the structure, nature and identity.   It was, in our opinion, not a relevant question.  Tax is payable when the  taxable event occurs.  In construing  a taxing statute, vis-‘-vis, the taxable  event, no hypothesis ordinarily should be raised.

       A commodity is identified by ordinary commercial parlance.  Auto  rickshaw is an auto rickshaw.  It can be sold only as a combination of  chassis and the body mounted thereupon, and not body or chassis separately.   If it is so done, consequences may be different.

       Furthermore, the definition of ’manufacture’ under the Rajasthan  Sales Tax Act, 1994 is different from the one under the U.P. Act, which is as  under:

"Manufacture" includes every processing of goods  which bring into existence a commercially different and  distinct commodity but shall not include such processing  as may be notified by the State Government."

                        A bare comparison of the definitions of the said term under the  Rajasthan Act and the U.P. Act categorically points out that the definition of  ’manufacture’ under the latter is wider.   This has been so held in  Sonebhadra Fuels  vs. Commissioner, Trade Tax, U.P. Lucknow  [(2006) 7  SCC 322 ] in the following terms :

       "We may mention that, as noted above, decisions  construing the word "manufacture" in other statutes are not

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necessarily applicable when interpreting Section 2(e-I) of  the U.P. Trade Tax Act. As stated above, the definition of  "manufacture" in Section 2(e-I) of the U.P. 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-I) of the  U.P. Trade Tax Act since an artificial meaning of  "manufacture" is given in Section 2(e-I).  Hence, whether  the commercial identity of the goods subjected to the  processing, treating or adapting changes or not, is not very  material.

       xxx             xxx                 xxx                 xxx

       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  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 briquettes, 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."

                We are, however, not oblivious of the fact that a Division Bench of  this Court in State of Karnataka v. Azad Coach Builders (P) Ltd. and Others  [(2006) 3 SCC 338], in view of the provisions of  Section 5(3) of the Central  Sales Tax Act, 1956 vis-‘-vis the provisions of the Karnataka Sales Tax Act,  1957 had referred the question of interpretation of the words ’in relation to  such exports’ to a larger Bench, noticing the decisions of this Court in  Mohd. Serajuddin v. State of Orissa, [(1975) 2 SCC 47], on the one hand  and Sterling Foods v. State of Karnataka [(1986) 3 SCC 469] and   Vijayalaxmi Cashew Co. v. C.T.O. [(1996) 1 SCC 468] on the other.  We,

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however, are not concerned with such a question in this case.         

       We may also notice  that the term "manufacture" has been considered  in Kores India Ltd., Chennai  vs.  Commissioner of Central Excise, Chennai   (2005 ) 1 SCC 385 by this Court stating ;

       "At this juncture it is relevant to point out that the  assessee had contended before the Collector that the  inputs/raw materials used have suffered excise duty and  if any duty is payable, they should be allowed MODVAT  credit and the proportionate amount on account of such  credit should be deducted from the proposed demand.    This plea was turned out as required documentary  evidence to show that entire quantity of inputs used have  suffered tax was not produced.   Before CEGAT it was  accepted that there was possibility that manufacturers  were operating under exemption available to SSI units  and the goods would have discharged "nil" duty.  It was  also accepted that since the goods were received from the  depots and not directly received from one factory,  therefore, any duty (paying documents) were not  available.   It is to be noted that once the jumbo rolls are  cut into smaller sizes, they completely lose their earlier  identity and cannot be used for the same purpose as was  done before cutting.  In a hypothetical case, even if the  smaller-sized ribbons are stitched together or fixed  together in any manner, there is no possibility of its use  as jumbo rolls.  The factual findings recorded that the  processing resulted in coming into existence of a  commercial product having distinct name, character, and  use are on terra firma\005"   

       In O.K. Play (India ) Ltd.  Vs. Commissioner of Central Excise-II,  New Delhi (2005) 2 SCC 555 it has been held :

       "Section 2(f) contains two clauses and instead of  setting out the activities in respect of different tariff  items, sub-clause (ii) simply states that any process,  which is specified in section/chapter notes of the  schedule to the Tariff Act, shall amount to  "manufacture".  Under sub-clause (ii), the legislature  intended to levy excise duty on activities that do not  result in any new commodity.  In other words, if a  process is declared as amounting to "manufacture" in the  section or chapter notes, it would come within the  definition of "manufacture" under section 2(f) and such  process would become liable to excise duty.  The effect  of this definition is that excise duty can be levied on  activities which do not result in the production of a new  commodity or where the raw material does not undergo  such a transformation as to lose its original identity."

       The decision of this Court in M/s. Pio Food Packers (supra), is not  applicable to the facts of this case.  Therein, this Court was concerned with  the provisions of Kerala General Sales Tax Act. The assessee therein used to  carry on business of manufacturing and selling of canned fruit.  Having  regard to the factual matrix involved therein it was held that there was no  difference between pineapple fruit and the canned pineapple slices.  M/s. Pio  Food (supra) was followed by this Court in M/s. Sterling Foods (supra).   Therein again the Court was concerned with selling of  shrimps.   It was  held:

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       "Here in the present case, it was not disputed on  behalf of revenue that the purchases of raw shrimps,  prawns and lobsters were made by the appellants for the  purpose of  fulfilling existing contracts for export and after  making such purchases the appellants subjected  raw   shrimps, prawns and lobsters purchased by them to the  process of  cutting of heads and  tails, peeling deveining,  cleaning and freezing and exported such processed and  frozen shrimps, prawns and lobsters in fulfillment of  the  contracts for export.  The only argument raised  on behalf  of revenue was that the goods which were exported were   not the same as the goods  purchased by the appellants  because raw shrimps, prawns and lobsters after processing   ceased to be the same commodity and became  a new  distinct commodity.  But, for reasons which we have  already discussed, this argument cannot be sustained.   The  shrimps, prawns and lobsters purchased by the appellants  did not lose  their original character and identity when they  were subjected to processing for the purpose of export.  So  far as commercial  parlance or popular usage is concerned,  they remained the same goods and hence the purchases of   raw shrimps, prawns and lobsters by the appellants must be  held to be purchases in the course of export and hence  exempt from liability to tax under the Karnataka Sales Tax  Act."

       The said decision has no application to the facts of the present case.    

       The Tribunal also opined that by mounting auto rickshaw body on the  chassis a new product comes into being.  However, it had proceeded to hold  that both chassis and auto rickshaw being under the same entry no tax would  be payable.  The Tribunal was not correct in that behalf as it failed to take  into consideration the fact that if two articles were purchased by the assessee  and the articles it sold were different commodities;  purchase tax would be  payable therefor as the terms and conditions laid down in Form 3-A had not  been satisfied.

       For the reasons aforementioned, we do not find any merit in this  appeal.   It is dismissed accordingly with costs.   Counsel’s fee assessed at  Rs.10,000/-.