Commissioner of Trade Tax v. M/S. Kumar Paints and Mill

COMMISSIONER OF TRADE TAX v. M/S. KUMAR PAINTS AND MILL STORES THROUGH ITS PROPRIETOR (Civil Appeal No. 5937 of 2011) MARCH 02, 2023 [S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.] U.P. Trade Tax Act, 1948 – s. 2(e)(i) – Mixing of base paint with different colours, result into a new product or not – Hig h Court held that mixture of the base paint with different c olours-did not result in a ‘new’ product and therefore did not result from the process of ‘manufacture’ as defined under section 2(e)(i) of the 1948 Act – Revenue contended that the sale of paints which had undergone mixing amounted to ‘manufacture’, thereby resulting in a new product, which was afresh incidence of taxation – Held: In the instant case, the findings based on the expert’s evidence are th at the base paint was mixed with colouring as an additive – Both o f these had suffered tax - The resultant article i.e., the paint of a di fferent shade, did not result in a new commercial product – New pr oduct was nothing else but ‘paint’, and not a different article – High Court did not commit any error. Dismissing the appeal, the Court HELD: 1. In Mahalaxmi Stores, this court relied on previous decisions such as Commissioner of Sales Tax Vs. Pio Food Packers

(1980) Suppl. SCC 174, and Chowgule and Company(P) Limited Vs. Union of India to state that the manufacturing process can vary, and that the process of producing every type of variat ion, or finishing of goods, would not amount to ‘manufac ture’ as contained in the statute unless it resulted in the e mergence of a new commercial commodity. [Para 7]

¶2In Sonhbadra, this court while deciding the facts of the case before it cited a large number of decisions rendere d in the context of what was meant by ‘manufacture.’ This court specifically noticed in Union of India V. Delhi Cloth and General Mills that ‘manufacture’ meant bringing into existence a ‘new’ s ubstance and did not mean merely to bring about some change in the substance. In Mahalaxmi Stores , it was held that processing or variation/finishing of goods would not per se amoun t to manufacture unless it resulted in the emergence of a new commercial commodity. The decision in Aspinwall & Co. Ltd. V. Commissioner of Income Tax, Ernakulam follows the same principle. The court held that manufacture must be unde rstood in common parlance and means production of articles for use from raw or prepared materials by giving them forms, qual ities or combination. Importantly however, it was held that if the c hange made in the article resulted in a ‘new’ and ‘different ’ article, it would amount to ‘manufacturing’. The tipping point, or the determinative test, therefore is that the result of the process (amounting to ‘manufacture’) must be the emergence of a commercially recognizable new commodity, and not mere variation of an existing one. [Para 8][942-A-E] State of Maharashtra v. Mahalaxmi Stores (2003) 1 SCC 70 : [2002] 4 Suppl. SCR 292; Sonebhadra Fuels v. Commissioner Trade Tax, U.P., Lucknow (2006) 7 SCC 322 : [2006] 4 Suppl. SCR 213; Commissioner of Sales Tax v. Pio Food Packers (1980) Suppl. SCC 174 : [1980] SCR 1271; Chowgule and Company(P) Limited v. Union of India (1981) 1 SCC 653 : [1981] 2 SCR 271; Union of India v. Delhi Cloth and General Mills (1963) Suppl. 1 SCR 586; Aspinwall & Co. Ltd. v. Commissioner of Income Tax, Ernakulam (2001) 7 SCC 525 : [2001] 2 Suppl. SCR 559 – referred to. Case Law Reference [2002] 4 Suppl. SCR 292 referred to Para 4 [2006] 4 Suppl. SCR 213 referred to Para 4 [1980] SCR 1271 referred to Para 7 [1981] 2 SCR 271 referred to Para 7 [1963] Suppl. 1 SCR 586 referred to Para 8 [2001] 2 Suppl. SCR 559 referred to Para 8 STORES THROUGH ITS PROPRIETOR CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5937 of 2011. From the Judgment and Order dated 18.05.2009 of the High Court of Judicature at Allahabad in TTR No. 711 of 2002. With Civil Appeal Nos. 5938 and 5939 of 2011 R K Raizada, Sr. Adv., Bhakti Vardhan Singh, Adv. fo r the Appellant. Ms. Charanya Lakshmikumaran, Ms. Apeksha Mehta, Ms. Neha Choudhary, Ms. Falguni Gupta, M. P. Devanath, Ashwa ni Kumar, Ms. Iti Sharma, Puneet Sharma, Anshay Dhatwalia, Ad vs. for the Respondent. The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1.The question which is urged in all these appeals is the correctness of the view of the High Court that the process which the product in the present case underwent – i.e., mixture of the base paint wit h different colours – did not result in a ‘new’ product, and therefore did not result from the process of ‘manufacture’ as defined under Section 2 (e)(i) of the U.P. Trade Tax Act, 1948 (“Act”).

¶2The facts in all these cases are that the assessees are dealers in inter alia paints. The Revenue contended that the sale of paints which had undergone mixing (through a computerised process with the aid of a DTS machine) amounted to ‘manufacture’, thereby resulting in a new product, which was a fresh incidence of taxation. The assessee on t he other hand contended that mixing per se did not amount to ‘manufacture’, and that on an application of the established princ iples, no new recognizable product or article had emerged from the proces s. It is a matter of record that both the base paint and the colourant are taxed separately.

¶3The High Court on a previous occasion had accepted t he assessees’ contentions and held that the process did not amount to ‘manufacture’. Upon the Revenue’s appeal in some cases, this C ourt had remitted the matter for fresh consideration after taking into account expert opinion. The process was observed, and a report dated 20.01.2004 was issued by the Harcourt Butler Technical University, Kanp ur. The said report pertinently stated as follows: - “The base paint used in “point of Sale” tinting systems its elf, therefore, is a paint irrespective of colourant being adde d to get a desired shade or colour. It is in the form of pai nt and possession the basic ingredients and characteristic s. The tinting does not bring new or different product into existenc e. The base paint can also be used as paint.”

¶4In the impugned order, the High Court after noticing a judgment of this court in State of Maharashtra Vs. Mahalaxmi Stores (2003) 1 SCC 70, held that the process involved in the present case did not amount to ‘manufacture’. The High Court also distinguished t he ruling in Sonebhadra Fuels Vs. Commissioner Trade Tax, U.P., Lucknow

(2006) 7 SCC 322. Therefore, the High Court allowed the revisions filed before it.

¶5The Revenue urged that the findings in the impugned order are erroneous, and relied upon Sonebhadra Fuels (supra) to argue that the High Court was bound by this Court’s decision since it was directly on an interpretation of the expression ‘manufacture’ in the same enactment. In Sonebhadra Fuels, the court had considered whether coal briquettes fell with the generic description of ‘coal’. This court held that the process involved mixing crushed coal with suitable binders pressed in briquetting press, from which regular shaped briquettes were suitably carbonised. This process was held to amount to ‘manufacture’.

¶6The definition of ‘manufacture’ under the Act is as follows: - “2 (e-1). ‘manufacture’ means producing, making, mi ning, collecting, extracting, altering, ornamenting, fini shing or otherwise processing, treating or adapting any good s; but does not include such manufactures or manufacturing processes as may be prescribed.”

¶7In Mahalaxmi Stores (supra), this court relied on previous decisions such as Commissioner of Sales Tax Vs. Pio Food Packers

(1980) Suppl. SCC 174, and Chowgule and Company(P) Limited Vs. Union of India (1981) 1 SCC 653 to state that the manufacturing process can vary, and that the process of producing every type of variation, or finishing of goods, would not amount to ‘manufacture’ as contained in the statute unless it resulted in the emergence of a new c ommercial commodity.

¶8In Sonhbadra, this court while deciding the facts of the case before it cited a large number of decisions rendered in the context of what was meant by ‘manufacture.’ This court specifically not iced in Union of India V. Delhi Cloth and General Mills (1963) Suppl. 1 SCR 586 that ‘manufacture’ meant bringing into existence a ‘new’ substance and did not mean merely to bring about some change in the substance. In Mahalaxmi Stores, it was held that processing or variation/finishing of goods would not per se amount to manufacture unless it resulted in the emergence of a new commercial commodity. The dec ision in Aspinwall & Co. Ltd. V. Commissioner of Income Tax , Ernakulam

(2001) 7 SCC 525 follows the same principle. The court held that manufacture must be understood in common parlance a nd means production of articles for use from raw or prepared materials by giving them forms, qualities or combination. Importantly however, it was held that if the change made in the article resulted in a ‘new’ and ‘different’ article, it would amount to ‘manufacturing’. The tipping point, or the determinative test, therefore is that the result of the process (amounting to ‘manufacture’) must be the emergence of a commer cially recognizable new commodity, and not mere variation of an existing one.

¶9In the present case, the findings based on the expert’s evidence are that the base paint was mixed with colouring as an additive. Both of these had suffered tax. The resultant article i.e., the paint of a different shade, did not result in a new commercial product. In common parlance, the new product was nothing else but ‘paint’, and not a different article.

¶10In these circumstances, in the opinion of this Court, the High Court did not fall into error. The appeals therefore fail, and ar e hence dismissed. Pending application(s), if any, shall stand disposed of. There shall be no order as to costs. Ankit Gyan Appeals dismissed. (Assisted by : Shloka Sah and Mahendra Yadav, LCRAs )