TMI Blog2000 (1) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... is a colloquial expression for ballast or metal used for laying pathways or roads. It is required of such material that the stones do not exceed required maximum size, and do not be of smaller than the minimum size. In other words, the commodity known as gitti has to be of size within such variable limits, so that it can be used as such. The process required to get "gitti" is to grind or crush large sized stones to required sizes. So also chips is still finer small pieces of stone of various types for use in laying floor or used in concrete structure and laying bitumen road layer. The material which is used for shaping them in gitti or chips are uncut and unsized stone which are otherwise unusable in any work. 3.. The District Level Screening Committee referred to its decision in Volkem India Limited, in which it was stated to have held that where there is no change in the physical properties of the end- product of raw material, it does not amount to manufacture but only amounts to processing. Following the same it declined to accept the process of stone crushing or grinding as activity of manufacturing and rejected the application in its meeting held on March 5, 1998. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in reported in [1994] 94 STC 118, does not appear to lay down the law correctly and it requires reconsideration. It was argued that in view of the law laid down in the various decisions it is essential that as a result of processing of goods, a new commodity different in nature and shape with different physical and chemical properties must come into existence which could be treated differently from the parent raw material. Relying on the decision of the Bombay High Court in Commissioner of Sales Tax v. Mahalaxmi Stores [1995] 97 STC 601 in which the court concerned with the same question relat- ing to the very same commodity, namely, "gitti", has held that though the activity may be called a processing activity, but it does not result in bringing in existence any new commercially different commodity which is subject to tax under a different entry of the Schedule pre- scribing rates on different commodities, but continues to fall in the same entry, viz., stone. Therefore, moulding of stones to size of gitti cannot be considered an activity of manufacture which is a principal condition of entry to benefits of New Sales Tax Incentive Scheme. He places reliance on number of decisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture". It is also relevant to consider to what use, the commodity in its original shape can be and is ordi- narily put and the use to which the commodity in its altered shape or form as a result of processing applied to it, can be put. If the commodity in its original shape and altered shape, without there being any change in the physical properties of the commodity, can be put to the same use, notwithstanding change of form it cannot be termed as an activity of manufacture. At the same time, without there being change in the physical properties, two commodities, namely, the original commodity to which processing has been applied and the processed commodity are not substitute for each other in use but each is put to distinct use for distinct object, and is understood as two distinct commodities in the commercial field where the commodity is traded, it is to be held to be a case of an activity of manufacture. Tersely put it may be called test of functional utility. 10.. In each case, the question has to be examined indepen- dently, keeping in view the purpose for which the interpretation has to be made, the expression used in the relevant statute; use to which the commoditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government, under the old Act, while no reference was made to bring into existence a commercially different and distinct commodity but emphasis was laid in the manner of processing by enumerating the various processes, namely, producing, collecting, extracting, preparing or making any goods; it included even the process of collecting. Nonetheless the basic ingredient of bringing into existence a distinct commodity was still considered to be inherent in expression "manufacture". It may be noticed that the decisions referred to by both the learned counsel relates to period prior to the coming into force of the new Act of 1994 in the light of the old definition of "manufacture" which was in pari materia in the States of Maharashtra, Madhya Pradesh and Rajasthan. The question, therefore, has to be examined whether processing of boulder or large pieces of stones of uneven sized dimen- sions into gitti or chips results in bringing into existence a commer- cially different and distinct commodity, with distinct functional utility. 14.. It would be appropriate in the first instance to address oneself to the question in the light of definition of the new Act. The relevant entry, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinct utility in the field of construction work, though fall in the category of building material. 15.. The stone is primarily considered to be a mineral. But different kinds of stones are identifiable as distinct commodity with different physical properties. All stones are not necessarily known as building stones nor all building stones can be classified as same mineral. Thus it becomes relevant to consider when the entry in Schedule is neither "stone" simpliciter nor "building stone" as a specie of stone, but is "building materials", whether all building materials whatever be its use as building material is to be considered one and same commodity, or each commodity having distinct function as build- ing material are to be treated distinct from each other. The former is negatived by the entry itself which describes form of the building materials distinctively. Such distinction is neither to restrict the scope of building material to be included in general expression by exhaus- tively enumerating the list, nor it expands the meaning by including something which otherwise would not fall in such expression. 16.. In this connection, it may be of some relevance to know how the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is apparent from use of ex- pressions such as slabs, patti, katla, ashlor, millstone, flooring and roofing stone, etc. Altogether, different expressions have been used for identifying yet another type of such stones under a separate entry at S.No. 7. It has prescribed separate rate of royalty in respect of other stones used as khanda ballast, road metal, fatchara, gitti grit, papera, crusher dust, gravel jhajhara, etc. All kinds of stone used in different types of masonry work are categorised as masonry stone. The different expressions denote names by which different type of masonry stone as 'building material" is known. Their utility in masonary work as building material is also different. "Khanda" is used for different purpose than ballast or road metal is used. Likewise chips and gitti are used for different purposes. 19.. The different expressions used in the Minor Mineral Concession Rules, 1986 in respect of building stones, a minor mineral, which is a building material of the general specie, identify differently each article as a different commodity based on their use in the construction activity for the purpose of treating them differently for levy of royalty. It is bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -Busch Brewing Associa- tion v. United States 207 U.S. 556 laid down the test; "..........Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treat- ment, labour and manipulation. But something more is necessary .......There must be transformation; a new and different article must emerge, 'having a distinctive name, character or use'." The above view has been quoted with the approval by the Supreme Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers reported in [1980] 46 STC 63. The court said: "The generally prevalent test is whether the article produced is regarded....., by those who deal in it, as distinct in identity from the commodity involved in its manufacture. 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,........". 23.. It must be noticed that where a new and different article emerge, having a distinct name, character or use, and being so distinctly traded by those in the context of whose dealing the commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer. By notification dated March 23, 1963, the point of tax has been shifted to the second dealer. The assessee who has applied such process to the stones quarried by and converted them into blocks claimed that he is a manufacturer and sale by him to the registered dealer was covered by the notification referred to above and the point of tax is shifted to the second registered dealer who has purchased the goods from him. Revenue thought otherwise and was of the view that even after applying of the process of converting the raw stones into the blocks it retained the basic identity of the stone as a stone with no change in its physical property and the process did not amount to result in manufacture. The court observed that: "There must be a different commodity brought into existence by process, manual, mechanical or chemical which may not even be the transformation of the original commodity. It must be known differ- ently in common and commercial parlance." 29.. The court applied the test of being a different commercial commodity in common parlance namely in commercial world the trad- ing community treats the blocks of stones of specific sizes and dimen- sion brought in exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zeable stones for sale as gitti, he is shaping the stone into an object of a different size. Now, the word "manufacture" has got various shades of meaning. There may be manufacture of a complicated object like the super-constellation, or there might be manufacture of a simple object like a toy kite..... The essence of manufacture is the changing of one object into another for the purposes of making it marketable. The stones which are won in the process of quarrying may be sold without fashioning them into something else. If they are so sold they would not be manufactured but merely delivered from the quarry-head. When they are broken into metal or gitti there is some process, manual though it may be, for the purpose of shaping the stones into another marketable commodity." The court further said commenting on the character of commodity known as "gitti" that: "......making of metal for the purposes of ballast and road is a well-known trade and occupation and is a very fruitful source of income to one who shapes larger stone into smaller ones of a pre-determined size. It is well-known that metal has to be within a particular size. Each piece cannot be smaller than a designated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned is likely to cause confusion and is better to be avoided. The Full Bench distinguished the case of Bheraghat Mineral Industries [1990] 79 STC 156 (MP) [App] for that reason. 34.. The Bombay High Court in Revlon Commercial Co. Ltd. v. Commissioner of Commercial Taxes reported in [1995] 97 STC 598 has taken a note on various decisions of the Supreme Court particu- larly in State of Maharashtra v. Shiv Datt Sons [1992] 84 STC This reference appears to be to the decision of Commissioner of Sales Tax, Maharashtra State v. Mahalaxmi Stores [1995] 97 STC 601 (Bom).-Ed. 497, Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63, [1981] 47 STC 124 (Chowgule Co. Pvt. Ltd. v. Union of India) and [1986] 63 STC 239, (Sterling Foods v. State of Karnakata), and the entry in the Schedule C was "building material" and has held that: "Applying the tests laid down by the Supreme Court, it is obvious that the process of crushing boulders to obtain stones of smaller sizes termed as 'gitti' cannot be regarded as a process of manufacture. The taxable item is 'stone'. Boulders and 'gitti' are different sizes of the same. Breaking of boulders, which are pieces of stone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving inedible portions. Sugar is added as preservative for saving it from spoiling but basic identity of pineapple remains as that of edible fruit. Canning is only for putting the same in convenient mode of selling. However, raw pineapple cannot be said to be consumed in producing different goods. This principle is often applied to find whenever a question arises in the context of edible commodities. However, the principle to which the court alluded, and which alone furnishes ratio of the case from which light can be taken was stated thus: "The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. Commonly, manu- facture is the end result of one or more processes through which the original commodity is made to pass." 38.. We are not concerned with the case where the commodity in its original shape can be used in the same manner and for the same purposes as in the shape of end-product can be used nor the two products are so recognised to be same by the trade. The use for which the raw material, the large unevenly sized stones, could be placed would be ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lusion would be otherwise. As the Supreme Court found on evaluating the facts of the case that no distinct commodity came into existence as a result of blending of ore, conclusion reached was that no manufacture resulted. The principle enunciated and applied in Chowgule's case [1981] 47 STC 124 (SC), therefore, does not detract from the one applied in the facts of present case in reaching the conclusion. 42.. In the case of Sterling Foods v. State of Karnataka [1986] 63 STC 239, the apex Court was considering a case, like in the Pio Food Packers case [1980] 46 STC 63 (SC), of food processing. The commodities in question were sea food like shrimps, prawns and lobsters. The process concerned was cutting of heads and tails, peeling, deveining, cleaning and freezing. The court considered that process involved does not make processed and frozen shrimps, prawns and lobsters any other commodity distinct from the commercially known commodity as shrimps, prawns and lobsters. In reaching its conclusion the apex Court reiterated the principle that the test for the purpose of determining whether a commodity subjected to processing retains its original character and identity is whether the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turmeric powder" was a different commodity from "turmeric" because grinding of black pepper and turmeric involved a process of manufacturing and, therefore, if the processor who has purchased the whole turmeric or whole black pepper by suffering purchase tax, on the sale of "powder" the dealer is liable to pay tax once again on the new commodity sold by him. The assessee's case was that though the entry was "black pepper" and "turmeric" respectively but rest of the description in relevant Notification No. 885 dated May 1, 1955 suggested that black pepper or turmeric sold in any form is liable to tax at the same rate, as the same commodity, he cannot be considered to have brought into existence any new commodity so as to attract levy of tax again. Considering the expression used in entry and respective use to which the commodities are put by the purchasers and the expression used in notifications reached its conclusion as under: "We are of the opinion that so far as whole black and white pepper and pepper powder are concerned, they are the same goods, whether applying the functional test or the test of common parlance/ commercial parlance. The analogy of paddy and rice or of w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt distinguished the case of processing of paddy into rice and wheat into flour on the basis of functional utility of commodity before and after processing. In other words the question of change in nature of the commodity was tested on the touchstone of functional utility and not on the touchstone of change in physical or chemical proper- ties only. 46.. We are not concerned presently with the entry "stone" simpliciter as has been sought to be argued before us or as has been assumed by the High Court of Bombay, while reaching its conclusion in respect of the commodity as stone. The expression "stone" simpliciter may have given rise to a question whether stone at quarry head, and stone in any of its altered form when retains the same physical properties, can clarify it "stone" only for the purpose of taxing statute. But where expression used is "building material", stone in all different shape may classify as independently as distinct building material depending on its use. A dimensional stone used for the purpose of constructing particular parts of the building, namely, roofing walls is certainly a different building material from gitti or metal used for laying roads and pathwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p were to be described distinctly for the purpose of taxing statute from each other. This case, also therefore, does not take the case of revenue any further. 48.. The common thread running through the ratio of all the aforesaid decisions of apex Court is that in most cases the test of functional utility of the competing goods have been determinative in finding whether by applications of any process to the commodity its nature has altered to result in bringing into existence a new and distinct commodity known in commercial parlance for those who trade in its, so as it can be called "manufacture". 49.. Learned counsel for the Revenue has placed much reliance on a decision of the Karnataka High Court in Bahri Steel Wires v. Additional Commercial Tax Officer reported in [1992] 84 STC 418, and contended that the entry in Schedule of rates is relevant and an important consideration in determining the question whether a new commercial commodity has come into existence through manufac- turing process. 50.. In the case of Bahri Steel Wires [1992] 84 STC 418 (Kar) the court was concerned with reference to the scheme of sections 14 and 15 of Central Sales Tax Act, 1956, after its amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplied to a particular commodity but if that commodity essentially remains the same commercial article, this cannot be said that the produce which comes out after the application of the labour is a result of the manufacture. Relying on the test laid in an earlier decision of this Court in State v. Sahachari Udhyog Mandir [1986] 61 STC 30, the Court held that: "Stones are polished but even after polishing those stones do not lose the original identity and a separate commercial article does not come into being for being marketable. Essentially, it is the same commercial commodity. The polished stones are nothing but product of stones which they were........ ........................... identity of so-called polished stones sold by the dealer-assessee had not been changed from what it had been when they were origi- nally purchased." 52.. The distinction between the case before this Court in Sitaram Badrilal [1986] 61 STC 258 and case before us is obvious. That was a case in which the same commodity was being sold in an un-polished and polished condition but was to be utilised for the same purpose. So far as present case is concerned, there is no doubt that the gitti or the ro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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