B. Oil Mills Ltd. Vs. Sales Tax Tribunal & Ors  INSC 460 (3 September 1998)
M.K. Mukherjee, G.T. Nanavati. M.K. Mukherjee, J.
J U D
G E M E N T
appellant carries on business in manufacture and sale of oils at Agra in the State of Uttar Pradesh (U.P.). As a part of
their business they purchase crude oil of different varieties, such as
linseed-oil, castor-oil, mustard-oil and, after refining, sell as refined oil.
The refinement is brought about by first treating the oil with alkali to remove
the acid contents, then bleaching it with absorbent cotton or activated carbon
and lastly deodorising it with steam.
ascertain whether they were liable to pay tax on the sale of refined oil as
they had already paid tax for purchase of the crude oil and, if so, what would
be the rate thereof, the appellant approached the Commissioner of Sales Tax,
U.P. Invoking the provisions of Section 35 of the U.P. Trade Tax Act, 1948
('Act' for short). By his order dated June 19, 1985, the Commissioner held that the
appellant was liable to pay sales tax notwithstanding the fact that they had
paid tax on the purchase of the crude oil and that the rate of tax would be 4%.
Assailing the order of the Commissioner the appellant preferred an appeal
before the Sales Tax Tribunal which was dismissed. They then approached the
Allahabad High Court by filing a petition under Article 226 of the Constitution
of India which was also dismissed. Hence this appeal by special leave.
the learned counsel appearing for the appellant, firstly submitted that they
were not liable to pay tax on the sale of refined oil for even after refinement
it continues to retain its basic character as oil.
to Mr. Swarup, mere processing of the crude oil for its conversion to refined
oil, cannot be said to be 'manufacture' of new goods so as to make the
appellant liable for tax thereupon under Section 3(3)(b)(iii) of the Act. In
support of his contention he relied upon the judgements of this Court in MS. Tungabhadra
Industries Ltd. V. The Commercial Tax Officer, Kurnool (1961) 2 SCC 141, MS. Sterling Foods V. State of Karnataka
& Anr. [(1986) 3 SCC 4691 and State of Maharashtra V. M./s. Shiv Datt &
sons and Ors. (1993 supp. (1) SCC 2221." In response Mr. Misra, appearing
for the respondent-State, submitted that the appellant was liable to pay tax on
the refined oil inasmuch the meaning of the word 'manufacture' in Section
2(e-1) of the Act clearly envisages any sort of processing. Therefore, he
contended, the question whether the crude oil maintained its character as oil
even after refinement was redundant.
section 2(e-I) of the Act 'manufacture' means producing, making, mining,
collecting, extracting, altering, ornamenting, finishing or otherwise processing,
treating or adapting any goods; but does not include such manufacture or
manufacturing processes as may be prescribed. Section 3 of the Act, so far as
it is relevant for our purposes reads as under:
Liability to tax under the Act.
Subject to the provisions of this Act, every dealer shall, for each assessment
years, pay a tax at the rates provided by or under Section 3-A or Section 3-D
on his turnover of sales or purchases or both, as the case may be which shall
be determined in such manner as may be prescribed.
dealer shall, except as otherwise provided in Section 18, be liable to tax
under sub-section (I) if, during the assessment years, the aggregate of his
Nothing in sub-section (2) shall apply in respect of-
sale by a dealer of –
purchased or imported by furnishing and declaration or certificate prescribed
under any provision of this Act; and
manufactured by him by using the goods referred to in sub-clause (I) or subclause
the provisions of the above Section are read in juxtaposition with the
definition of the word 'manufacture' it is abundantly clear that a dealer will
be liable to pay tax on sale of any goods he manufactures by processing the
goods he purchased by complying with the requirements of clause (ii) above.
word 'processing' has, however, not been defined under the Act but it has been
the subject matter of interpretation by this Court in various cases including
that of CHOWGULE & CO. PVT. LTD. & ANR. V. UNION OF INDIA & Ors. [1981)
1 SCC 653]. Taking a cue from the definition of the word 'process' in Webster
Dictionary, this Court observed therein that where any commodity is subjected
to a process or treatment with a view to its development or preparation for the
market it would amount to processing.
nature and extent of processing may vary from case to case; in one case the
processing may be slight and in another it may be extensive; but in each
process suffered the commodity would experience a change. This Court further
observed that whatever be the means employed for carrying out the processing operation,
it is the effect of the operation on the commodity that is material for the
purpose of determining whether the operation constitutes processing.
in the context of the above meaning given to the word 'processing' by this
Court there cannot be any manner of doubt that the nature and extent of the
process to which the crude oil is subjected to make it refined oil brings the
latter within the meaning of the expression goods manufactured' in Section 3(3)(b)(iii)
of the Act so as to make the appellant liable to pay tax on its sale.
now to the decisions relied upon by Mr. Swarup, we find that none of them has
any manner of application to the facts of the instant case. In TUNGABHADRA
INDUSTRIES (Supra) the sole question that came up for consideration was whether
consequent upon its conversion to hydrogenated oil by Improving its quality
ground nut oil lost its identity.
answering this question in the negative this court held that refined groundnut
oil (hydrogenated oil) continues to be groundnut oil notwithstanding that such
oil does not possess the characteristic colour, or taste, odor etc. of the raw
groundnut oil. Indeed, the controversy in that case centered round the
interpretation of the expression 'groundnut oil' appearing in Madras General
Sales Tax (Turnover and Assessment) Rules, 1939. Neither the expression
'manufacture' nor the expression 'processing' directly came up for
interpretation in that case. In Sterling Foods (supra) the question that arose
for determination was whether shrimps, prawns and lobsters subjected to
processing like cutting of heads and tails, peeling, divining, cleaning and
freezing cease to be the same commodity and become a different commodity within
the meaning of section 5 of the Central Sales Act, 1956. In answering the above
question this Court applied the 'commercial parlance' test and relying upon its
earlier 1271] held that processed shrimps, prawns and lobsters are not a new
and distinct commodity but they retain the same character as the original
shrimps, prawns and lobsters even after the processing. This case is of no
assistance to the appellant for unlike the above commodity, the crude oil does
not at all retain its earlier character after processing.
Datt and Sons (supra) the question was whether the dealer was entitled to the
concession provided in Section 8 of the Bombay Sales Tax Act, 1959 of such part
of their turnover as represented the resale of batteries purchased by them from
a registered dealer. Interpreting the meaning of the word 'resale' under
Section 2(26), and the word 'manufacture' in that Act and the nature of process
applied by the dealer before their sale, this Court held that basically
speaking the goods purchased by the dealer from the manufacturers as well as
the goods sold by the former are one and the same for nothing was done to the
goods afresh which had not been done already. The above case also does not come
in aid of the appellant: firstly, because it considered the definition of
'manufacture' (which, of course, is identical with its definition under the
Act) in the context of 'resale' of goods as defined in that Act and secondly,
because of the nature and extent of the process which the crude oil undergoes
to radically change itself to marketable refined oil.
other contention raised by Mr. Swarup was that they had purchased the crude oil
after payment of tax and hence they cannot be made liable to pay tax again for
its sale. This contention has to be stated only to be rejected for the Act
expressly provides imposition of multistage taxation under clauses (ii) and
(iii) of Section 3(3)(0 of the Act.
the foregoing discussion the appeal fails and is hereby dismissed. There will
be no order as to costs