TMI Blog2003 (3) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... e limited companies. However, all the appellants are small-scale industrial units registered as such with the Industries Department concerned. They have also taken out registration both under the Kerala General Sales Tax Act, 1963 (for short, "the Act") and under the Central Sales Tax Act, 1956. They are also assessees on the files of the respective Sales Tax Officers having jurisdiction over their business places. 3.. According to the appellants, they are small-scale industrial units registered with the Industries Department and are engaged in the business of manufacture and sale of mineral water/packaged drinking water. According to them, the sales turnover of their product is entitled to exemption from payment of sales tax for a period of seven years under S.R.O. No. 1729 of 1993 issued under section 10 of the Act. Reported in [2002] 128 STC 216. 4.. The appellant in W.A. No. 1075 of 2002 started commercial production on January 10, 1998 and as such it claimed exemption from payment of sales tax under the Notification S.R.O. No. 1729 of 1993 for the period from January 10, 1998 till January 9, 2005. Its capital investment on fixed assets is Rs. 12,06,195. The District Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Committee and later placed before the State Level Committee for consideration and the matter is pending. According to the appellant in view of the circular dated January 23, 1999 (exhibit P4) no relief can be expected from the said authorities. It is stated that no final assessments under the Act have been made on the appellant. In view of the said clarification, the appellant has filed writ petition, O.P. No. 4430 of 1999. 6.. The appellant in W.A. No. 1082 of 2002 started commercial production on June 11, 1998 and as such they claimed exemption from payment of sales tax for the period up to June 10, 2005. Their capital investment on fixed assets came to Rs. 12,39,721. The District Level Committee considered their application dated May 22, 2001 and issued proceedings dated June 6, 2001 (exhibit P4). The exemption claimed on the sales turnover of mineral water was denied but exemption to the tune of Rs. 42,250 on hot and cold water dispensers was granted for the period from June 11, 1998 to June 10, 2005. This order was communicated to the appellant on October 10, 2001. The appellant filed an appeal against the said proceedings before the State Level Committee and the same is pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of mineral water. They had also set out the process employed by them on ground water in the manufacture of mineral water. According to them by the process so employed, a totally different commodity, viz., mineral water emerged. The appellants, thus, contended that the process so employed constitutes "manufacture" as defined in the Notification S.R.O. No. 1729 of 1993. The appellants in W.A. Nos. 1075 and 1089 of 2002 have advanced a further contention that the eligibility certificate issued by the competent authority, viz., District Level Committee has not been cancelled in accordance with law and, therefore, the exemption available as per the eligibility certificate is still in force. Yet another contention was also raised that the appellants have also manufactured bottles for filling it with mineral water and, therefore, the turnover of bottles is also entitled to exemption from payment of sales tax under the notification. The learned single Judge, after detailed examination of the matter, rejected all the contentions of the appellants and the writ petitions were dismissed. Hence these appeals by the petitioners. 10.. We have heard the learned counsel appearing for the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods into another form of the same goods by mixing with chemicals or gas, fumigation or any other process applied for preserving the goods in good condition or for easy transportation. The process of producing desiccated coconut out of coconut (chemical treatment of rubber wood and production of dressed or tanned hides out of raw hides) shall be deemed to be 'manufacture' for the purpose of this notification." The following processes shall not be deemed to be "manufacture" for the purpose of this notification: (a) Crushing copra and producing coconut oil and coconut oil cake. (b) Converting timber logs into timber sizes. (c) Crushing rubble into small metal pieces. (d) Converting sodium silicate into liquid silicate. (e) Tyre-retreading. (f) Cutting granite or marble slabs into smaller pieces and or polishing them. (g) Such other processes as may be notified by Government in this behalf. (h) Conversion of rubber latex into centrifugal latex, raw rubber sheet, ammoniated latex, crepe rubber, crumb rubber, or any other item falling under entry 110 of the First Schedule to the Kerala General Sales Tax Act, 1963 or treating the raw rubber in any form with chemi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds to which some labour-manual or mechanical is applied results in the production of a new and distinct commodity. In other words in the process of manufacture the resulting commodity will have a distinct and separate identity from the raw material. According to them, by the process described above, there occasioned a transformation, a new and different commodity emerged, having a distinct commercial use. They have also contended that mineral water is a specified commodity under the Act as covered by entry 87 of the First Schedule to the said Act whereas water is taxable as an item falling under the residuary entry. It is also their contention that the production of mineral water is treated as manufacture and the manufactured product-mineral water-is an excisable commodity liable to excise duty under Chapter 22, item No. 22.01 and 22.02 of the Central Excise Tariff Act, 1985. They have also alleged that certain other industrial units doing identical line of business were granted sales tax exemption under S.R.O. No. 1729 of 1993 and the denial of the same benefits to the appellants is discriminatory and violative of articles 14, 19(1)(g) and 301 of the Constitution of India. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (ix) gives a definition of the word "manufacture" use in the notification. We have already extracted the said definition earlier in this judgment. As per the said definition, the term "manufacture" shall mean the use of raw materials and production of goods commercially different from the raw materials used. It further provides that manufacture shall not include mere packing of goods, polishing, cleaning, grading, drying, blending or mixing different varieties of the same goods, sawing, garbling, processing one form of goods into another form of the same goods by mixing with chemicals or gas, fumigation or any other process applied for preserving the goods in good condition or for easy transportation. It is also clarified that the process of producing desiccated coconut shall be deemed to be "manufacture " for the purpose of this notification. It further specifies certain other process which shall not be deemed to be manufacture for the purpose of this notification. One such process mentioned is crushing copra and producing coconut oil and coconut oil cake. Nobody will deny that in common parlance copra, coconut oil and coconut oil cake are totally different commercial commoditie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e" in its ordinary connotation, signifies emergence of new and different goods as understood in the relevant commercial circles. It was also observed that the use of the expression "purchase of raw materials" itself shows that what is ultimately produced is different goods than the raw materials used, that the repeated use of the expression "finished products" and the grant of exemption in the case of small-scale industries both in respect of raw materials as well as finished products indicates that these concessions at substantial cost to the public exchequer were being provided with a view to encourage units engaged in the manufacture or production of goods and not to help those units which merely engaged themselves in some sort of processing whereunder the goods remain essentially the same goods even after the said process. It was also observed that even if a process is adopted, the test is the same, viz., whether different goods emerge as a result of application of such process. 17.. It is a well accepted principle that resort to the dictionary meaning or the popular meaning of an expression used in the taxing statute can be made only when there is no definition of that word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommodity 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 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 recognised as a new and distinct article that a manufacture can be said to take place. Where there is no essential difference in identity between the original commodity and the processed article it is not possible to say that one commodity has been consumed in the manufacture of another. Although it has undergone a degree of processing, it must be regarded as still retaining its original identity." The Supreme Court then posed the question thus: "Does the processing of the original commodity bring into existence a commercially different and distinct article?" After referring to the earlier decisions of the Supreme Court on this issue it was held that there is no essential difference between the pineapple fruit and the canned pi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of loading it into the ship through the mechanical ore handling plant constituted manufacture or processing of ore. Now it is well-settled as a result of several decisions of this Court, the latest being the decision given on 9th May, 1980, in Civil Appeal No. 2398 of 1978, Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 (SC) that the test for determining 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 it recognised in the trade as a new and distinct commodity. This Court speaking through one of us (Pathak, J.) pointed out: '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 regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e goods under other notifications (copra and coconut oil) exclusion clauses are made to the definition of the word "manufacture". The other exclusion clauses, it appears, are also included based on the decisions of the Supreme Court deciding the matter either way to clear any ambiguity and to make the intention clear. 20.. Thus the main question to be considered in this case is as to whether process of making the goods, viz., "mineral water" later named as "packaged drinking water" dealt with by the assessee satisfies the definition of "manufacture" given in the notification. In Chandausi Chemicals v. Commissioner, Sales Tax, Uttar Pradesh [1981] 47 STC 436 the Allahabad High Court considered the question as to whether water for injection is covered by the expression "distilled water" occurring in the explanation to section 4(a) of the U.P. Sales Tax Act, 1948, and is not exempted from sales tax as water. The Allahabad High Court after referring to the British Pharmaceutical Code, 1973 dealing with water for injection held that water for injection is sterilised distilled water and it is intended for parenteral administration and in other sterile products and therefore it is cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot cease to have its lubricating property but due to aforesaid abrasive contaminates it has to be drained. Once the contaminants are removed the oil is as good as the original oil. In order to lauder-reclaim, re-refine or purify the used lubricating oil, it is chemically treated to breakdown the additives that are in the oil. The oil is neutralised by alkali and water dilutants, etc., are removed by distillation. It is then bleached with earth to improve the colour. The oil is then blended with additives to bring it back to its original performance level." The Deputy Commissioner of Sales Tax did not accept the contention of the assessee as he was of the opinion that the lubricating oil obtained as a result of the processing of the re-refining undertaken by the assessee was a new and different commercial commodity and in that view of the matter, the process undertaken by the assessee amounted to manufacture. The assessee took up the matter before the Tribunal and contended that no new or different commercial commodity emerged as a result of the process applied by it to the used lubricating oil for removing impurities to make it reusable, because despite the removal of impurities, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ummed up the legal propositions emerging from the various decisions of the Supreme Court in Commissioner of Sales Tax v. Ruby Surgical and Allied Products Private Limited [1997] 106 STC 26 as follows: "(i) Manufacture implies a change, but every change is not manufacture. Something more is necessary. There must be transformation and a new different article must emerge, having a distinctive name, character or use. (ii) The true test for determining 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 recognised in the trade as a new and distinct commodity. (iii) Where the commodity retains a continuing substantial identity through the processing stage, it cannot be said that it has been manufactured." Thereafter the Bombay High Court applied the aforesaid principles to the facts of the assessee's case as follows: "Applying the above principles to the facts of the present case, it is abundantly clear that the process undertaken by the assessee on the used lubricating oil to make the same fit for reuse as lubricating oil cannot be regarded as a pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Ujagar Prints v. Union of India [1989] 74 STC 401 where it was held as follows: "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, recognised as a distinct and new article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their application in individual cases. There might be border-line cases where either conclusion with equal justification may be reached. Insistence on any sharp or intrinsic distinction between 'processing' and 'manufacture', we are afraid, results in an oversimplification of both and tends to blur their interdependence in cases such as the present one." The Supreme Court then referred to the decision in Commissioner of Sales Tax v. Harbilas Raji and Sons [1968] 21 STC 17 where it was held that the word 'manufacture' has various shades of meaning, and in the context of sales tax legislation, if the goods to which some labour is applied remain essentially the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court considered the question as to whether the recharged batteries sold by the respondents were not a different commodity from the dry batteries purchased by them from the manufacturers. Referring to the definition of "manufacture" in section 2(17) of the Bombay Sales Tax Act it was observed thus: "The purpose of section 8 is that, where substantially the goods purchased are resold, there should be a deduction of the turnover on which purchase tax has already been paid. This provision should be interpreted in a practical and workable manner. The mere fact that the words used in the definition of 'manufacture' are very wide should not lead us to so widely interpret them as to render the provision practically meaningless and so as to treat the goods sold as different merely because some slight additions or changes are made in the goods which are purchased before they are sold. It is true that under the section it is not necessary that there should be 'manufacture' in the sense that a new commodity has been brought into existence as would have been required if that word is interpreted in its literal sense. But, at the same time, the section should be so interpreted to mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il within the meaning of rule 18(2) notwithstanding that such oil does not possess the characteristic colour, or taste, odour, etc., of the raw groundnut oil; in the case of hydrogenated oil which is prepared from refined oil by the process of passing hydrogen into heated oil in the presence of a catalyst (usually finely powdered nickel), two atoms of hydrogen are absorbed; a portion of the oleic acid which formed a good part of the content of the groundnut oil in its raw state is converted, by the absorption of the hydrogen atoms, into stearic acid and it is this which gives the characteristic appearance as well as the semi-solid condition which it attains; in the language of the chemist, an intermolecular or configurational chemical change takes place which results in the hardening of the oil; though it continues to be the same edible fat that it was before the hardening, and its nutritional properties continue to be the same, it has acquired new properties in that the tendency to rancidity is greatly removed, is easier to keep and to transport; both the Tribunal as well as the learned Judges of the High Court held that the hydrogenated oil (or vanaspati) ceased to be groundnut o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of oxygen) which in its turn decomposes breaking up into aldehydes. It is this oxidative change and particularly the conversion into aldehydes that is believed to be responsible for the sharp unpleasant odour, and the characteristic taste of rancid oil. If nothing were done to retard the process the rancidity may increase to such extent as to render it unfit for human consumption. The change here is both additive and intermolecular, but yet it could hardly be said that rancid groundnut oil is not groundnut oil. It would undoubtedly be very bad groundnut oil but still it would be groundnut oil and if so it does not seem to accord with logic that when the quality of the oil is improved in that its resistance to the natural processes of deterioration through oxidation is increased, it should be held not to be oil." It was further observed that: "Both the Tribunal as well as the High Court have pointed out that except for its keeping quality without rancidity and ease of packing and transport without leakage, hydrogenated oil serves the same purpose as a cooking medium and has identical food value as refined groundnut oil. There is no use to which the groundnut oil can be put for wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foreign matter or any other ingredients injurious to health. It shall not be transported in bulk container for packaging or any other processing before packing. 2.. Fortified mineral water means the water derived from any source of potable water which may be blended, treated/fortified with mineral salts. Mineral water shall be packed in clean and sterile containers. Mineral water shall also conform to the following standards, namely: Turbidity (not more than) (NTU) -5 Total dissolved solids (not more than) mg/1 -1500 PH value -6.5-8.5 Copper (Cu) mg/1 (not more than) -1.0 Iron (as Fe) mg/1 (not more than) -0.3 Nitrate (as No) mg/1 (not more than) -45 Residual Free Chlorine mg/1 (not more than) -0.2 Fluoride (as F) mg/1 (not more than) -1.5 Mercury (as Hg) mg/1 (not more than) -0.001 Cadmium (as Cd) mg/1 (not more than) -0.01 Arsenic (as As) mg/1 (not more than) -0.05 Cyanide -absent Lead (as Pb) mg/1 (not more than) -0.05 Mineral oil -absent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced by the appellants in their units has to be treated as substantially the same as ground water. In other words it cannot be said that a new and distinct commercial commodity has emerged by the employment of various processes described by them on the ground water. In these circumstances, going by the meaning of the word "manufacture" as noted in the various decisions of the Supreme Court and other courts and by the definition of the same used in the notification the raw material, viz., the ground water even after the various processes undertaken by them has continued to be water with the same characteristic or use. The decision of the Constitution Bench of the Supreme Court in Tungabhadra Industries Ltd.'s case [1960] 11 STC 827 and the decision of the Bombay High Court in Oil Processors Private Limited case [1998] 108 STC 44 mentioned above squarely apply. 25.. Though this will dispose of the main contentions of the appellants we will refer to the other decisions relied on by the appellants for completion sake. The counsel appearing for the appellants relied on the decision of the Allahabad High Court in Goel Industries (Pvt.) Ltd. v. Commissioner of Sales Tax [1971] 28 STC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered the question as to whether water for injection is covered by the expression "distilled water". The court referring to the provisions of section 4 of the U.P. Sales Tax Act where the explanation to the section gave the meaning of the word "water" does not include mineral water, aerated water, tonic water, distilled water or scented water, held that water for injection is covered by the expression "distilled water" occurring in the explanation to section 4(a) of the Act and therefore excluded from the definition of "water". The Supreme Court in Rajasthan Roller Flour Mills Association's case [1993] 91 STC 408 was concerned with the question as to whether flour, maida and suji derived from wheat are "wheat" within the meaning of section 14(i)(iii) of the Central Sales Tax Act, 1956. The Supreme Court after considering the various decisions of that Court and of other Courts held that flour, maida and suji derived from wheat are not wheat within the meaning of section 14(i)(iii) of the Central Sales Tax Act, 1956 as they are different goods from wheat. The Supreme Court in Nagar Mahapalika's case (1996) 4 KTR 297 mentioned above was concerned with the question as to whether empt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out the process employed for converting chilli and coriander into chilli powder and coriander powder. This Court in Ernakulam Regl. Co-operative Milk Producers Union Ltd.'s case (2001) 9 KTR 459 mentioned above considered the question as to whether pasteurised milk is same as fresh milk and held that they are two distinct and different commercial commodities. The appellants relying on the judgment of the Supreme Court in Chillies Exports House Ltd.'s case [1997] 225 ITR 814 (SC); (1997) 5 SCC 157 and of this Court in Tatson Food Industries's case [2000] 119 STC 265 (Ker) [FB] mentioned above contended that at any rate an investigation is required to find out whether the process employed by the appellants to the raw material, viz., ground water will amount to manufacture so that a different commercial commodity, viz., mineral water emerged. 27.. From the various decisions of the Supreme Court, particularly the decisions of the Supreme Court in Pio Food Packers's case [1980] 46 STC 63 and Jagannath Cotton Company's case [1995] 99 STC 83 discussed above any process employed is not sufficient to constitute "manufacture" and what is required is that as a result of the various proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment clarifying that for the purpose of S.R.O. No. 1729 of 1993 purifying water and filling it into bottles will not amount to manufacture the assessing authority proposed to reject the claim for exemption. Similarly in W.A. No. 1089 of 2002 the eligibility certificate dated June 14, 1999 was cancelled by proceedings dated November 26, 1999 stating that in view of the circular dated January 23, 1999 the District Level Committee was not justified in granting exemption from payment of tax to the appellants. 29.. It is true that an eligibility certificate issued by the competent authority as per Notification S.R.O. No. 1729 of 1993 will continue to be in force till it is legally cancelled and that in the ordinary course such cancellation have only prospective operation. On the other hand if the eligibility certificate is obtained by a dealer by fraud or collusion, it vitiates the entire proceedings. Similarly if the authority issues an eligibility certificate without jurisdiction then also such eligibility certificate will be infirm and non est. In the instant case, it must be noted that the appellants claimed before the Industries Department as well as before the competent autho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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