Manufacture by processing can trigger sales tax on refined goods even after tax on the input has been paid

Under the U.P. Trade Tax Act, refined oil produced from crude oil by alkali treatment, bleaching and deodorising was treated as manufactured goods because the statutory definition of manufacture included processing and treatment that brought about a substantial change in character and marketability. The scheme also allowed multistage taxation, so tax paid on purchase of crude oil did not exhaust liability or bar tax on the sale of the refined oil. The stated ratio is that processed goods falling within a broad manufacture definition may be taxed at both purchase and sale stages where the Act so provides.

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Issues: (i) Whether refined oil obtained by processing crude oil was goods manufactured by the dealer within the meaning of the Act, and therefore liable to sales tax on its sale. (ii) Whether payment of tax on purchase of crude oil excluded liability to tax on sale of the refined oil.

Issue (i): Whether refined oil obtained by processing crude oil was goods manufactured by the dealer within the meaning of the Act, and therefore liable to sales tax on its sale.

Analysis: The definition of manufacture under section 2(e-1) of the U.P. Trade Tax Act, 1948 included producing, making, altering, finishing and otherwise processing or treating goods. Read with section 3(3)(b)(iii), tax was attracted on the sale of goods manufactured by using goods purchased in the manner contemplated by the Act. The crude oil underwent alkali treatment, bleaching and deodorising, resulting in a commodity that had undergone substantial processing and a marked change in character and marketability. On that statutory scheme, the refined oil was treated as manufactured goods.

Conclusion: The refined oil was goods manufactured by the dealer and its sale was taxable.

Issue (ii): Whether payment of tax on purchase of crude oil excluded liability to tax on sale of the refined oil.

Analysis: The Act expressly contemplated multistage taxation under section 3(3)(b)(ii) and section 3(3)(b)(iii). Liability on purchase of the crude oil did not bar separate liability on the sale of goods manufactured from it. The statutory scheme therefore negatived the claim that tax on the input transaction exhausted the tax burden.

Conclusion: Prior payment of tax on the crude oil did not exempt the dealer from tax on the sale of refined oil.

Final Conclusion: The tax demand on the sale of refined oil was upheld and the challenge to the assessment failed.

Ratio Decidendi: Where a statute defines manufacture to include processing or treatment of goods, a commodity brought into a substantially different and marketable form by such processing is manufactured goods, and the statute may validly impose tax at both the purchase and sale stages if it so provides.

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