TMI Blog2014 (4) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... tified by the State Government - Thus, the process of transformation has to be tested on the anvil of proposition whether surgical cotton is processed such that it is commercially different and distinctly identifiable than cotton - Relying upon CRANE BETEL NUT POWDER WORKS Versus COMMR. OF CUS. & C. EX., TIRUPATHI [2007 (3) TMI 6 - SUPREME COURT OF INDIA] citing the earlier decision in Brakes India Ltd. v. Supdt. of Central Excise [1997 (3) TMI 120 - SUPREME COURT OF INDIA] wherein the process of drilling, trimming and chamfering was said to amount to “manufacture”, has reiterated that if by a process, a change is effected in a product and new characteristic is introduced which facilitates the utility of the new product for which it is meant, then the process is not a simple process, but a process incidental or ancillary to the completion of a manufactured product. After going through the various steps that are carried out by the assessee for getting surgical cotton from raw cotton, it can certainly be said that cotton has undergone a change into a new commercially identifiable commodity which has a different name, different character and different use - The process of transfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998-99 and therefore is liable to exemption from levy of tax under the Act - In light of the same, judgment and order passed by the High Court cannot be sustained - Judgment and order of the High Court is set aside – Decided in favour of Assessee. - Civil Appeal No. 7084 of 2005, Civil Appeal Nos. 7085-7093 of 2005, Civil Appeal Nos. 7094-7097 of 2005 - - - Dated:- 23-1-2014 - H. L. Dattu And S. A. Bobde,JJ. ORDER 1.These appeals are directed against the common judgment and order passed by the High Court of Rajasthan in S.B. Civil Sales Tax Revision No. 932 of 2002 and connected matters, dated 23.01.2003. By the impugned judgment and order, the High Court has opined that surgical cotton is a commercially different commodity from cotton and accordingly confirmed the order passed by the Rajasthan Tax Board, Ajmer in Appeal Nos. 509 to 512 of 2001, dated 28.06.2002. Facts: 2.The appellant is a partnership firm registered as a dealer both under the Rajasthan Sales Tax Act, 1994 (for short, the Act ) and the Central Sales Tax Act, 1956 (for short, the CST Act ). The appellant carries on the business of processing the cotton and transforming it into surgic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.O. No. 993), dated 04.03.1992 for the assessment year 1992-93 and analysed the submissions of parties to the lis and thereafter reached the conclusion that surgical cotton is amenable to be taxed as an independent entity and accordingly, rejected the tax revision cases and confirmed the orders passed by the Tax Board by the impugned judgment and order dated 23.01.2003. 8. It is the correctness or otherwise of the said judgment and order is the subject matter of these appeals. 9. We have heard the learned counsel appearing for the parties to the lis. We have also perused the documents on record including the judgments and orders passed by the Courts below. Submissions: 10. Shri V. Giri, learned senior counsel for the appellant submits that by the process of transformation of cotton into surgical cotton no new commercial commodity comes into existence as a result of such process, and therefore it cannot be considered as manufacture of surgical cotton from cotton and thus would not be liable to tax at the rate of 4% under the Act. He would place reliance on the decision of this Court in CST v. Lal Kunwa Stone Crusher (P) Ltd., (2000) 3 SCC 525, to bring home the point, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cotton (indigenous or imported), whether ginned or unginned, baled, pressed or otherwise including Cotton waste. 1993-94 12.04.93 F.4 (56) FD/Gr. IV/82-2 (S.O. No. 8) (Amendment notification) Amended only Entry 16 with immediate effect after the existing words Cotton waste .the expression and Absorbent Cotton wool I.P. shall be added. 1994-95 07.03.94 F.4 (8) FD/Gr. IV/94- 46 (S.O. No. 176) 20 Cotton, that is to say, all kinds of cotton (indigenous or imported), kinds of Readymade garments, whether ginned or unginned, baled, pressed or otherwise including Absorbent cotton wool I.P. and Cotton waste. 1995-96 27.03.95 F.4 (11) FD/Gr. IV/95- 49 (S.O. No. 399) 25 Cotton as defined in clause (iv) of Section 14 of the Central Sales Tax Act, 1956 including absorbent cotton wool I.P. cotton waste. 1996-97 15.03.96 F.4 (69) FD/Gr. IV/95- 32 (S.O. No. 267) 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture' as under: 27. Manufacture includes every processing of goods which bring into existence a commercially different and distinct commodity but shall not include such processing as may be notified by the State Government. The definition aforesaid is an inclusive definition and therefore would encompass all processing of goods which would produce new commodity which is commercially different and distinctly identifiable from the original goods. The definition however excludes all such mechanisms of processing of goods which have been notified by the State Government to the said effect. Admittedly, no such exclusion in respect of the process in analysis for surgical cotton has been notified by the State Government. Therefore, the process of transformation has to be tested on the anvil of proposition whether surgical cotton is processed such that it is commercially different and distinctly identifiable than cotton. 16. The essential test for determining whether a process is manufacture or not has been the analysis of the end product of such process in contradistinction with the original raw material. In 1906, Darling, J. had subtly explained the quintessence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration are also quite apposite: 14. The word manufacture used as a verb is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance. 19. For determining whether a process is manufacture or not, this Court in Union of India v. J.G. Glass Industries Ltd., (1998) 2 SCC 32 has laid down a two-pronged test. Firstly, whether by such process a different commercial commodity comes into existence or whether the identity of the original commodity ceases to exist and secondly, whether the commodity which was already in existence would serve no purpose but for the said process. In light of the said test it was held that printing on bottles does not amount to manufacture. 20. A Constitution Bench of this Court in Devi Das Gopal Krishnan v. State of Punjab, (1967) 3 SCR 557 observed that if by a process a different identity comes into existence then it can be said to be manufacture and therefore, when oil is produced out of the seeds the process certainly transforms raw material into different article for use. 21. In CCE v. S.R. Tissues (P) Ltd., (2005) 6 SCC 310, the issue for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng pineapple slices for sale in sealed cans is not covered by Section 5- A(1)(a) of the Kerala General Sales Tax Act, 1963. This Court while deciding whether such conversion of pineapple fruit into pineapple slices for sale in sealed cans amounted to manufacture or not has observed as follows: 5. 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 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 28. In Lal Kunwa Stone Crusher case (supra), the decision relied upon by Shri Giri, this Court has considered that whether on crushing stone boulders into gitti, stone chips and dust different commercial goods emerge so as to amount to manufacture as per the definition of manufacture under Section 2(e-1) of the U.P. Sales Tax Act, 1948 and observed that even if gitti, kankar, stone ballast, etc. may all be looked upon as separate in commercial character from stone boulders offered for sale in the market, stone as under the relevant Entry is wide enough to include the various forms such as gitti, kankar, stone ballast. It is in this light, that the Court had opined that stone gitti, chips, etc. continue to be identifiable with the stone boulders. 29. Having noticed the relevant Entries, the definition of 'manufacture' and judicial precedents, we would now notice, (a) the process adopted by the assessee for the purpose of converting raw cotton into surgical cotton and (b) the utility and commercial use of surgical cotton in contrast to cotton. Process of conversion of cotton into surgical cotton 30. The Project report on Surgical Absorbent Cotton, December 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd acid slurry. After such treatment with the aforesaid chemicals, the cotton is cut in small pieces. These pieces are transferred to a tank where bleaching process takes place. Such bleached cotton is then transferred into tanks for washing. As noticed by the High Court, the cotton passed from four stages from raw cotton upto surgical cotton. First, it is put into tanks for washing each step takes sufficient time. Second, the treated cotton is transferred to a process known as hydro process where it is dried. Third, the cotton is put in the blower for cleaning the same. Fourth, such blowed out cotton is thereafter transferred to kler where rolls are prepared and then cotton is cut into pieces with the desired level, width and size. The process does not end here. The rolled out calibrated pieces of cotton are then put in carding machine where thin layers are framed and such layers are packed in bundle for marketing. The rolled and compressed cotton is sent for trading. Utility and Commercial use: 32. The aforesaid view is further fortified by the common parlance test. It can be said when a consumer requires surgical cotton, he would not be satisfied with cotton being provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facture can be said to have taken place only when there is transformation of raw materials into a new and different article having a different identity, characteristic and use. While mere improvement in quality does not amount to manufacture, when the change or a series of changes transform the commodity such that commercially it can no longer be regarded as the original commodity but recognised as a new and distinct article. In the instant case, after going through the various steps that are carried out by the assessee for getting surgical cotton from raw cotton, we can certainly say that cotton has undergone a change into a new commercially identifiable commodity which has a different name, different character and different use. The process of transformation is not merely processing to improve quality or superficial attributes of the raw cotton. The cotton looses its original form and it marketed as a commercially different and distinct product. This aspect of the matter is rightly noticed by the High Court by relying upon the decision of this Court in Empire Industries case (supra) wherein this Court has explained the meaning of the expression 'manufacture as when the resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State has amended the entry such that cotton means cotton as defined in clause (iv) of Section 14 of the Central Sales Tax Act, 1956 but has specifically included absorbent cotton wool I.P. cotton waste in such entry. The relevant entry has remained unaltered for the succeeding assessment years 1996- 97, 1997-98 and 1998-99 numbered as Entries 28, 27 and 29, respectively. 41. It is an admitted fact that the appellant herein manufactures surgical cotton from the cotton purchased by him. The assessing authority and forums below including the High Court have noticed that cotton and surgical cotton are different commercial commodities and therefore, sale of surgical cotton attracts sales tax under the provisions of the Act. However, during the proceedings before the High Court it was not brought to the notice of the Court that an amendment to Entry 16 was made in the year 1993 whereby the meaning of the expression cotton has been expanded to include absorbent cotton wool I.P. and thus, the High Court has only analysed Entry 16 as it stands for the Assessment Year 1992- 1993. 42. Therefore, the question that falls for our consideration is whether in terms of the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or expressions. The following observation of Lord Watson in Dilworth v. Commr. of Stamps, (1899) AC 99 in the context of use of include as a word of extension has guided this Court in numerous cases: But the word include is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to mean and include , and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. 49. The meaning of the said expression has been considered by a three Judge bench of this Court in the case of the South Gujarat Roofing Tiles Manufacturers Association and anr. v. State of Gujarat and anr., (1976) 4 SCC 601, wherein this Court has observed: Now it is true that 'includes is generally used as a word extension, but the meaning of a word or phrase is extended when it is said to include things that would not properly fall within its ordinary connotation. 50. Principles of Statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those words or phrases must be construed as comprehending, not only such things, as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. That is to say that when the word includes is used in the definition, the legislature does not intend to restrict the definition: it makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Commr. of Customs v. Caryaire Equipment India (P) Ltd., (2012) 4 SCC 645; U.P. Power Corpn. Ltd. v. NTPC Ltd.,(2014) 1 SCC 371; Associated Indem Mechanical (P) Ltd. v. W.B. Small Industries Development Corpn. Ltd., (2007) 3 SCC 607; Dadaji v. Sukhdeobabu; Mahalakshmi Oil Mills v. State of A.P.; Bharat Coop. Bank (Mumbai) Ltd. v. Employees Union, (2007) 4 SCC 685) 54. By introducing the word including immediately after detailing the definition of cotton, the legislature has expanded the meaning of the expression cotton for the purposes of the Act. While the natural import suggests and prescribes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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