CHOWGULE & CO. PVT. LTD. & ANR. v. UNION OF INDIA & OTHERS (AND VICE VERSA) (2)

Citation: [1981] 2 S.C.R. 271

Court: Supreme Court of India

Bench: P.N. BHAGWATI, V.D. TULZAPURKAR, R.S. PATHAK

Case summary

It would be convenient at this stage to set out the relevant provisions of the Central Sales Tax Act, 1956 (hereinafter referred to as the Act) which have a bearing on the question before us....

Judgment text

27 1 CHOWGULE & CO. PVT. LTD. & ANR. t v. UNION OF INDIA & OTHERS (AND VICE VERSA) November 25, 1980 (P, N. BHAGWATI, V. D. TULZAPURKAR AND R. S. PATHAK, JJ.

] Central Sales Tax Act, 1956, section 8(3) (b) and rule 13-Whether the blending of ore whilst loading it in the ship by means of the Mechanical Ore Handling Plant corufl'tuted manufacture or processing of ore for sale within the meaning of section 8(3)(b) of the Act and Rule 13-Whether the process of mining, conveying the mine ore from the mining site to the river side carrying out by barges to the harbour and then blending and loading it into the ship through the Mechanical Ore Handling Plant con�tituted one integrated process of mining and manufacture or process of ore for sale, io that that items of goods purchased for use in every phase of these integrated operations could be said to be goods purchased for use in mining and manufacturing or processing of ore for sale falling within the Scope and ambit of section 8(3) (b) and Rule 13.

The assessee is a Private Limited Company, carrying on business of mining iron ore and selling it in the export market after dressing, washing, screening ·a! ld blending it. The extraction of iron ore in some of the mines is carried on by mechanised process and at others by manual labour. The entire activity of the assessee consisted of seven different operations, one following upOn the other, namely, (i) extraction of ore from the mine; (ii) conveying the ore to the dressing plant; (iii) washing, screening and dressing the ore; (iv) conveying of the ore from the mine site to the river side; (v) transport of. the ore from the river side to the harbour by means of barges; (vi) stacking of the ore at the harbour in different stock piles according to its physical and chemical composition; and (vii) blending of the ore from different stock piles with a view to producing ore of the required specifications and loading it into the ship by means of the Mechanised Ore Handling Plant.

Under Section 8(! ) (b) of the Central Sales Tax Act, 1956 the assessee would be liable to pay, in respect of goods purchased for use "in the maunf ture or processing of goods for sale in mining", a lower rate of sales tax at 3% of his turnover, if it is granted, under section 7 ( 3 ) , a Certificate of Regis· tration by Sales Tax Officer specifying the class or classes of goods for the purpose of sub-section (1) of section 8 read with Rule 13. The assessee, therefore, made an application to the Sales Tax Officer for inclusion of 36 items of goods in the certificate of registration on the ground that these items of goods were being purchased by it for use in mining ore and processing it for sale in the export market, and hence they were goods falling within section 8 (3) (b) of the Act and Rule 13. The Sales Tax Officer granted mtiticate only in respect of 11 items and disallowed 25 items.

In revision, the Assistant Commissioner, Sales Tax, took the same view of the Sales Tax Officer, reviewed all the 25 items disallowed and found that six more items to be eligible for certification. The further revision before the Government carried by the assessee failed. Thereupon the assessee filed a writ petition in the court of Judicial Commissioner, Goa. The Judicial Commissioner agreed \Vitb the views of the Sales Tax Authorities but on his scrutiny found that 4 more items, out of 19 items rejected, to be eligible for certification. Hence, the appeals by special leave, one by the assessee in respect of all the 15 items and another by the Union of India regarding the 4 items found to be in order by the Judicial Commissioner. Allowing the appeal of the assessee, dismissing the appeal of Union of India and remitting the matter to the Tax Authorities for further scrutiny of the 14 items pressed by the assessee, the Court HELD: (I) Applying the test laid down in Mis.

Pio Food Packers [1980) 3 SCR p. 1271, namely, "Does the processing of the original commodity bring into existence a commercially different and distinct commodity? ", it is clear that the blending of different qualities of ore possessing different chemical and physical composition so as to produce ore of the contractual specifications cannot be said to involve the process of manufacture, since the ore that is produced cannot be regarded as a commercially new and distinct commodity from the ore of different specifications blended together. What is produced as a result of blending is commercially the same article, namely, ore, though with different specifications than the ore which is blended and hence it cannot be said that any process of manufacture is involved in blending of ore. [279G, 280B-D] The Deputy Commissioner of Sales Tax v. Mis. Pio Food Packers, [1980] 3 SCR p. 1271, applied.

(2) Where any commodity is subjected to a process or treatment with a view to its ''development of preparation for the market". it would amount to processing of the commodity within the meaning of sec. 8(3)(b) and Rule 13. The 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 with each process suffered, the commodity wQuld experience a change. What is neces. sary in order characterise an operation as "pr<>Ce$ing'' is that the commodity must, as a result of the operation, experience some change. In this sense word "processing" in section 8(3) (b) and Rule 13 should be understood as it has not been defined in the Act. [280E, G-H, 281A-BJ Om Prakash Gupta v. Commissioner of Commercial Tax~s, 16 Sales Tax Cases 935 (Cal. ), approved.

(3) The blending of ore in the course of loading through the Mechanical Ore Handling Plant amounted to "processing" of ore within the meaning of section 8(3)(b) and Rule 13 and the Mechanical Ore Handling Plant fell within the description of "machinery, plant, equipment" used in the processing of ore for sale. Therefore, if any items of goods were purchased by the assessee as being intended for use as "machinery, plant, equipment, tools, spare-parts, stores, accessories, fuel or lubricants" for the Mechanical Ore Handling 'Plant, they would be eligible for inclusion in the Certificate of Registration of the assessee. [282H, 283A-B] CHOWGULE & CO. V.

UNION 2 7 3 Diverse quantities of ore possessing different chemical and physical compositions are blended together to produce ore of the requisite chemical and physical composition demanded by the foreign purchaser and obviously as result of this blending, the quantities of ore mixed together in the course of loading through the Mechanical Ore Handling Plant experience change in their respective chemical and physical compositions, because what is poduced by such bleading is ore of a different chemical and physical composition. When the chemical and physical composition of each kind of ore which goes into the blending is changed, there can be no doubt that the operation of blending would amount to "processing" of ore within the meaning of sec. 8 ( 3 ) (b} and Rule 13.

It is no doubt true that the blending of ore of diverse physical and chemical composition is carried out by the simple act of physically mixing different quantities of such ore on the conveyor belt of the Mechanical Ore Handling Plant. But it is immaterial as to how the blending is done and what process is utilised for the purpose of blending. What is material to consider is whether the different quantities of ore which are blended to gether in the course of loading through the Mechanical Ore Handling Plant undergo be goods used in processing of ore for sale.

It i~ obvious that, in the present sase, the mining of ore is done by the assessee with a view to processing the mined ore throqgh the Mechanical Ore Handling Plant at the Marmagoa harbour and the entire operation of mining ore and processing the mined ore is one integrated process of which transportation of the mined ore from the mining site to the Marmagoa harbour is an essential part and, in the circnmstances, it is difficult to see how the machinery, vehicles, barges and ()! her items of goods used for transporting the mined ore from the mining site to the Marmagoa harbour can be excluded from consideration on the ground that they are not goods nsed in processing of ore for sale. The decision of this Court in Indian Copper Corporation case (supra) is directly in point and completely supports this conclusion which we a're inclined to reach on principle.

The assessee in that case was a company which mined copper and iron ore from its own mines, transported the ore to its factory and manufactured finished products from the ore for sale. There were several questions which arose for consideration, before the Court in regard to the assessees' claim for inclusion of certain items of goods in its certificate of registration and one of them was whether the locomotives and motor vehicles used for removing ore from the place where the mining operations were concluded to the factory where the manufacturing process was going on, could be said to be goods intend- • ed· for use in the manufacture or proc. essing of goods for sale within the meaning of sec. 8(3) (b) and Rule 13·. This Conrt held that they were goods falling within this description so as to be entitled to inclusion in the Certificate of Registration of the assessec and Shah, J.

speaking on behalf of the Court gave the following reasons for taking this view· "We are also of the opinion that in a case where a dealer fl is engaged both in mining operations and in the manufacturing process-the two processes being inter-dependent-it would be impossible to exclude vehicles which are used for • CHOWGULE & co. v. UNION (Bhagwati, !. ) removing from the place where the mining operations are concluded to the factory where the manufacturing process starts. It appears that the process of mining ore and m'lnufacture with the aid of ore copper goods is an integrated process and there would be no ground for exclusion from the vehicles those which are used for removing goods to the factory after the mining operations are concluded. Nor is there any ground for excluding locomotives and motor-vehicles used in carrying finished products from the factory.

The expression "goods intended for use in the manufacturing or processing of goods for sale" may ordinarily include such vehicles as , are intended to be used for removal of processed good> from the factory to the place of storage. If this be the correct view, the restrictions imposed by the High Court in respect of the vehicles and also the spare parts, tyres and tubes would not be justifiable. " These R:asons apply with equal force in the present case and strongly support the conclusion that the machinery, vehicles, barges and other items of goods purchased by the assessee for use in carrying the mined ore from the mining site to the river side and from the river side to the Marmagoa harbour fall within the description of goods intended for use in processing of ore for sale within the meaning of sec. 8(3) (b) and Rule 13.

If any of these items of goods are purchased by the assessee as being intended for use as "machinery, plant, equipment, tools, spare-parts, stores, accessories, fuel or lubricants" in carrying the mined ore from the mining site to the river side and from the river side to the Marrnagoa harbour, they woulp qualify for inclusion in the Certificate of Registration. It is in the light of this discussion that the question whether the 14 items of goods disallowed by the Sales Tax Authorities and the Judicial Commissioner are eligible for inclusion in the Certificate of Registration has to be decided. We do not however think any useful • purpose will be served by ourselves examining each of these 14 items for the purpose of deciding whether, according to the principles enunciated by us, any of them qualifies for being included in the Certificate of Registration.

That is a matter which can appropriately be deci- Jed by the Sales Tax Officer in the light of the principles laid down by us and it need not occupy our time here. We accordingly allow the appeal of the assessee and direct the Sales Tax Officer to examine these 14 items o~ goods and detennine in the light of the principles laid down in this judgment whether any of these 14 items of goods is liable to be included in the Certificate of Registration. So far as the A appeal of the Union of India is concerned, we do not think that the· Judicial Commissioner was in error in giving relief to the assessee in respect of 4 items of goods, since these items of goods were clearly goods intended for use in the process of mining and were rightly directed to be included in the Certificate· of Registration. The appeal of the Union of India will accordingly stand dismissed.

Since the B assessee has substantially succeeded, the fair order of costs would be that the Revenue must pay the costs of the assesscc throughout. V. D. K. C. A. 1632/73 allowed and C. A. 107/74 dismissed.