Supreme Court: Coal briquettes not exempt from sales tax under U.P. Trade Tax Act

Sonebhadra Fuels Versus Commissioner, Trade Tax, UP., (and other appeals)

Sonebhadra Fuels Versus Commissioner, Trade Tax, UP., (and other appeals) - [2006] 147 STC 594 (SC), 2006 (4) Suppl. SCR 213, 2006 (7) SCC 322, 2006 (7) ... Issues Involved:
1. Whether coal briquettes are the same commodity as coal for tax purposes.
2. Whether the process of making coal briquettes constitutes "manufacture" under the U.P. Trade Tax Act.

Detailed Analysis:

1. Whether coal briquettes are the same commodity as coal for tax purposes:

The appellant, engaged in the business of coal and manufacturing coal briquettes (coal tikli), claimed exemption from sales tax on the grounds that coal briquettes are the same commodity as coal, which had already been taxed. This claim was rejected by the assessing authority, and subsequent appeals were also dismissed. The appellant argued that notifications under the U.P. Trade Tax Act and the Central Sales Tax Act defined coal to include coke in all its forms but excluded charcoal. He contended that since coal-dust had already been taxed, coal briquettes should not be taxable.

The respondent countered that coal briquettes are a different commercial commodity from coal. The process of making coal briquettes involves processing coal dust with binders, which changes its original form and characteristics, thus constituting "manufacture."

2. Whether the process of making coal briquettes constitutes "manufacture" under the U.P. Trade Tax Act:

The court examined the definition of "manufacture" under section 2(e-1) of the U.P. Trade Tax Act, which includes producing, making, altering, ornamenting, finishing, or otherwise processing, treating, or adapting any goods. This definition is broader than that in the Central Excise Act, 1944. The court referred to several precedents, including B.P. Oil Mills Ltd. v. Sales Tax Tribunal, where it was held that refining crude oil amounts to "manufacture." The court also cited Devi Dass Gopal Krishnan v. State of Punjab, where extracting oil from oil-seeds was considered a transformation into a new commercial commodity and thus taxable.

The court noted that the process of making coal briquettes involves grinding coal to a specific size, mixing it with binders, and pressing it into briquettes, which constitutes processing, treating, or adapting the coal. This process changes the coal's form and characteristics, making coal briquettes a different commercial commodity from coal. The court emphasized that the definition of "manufacture" in the U.P. Trade Tax Act is very wide and includes activities that do not necessarily result in a new commercial commodity but involve processing, treating, or adapting goods.

The court concluded that coal briquettes are a different commercial commodity from coal and that the process of making coal briquettes constitutes "manufacture" under the U.P. Trade Tax Act. Therefore, the appellant's claim for exemption from sales tax was rejected, and the appeal was dismissed.

Conclusion:

The Supreme Court dismissed the appeal, holding that coal briquettes are a different commercial commodity from coal and that the process of making coal briquettes constitutes "manufacture" under the U.P. Trade Tax Act. Consequently, coal briquettes are subject to sales tax.