Glass bangles not distinct commercial commodities for tax; notification declared ultra vires

The court held that plain and ornamented glass bangles are not distinct commercial commodities and cannot be taxed separately under section 3-A of the U.P. Sales Tax Act. The notification attempting to do so was declared ultra vires, and the assessment order for the year 1965-66 was quashed.

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Issues Involved:

1. Whether plain glass bangles and ornamented glass bangles are distinct commercial commodities.
2. Whether the notification under section 3-A of the U.P. Sales Tax Act is ultra vires.
3. The distinction between processing and manufacture.
4. The validity of the assessment order under the U.P. Sales Tax Act for the assessment year 1965-66.

Issue-wise Detailed Analysis:

1. Distinction Between Plain Glass Bangles and Ornamented Glass Bangles:

The primary issue is whether plain glass bangles and ornamented glass bangles are to be regarded as the same commercial commodity or as distinct commodities. The court held that glass bangles, whether plain or ornamented, essentially remain the same article. The processing of plain bangles into ornamented bangles does not result in the emergence of a new commercial commodity. The court referenced the Supreme Court's decision in Union of India v. Delhi Cloth and General Mills, which distinguished between mere processing and manufacture, stating that "manufacture" implies bringing into existence a new substance, while "processing" merely produces some change in a substance without creating a new article. The court concluded that the ornamentation of glass bangles does not alter their essential character and use, and thus, they cannot be considered distinct commercial commodities.

2. Ultra Vires Notification Under Section 3-A of the U.P. Sales Tax Act:

The petitioner challenged the validity of Notification No. ST471/X-900-(45)/1965 dated 1st February, 1966, which treated plain and ornamented glass bangles as separate entries for tax purposes. The court held that the notification was ultra vires because it attempted to tax the same commodity twice-once in the hands of the manufacturer and again in the hands of the ornamentor. The court emphasized that the turnover of the same goods cannot be subjected to tax more than once under section 3-A by introducing an artificial classification. The notification was deemed unauthorized as it exceeded the maximum rate prescribed under section 3-A, which was 10% at the material time.

3. Distinction Between Processing and Manufacture:

The court reiterated the distinction between processing and manufacture, as established in previous judgments. In Union of India v. Delhi Cloth and General Mills, the Supreme Court clarified that "manufacture" involves creating a new substance, whereas "processing" merely changes a substance without creating a new article. The court also cited B. Day Laboratories v. State of Gujarat, which held that if an article retains its essential character despite processing, it should be taxed as the same commodity. The court concluded that the ornamentation of glass bangles is a form of processing, not manufacture, and does not result in a new commercial commodity.

4. Validity of the Assessment Order for the Assessment Year 1965-66:

The petitioner, a dealer in glass bangles, was assessed for sales tax on ornamented glass bangles for the assessment year 1965-66. The court found that the sales tax authorities failed to show that ornamented glass bangles were a different commercial commodity from plain glass bangles. The court held that the assessment order dated 18th November, 1966, was invalid as it was based on the ultra vires notification. Consequently, the court quashed the assessment order and allowed the writ petition, issuing a writ of certiorari.

Conclusion:

The court concluded that plain and ornamented glass bangles are not distinct commercial commodities and cannot be taxed separately under section 3-A of the U.P. Sales Tax Act. The notification attempting to do so was declared ultra vires, and the assessment order for the year 1965-66 was quashed. The petition was allowed with no order as to costs.

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