1 STR-7-05 jpc IN THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SALES TAX REFERENCE NO. 7 OF 2005 IN REFERENCE APPLICATION NO. 29 OF 2003 M/s R. K. Patel & Company Amalner, Dist. Jalgaon .. Applicant Versus The Commissioner of Sales Tax Maharashtra State, Vikrikar Bhavan, 8 th Floor, Mumbai 400 010 .. Respondent .... Mr. P. V. Surte a/w Mr. Subhash Surte i/by P.V. Surte & Co. for the Applicant Mr. V. A. Sonpal, ‘A’ Panel Counsel for the Respondent .... CORAM: V. C. DAGA, & S. J. KATHAWALLA, JJ. DATED: 2 nd July, 2010. JUDGMENT( Per S.J.Kathawalla, J.) 1. Heard learned counsel for the Petitioner as well as learned counsel for the Respondent. 2. This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (“the BST Act” for short) made by the Sales Tax Appellate 2 STR-7-05 Tribunal, Mumbai (“the Tribunal” for short) to seek the decision of this Court on the following substantial question of law : “Whether the Tribunal was correct in holding that the process carried on by the Applicant for converting raw tobacco into chewing tobacco does not amount to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act ?” The facts: 3. The Applicant M/s R.K. Patel & Company is a partnership firm engaged in the business of manufacture and sale of chewing tobacco i.e. Jarda made from raw tobacco. The Applicant is registered under the Bombay Sales Tax Act, 1959 and holds a certificate of registration No. 425401/S-412. 4. The Applicant was assessed by the Sales Tax Officer-(C-19), Jalgaon by an order dated 8 th October 2001. During the assessment proceedings, the Applicant claimed a set-off in respect of the tax paid on the purchase of packing materials under rule 41-D of the Bombay Sales Tax Rules, 1959 to the tune of Rs.2,50,285/-. The Sales Tax Officer dis- allowed the claim on the ground that the process of converting raw tobacco into Jarda does not amount to manufacture. 5. Being aggrieved by the assessment order, the Applicant preferred an Appeal before the Assistant Commissioner of Sales Tax (Appeals), P36, Nashik, who, by an order dated 18 th March 2002, 3 STR-7-05 confirmed the dis-allowance of the set off on the ground that the activity of converting raw tobacco into Jarda does not amount to manufacture. 6. Being aggrieved by the Order dated 18 th March 2002 passed in Appeal, the Applicant preferred a Second Appeal before the Tribunal. The Tribunal however, by its judgment dated 8 th April, 2005, dismissed the Second Appeal on the same ground which resulted in the dismissal of the earlier Appeal. The Applicant, not being satisfied with the said judgment, preferred an Application under Section 61(1) of the Bombay Sales Tax Act, 1959, requesting the Tribunal to refer certain questions of law to this Court for decision. In view thereof, the above Reference was made by the Tribunal raising the aforesaid question of law seeking decision of this Court. Submissions : 7. The learned Counsel explained the process of manufacturing as under: 1. Raw Material : - Raw tobacco is an agricultural produce which is mainly purchased by the applicant from the two states, namely, Gujarat and Uttar Pradesh. 2. Drying under the Sun :- The raw tobacco is in different types of whole leaf nature in semi-soppy condition. The 3/4 th varieties of whole leaf tobacco are dried under the sun initially. 4 STR-7-05 3. Analysis :- Further, the whole leaf of raw tobacco is analyzed by a machine in order to have the following products: A. Fole Patti B. Stems C. Rava D. Dust E. Loss Stems are further crushed by the machine to have the following by products:- a. Tayar Kandi b. Rave Dust Mix c. Loss 4. Separation and sorting :- The Fole Patti is further persisted with loss and dust, which is sorted out to have a pure Fole Patti usable in manufacturing Jarda. In this manner, Tayar Kandi is analyzed from stems which is also used in the manufacturing process. 5. Blending :- At this stage, the Fole Patti and the Tayar kandi are blended together. 6. Ornamenting :- Lime water and liquid chemical is sprinkled on the heap of blendous Fole Patti and Tayar Kandi which is allowed to fusion at night. The next day, it is again dried in the sun. After this, Jarda is manufactured and ready for packing. 7. Forms Fill and Seal :- Manufactured Jarda is packed by machines as well as by human efforts in pouches of the weight of 10 Grams to 200 Grams. They are further packed in corrugated cartons for the safety of goods. 8. Marketing :- The Jarda is mainly marketed and sold in the State of Maharashtra, Gujarat and Madhya Pradesh. 5 STR-7-05 9. By-products :- Analyzed tobacco is used in the manufacture of snuff and tobacco dust which is used as a fertilizer by farmers. 8. Mr. Surte has taken us through Section 2(17) of the Bombay Sales Tax Act, 1959 i.e. definition of ‘manufacture’ as it stood during the relevant period and Rule 41-D of the Bombay Sales Tax Rules, 1959, which reads as under: Section 2(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 process as may be prescribed. Explanation-I : For the purpose of this clause, the outlining, sawing, shaping, sizing or hewing of timber, shall be deemed to be manufacture.(22.4.88 to 30.04.1994) Explanation-II : for the purpose of this clause, refining oil shall be deemed to be manufacture. (22.04.1988 to 30.04.1994) Rule 41D :- “In assessing the amount of tax payable in respect of any period by a registered dealer who manufactures goods for sale or export, the Commissioner shall grant him set-off of the sum determined in accordance with the provisions of Rule 44D of the Bombay Sales Tax Rules, 1959, in respect of purchase made by the claimant dealer of any goods specified in Schedule-C and used by him within the State in the manufacture of goods for sale or in the packing of goods so manufactured.” 9. Mr. Surte has submitted that the aforesaid process carried out by the Applicant for converting raw tobacco into Jarda (chewing tobacco) 6 STR-7-05 amounts to manufacturing activity and as a result of the said process, raw tobacco loses its identity and character and becomes a different commercial commodity. He has submitted that the Applicant is therefore, entitled a set-off in respect of the tax paid on packing material used for packing Jarda sold by the Applicant, under Rule 41D of the Bombay Sales Tax Rules, 1995. He further contends that by no stretch of imagination is raw tobacco and processed chewing tobacco the same commodity. They are commercially distinct as well as different commodities. 10. Mr. Surte has also submitted that the case of the Applicant is squarely covered by the decision of the Hon’ble Supreme Court in State of Madras Vs. Bell Mark Tobacco Co. (19 S.T.C. 129), wherein it was held that the process for the preparation of chewing tobacco amounts to manufacturing process and, therefore, the chewing tobacco sold by the Respondent therein was not the same commodity as raw tobacco but was a manufactured product from raw tobacco. Mr. Surte has submitted that the Tribunal has erred in holding that the process of preparing chewing tobacco as explained in the case of Bell Mark Tobacco Co. (Supra) and in the case of the Applicant are quite different on the ground that in the case of Bell Mark Tobacco Co., the process of converting raw tobacco into Jarda involved fermentation of raw tobacco over a period of time, whereas the process involved in the preparation of Jarda by the Applicant involved 7 STR-7-05 only sorting and blending and therefore, it cannot be said that the identity or character of the original commodity has been changed. Per Contra: 11. Mr. V. A. Sonpal, appearing for the Respondent submitted that the decision of the Hon’ble Supreme Court in the case of Bell Mark (supra) is not applicable to the present case and that the Tribunal has correctly held that the process of converting raw tobacco into chewing tobacco as explained in the case of Bell Mark Tobacco Co. (supra) and in the case in hand are quite different. Hence, the process involved in making of Jarda by the Applicant does not amount to manufacture within the scope of Section 2(17) of the Bombay Act and the Applicant is not entitled to claim a set-off under Section 41D of the Bombay Sales Tax Rules, 1959. Conclusion: 12. We have considered the above submissions advanced on behalf of both the Applicant as well as the Respondents. We have also perused the decision of the Hon’ble Supreme Court in the case of Bell Mark Tobacco Co. (supra). In the case of Bell Mark Tobacco Co. (supra), the process of preparation of chewing tobacco is - The Respondent purchases the raw tobacco. Jaggery juice is sprinkled on the tobacco bundles and the tobacco was allowed to ferment for some days. Heat is thereby generated and the the tobacco gets well processed. 8 STR-7-05 Stalks of tobacco are broken, removed and sand and dust is also removed. After the payment of excise duty, bundles of tobacco are brought into the premises of the factory where chewing tobacco is prepared. Thereafter it was cut into thin strips by shearing machines. The resulting tobacco is called “nice tobacco” which is then allowed to dry for some days and then flavouring essences are sprinkled on it. The Hon’ble Supreme Court agreed with the view of the High Court that the cumulative effect of the various processes such as soaking in jaggery water, shredding of tobacco and addition of flavouring essences to which tobacco was subjected before it was sold amounted to a manufacturing process under Section 2(17) of the Bombay Act and the product sold was a manufactured product from raw tobacco. 13. In the instant case too, the raw tobacco which is of a whole leaf nature is first exposed to sun and then dried. The raw tobacco is thereafter analyzed by machine in order to have the following products: ________________Whole Leaf Tobacco______________ I I I I I Fole Patti Stems Rava Dust Loss _____Stems are further crushed by machine I I I Tayar Kandi Rava Dust Mix Loss The Fole Patti is sorted out to remove dust. Thereafter the Fole Patti and the Tayar Kandi are blended together. Then lime water and liquid chemical is sprinkled on the Fole Patti and Tayar Kandi after its 9 STR-7-05 fusion for an entire night. It is further dried in the sun. After it is fully dried in the sun, it is ready for packing. In our considered view, the cumulative effect of the various processes such as drying under the sun, analysis of the whole leaf tobacco by machine into various products, separation and sorting into Fole Patti and Tayar Kandi and further blending of the Fole Patti and Tayar Kandi, sprinkling of lime water and liquid chemical on the Fole Patti and Tayar Kandi and its fusion through out the night and further drying the same in the sun amounted to manufacture and the products sold was a manufactured product from raw tobacco purchased by the Applicant. We are therefore of the view that the Tribunal has erred in arriving at the conclusion that the process carried on by the Applicant for converting raw tobacco into chewing tobacco (Jarda) does not amount to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act. We therefore answer the question set out in Paragraph-2 of this judgment in the negative i.e. in favour of the Applicant. 14. Order accordingly. ( S. J. KATHAWALLA, J.) (V. C. DAGA, J.)