Case: M/S. J. K. Cotton Spinning &amp; Weaving Nulls Co. Ltd Vs. Sales Tax Officer, Kanpur And Another

1. Messrs, J. K. Cotton Spinning and Weaving Mills Company Ltd. is a public limited Company having its registered office at Kanpur. The Company manufactures for sale cotton textiles, tiles and other commodities. The Company applied on June 21, 1957, requesting the Sales Tax Officer, Sector II, Kanpur, to register it as a dealer under S. 7(1) of the Central Sales Tax Act, 1956, and prayed that the following goods which it ordinarily purchased in the course of inter-State -trade may be specified in thestaple fibre, yarn, wastes, coal, petrol, machniery, electricals, spares, hardwares, dyes and colours, chemicals, auxiliaries, oils, lubricants, tallows, starches, woollen clothings, gums, clays, salt belting; bobbins, shuttles; wooden accessories and other mill stores for manufacturing cloth, yarn, tiles and paints, etc. " The Sales Tax Officer granted the certificate as registration was later modified and the following additional categories of goods were specified :"Industrial gases, drawing instruments, photographic materials, packing materials including wood, paper, straw and cardboards, etc., and building materials including iron, steel, cement, lime, fire bricks and refractories.Thereafter by notice dated July 19, 1961, the Sales Tax Officer cancelled the specification in respect of coal and called upon the Company to show cause why the certificate or registration be not amended so as to exclude therefrom "drawing instruments, photographic materials, building materials including iron, steel, cement and lime and certain goods covered under the term electricals." The Company showed cause against the notice and contended that all the articles specified in the certificate were required in the manufacture and processing of goods for sale. By order dated August 9, 1962, the Sales Tax Officer directed that from the registration certificate the following items bematerial, photographic material, building material including lime and cement (except cement used in manufacture of tiles for re-sale), electricals, iron and steel and coal", and called upon the Company to surrender the certificate of registration within three days for making the proposed amendments.The Company then applied to the High Court of Judicature at Allahabad for a writ of certiorari calling for the record of the case and quashing the order dated August 9, 1962. At the trial, counsel for the Company did not press the petition in respect of iron, steel and coal, Counsel for the Company submitted that the remaining items were covered by S. 8(3)(b) of the Central Sales Tax Act read with R. 13 framed under S.13 of the Act, and on that account the order passed by the Sales Tax Officer was illegal and that in any event the items in question having been included in the certificate of registration after due enquiry as required by the statute, the Sales Tax Officer acted without jurisdiction in seeking to make the amendments. The High Court negatived the contention of the Company that the Sales Tax Officer had no jurisdiction to revise the certificate of registration issued after due enquiry, and rejected the petition holding that drawing instruments photographic materials, colours, chemicals, electricals, machinery and building materials such as cement, lime are not comprehended in the expression "in the manufacture or processing of goods for sale" within the meaning of S. 8(3)(b) read with R. 13. Against the order dismissing the petition, the Company has appealed to the Court.

Reasoning: 10. The High Court has rightly pointed out that unless designs are prepared it would be "impossible for the workmen" to turn out goods for sale.If the process of designing is so intimately connected with the process of manufacture of cloth, we see no reason to regard the process of designing as not being a part of the process of manufacture within the meaning of R. 13 read with S. 8 (3) (b). The process of designing may be distinct from the actual process of turning out finished goods. But there is no warrant for limiting the meaning of the expression "in the manufacture of goods" to the process of production of goods only. The expression "in the manufacture" takes in within its compass, all processes which are directly related to the actual production. Goods intended as equipment for use in the manufacture of goods for sale are expressly made admissible for specification. Drawing and photographic materials falling within the description of goods intended for use as "equipment" in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use "in the manufacture of goods."11. Building materials including lime and cement not required in the manufacture of tiles for sale cannot however be regarded within the meaning of R. 13, as raw materials in the manufacture or processing of goods or even as "plant". It is true that buildings must be constructed for housing the factory in which machinery is installed. Whether a building is a "plant" within the meaning of R. 13, is a difficult question on which no opinion need be expressed. But to qualify for specification under S. 8 (3) (b) goods must be intended for use of the nature mentioned in R. 13, in the manufacture of goods. Building materials used as raw materials for construction of "plant" cannot be said to be used as plant in the manufacture of goods. The Legislature has contemplated that the goods to qualify under S. 8 (3) (b) must be intended for use as raw materials or as plant or as equipment in the manufacture or processing of goods, and it cannot be said that building materials fall within this description. The High Court was, therefore, right in rejecting the claim of the Company in that behalf.12. The expression "electricals" is somewhat vague. But in a factory manufacturing cotton and other textiles, certain electrical equipment in the present stage of development would be commercially necessary. For instance, without electric lighting it would be very difficult to carry on the business. Again electrical humidifiers, exhaust fans and similar electrical equipment would in the modern conditions of technological development normally be regarded as equipment necessary to effectually carry on the manufacturing process. We are not prepared to agree with the High Court that in order that "electrical equipment" should fall within the terms of R. 13, it must be an ingredient of the finished goods to be prepared, or "it must be a commodity which is used in the creation of goods."If, having regard to normal conditions prevalent in the industry, production of the finished goods would be difficult without the use of electrical equipment, the equipment would be regarded as intended for use in the manufacture of goods for sale and such a test, in our judgment, is satisfied by the expression electricals." This would of course not include electrical equipment not directly connected with the process of manufacture. Office equipment such as fans, coolers, air-conditioning units, would not be admissible to special rates under S. 8 (1).In the first instance, it must be pointed out that the High Court has, in rejecting the petition, dealt with certain matters which were never in issue between the Company and the Sales Tax Officer. By the order of the Sales Tax Officer "machinery", and "colours and chemicals" were not deleted from the certificate, and the exclusion of "building materials, cement and lime" was expressly restricted so that it was not to operate in resepct of cement used in manufacture of tiles for sale. The Sales Tax Officer had rejected the claim of the Company only in respect of drawing instruments, photographic materials, building materials including lime and cement (except cement used in manufacture of tiles forelectricals, iron, steel and coal, and it was not open to the High Court to expand the scope of the petition challenging the correctness of the order of the Sales Tax Officer, and to deal with matters which were never in issue or to decide that other categories of goods which the Sales Tax Officer had not ordered to be deleted did not fall within the terms of S. 8(3)(b) read with R. 13.The High Court confirmed the exclusion of drawing and photographic materials on the ground that those materials are required merely in the preparation of designs which though necessary for turning out textile goods cannot be said to be goods intended for use in the manufacture of goods. In the view of the High Court, designing is a process distinct from the process of manufacture, i. e., of making or fabricating raw materials by hand, art or machinery, and work into forms convenient for use. But without a design of the goods sought to be manufactured in a factory which is geared to production of goods of uniform pattern, it would be impossible to attempt manufacture of goods on a commercial scale. The production itself has to be of a set pattern, and deviation from the design prepared would be impermissible. That without the use of drawing and photographic materials, designing of patterns would, if not impossible, be very difficult, is conceded. But the High Court was apparently of the view, and that view is supported by counsel for the Sales Tax Officer, that goods intended for use in the manufacture of goods or processing of goods for sale must of necessity to be goods which are used as "ingredient or commodity in the creation of goods", or which are "directly and actually needed for turning out or making of the goods."9. In our judgment if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient goods intended for use in the process or activity as specified in R.13 will quality for special treatment.This is not to say that every category of goods "in connection with" manufacture of, or "in relation to" manufacture, or which facilitates the conduct the business of manufacture will be included within Rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a Company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacture) fell within Rule 13, even if the vehicle were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories required for the effective operation of those vehicles were also held to fall within Rule 13. See Indian Copper Corporation Ltd. v. Commr. of Commercial Taxes, Bihar, C.A. No. 1021 of 1963, dated: (reported in AIR 1965 SC 891 ).