TMI Blog1972 (3) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... y purchases these goods on the basis of the aforesaid certificate and issues 'C' forms to the selling dealers who claim the deductions and pay tax at the rate of 3 percent. in the State from which the movement of goods has originated. A notice was issued to the company on 17th September, 1966, by the Excise and Taxation Officer, Gurgaon, in these terms: "It has come to notice that you have been misusing the registration certificate under the Central Sales Tax Act, 1956. You are, therefore, directed to appear before me on 29th September, 1966, at 10-00 A.M. at Canal Rest House, Faridabad, and show cause why action under section 10 of the Central Sales Tax Act should not be taken against you for this gross negligence. You should produce your account books from the date when you started doing sizing, bleaching and dyeing for the third party on job basis." A similar notice was issued by the said officer on 13th July, 1967, pertaining to the years 1962-63 to 1966-67. In reply, the company, vide their letter dated 21st July, 1967, asked for the details and the circumstances in which the alleged misuse had occurred. In consequence, the allegations against the company were summed up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meant for sale in the market. The purpose of the Act is to enable the registered dealer, to whom a certificate under section 7 of the Act has been issued, to compete in the open market in inter-State trade or commerce and, therefore, he is enabled to purchase certain goods which he requires for the manufacture and processing of his own goods at a concessional rate. He cannot purchase those goods for the benefit of other dealers whose goods he may manufacture or process. Such a course will defeat not only the object but the provisions of the Act." The whole case pivots around two questions: (1) Does the work of "sizing, bleaching and dyeing of raw cloth" amounts to "textile manufacturing"? (2) If so, will the material purchased by the company on the basis of its certificate for the purpose of doing the job-work of sizing, dyeing, bleaching, etc., for other dealers, be goods purchased "for use by it in the manufacture or processing of goods for sale" within the contemplation of clause (b) of sub-section (3) of section 8 of the Act? As regards question (1), it may be noted that the expression "manufacture of goods" has not been defined anywhere in the Act. We have, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of "manufacture" in section 2(f) of the Central Excises and Salt Act, 1944. The question was, whether the mere application to raw vegetable oil of the processes of neutralisation by alkali and bleaching by activated earth or carbon, amounted to "manufacture" of "non-essential vegetable oil" within item 12, Schedule I, of the aforesaid Excise Act. In this context, their Lordships held that the definition in section 2(f) of the Act did not equate mere "processing" to "manufacture". It was observed that "manufacture" did not mean merely "to (1) [1957] 8 S.T.C. 325. (4) [1968] 21 S.T.C. 17 (S.C.). (2) [1955] 57 P.L.R. 159. (5) [1960] 11 S.T.C. 486. (3) A.I.R. 1963 S.C. 791. produce some change in a substance" however minor in consequence the change may be. It was held that under that Act "manufacture" must mean the "bringing into existence of a new substance known to the market". The aforesaid case is no authority for the proposition that sizing, bleaching and dyeing of raw and unfinished cloth does not amount to "manufacture" of textile within the meaning of the Act with which we are concerned. Rather, judged by the test laid down in that case, "sizing, bleaching and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that the materials with which the thing is manufactured (1) [1957] 8 S.T.C. 325. (2) [1946] 1 S T.C. 157. must necessarily lose their identity or become transformed in their basic or essential properties." In the chain, the next case which may be noticed is Commissioner of Sales Tax, U.P., Lucknow v. Harbilas Rai and Sons(1), decided by the Supreme Court. There, the assessees who were dealers in pig bristles bought bristles plucked by "Kanjars" from pigs, boiled them, washed them with soap and other chemicals, sorted them out according to their sizes and colours, tied them in separate bundles of different sizes and despatched them to foreign countries for sale. It was contended on behalf of the assessees that this process of buying and arranging the bristles did not amount to "manufacture" of the goods within explanation II(ii) to section 2(h) of the U.P. Sales Tax Act, 1948, and consequently, the bristles were not taxable. Their Lordships approved the observations of the High Court that "it is not possible to say that the assessee manufactures pig bristles out of pig bristles; cleaning and arranging into different groups of different sizes and different colours does not conver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the writ petition was dismissed on a preliminary ground, namely, that an equally efficacious, alternative remedy under the Sales Tax Act was available to the petitioner, which he had not exhausted. The case was not decided on merits. The passing observation to the effect that "dyeing, bleaching and processing" does not amount to "manufacture" has, therefore, to be treated as obiter dictum. Moreover, as already observed, the ratio of Hiralal Jitmal's case(1) has been endorsed by the Supreme Court, and it is now to be taken as settled law that sizing, bleaching or dyeing of raw cloth turns it into a different marketable commodity, and, as such, amounts to "manufacture" of a commercially new product. I would, therefore, answer the first question in the affirmative. This takes me to the second question. The material provisions of the Statute and the Rules framed thereunder are these: "2. (b) 'Dealer' means any person who carries on the business of buying or selling goods, and includes a Government which carries on such business." "6. (1) Subject to the other provisions contained in this Act, every dealer shall, with effect from such date as the Central Government may, by noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) The goods referred to in clause (b) of sub-section (1)- (a) ... ... ... (b) are goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or Processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power; (c) are containers or other materials specified in the certificate of registration of the registered dealer purchasing the goods, being containers or materials intended for being used for the packing of goods for sale; (d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c). (4) The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n "buying" and "selling" in the definition given in section 2(b) dispels all doubt that a person may be a "dealer" for the purposes of the Act even if he merely buys goods, without selling any, provided that such "buying" amounts to a business carried on by him. "Business" has not been defined in the Act. There is, however, authority for the proposition that the word "business" being one of wide import, is to be construed in a broad rather than a restricted sense, if the buying or selling was in the course of repetitive and systematic conduct actuated by a profit-motive. In State of Andhra Pradesh v. Haji Abdul Bakshi and Bros.[1964] 15 S.T.C. 644 (S.C.); [1964] 7 S.C.R. 664; A.I.R. 1965 S.C. 531., their Lordships of the Supreme Court pointed out: "The Legislature has not made sale-of the very article bought by a person a condition precedent for treating him as a dealer: the definition merely requires that the buying...must be in the course of business, i.e., must be for sale or use with a view to make profit out of the integrated activity of buying and disposal. The commodity may itself be converted into another salable commodity..." In K.S. Films v. State of Maharashtra[1969] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacturing or processing of goods", but also everything that follows including the words "goods for sale". It is further maintained that sub-section (3)(b) of section 8 is in the nature of an "exemption" because it enables the dealer to pay tax on the sales made in the course of interstate trade at a concessional rate. In construing such a provision-it is argued-the principle that in case of ambiguity, a taxing statute should be construed in favour of the taxpayer, does not apply. Mr. Dewan has placed reliance on a Single Bench judgment of the Kerala High Court in O. Paramasivan v. The State of Kerala and Another1971 Tax. L.R. 1241., and some observations in Punjab Woollen Textile Mills [1960] 11 S.T.C. 486. and K.G. Rangaswami Chettiar and Co. v. Government of Madras[1957] 8 S.T.C. 222; A.I.R. 1957 Mad. 301., (Headnote 'g'). It appears to me that the contention of the learned counsel for the appellant must prevail. Times out of number, it has been ruled by the highest judicial courts in this country that statutes imposing pecuniary burdens have to be construed strictly; and when the language of such a statute is plain and clear, it is not permissible to speculate the supposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rminus with the manufacturing or processing; it does not extend beyond it to the words "for sale". The preposition "for" prefixed to "sale" operates as an adjunct only to the preceding word "goods"; and also conveys an adjective sense in relation to those "goods". I, therefore, think that the words "goods for sale" in the phrase connote no more than "salable goods". With due deference, it is submitted that the interpretation put by the learned single judge can be sustained only if we add in the phrase in question, the words "by him" immediately after the words "goods for sale". This is precisely a course, the adoption of which, according to the Supreme Court in M/s. Baidyanath Ayurved Bhawan's case[1971] 1 S.C.C. 4. , is not permissible. The phrase nowhere says that the goods in the manufacture of which the material purchased on the basis of the certificate is used should belong to the manufacturing dealer or should be intended for sale by him alone. The requirement of the said clause (b), in my opinion, would be satisfied if the materials purchased, on the basis of the certificate, had been used by the company in the manufacture of goods intended for sale either by it or by othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture of which it used the material purchased on the basis of the certificate of registration, were actually sold by other registered dealers in the course of inter-State trade; and that only on its failure to prove that fact, it could be said to have committed a breach of the conditions of the certificate or the provisions of the aforesaid sub-section (3)(b). In this connection, it is significant to note that there is nothing in the Rules or form 'C' or the certificate of registration issued to the company, that the textiles to be manufactured by it are to be sold by itself and not by other dealers. In O. Paramasivan's case1971 Tax. L.R. 1241., the petitioner, a registered dealer, had purchased dyes and chemicals by issuing 'C' forms. The Sales Tax Officer, on examination of the petitioner's books of account, noticed that the above goods were not used for resale or for the manufacture or processing of goods for sale and that they were actually used for dyeing goods belonging to other persons on receipt of dyeing charges. It was contended before the Single Bench on behalf of the petitioner there that the use of the goods for dyeing goods belonging to others amounted to use in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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