Ispat Udyog & Ors Vs. State Level Committee & Ors  INSC 507 (3 November 1998)
Bharucha, S. Rajendra Babu Bharucha, J.
principal judgment and order under appeal and the orders following it, also
under appeal, were passed by a Division Bench of the High Court of Madhya
Pradesh on writ petitions files by the appellants.
briefly stated, the facts are these : The appellants purchase iron and steel
scrap from the Bhilai Steel Plant and other parties. The scrap, in the form of
defective angles, channels, tubes and coils is of very considerable size. The
appellants cut down the scrap so that it may be utilised by rolling mills and
forging parts manufacturers, gear and pinion manufactures and dye block
manufactures. The question is whether such cutting down, with the help of
shearing machines and glass cutting, of the scrap of widths of 2' to 5' and
thickness upto 2.5" into strips of the size of 2" to 4" is a
process of "manufacture" within the special definition of that word
in section 2(j) of the Madhya Pradesh General Sales Tax Act. The definition
reads thus :
"manufacture" includes any process or manner of producing,
collecting, extracting, preparing or making any goods and in respect of trees
which have been severed from the land or which have been felled, also the
process of lopping the branches, cutting the trunks or converting them into
logs, poles or allies or any other articles of wood, but does not include such
manufacture or manufacturing process as may be notified.
State Government issued a notification on 16th October, 1986 under Section 12
of the said Act granting exemption to dealers, who were registered under the
said Act and had established eligible industrial units in any district in the
State and held a provisional or permanent eligibility certificate issued by an
officer authorised for the purpose, from payment of tax to the extent stated
therein. Dealers registered with the Industries Department of the Government of
Madhya Pradesh who had set up small scale industrial units and who had made a
capital investment in fixed assets above Rs.lO lakhs were exempted from the
whole of the tax if they had set up industries within the areas categorised
therein for the periods set out thereagainst. The exemption was available
subject to the condition, inter alia, that it "shall be available only in
respect of the sales of the goods which the dealer is licensed to manufacture
and which are manufactured by him as also waste and by products obtained in the
course of manufacture." Under the terms of the said notification the
appellants obtained eligibility certificates from the District Level Committees
established for the purpose, after due enquiry and verification. The State
Level Committees, after the lapse of some time, issued to the appellants
notices requiring them to show cause why their eligibility certificates insofar
as they related to iron and steel scrap processing should not be cancelled on
the ground that no manufacture of new items resulted, The State Level
Committees, ultimately did cancel the eligibility certificates on the said
ground. In the case of C.A. State of M.P. and of some others the eligibility
certificates were refused. The appellants challenged the orders of
cancellation/refusal by way of writ petitions.
High Court, in the judgment under appeal, dismissing the writ petitions, placed
great stress on decisions under the Excise Act and other statutes relating to
the meaning of the word "manufacture" as used therein and concluded
that the activity that was carried on by the appellants was not
"manufacture" for "simply because iron scraps are purchased and
cut in a manner required by various customer, that will not change the basic
character of iron scrap and it is only the processing by twisting, fabricating
or giving it a particular shape required by customers. Such type of processing
will not change the identity of the material and that will not amount to a
manufacturing or processing of the same. As the definition of 'manufacture"
given in in the Sales Tax Act includes processing, various shapes will not be
treated to be manufacture so as to entitle for exemption under the exemption
counsel for the applicants submitted that it was clear from the said Act that
the definition of 'manufacture' therein was not restricted to the production of
new articles. The said notification also indicated this when it stated that the
exemption thereunder would not be available to "pressing of iron/steel
scrap into blocks".
was placed upon a notification issued on 1st October, 1978 under the said Act
wherein it was stated that the "slaughtering of animals and obtaining
meat, hides and skins" would not be treated as a process of manufacture
for the purpose of the definition of "manufacture" in Section 2(j).
Reference was made to an order passed on 9th February, 1993 by the Board of
Revenue, Madhya Pradesh, where the very same issue was considered in relation
to some of the appellants in the context of suo motu orders passed by the
Deputy Commissioner of Sale Tax holding that the activity of the appellants was
not covered by the said definition of "manufacture" and, accordingly,
the raw materials specified in their registration certificates were ordered to
be deleted. The Board of Revenue, analysing the said definition of
"manufacture", observed, "The process of manner of collecting or
preparing do not mean to include collection or preparation of new goods, but
means to prepare the available goods to make it saleable. With this object the
legislature have amended the definition of manufacture so as to widen the tax
network. When the legislature creates such definition with this object this
Court do not derive power to restrict the definition of manufacture for grant
of benefits to new industrial units." In view of its discussion, the Board
of Revenue held that, inspite of the fact that the raw materials more or less
retained their identity and no new product came into existence, the process and
manner of the appellants' activity would amount to a process of
"manufacture" within the meaning of that word in the said Act.
counsel for the respondents relied upon decisions to the meaning if the word
"manufacture", particularly under the Excise Act, and contended that
since, admittedly, no new product emerged from the process employed by the
appellants, there was no manufacture and, therefore, the High Court was right
in the view that it took.
construing the meaning of the word 'manufacture' as used in other statutes do
not apply unless the definition of that word in the particular statute under
consideration is similar to that construed in the decisions.
plain construction of the special of the word in a particular Act must prevail.
In the the special definition given in section 2(j) of the said Act
'manufacture' has been defined as including a process or manner of producing,
collecting, extracting preparing or making any goods. There can be no doubt
whatsoever that "collecting" goods does not result in the production
of a new article. There is, therefore, inherent evidence in the definition
itself that the narrow meaning of the word "manufacture" was not
intended to be applied in the said Act. Again, the definition speaks of
"the process of lopping the branches (of trees), cutting the trunks".
The lopping of branches and the cutting of trunks of trees also, self
evidently, does not produce a new article. The clear words of the definition,
therefore, must be given due weight and cannot be overlooked merely because in
other contexts the word "manufacture" has been judicially held to
refer to the process of manufacture of new articles.
appellants treat iron and steel scrap of considerable bulk by cutting it down
by mechanical processes into pieces that may be conveniently utlised in rolling
mills and foundries. Such treatment, making saleable goods, would, in our
opinion, fall within the wide definition of "manufacture" under
Section 2(J) of the said Act.
result, the appeals are allowed. The judgment 'and orders under appeal are set
aside. Relief shall now be granted to the appellants by the respondent
authorities in consonance with this judgment and order.
order as to costs.