Commissioner Of Sales Tax vs Maharashtra Agro Industries ...
2004 Latest Caselaw 113 Bom

JUDGMENT

J.P. Devadhar, J.

1. At the instance of the Commissioner of Sales Tax, Maharashtra State, Bombay, the Maharashtra Sales Tax Tribunal has raised certain questions of law for the opinion of this Court under Section 61(1) of the Bombay Sales Tax Act, 1959.

2. Since the issues raised in all these references are common, all these four references are heard together and are disposed of by this common judgment. For the sake of convenience, we have taken the facts in the case of Maharashtra Agro Industries Development Corporation Limited and the decision in that case will apply to all other cases.

3. The questions raised for the opinion of this Court in all these references read as follows :

S.T.R. No. 15 of 2000 and S.T.R. No. 3 of 2002 :

"Whether the activity of mixing fertiliser in different proportion and selling them after granulation amounts to manufacture within a meaning of Section 2(17) of the Bombay Act?"

S.T.R. No. 5 of 2000 and S.T.R. No. 2 of 2000 :

"Whether on the facts and in the circumstances of the case and in the light of the decision of the Supreme Court in the case of Shaw Wallace & Co. Ltd. v. State of Tamil Nadu [1976] 37 STC 522, the Tribunal was justified in law in holding that the activity of mixing various chemical fertilisers in different proportion and selling the said mixture in granulated form does not constitute a manufacturing activity under Section 2(17) of the Bombay Sales Tax Act, 1959?"

4. The facts set out in Sales Tax Reference No. 15 of 2000, relevant for the purpose herein are as follows :

M/s. Maharashtra Agro Industries Development Corporation Limited ("the assessee", for short), is a reseller of various types of chemical fertilisers which are required by the agriculturists. The assessee is a registered dealer under the Bombay Sales Tax Act, 1959 ("the BST Act", for short). In addition to reselling of fertilisers, the assessee is also engaged in the activity of mixing two or more fertilisers in different proportions and selling such mixture in granulated form. In view of the controversy raised as to whether the mixing of fertilisers amounts to manufacture, the assessee filed an application before the Commissioner of Sales Tax under Section 52 of the BST Act seeking determination of the disputed question. The assessee contended before the Commissioner that there is no change brought in by mixing different fertilisers and by mixing no new commodity comes into existence. Accordingly, it was submitted that the process of mixing different types of fertilisers does not amount to manufacture. The Commissioner of Sales Tax by his order dated January 19, 1994 relying upon the decision of the apex Court in the case of Shaw Wallace & Co. Ltd. v. State of Tamil Nadu [1976] 37 STC 522 held that the process of mixing fertilisers constitutes manufacture.

5. Being aggrieved by the aforesaid order, the assessee filed an appeal before the Maharashtra Sales Tax Tribunal. The Tribunal by its order dated July 20, 1995 held that the process of mixing the fertilisers carried on by the assessee does not constitute manufacture. On reference application filed by the revenue, the Tribunal has drawn up the aforesaid questions for the opinion of this Court under Section 61 of the BST Act.

6. Mr. Sharma, learned counsel appearing on behalf of the State submitted that the decision of the apex Court in the case of Shaw Wallace & Co. Ltd. [1976] 37 STC 522, is squarely applicable in the present case and the Tribunal was in error in holding that the said decision of the apex Court is distinguishable on facts. It was submitted that the process of mixing different fertilisers in different proportions brings into existence a new commodity and utility value of the new commodity is different from the original chemical fertilisers. It was submitted that the process of fertiliser mixture carried on by the assessee are as follows :

The assessee purchases fertilisers such as nitrogen, phosphorous and potash from registered dealers and mix the same in different proportions like : 18:18:10, 20:20:10, 15:15:15, etc., with other materials. For obtaining mixtures, such as mixtures of N.P.K. granulation, the assessee is mixing urea, sulphate, diammonium phosphate, muriate of potash, single super phosphate, etc., in different proportions and further mix the same with delimits of clay powder. The said mixture is rotated in a rotator along with spraying of water. While rotating the mixture, the rotator is heated so that the mixed fertiliser powder takes a granulated shape.

It was submitted that by the above process of manufacture a different type of fertiliser mixture is obtained which is a different commercial commodity. It was submitted that after preparation of such fertiliser mixture the different fertilisers used for mixing cannot be separated again as the mixture is homogeneous. It was submitted that in the commercial market or common parlance, these fertiliser mixtures are known to be different from the fertilisers used for mixing. It was submitted that use of fertiliser mixture cannot be substituted by merely using the ingredients of the mixture separately because use of each fertiliser is for a specific purpose. It was submitted that when a particular fertiliser mixture is recommended for a particular crop, the said mixture cannot be used for other crop.

7. It was further submitted that the fertiliser mixture prepared along with other ingredients such as clay powder are sold in the market under different names such as Sufala, Koyana, Bhagirath, etc. Accordingly, it was submitted that the process carried on by the assessee is a manufacturing process and the same is liable to sales tax when sold within the State of Maharashtra.

8. In support of his contention, Mr. Sharma relied upon the decision of this Court in the case of Commissioner of Sales Tax v. Dunken Coffee Manufacturing Co. [1975] 35 STC 493. In that case it was held that the mixing and blending of coffee powder with chicory powder brings into existence different commercial product known as "French coffee" and therefore the said process amounts to manufacture within the meaning of Section 2(17) of the BST Act. It was submitted that the process carried on by the assessee is similar to the process carried on by the Dunken Coffee Manufacturing Co. Accordingly, it was submitted that the process carried on by the assessee amounts to manufacture and therefore the question referred to this Court be answered in favour of the revenue and against the assessee.

9. Mr. Surte, learned counsel appearing on behalf of the assessee, on the other hand submitted that the process of mixing fertiliser carried on by the assessee did not constitute manufacture within the meaning of Section 2(17) of the BST Act. He submitted that by the process of mixing, commercially different product did not come into existence and, therefore, it cannot be said that the process carried on by the assessee amounts to manufacture. He submitted that by amending Section 2(17) w.e.f. May 1, 1994 the State sought to include the process of fertiliser mixture within the definition of "manufacture". As per the amended Section 2(17), fertiliser mixture could be held to constitute manufacture only if a notification in the Official Gazette was issued by the State of Maharashtra. He submitted that the State Government has in fact issued a notification on December 8, 2000 stating therein the process of fertiliser mixture shall constitute manufacture under the amended Section 2(17) of the BST Act. Mr. Surte submitted that in the light of the aforesaid statutory provisions, it is clear that the process of fertiliser mixture can be held to be covered under the definition "manufacture" w.e.f. December 8, 2000 and the process of fertiliser mixture carried on by the assessee in the present case pertains to the period prior to December 8, 2000 and, therefore, the same cannot be said to be manufacturing activity contemplated under Section 2(17) of the BST Act. Mr. Surte submitted that in view of the clear provisions contained in Section 2(17) of the BST Act, the question referred to this Court be answered in favour of the assessee and against the revenue.

10. We have heard the counsel on both sides and perused the records pertaining to the issue raised in the reference. In this case, the issue relates to the period 1992-1993 and 1993-1994. Section 2(17) of the BST Act at the relevant time reads as follows :

"(17) '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 ;

Explanation I.--For the purposes of this clause, the cutting, sawing, shaping, sizing or hewing of timber, shall be deemed to be manufacture ;

Explanation II.--For the purpose of this clause, refining of oil shall be deemed to be manufacture ;"

By Maharashtra Act 29 of 1994, Section 2(17) of the BST Act was amended with effect from May 1, 1994 and the amended Section reads as follows :

"(17) 'Manufacture', with all its grammatical variations and cognate expressions, includes,--

(a) producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods, or using or applying any such process, as the State Government may, having regard to the impact thereof on any goods or to the extent of alteration in the nature, character or utility of any goods brought about by such process, by notification in the Official Gazette, specify ;

(b) cutting, sawing, shaping, sizing or hewing of timber ;

(c) refining of oil ; and

(d) lacquering of polyester film."

As per the amended section, the State Government has issued a notification on 8th December, 2000, which reads as under :

Bombay Sales Tax Act, 1959 :

"No. STA. 11.00/CR-134/Taxation-1.--In exercise of the powers conferred by Sub-clause (a) of Clause (17) of Section 2 of the Bombay Sales Tax Act, 1959 (Bom. LI of 1959), and of all other powers enabling in that behalf, the Government of Maharashtra, having regard to the impact of the following processes on the goods involved and the extent of alteration in the nature, character and utility of the goods brought about by the processes, specifies the processes mentioned in the Schedule appended hereto to be the manufacture within the meaning of the said Clause (17).

SCHEDULE

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Serial No. Processes specified as 'manufacture'
 (1)                       (2)
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  1.       Preparation of mixed fertiliser by mixing fertilisers.
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   By order and in the name of the Governor of Maharashtra
                                             M.M. Telang,
                                    Under Secretary to Government."
 

11. From the aforesaid provisions of the BST Act, it is seen that up to 1st May, 1994 the process of fertiliser mixture which involves alteration in the nature, character or utility of the goods was not included in the definition of "manufacture" and by amending Section 2(17) with effect from May 1, 1994 power was conferred upon the State to declare such process as manufacturing process within the meaning of Section 2(17) of the BST Act. Accordingly, the State Government has issued a notification on December 8, 2000 specifically stating therein that the process of fertiliser mixture shall be a manufacturing process under the amended Section 2(17) of the BST Act with effect from December 8, 2000. When a process which involves alteration in the nature, character or utility of the goods is brought within the meaning of "manufacture" by virtue of the amendment to Section 2(17) of the BST Act in 1994 and in exercise of that power, the process of fertiliser mixture is specifically declared to be manufacturing process with effect from December 8, 2000, it is not open to the State to contend that even before the amendment to Section 2(17) of the BST Act in 1994, the process of fertiliser mixture was included in the definition of "manufacture".

12. Since a process which involves alteration in the nature, character or utility of goods was not included in the definition of "manufacture", it became necessary for the Legislature to amend the definition of "manufacture", by Maharashtra Act 29 of 1994. Under the said amendment Act, the State was required to issue a notification in the Official Gazette, specifically stating therein that a particular process which involves alteration in the nature, character or utility of goods is a manufacturing activity within the meaning of Section 2(17) of the BST Act. In exercise of that power, the State by notification dated December 8, 2000 has declared that the fertiliser mixture involves alteration in the nature, character and utility of goods as contemplated under the amended Section 2(17) of the BST Act and, therefore, fertiliser mixer will be a manufacturing process with effect from December 8, 2000. Under the circumstances, when the State in its wisdom has thought it fit to declare that the process of fertiliser mixture shall be a manufacturing process under Section 2(17) of the BST Act with effect from December 8, 2000, it will not be open to the State to put forth a case which runs counter to the express provisions of the Statute. To accept the contention of the State would render the amendment to definition of "manufacture" by Act 29 of 1994 redundant or otiose. In other words, if the process of fertiliser mixture was covered under Section 2(17) of the BST Act prior to its amendment in 1994 as contended by the State, then neither the amendment to Section 2(17) by Act 29 of 1994 was necessary nor the State would have issued a notification on December 8, 2000 stating that the process of fertiliser mixture shall be considered as manufacturing process under Section 2(17) of the BST Act with effect from December 8, 2000. Under the circumstances, the contention of the State which renders the provisions of statute redundant or otiose cannot be accepted. The fact that the fertiliser mixture is sold in different names will not make any difference, because unless the process of fertiliser mixture was covered under the definition of "manufacture" the same could not be brought to tax. As stated hereinabove, the State Government has specifically declared that with effect from December 8, 2000 fertiliser mixture shall be a manufacturing process as per the amended Section 2(17) of the BST Act.

13. The decision of the apex Court in the case of Shaw Wallace [1976] 37 STC 522, does not support the contention of the State because firstly it is not brought to our notice that the definition of the word "manufacture" under the Tamil Nadu General Sales Tax Act which was under consideration therein is similar to the BST Act. Secondly, the apex Court in that case, expressly made it clear whether the process carried on by the assessee therein amounted to manufacture or not has not been considered in that case. Thirdly, since the resultant product emerging on mixing of fertilisers did not fall in any of the items specified in the Tamil Nadu General Sales Tax Act the resultant product was held to be commercially a different product. In the present case even after mixture of different fertilisers the resultant product continues to be fertiliser which is the only entry set out in the Schedule to the BST Act. Under the circumstances, the Tribunal was justified in holding that the decision of the apex. Court in the case of Shaw Wallace [19761 37 STC 522 was not applicable to the case of the assessee. Reliance was placed on the decision of this Court in the case of Dunken Coffee Manufacturing Co. [1975] 35 STC 493 (Bom) wherein it was held that the mixing and blending of coffee powder with chicory powder resulting in "French coffee" is a distinct article or commodity covered under Section 2(17) of the BST Act. That decision does not support the case of the State because, the process involved in fertiliser mixture came to be included in the definition of "manufacture" with effect from May 1, 1994 and the State has specifically declared that the process of fertiliser mixture shall be deemed to be manufacturing process with effect from December 8, 2000 under the amended Section 2(17) of the BST Act.

14. For all the aforesaid reasons, we hold that the process of fertiliser mixture carried on by the assessee during the relevant years, i.e., 1992 to 1994 which are subject-matter of the present references did not constitute manufacture within the meaning of Section 2(17) of the BST Act.

15. Accordingly, the questions referred to us in each of the aforesaid references are answered as under :

S.T.R. No. 15 of 2000 and S.T.R. No. 3 of 2002 :

"Whether the activity of mixing fertiliser in different proportion and selling them after granulation amounts to manufacture within the meaning of section 2(17) of the Bombay Act."

In the negative, i.e., in    favour    of   the assessee and against the revenue.



 

S.T.R. No. 5 of 2000 and S.T.R. No. 2 of 2000 :
 
  
   

"Whether on the facts and in the circumstances of the case and in the light of the decision of the Supreme Court in the case of Mis. Shaw Wallace & Co. Ltd. v. State of Tamil Nadu [1976] 37 STC 522 the Tribunal was justified in law in holding that the activity of mixing various chemical fertilisers in different proportion and selling the said mixture in granulated form does not constitute a manufacturing activity under section 2(17) of the Bombay Sales Tax Act, 1959?"

This     question    is answered    in    the affirmative,    i.e.,  in favour       of      the assessee and against the revenue.




 

16. The references are disposed of in the aforesaid terms. However, there shall be no order as to costs.