VASUKI CARBORUNDUM WORKS Vs. STATE OF GUJARAT

JUDGEMENT

(1.) AT the instance of the assessee, the Gujarat Sales Tax Tribunal has referred the following question to us for our opinion under section 69 of the Gujarat Sales Tax Act, 1969 : " Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that kathi purchased and used by the applicant for packing of the goods for sale was not purchased and used as consumable stores in the process of manufacture of goods for sale ?"

(2.) THE assessment period with which we are concerned in this reference is S. Y. 2028. THE assessee is carrying on the business of manufacturing crockery and carborundum and is selling the same as a registered dealer under the Gujarat Sales Tax Act, 1969. THE assessee had purchased kathi (twine) worth Rs. 12,867 on the certificate that the said article was required for use in the manufacture of goods for sale. THE article in question was used for the purpose of packing goods manufactured by the assessee and sold thereafter. THE Sales Tax Officer levied purchase tax on purchase of the said article in question under section 16 of the Act and he was of the opinion that those goods could not have been purchased on certificate since they were not raw materials, processing materials or consumable stores required for use in the manufacture of the goods in question. He also levied penalty at the rate of 10 per cent. of the purchase tax under section 45 (1) (a) of the aforesaid Act. THE assessee carried the matter in appeal before the Assistant Commissioner and the Sales Tax Tribunal with no avail. THE contention of the assessee was rejected since, in the opinion of the Appellate Commissioner as well as the Tribunal, the Articles in question were neither raw materials nor processing materials nor consumable stores which could be purchased under section 13 (1) (B) of the said Act on a certificate in form No. 19. THE assessee, therefore, sought the reference to this Court which was granted accordingly.

(3.) IN exercise of the rule-making power under section 13, the Central Government had framed rules which prescribed by rule 13 that the goods referred to in clause (b) of sub-section (3) of section 8, which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, pant, equipment, tools, stores, spare parts, accessories, fuel or lubricants 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. IN this context, the Supreme Court speaking through Shah, J. , interpreted the expression "in the manufacture of goods" and held that the said expression should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods and that where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". Shah, J. , speaking for the court, held as under : " To read the expression 'in the manufacture' of cloth in that restricted sense, would raise many anomalies. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under rule 13, but not spinning machinery, without which the business cannot be carried on. IN our judgment, rule 13 does not justify the importation of restrictions which are not clearly expressed, nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under section 8 (1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for 'turning out or the creation of goods'. IN our judgment, if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in rule 13 will qualify for special treatment. This is not to say that every category of goods 'in connection with' manufacture of, or 'in relation to' manufacture, or which facilitates the conduct of the business of manufacture will be included within rule 13. Attention in this connection may be invite to a judgment of this court in which it was held that vehicles used by a company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within rule 13, even if the vehicles were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories requires for the effective operation of those vehicles were also held to fall within rule 13. See INdian Copper Corporation Ltd. v. Commissioner of Commercial Taxes ([1965] 16 S. T. C. 259 (S. C. ). ). "