Limitation and manufacture under sales tax law: stayed assessment time is excluded, and assembled cycles count as manufactured goods.

The period during which assessment proceedings were stayed by a competent court must be excluded in computing limitation under the U.P. Sales Tax Act, and where the stay covered the relevant assessment year, the assessment was within time after exclusion of that period. Assembling cycle components into a complete cycle creates a distinct saleable commercial commodity, and the assembly process constitutes manufacture. On that basis, assembled cycles were taxable as manufactured goods rather than as an unclassified item, and the assessment order was upheld.

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Issues: (i) Whether the period during which the assessment proceedings remained stayed by the High Court had to be excluded in computing limitation for the assessment year 1960-61; (ii) whether assembled cycles are manufactured cycles taxable at 3% rather than as an unclassified item at 2%.

Issue (i): Whether the period during which the assessment proceedings remained stayed by the High Court had to be excluded in computing limitation for the assessment year 1960-61.

Analysis: The stay order operated during the pendency of the writ petition challenging the departmental direction and the record showed that proceedings for the assessment year 1960-61 were also pending when the interim stay was granted. The explanation to section 21(2) of the U.P. Sales Tax Act required exclusion of the period during which the proceedings remained stayed by a competent court. On the facts found, the stay covered the relevant assessment proceedings and the assessment order was within time after exclusion of the stayed period.

Conclusion: The issue was decided in favour of the Revenue and against the assessee.

Issue (ii): Whether assembled cycles are manufactured cycles taxable at 3% rather than as an unclassified item at 2%.

Analysis: Manufacture in sales tax law is satisfied when a process brings into existence a different commercial article capable of sale in the market. Assembling the component parts of a cycle produces a complete cycle which is commercially distinct from the separate parts. The assembled product is not merely the same parts in another form but a new commercial commodity, and the process of assembly is part of manufacture.

Conclusion: The issue was decided in favour of the Revenue and against the assessee.

Final Conclusion: The reference was answered by upholding the assessment order and by treating the assembled cycles as manufactured goods for tax purposes while also holding the assessment to be within limitation.

Ratio Decidendi: Where a court stay covers the relevant assessment proceedings, the stayed period is excluded for limitation purposes, and a process that combines components into a distinct saleable commercial article amounts to manufacture.

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