Commissioner of Trade Tax Vs Kumar Paints And Mill Stores (Supreme Court of India)
Summary: The Supreme Court, in Commissioner of Trade Tax Vs M/s. Kumar Paints and Mill Stores, held that mixing base paint with different colourants through a computerised DTS machine does not amount to manufacture under the U.P. Trade Tax Act, 1948, where the process does not result in a new commercially recognisable commodity. The Revenue contended that tinting base paint produced a new taxable product, while the assessee argued that the resulting material continued to be paint. Both the base paint and colourants had already suffered tax. The Court examined the distinction between manufacturing and processing activities and the requirement that a commercially different product must emerge.
The Supreme Court considered the expert report dated 20 January 2004 issued by Harcourt Butler Technical University, Kanpur, which established that base paint possessed the essential characteristics of paint even before colourants were added. The tinting process merely changed the shade and did not create a different product. The Court considered State of Maharashtra Vs Mahalaxmi Stores, Commissioner of Sales Tax Vs Pio Food Packers, Chowgule and Company (P) Limited Vs Union of India and Union of India Vs Delhi Cloth and General Mills while examining the legal test for determining whether manufacture has occurred. It distinguished Sonebhadra Fuels Vs Commissioner Trade Tax, where conversion of coal into briquettes constituted manufacture because of the nature of the process and resultant commodity.
The Court reiterated that mere alteration, finishing or variation of existing goods does not necessarily constitute manufacture. The decisive consideration is whether the process results in a new and commercially recognisable commodity. Since the tinted product remained paint in common parlance and no distinct commercial article emerged, the High Court had correctly held that the activity was not manufacture. Consequently, the Supreme Court dismissed all three Revenue appeals, upheld the High Court’s decision and made no order as to costs.
Cases Discussed
- State of Maharashtra Vs Mahalaxmi Stores (2003) 1 SCC 70 (Supreme Court) – Relied upon for the principle that processing or variation of goods does not constitute manufacture unless a new commercial commodity emerges.
- Sonebhadra Fuels Vs Commissioner Trade Tax, U.P., Lucknow (2006) 7 SCC 322 (Supreme Court) – Distinguished on facts concerning the manufacture of coal briquettes.
- Commissioner of Sales Tax Vs Pio Food Packers (1980) Supp SCC 174 (Supreme Court) – Referred to for determining when processing produces a commercially different commodity.
- Chowgule and Company (P) Limited Vs Union of India (1981) 1 SCC 653 (Supreme Court) – Considered in relation to the distinction between processing and manufacture.
- Union of India Vs Delhi Cloth and General Mills (1963) Supp 1 SCR 586 (Supreme Court) – Referred to for the requirement that manufacture involves bringing a new substance into existence.
- Aspinwall & Co. Ltd. Vs Commissioner of Income Tax, Ernakulam (2001) 7 SCC 525 (Supreme Court) – Considered for the common-parlance meaning of manufacture and the emergence of a new and different article.
FULL TEXT OF THE JUDGMENT/ORDER OF SUPREME COURT OF INDIA
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 with 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”).
2. The 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 the other hand contended that mixing per se did not amount to ‘manufacture’, and that on an application of the established principles, no new recognizable product or article had emerged from the process. It is a matter of record that both the base paint and the colourant are taxed separately.
3. The High Court on a previous occasion had accepted the assessees’ contentions and held that the process did not amount to ‘manufacture’. Upon the Revenue’s appeal in some cases, this Court 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, Kanpur. The said report pertinently stated as follows: –
“The base paint used in “point of Sale” tinting systems itself, therefore, is a paint irrespective of colourant being added to get a desired shade or colour. It is in the form of paint and possession the basic ingredients and characteristics. The tinting does not bring new or different product into existence. The base paint can also be used as paint.”
4. In 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 the 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.
5. The 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’.
6. The definition of ‘manufacture’ under the Act is as follows: –
“2 (e-1). ‘manufacture’ means producing, making, mining, collecting, 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.”
7. In 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 commercial commodity.
8. In 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 noticed 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 decision 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 and 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 commercially recognizable new commodity, and not mere variation of an existing one.
9. In 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.
10. In these circumstances, in the opinion of this Court, the High Court did not fall into error. The appeals therefore fail, and are hence dismissed. Pending application(s), if any, shall stand disposed of. There shall be no order as to costs.
