TMI Blog2010 (4) TMI 535X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to 'manufacture'. This question assumes importance in the context of Section 3(3) of the Tamilnadu General Sales Tax Act (hereinafter referred to as the Act). 2. The petitioner is a manufacturer of finished leather. They purchased chemicals, dyes and pigments against Form XVII to convert wet blue leather into finished leather. The dealer is allowed concessional rate of tax under Section 3(3) of the Act, if a declaration in Form XVII is obtained from the purchasing dealer and produced before the Assessing Authority; after having bought the goods at the concessional rate of tax, he must use them for the manufacture of goods for sale. If he misuses them or disposes them off in any other manner, the concession will not be available to him. Thirdly, the buying dealer must maintain a separate stock for the goods purchased by availing the concession. According to them, to convert wet blue leather into finished leather, several processes and manufacturing activities take place, which include splitting, shaving, neutralizing, bleaching, dyeing, fat-liquoring, stuffing, setting out, samming, drying, staking and finishing and therefore, they fully complied with the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also satisfied that the wet blue leather and the finished leather were commercially distinct commodities in the industry concerned and one cannot be equated to the other. Learned counsel also produced the samples of wet blue leather and finished leather to show that they are different. He referred to various decisions of the Supreme Court, which explained as to what is manufacture. 6. Learned Special Government Pleader submitted that as long as the hides and skins are raw, they are liable to putrefaction and once processing takes place, they are no longer liable to putrefaction. It is only a question of stages of refinement and it is not as if a different or distinct commodity comes into existence. Learned Special Government Pleader also referred to the decisions of the Supreme Court to support his case. 7. It is also relevant to note that at the instance of the All India Skin and Hide Tanners and Merchants Association, a clarificatory note was issued by the Principal Commissioner and Commissioner of Commercial Taxes, who declared that when a dealer purchases semi finished skin and converts into finished hides, both the semi finished and finished hides are to be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lour in the grain surface. We have to consider whether this activity will amount to manufacture. So, we seek help from the various rulings of the Courts. 10. In the case of Deputy Commissioner of Sales Tax v. Coco Fibres (reported in 1991 (53) E.L.T. 515 (s.C.) = (1991) 80 STC 249), the Supreme Court held that when coconut husk is converted into coconut fibre, a manufacturing activity takes place where green husks are soaked in saltish sea water for days together and after decomposition, it is subjected to beating process and the fiber is extracted. The Supreme Court held as follows : The word 'manufacture' has not been defined under the Act, and therefore, we have to look into the meaning known in commercial parlance. In Black's Law Dictionary, Fifth Edition, the word 'manufacture' has been defined as, 'the process or operation of making goods or any material produced by hand, by machinery or by other agency; anything made from raw materials by hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand, labour or machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, and in the context of sales tax legislation, if the goods to which some labour is applied remain essentially the same commercial article, it cannot be said that the final product is the result of manufacture. The test laid down by this Court is that the article which comes into being must be commercially different from the one from which it is made or manufacture. 11. In the case of Aspinwall Co. Ltd. v. CIT reported in 2001 (133) E.L.T. 18 (S.C.) = 251 ITR 323 (S.C.), the question was as to whether when raw coffee berries undergo nine processes to become coffee beans, there is a manufacturing activity. The Supreme Court took note of the factual observation of the Tribunal regarding nine processes involved in curing of coffee and then, they held that the conclusion of the Tribunal that a manufacturing activity takes place is correct, it was further held as follows : Adverting to the facts of the present case, the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the input. The change made in the article results in a new and differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcially different from the one, which is converted. The essence of manufacture is the change of one object to another for the purpose of making it marketable. The essential point thus is that, in manufacture 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. (See M/s. Saraswati Sugar Mills and others v. Haryana State Board and Others (1992 (1) SCC 418). The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognized as a distinct and new article that has emerged as a result of the process. There might be borderline cases where either conclusion with equal justification can be reached. Insistence on any sharp or intrinsic distinction between 'processing' and 'manufacture', results in an overs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning whether manufacture can be said to have taken place is, whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognized in the trade as a new and distinct commodity. Pathak J., as he then was, stated the test in the following words (at page 65) : '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 recognized as a new and distinct article that a manufacture can be said to take place.' The word 'production' and 'produce' when used in juxtaposition with the word 'manufacture' takes in bringing into existence new goods by a process which may or may not amount to manufacture. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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