French Coffee Production Ruled as 'Manufacture' under Sales Tax Act

The High Court held that the mixing and blending of coffee powder with chicory powder to produce "French Coffee" amounts to 'manufacture' under the Bombay Sales Tax Act, 1959. The court determined that the resulting product, "French Coffee," is a commercially distinct commodity from pure coffee powder due to changes in characteristics like color and odor. Therefore, the activity falls within the definition of 'manufacture' as it creates a new commercial product. The respondents were directed to bear the costs of the reference.

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Issues Involved:
1. Whether the mixing and blending of coffee powder with chicory powder to produce "French Coffee" amounts to 'manufacture' within the meaning of the definition of 'manufacture' u/s 2(17) of the Bombay Sales Tax Act, 1959.

Summary:

Issue 1: Definition and Scope of 'Manufacture'
The respondents engaged in the business of selling "French Coffee" by mixing coffee powder with chicory powder. They sought a determination from the Commissioner of Sales Tax u/s 52(1) of the Bombay Sales Tax Act, 1959, on whether this activity constituted a resale or manufacture. The Deputy Commissioner held that the mixing process amounted to 'manufacture' as defined in clause (17) of section 2 of the Act. The Sales Tax Tribunal, however, concluded that the mixing did not alter the goods and thus did not constitute 'manufacture'.

Issue 2: Interpretation of 'Manufacture'
The High Court noted that the definition of 'manufacture' in clause (17) of section 2 is broad, including activities like producing, making, altering, and processing goods. Rule 3 of the Bombay Sales Tax Rules, 1959, excludes certain processes like roasting or grinding of coffee seeds and blending of different varieties of tea from the definition of 'manufacture'. However, the rule cannot override the parent statute.

Issue 3: Judicial Precedents
The court examined various precedents, including North Bengal Stores Ltd. v. Member, Board of Revenue, Bengal, and State of Bihar v. Chrestien Mica Industries Ltd., which established that 'manufacture' involves bringing into existence a commercially different commodity. The Supreme Court in Commissioner of Sales Tax, U.P., Lucknow v. Harbilas Rai and Sons held that if goods remain essentially the same commercial article after processing, it does not constitute 'manufacture'.

Issue 4: Application to the Present Case
The court applied the test of whether a commercially different commodity resulted from the activity. The Tribunal found that "French Coffee" is commercially distinct from pure coffee powder, with changes in characteristics like color and odor. Thus, the mixing and blending process resulted in a new commercial product.

Conclusion:
The High Court concluded that the mixing and blending of coffee powder with chicory powder to produce "French Coffee" constitutes 'manufacture' within the meaning of clause (17) of section 2 of the Bombay Sales Tax Act, 1959. The question was answered in the negative, and the respondents were ordered to pay the costs of the reference.

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