MOHAMEDALI ESMAIL Vs. COMMISSIONER OF SALES TAX

JUDGEMENT

(1.) BESIDES two common questions of law involved in all these three references, there is an additional question raised in Sales Tax Reference No.21 of 1986. The references cover in all a period of 8 years from April 1, 1964 to March 31, 1972. Sales Tax Reference No.20 of 1986 covers a period of three years from April 1, 1969 to March 31, 1972, Sales Tax Reference No.81 of 1980 of two years from April 1, 1967 to March 31, 1969 and Sales Tax Reference No.21 of 1986 of three years from March 1, 1964 to March 31, 1967. Common questions of law are : " (1) Whether, on a true and proper interpretation of rule 3 of the Bombay Sales Tax Rules, 1959, the process of converting raw hides into finished tanned goods amounts to manufacture as far as the tanning materials, viz. , chemicals, oils, lime, etc. , are concerned, so as to entitle the applicant to set-off under rule 41-A of the Bombay Sales Tax Rules, 1959, in respect of such materials ? (2) If the answer to the aforesaid question is against the applicant, whether the tanning materials, lime, chemicals, oils used in the process of conversion of raw hides into tanned hides and skins and which are sold thereafter can be said to have been resold within the meaning of the term under the Act so as to entitle the applicant to set-off under rules 42 and 43 of the Bombay Sales Tax Rules, 1959 ?" Additional question in Sales Tax Reference No.21 of 1986 is : " Whether, on the facts and in the circumstances of the case, was the Tribunal justified in holding that the Sales Tax Officer had jurisdiction to rectify the order under section 62 of the Bombay Sales Tax Act, 1959 ?"

(2.) THE assessee carries on business. It purchases raw hides and skins and also tanning materials, like oil, chemicals, hards, lime. THE raw hides and skins are converted into dressed hides and skins by a process of cleaning and tanning. While cleaning the sheep skin, the assessee gets raw wool as a subsidiary or by-product. THE dressed hides and skins as well as raw wool are sold to the registered dealers and/or exported out of the State and/or out of India. THE assessee has, inter alia, to pay tax on its purchases of tanning materials. It claims set-off of the tax so paid under rule 41-A of the Bombay Sales Tax Rules, 1959 (for short "the Rules" ). THE basis of the claim is that it is manufacturing dressed hides and skins and the material is used in the manufacturing process. Alternatively it claims the set-off in respect of tax so paid under rules 42 and 43 of the Rules. THE claim has been rejected by the sales tax authorities as well as the Sales Tax Tribunal. THE argument, inter alia, before the Tribunal was that assuming the assessee was not entitled to the set-off under rule 41-A on the ground that it was not manufacturing hides and skins as such, it was entitled to the set-off under rule 41-A as it was selling raw wool as a subsidiary/by-product. This contention was also rejected by the Tribunal.

(3.) AS regards the first common question what requires consideration is whether the assessee is or can be said to be a manufacturer of hides and skins. In other words whether the process of converting raw hides and skins into finished and dressed hides and skins amounts to "manufacture" within the meaning of section 2 (17) of the Bombay Sales Tax Act, 1959 (for short "the Act") which defines the word "manufacture" thus : " 'manufacture', with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods; but does not include such manufactures or manufacturing processes as may be prescribed. " Apparently the definition is broad enough to include the treating or adopting any goods as "manufacture". The process of converting raw hides and skins into tanned or dressed hides and skins will, thus, be covered by the word "manufacture". However, the definition itself provides that such manufactures or manufacturing processes as may be prescribed will not be included in the word "manufacture". The word "prescribed" it is common ground, means as prescribed under the Rules. Rule 3 provides that for the purposes of clause (17) of section 2 "manufacture" shall not include certain types of manufactures or manufacturing processes specified in that rule. Sub-rule (xviii) thereof reads "subjecting the goods specified in any entry in Schedule B to any process or doing anything to them, which does not take them out of the description thereof in that entry". Hides and skins find place in Part II of Schedule B at entry No.4. The narration given therein is "hides and skins whether in a raw or dressed state". In the circumstances it will have to be held and has been rightly held by the Tribunal that the process of converting raw hides and skins into dressed hides and skins is not "manufacture" as the process does not take raw hides and skins out of the description given in that entry. Thus even though in common parlance and/or broadly speaking the assessee may be said to manufacture dressed hides and skins, it will have to be held that the assessee is not a manufacturer in view of the exception provided in sub-rule (xviii) of rule 3 of the Rules read with clause (17) of section 2 of the Act. Admittedly set-off under rule 41-A can be claimed by registered dealers who manufacture taxable goods for sale or export. In view of our conclusion that the assessee is not a manufacturer of hides and skins because of the provisions of sub-rule (xviii) of rule 3 read with section 2 (17) of the Act, it will have to be held that the assessee is not entitled to set-off under rule 41-A. The first common question is, therefore, answered in the negative and in favour of the Revenue.