1992 (8) TMI 261 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the applicant was the manufacturer or reseller of unfinished cupboards.
2. Whether the applicant was entitled to claim deduction of sales as registered dealer resales under section 7(ii) of the Gujarat Sales Tax Act, 1969.

Detailed Analysis:

1. Manufacturer vs. Reseller:
The Tribunal concluded that the applicant was the manufacturer and not the reseller of unfinished cupboards purchased from M/s. Prabhat Industries. The Tribunal found that the unfinished cupboards, referred to as "skeletons," had no market potentiality in their original state and were not purchased by customers. These skeletons were only bought by the dealer, who then painted them, affixed handles and locks, and added mirrors before selling them to customers. This process was deemed to involve manufacturing within the meaning of the Gujarat Sales Tax Act, 1969. The Tribunal rejected the dealer's claim that these activities constituted mere resale.

2. Entitlement to Claim Deduction:
The Tribunal held that the dealer was not entitled to claim deduction of sales as registered dealer resales under section 7(ii) of the Gujarat Sales Tax Act, 1969. The Tribunal's decision was based on the finding that the activities performed by the dealer-painting, affixing handles, locks, and mirrors-constituted manufacturing rather than resale. The statutory definitions of "manufacture" and "resale" were pivotal in this determination. According to section 2(16) of the Act, "manufacture" includes altering, ornamenting, finishing, or otherwise processing goods. Section 2(26) defines "resale" as selling purchased goods in the same form without any manufacturing activity.

Tribunal's Findings:
The Tribunal noted that the dealer's partner had stated that the cupboards came in skeleton form and were later finished by the dealer. However, the Sales Tax Officer found no evidence supporting this claim and observed that the expenditures for these activities were not recorded in the regular account books. The Tribunal concluded that the activities carried out by the dealer were essential for transforming the skeleton cupboards into marketable products, thereby constituting manufacturing.

Legal Precedents and Statutory Definitions:
The Tribunal's decision was supported by legal precedents and statutory definitions. The Bombay High Court's decision in Famous Cine Laboratory and Studio Ltd. v. State of Maharashtra emphasized the importance of statutory definitions over ordinary meanings. The Supreme Court's decision in Chowgule & Co. Pvt. Ltd. v. Union of India clarified that the nature and extent of change in a commodity are not material when determining whether an activity constitutes manufacturing.

Conclusion:
The Tribunal's decision was upheld, affirming that the dealer's activities amounted to manufacturing and not mere resale. Consequently, the dealer was not entitled to claim deduction of sales as registered dealer resales under section 7(ii) of the Gujarat Sales Tax Act, 1969. The High Court answered the referred question in the affirmative, against the assessee and in favor of the Revenue, with no order as to costs.