AI Structured Summary
Not yet generated for this judgment
Judgment
G. Sivarajan, J.—The question that arises for consideration in these cases is as to whether any manufacturing process is involved in the conversion of "raw rubber wood" into "treated rubber wood" so as to be entitled to exemption from payment of sales tax under S.R.O. No. 1729 of 1993 dated November 3, 1993 issued by the Government u/s 10 of the Kerala General Sales Tax Act, 1963. Since the petitioner in both these cases is one and the same and since the issue involved is also substantially the same, for convenience the parties and the exhibits are referred to in the judgment as stated in O.P. No. 15979 of 1998.
The petitioner is a partnership firm engaged in the manufacture of chemically treated kiln seasoned sawn to size rubber wood. It is a small-scale industrial unit registered with the Industries Department, It started commercial production of treated rubber wood on May 29, 1995. It is an assessce to sales tax under the Kerala General Sales Tax Act on the files of the Additional Sales Tax Officer-II, 3rd Circle, Agricultural Income Tax and Sales Tax Department, Thiruvananthapuram. The petitioner submitted applications for sales tax exemption on December 6, 1995 and for investment subsidy on December 12, 1995. According to the petitioner, the Industries Department granted investment subsidy, but rejected the application for sales tax exemption. The petitioner''s application for sales tax exemption was rejected by the District Level Committee for sales tax exemption stating that the activity of processing of rubber wood is not a "manufacturing activity" as clarified by the Government in their communication dated August 16, 1996, exhibit P3, and that the commodity, i.e., timber still retains its original identity. The petitioner''s appeal before the State Level Committee for sales tax exemption was also rejected for the same reason as per the minutes dated March 30, 1998 (exhibit P5). The petitioner has filed O.P. No, 15979 of 1998 seeking to quash the orders at exhibits P2, P3, P5 and the assessment orders at exhibits P10 and P11. In O.P. No. 20644 of 1999 the petitioner seeks to quash exhibits P4 and P5 assessment orders and exhibit P6 revenue recovery notice produced therein.
As already noted, the petitioner is engaged in the manufacture of chemically treated kiln seasoned sawn to size rubber wood. The manufacturing process stated in exhibit P4 appeal memorandum submitted to the State Level Committee reads as follows :
"The slaughter tapped rubber tree which is felled for replanting has to be prophylactically treated with fungicide and antibluc chemical in order to prevent the timber from fungi attack and sap stain. This timber is then taken, to factory and quarter sawing is done to the customers actual size requirement. The sawn timber is then loaded to the impregnation bullet and is sealed airtight. A vacuum of one atmosphere (i.e., 76mm of mercury) is created and is maintained for one hour. Maintaining the vacuum, non-leacbable CCA solution is pumped into the bullet and the auxiliary pressure vessel. A pneumatic pressure of 20kg/cm2 is applied and from the level difference of the CCA solution in the auxiliary pressure vessel the quantity of absorbtion is calculated. Once the desired quantity has been absorbed, the salt solution is pumped out and 100 per cent Moisture content timber is cross stacked for air curing to get the CCA solution stabilised with the timber. The 100 per cent moisture content timber is then loaded into the thermic fluid heated cross ventillated seasoning kiln for controlled drying by controlling the relative humidity of the chamber. The process of mechanical curing take 14 days of continuous drying by controlling the wet bulb and dry bulb temperatures which are monitored in a oven with a relative load of material as in the kiln. The timber cured in the kiln is stabilised with respect to the equilibrium moisture content of the region where the timber is to be used. This process is a cycle of 48 hours wherein steam is used for controlling the wet bulb and dry bulb temperatures."
According to the petitioner, by the aforesaid process the raw rubber wood which has no use other than as a fuel for burning is converted to one which can be used for all purposes for which timber is used. In other words, according to the petitioner, by the process extracted above the raw rubber wood is converted into a totally different commercial commodity, viz., treated rubber wood which definitely involved a manufacturing process.
The Government of Kerala, in order to promote now industries, particularly small-scale industrial units, had issued orders granting various incentives to new industrial units set up after April 1, 1979. The earliest of such Government order granting exemption from payment of sales tax was issued by the Government in 1979 which gave blanket exemption from payment of sales tax for a period of five years to new industrial units set up after April 1, 1979. That was not a statutory notification u/s 10 of the KGST Act. The Government later issued S.R.O. No. 968 of 1980, which is a notification u/s 10 of the Act mentioned above. The said notification gave exemption from payment of sales tax under the said Act on the turnover of sale of goods produced by new industrial units under small-scale industries for a period of five years from the date of commencement of sale of such goods by the said units. As per the said Government order, in order to get exemption under the notification, the units have to produce proceedings of the General Manager, District Industries Centre, declaring the eligibility of the units. In the said notification the term "manufacture" was not used; instead the expression used was "goods produced". There was no definition of "production" also. The exemption was on the turnover of sale of goods produced and sold by the new industrial units. This notification was superseded by Notification S.R.O. No. 499 of 1990 and the said notification also provided for exemption from payment of sales tax to new industrial units under small-scale industries on the turnover of sale of goods manufactured and sold by such units and on the turnover of goods taxable at the point of last purchase in the State and used by such units in the "manufacture" of goods intended for sale. The said exemption notification gave a definition of "manufacture" with which we are not concerned.
This notification, inter alia, was superseded by another Notification S.R.O. No. 1729 of 1993 which also provided for tax exemption to industrial units on the sale or purchase of goods by such industrial units subject to the conditions and restrictions specified therein. Clause (1) of the said Government Order provided that in the case of new industrial units under small-scale industries there shall be an exemption for a period of seven years from the date of commencement of commercial production in respect of tax payable by such units under the KGST Act, 1963, (1) on the turnover of sale of goods manufactured and sold by them within the State, (2) on the turnover of goods taxable at the point of last purchase in the State which are used by such units for manufacturing other goods for sale within the State or inter-State and (3) in respect of the surcharge payable u/s 3 of the Kerala Surcharge on Taxes Act, 1957. Clause (10) of the notification deals with conditions and restrictions regarding the extent of the exemption that can be granted and the authority who is empowered to issue the eligibility certificate. Clause (11) gives an explanation for the purposes of this notification defining certain expressions used in the notification. Sub-clause (ix) thereof gave a definition of the expression "manufacture" which reads as follows :
" ''Manufacture'' shall mean the use of raw materials and production of goods commercially different from the raw materials used but 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. The process of producing desiccated coconut out of coconut shall be deemed to be ''manufacture'' for the purpose of this notification."
The following process 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 process as may be notified by Government in
this behalf.
(x) Industrial units manufacturing the following items shall not be eligible for the concession under this notification :
(a) Biscuits.
(b) Cement paint.
(c) Packing cases, tea chests, plywood, splints, veneers, wooden crates and wooden cable drums.
(d) Bricks and tiles."
It is this Notification--S.R.O. No. 1729 of 1993 which was in force at the time when the petitioner started the small-scale industrial unit and also started commercial production. It is based on this notification the petitioner-unit had applied for exemption from payment of sales tax in respect of the turnover of treated rubber wood before the authorities.
The position as it stood prior to August 16, 1996, i.e., the date of exhibit P3 clarification was as follows : The General Manager, District Industries Centre, Thiruvananthapuram as per proceedings dated October 31, 1991 (exhibit P7) had granted exemption from payment of sales tax in respect of the manufacture of sized chemically treated rubber wood to another S.S.I. unit--M/s. Techno Woods, Kulathoor P.O., Thiruvananthapuram. The Government as per G.O. Ms. No. 63/93/ID dated May 28, 1993 (exhibit P8) reviewed the list of industries eligible for grant of investment subsidy and after considering all the aspects it was ordered that 14 industries mentioned therein would not be eligible for State investment subsidy. Item 14 thereof reads "wood based industries except treated softwood, rubber wood, value added furniture items which would show that the Government itself has given a different treatment "to treated softwood, rubber wood" and value added furniture item. The third respondent--the State Level Committee for sales tax exemption--as per its minutes dated February 12, 1996 (exhibit P6) (paragraphs 1.6 and 1.7) has considered the effect of the amendment of the term "manufacture" in S.R.O. No. 1729 of 1993 and S.R.O. No. 499 of 1990 and took the view as follows : "The committee noted the arguments put forward and decided that in view of the court decision in the matter it would not be feasible to amend the existing definitions of the term ''manufacture'' for the purposes of grant of tax exemption". "The committee decided that treatment of rubber wood is a ''manufacturing activity'' entitled to benefits under tax exemption scheme". Added to this the Government itself, by a Notification S.R.O. No. 295 of 1998 dated March 31, 1998 had amended the definition of "manufacture" given in S.R.O. No. 1729 of 1993 with effect from April 1, 1998 by adding "chemical treatment of rubber wood and production of dressed or tanned hides out of raw hides" ; the effect of which is that from April 1, 1998 the process of chemical treatment of rubber wood will be deemed to be manufacture for the purpose of the said notification.
At this juncture it is pertinent to note that the second and third respondents, as already noted, had rejected the claim of the petitioner only on the basis of the Government clarification dated August 16, 1996 (exhibit P3). In the instant case the petitioners have claimed that they had employed the process mentioned in paragraph 3 above for converting the raw rubber wood into chemically treated kiln seasoned rubber wood and by the said process the raw rubber wood which has use only as fire wood has been converted into a totally different commercial commodity which has got the use of any other timber and therefore it would amount to manufacture within the meaning of the definition. The petitioner''s application was rejected by the respondents simply on the basis of the clarification issued by the Government in their communication dated August, 16, 1996 (exhibit P3). The second respondent on the basis of the Government clarification held that the timber still retains its original identity. In fact the third respondent had noted in their order at exhibit P5 that the State Level Committee itself on February 12, 1996 has treated the activity as manufacturing activity and that the Government did not include the said activity in the negative list in G.O. Ms. No. 149/93/ID dated November 26, 1993. However, the State Level Committee took the stand that it is bound by the clarification issued by the Government in exhibit P3.
In the said circumstances, it is necessary to consider the reasoning in the said circular. Exhibit P3 circular was issued by the Government on the basis of a clarification sought for by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram, as to whether chemical treatment of rubber wood amounts to manufacture. The Government examined the question as to whether timber (rubber wood) loses its character when it is processed, i.e., as to whether rubber wood is consumed in the manufacture of processed wood. Relying on the principles laid down by the Supreme Court in Deputy Commissioner of Sales Tax (Law) v. Pio Food Packers [1980] 46 STC 63 and the decision of the Madras High Court in State of Tamil Nadu v. KM. Natarajan [1981] 48 STC 315, the Government took the view that Section 5A(1)(a) of the KGST Act cannot be applied to the purchase turnover of timber and further stated that under the notification also processing one form of goods into another form of same goods is seen excluded from the scope of the term "manufacture".
Before proceeding to consider the correctness of the clarification made by the Government as above it is necessary to consider the binding nature of such clarifications. The Notification S.R.O. No. 1729 of 1993 was issued by the Government in exercise of the powers vested in it u/s 10 of the KGST Act. The said section enables the Government to issue notification granting exemption or reduction in rate in respect of any tax payable under the said Act on the sale or purchase of any specified goods or class of goods at all points or at a specified point or points in the series of sales or purchases by successive dealers or by any specified class of persons in regard to the whole or any part of their turnover. It may extend to the whole State or to any specified area or areas therein and may be subject to such restrictions and conditions as may be specified in the notification. It also empowers the Government by notification to cancel or vary any notification issued thereunder.
It may be noted that the notification in question was issued in respect of specified class of persons throughout the State, viz., small-scale industrial units subject to restrictions and conditions. The said section does not enable the Government to issue clarifications of the nature made in exhibit P3 by executive orders. Section 59-A of the KGST Act conferred power on the Government to determine the rate of tax as per which, if any question arises as to the rate of tax leviable on the sale or purchase of any goods, such question shall be referred to Government for decision and the decision of the Government thereon, notwithstanding any other provision in the Act, shall be final. The constitutional validity of Section 59-A of the Act was challenged before this Court in Tranuancore Chemical & Manufacturing Company Ltd. v. State of Kerala [19911 81 STC 313 ; (1991) 1 KLT 196 and the said section was struck down as violative of Article 14 of the Constitution. Thereafter Section 59-A was substituted by the Finance Act, 2000 as per which the Commissioner of Commercial Taxes is given power to issue clarifications. The said section clearly gave power to the Commissioner to issue clarification as to whether for the purpose of this Act any activity carried out in any goods amounts to or results in the manufacture of goods. This can be decided by the Commissioner of Commercial Taxes on an application made by a dealer or any other person for which a procedure is also provided. Thus it is clear that in view of the striking down of the provisions of Section 59-A of the Act the Government did not have any power to issue any clarification in regard to the meaning of any term in the statutory notification by way of a clarification prior to 2000. During the period from 1991 to 2000 the only way in which the Government can clarify/vary a term in the Government notification is either by way of amendment of the notification as contemplated in Section 10(3) or by invoking Clause (g) such other process as may be notified by Government in this behalf--in the definition of "manufacture" in the notification S.R.O, No, 1729 of 1993. Admittedly exhibit P3 is not a notification. It is only an executive order, not even authenticated in the name of the Government. That apart, as already noted, Section 59-A as it stood prior to its substitution in 2000 only enabled the Government to decide the rate of tax leviable on the sale or purchase of any goods. That is not the matter dealt with in the circular. In the above circumstances, exhibit P3 clarification issued by the Government is illegal, unauthorised and without jurisdiction. Reliance to exhibit P3 placed by respondents 2 and 3 cannot be sustained. The said respondents are bound to consider the application submitted by the petitioner with reference to the notification itself and the legal principles governing the same.
In such a situation, the normal course to be adopted is to direct the District Level Committee to consider the petitioner''s application afresh. Petitioner''s application for sales tax exemption is dated December 6, 1995. Now more than six years have passed. If the application is now directed to be considered by the District Committee it may take a long time to reach a finality and the parties will be put to difficulties in view of the revenue involved. That apart the ghost of exhibit P3 circular may also haunt the said authority. In order to avoid those difficulties, some short cut method which meets the ends of justice has to be adopted.
As already noted, Section 59-A of the KGST Act as substituted by Finance Act, 2000 confers power on the Commissioner of Commercial Taxes to decide any dispute which arises otherwise than in a proceeding before any appellate or revisional authority or in any court or Tribunal, inter alia, as to whether for the purposes of the said Act any activity carried out in any goods amounts to or results in the manufacture of goods. This, as per the section, can be done on an application by a dealer or any other person. The Commissioner while deciding the dispute is bound to afford a reasonable opportunity to the parties to put forward their case and produce evidence and the decision has to be rendered after considering the evidence and after hearing.
In the present case, admittedly there is a dispute as to whether the process of converting raw rubber wood into chemically treated rubber wood would amount to "manufacture" as defined in the Government notification as it stood at the relevant time. Under the Notification S.R.O. No. 1729 of 1993 the competent authority to decide the matter is the District Level Committee in the first instance and the State Level Committee in appeal.
The short cut which I propose to adopt in this case is to direct the Commissioner of Commercial Taxes, Thiruvananthapuram, to exercise his powers u/s 59-A of the KGST Act, 1963 as amended by the Kerala Finance Act, 2000 and to take a decision as to the entitlement of the petitioner for sales tax exemption under S.R.O. No. 1729 of 1993 on the application submitted by the petitioner.
However, in view of the mis-apprehension regarding the scope of the expression "manufacture" used in S.R.O. No. 1729 of 1993 entertained by the Government in exhibit P3 clarification it is necessary to bestow some thoughts over it. Paragraph 1 of the said notification, the relevant portion reads : "(1) The case of new industrial units under small-scale industries, there shall be an exemption, for a period of seven years from the date of commencement of commercial production, (a) in respect of tax payable by such units under the Kerala General Sales Tax Act, 1963. (i) on the turnover of goods manufactured and sold by them within the State ; and (ii) on the turnover of goods taxable at the point of last purchase in the State which are used by such units for manufacturing other goods for sale within the State or inter-State. "Thus, for getting the exemption under para 1 of the notification (1) there must have a ''manufacture'' of goods for sale and by the manufacturing process employed a product commercially different from the raw material used must emerge."
The term "manufacture" is defined in the notification itself. It means the use of raw materials and production of goods commercially different from the raw materials used. However, the said term does 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 significant to note here that the stress is on the use of the raw materials and production of goods commercially different from the raw materials. This means that the end-product emerging from the processes applied to the raw material must be a different commercial commodity from the raw materials used. If the end-product is a commercially different commodity then the first part of the definition of "manufacture" is satisfied. The remaining portion of the main part of the definition of "manufacture" only says that 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 goods by mixing with chemicals or gas, fumigation or any other process applied for preserving the goods in good condition or for easy transportation does not come within the fold of "manufacture". This is for the reason that by the said process no substantial change in the utility of the raw material is brought about. Further no manufacturing activity is involved in packing of the raw materials, polishing, cleaning, grading, drying, blending or mixing different varieties of the same goods. No different commercial commodity in the true sense also emerges in that process. The expressions "processing one form of goods into another form of the same goods by mixing with chemicals or gas, fumigation or any other process" is followed by "applied for preserving the goods in good condition" and therefore it can only mean that unless the process employed brings about a different goods by its user the process cannot be characterised as manufacture. In other words in order to exclude the processing of one form of goods into another form of the same goods by mixing with chemicals or gas, fumigation or any other process, the nature, identity and the user of the goods under process must remain the same notwithstanding the aforesaid processes.
Coming to the latter part of the definition of "manufacture" in the notification it excludes certain specific processing and the resultant product from the definition of manufacture. They arc (1) crushing of copra and producing coconut oil and coconut oil cake. Nobody will say that the process mentioned above will not amount to manufacture or that no different commercial commodity has emerged, for, coconut oil and coconut oil cakes are totally different from copra which is the raw material. Nonetheless the said process has been taken out from the definition of manufacture for the purpose of this notification. Here it must be noted that the process of producing dessicated coconut was deemed to be manufacture for the purpose of the notification. (2) Converting timber logs into timber sizes. In that, there is no manufacturing process and the identity is also not lost. The same is the case with regard to (3) crushing rubble into small metal pieces. (4) Converting sodium silicate into liquid silicate and (5) Tyre-retreading or cutting granite or marble slabs into smaller pieces and/or polishing them.
Thus, in order to satisfy the definition of "manufacture" in the notification S.R.O. No. 1729 of 1993 the petitioner has only to satisfy (1) the processes employed by it to convert the "raw rubber wood" into "chemically treated rubber wood" is not merely for the purpose of preserving the raw material, viz., raw rubber wood in good condition and (2) that by the process applied a totally different commercial commodity has emerged. So far as the first condition is concerned the import of the expression "preserve the goods in good condition" has to be ascertained. Does it mean the original condition, viz., the "raw rubber wood" in the same State without deterioration in value ? Does it not mean the preservation is meant for keeping the goods fit for the same use in the original condition ?
The task of the Commissioner of Commercial Taxes, in such circumstances, is to decide the question as to whether the petitioner satisfies the twin conditions specified in the immediately preceding paragraph. This can be achieved by adopting the procedure provided in Section 59-A(2) of the Act.
In order to decide the issue as to whether a commodity undergoes a change as a result of certain processes employed and brings into existence a different commercial commodity the principles laid down by the Supremo Court in certain decisions have to be borne in mind.
A classic passage in the Permanent. Edition of "Words and Phrases" referred to with approval by the Supreme Court in Union of India (UOI) Vs. Delhi Cloth and General Mills, at page 795 reads thus :
" ''Manufacture'' implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation ; a new and different article must emerge having a distinctive name, character or use."
The Supreme Court in the said decision defined manufacture thus :
"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'', however minor in consequence the change may be."
In Empire Industries Limited and Others Vs. Union of India and Others, the Supreme Court held that " ''Grey-fabric'' after they undergo the various processes of bleaching, dyeing, sizing, printing, finishing, etc., emerges as a commercially different commodity with its own price-structure, custom and other commercial incidents and that there was in that sense a ''manufacture'' within the meaning of Section 2(f), even as unamended".
This view was reaffirmed by the Supreme Court in Ujagar Prints v. Union of India [1989] 74 STC 401 ; : AIR 1989 SC 516 after a survey of a catena of earlier decisions of the Supreme Court. The Supremo Court in Aditya Mills Ltd. Vs. Union of India (UOI), with reference to the principles laid down in earlier decisions observed in para 6 thus :
"Hence, the short question involved in this appeal, is : whether the goods in question, namely, a special type of yarn marked as a finished product known as ''PPRF yarn'', should be treated as such and taxed on that basis. Excise duty is a duty on the manufacture of goods and not on sale. Manufacture is complete as soon as by the application of one or more process, the raw material undergoes some change. If a new substance is brought into existence or if a new or different article having a distinct name, character or use results from particular process or processes, such process or activity would amount to manufacture. The moment there is transformation into a new commodity commercially known as a separate and distinct commodity having its own character and use, ''manufacture'' takes place."
This view is again taken in Deputy Commissioner of Sales-tax (Law), Board of Revenue (Taxes), Ernakulam Vs. Shiphy International, Alleppey, , where it is observed as follows :
"Every processing does not bring about a change in the character and identity of the commodity. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kinds of processing at each stage. With each process suffered, the original commodity experiences 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 commodity that it can be said that a new commodity, distinct from the original, has come into being. The test is whether in the eyes of those dealing in the commodity or in commercial parlance the processed commodity is regarded as distinct in character and identity from the original commodity. See in this connection the observations of this Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam Vs. Pio Food Packers, .
Recently the Supreme Court in B.P.L. India Ltd. Vs. Commissioner of Central Excise, Cochin, observed that the question as to when a manufacture takes place is a mixed question of law and fact and that nature and the extent of process may vary from case to case. It was also observed that "when a change takes place and a new distinct article comes into existence known to the consumers and the commercial community as a commercial product, which can be no longer regarded as the original commodity, such a change constitutes a process of manufacture".
In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam Vs. Pio Food Packers, the question before the Supreme Court was "whether the preparation of pineapple slices fall within Section 5-A(1)(a) of the Kerala General Sales Tax Act". M/s. Pio Food Packers was carrying business of manufacture and sale of canned fruits and other products. In the assessment under the KGST Act it claimed that the purchase turnover of pineapple fruits is not covered by Section 5-A(1)(a). The assessee purchased pineapple, then removed the inedible portion, the end crown, the skin, and the inner core, thereafter the fruit is sliced and the slices are filled in cans, sugar is added as a preservative, the cans are sealed under temperature and then put in boiling water for sterilisation. The Supreme Court considered the question : "is the pineapple fruit consumed in the manufacture of pineapple slices". The Supreme Court observed as follows ;
"There are several criteria for determining whether a commodity is consumed in the manufacture of another. The generally prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture. 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 must be regarded as still retaining its original identity."
The court after referring to various decisions on the point observed thus :
"In the present case, there is no essential difference between pineapple fruit and the canned pineapple slices. The dealer and the consumer regard both as pineapple. The only difference is that the sliced pineapple is a presentation of fruit in a more convenient form and by reason of being canned it is capable of storage without spoiling. The additional sweetness in the canned pineapple arises from the sugar added as a preservative. On a total impression, it seems to us, the pineapple slices must be held to possess the same identity as the original pineapple fruit."
These observations of the Supreme Court clinches the issue. Unless there is essential difference between the commodity on which process is applied and the processed product--difference in the name, character or use it cannot be said that "manufacture" has taken place. This is made clear by the Supreme Court after referring to the classic passage extracted in para 22 (supra) observed thus : "the comment applies fully in the case before us. Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it". To a contention raised by the State that when a customer asks for a can of pineapple slices he has in mind something very different from fresh pineapple fruit, the Supreme Court answered it thus : "the distinction in the mind of the consumer arises not from any difference in the essential identity of the two but is derived from the mere form in which the fruit is desired". Thus, it is clear that the substantial identity test applied by the Supreme Court is with reference to the name, character or use and not by its form.
It is evident from the definition of "manufacture" as originally inserted in S.R.O. No. 499 of 1990 which is continued as the main part of the definition in S.R.O. No. 1729 of 1993 that the same was designed keeping in mind the dictum laid down by the Supreme Court in Pio Food Packers'' case [1980] 46 STC 63.
In the light of the legal principles discussed above coming to the present case the task of the Commissioner of Commercial Taxes is made easy. He has only to adjudicate as to whether the process (as described in para 3 supra) applied by the petitioner to the "raw rubber wood" brings into existence a new and distinct commercial commodity by its name, character or use. This is a matter which requires evidence as to how the "chemically treated rubber wood" is regarded in the trade and by those who deal in it as observed by the Supreme Court in Pio Food Packers'' case [1980] 46 STC 63, itself and in B.P.L. India Ltd. Vs. Commissioner of Central Excise, Cochin, . The petitioner is free to lead all evidence in support of its claim including evidence in the form of affidavits of the consumers and the commercial community and the Commissioner is free to cross-examine the deponents of the affidavits to ascertain the correctness of the facts stated in the affidavits.
In the result, I quash exhibit P3 circular issued by the Government. Consequently, exhibits P2 and P5 proceedings of the second and third respondents respectively are also hereby quashed. I direct the Commissioner of Commercial Taxes, Thiruvananthapuram, to consider the petitioner''s application for sales tax exemption afresh as provided u/s 59-A(1)(e) of the KGST Act, 1963 by complying with the procedure provided in Sub-section (2) thereof and to take a decision whether the petitioner''s product, viz., "chemically treated rubber wood" satisfies the definition of "manufacture" in S.R.O. No. 1729 of 1993 for getting the exemption under the notification. This will be done within a period of three months from the date of receipt of a copy of this judgment. The Commissioner of Commercial Taxes will decide the matter keeping in mind the parameters and guidelines specified in this judgment and in accordance with law. The petitioner is free to adduce all evidence before the Commissioner of Commercial Taxes, as observed in para 26 (supra). The Commissioner of Commercial Taxes after rendering the findings as directed will forward the same to the General Manager, District Industries Centre, Thiruvananthapuram, immediately who will place the petitioner''s application together with the findings before the District Level Committee for sales tax exemption and the said committee will decide the petitioner''s application for exemption under the notification S.R.O. No. 1729 of 1993 in the light of the findings rendered by the Commissioner of Commercial Taxes within one month from the date of receipt of the papers from the Commissioner in accordance with law. The recovery of demands under exhibits P10 and P11 in O.P. No. 15979 of 1998 and exhibits P4 and P5 in O.P. No. 20644 of 1999 for the assessment years 1995-96 and 1996-97 will be deferred till a decision is taken as directed hereinabove.
These two original petitions are disposed of as above.
Order on C.M.P. No. 28440 of 1998 in O.P. No. 15979 of 1998-B dismissed.
Order on C.M.P. No. 34084 of 1999 in O.P. No. 20644 of 1999 dismissed.