Timber contract interpretation and pre-sale felling counted as manufacture for sales tax purposes.

Contractual timber supply terms were construed as requiring standing trees to be felled and hammer-marked at stump site before removal, so the goods were not in a deliverable state until that process was completed and property passed only then. On that interpretation, the sale concerned hammer-marked logs rather than merely standing trees. Because the purchaser's only relevant activity was the pre-sale felling of timber before the hammer-mark was applied and before title passed, that activity was treated as manufacture for sales tax purposes. The reference was answered against the purchaser's claim for resale exemption, and the revenue's position prevailed.

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Issues: (i) On the correct interpretation of the agreement, whether the timber sold to the respondent consisted of hammer-marked logs and not the marked standing trees described in the schedule to the contract. (ii) Whether the respondent was a manufacturer within the meaning of section 2(17) of the Bombay Sales Tax Act, 1959, in respect of the goods purchased under the agreement.

Issue (i): Whether the timber sold to the respondent consisted of hammer-marked logs and not the marked standing trees described in the schedule to the contract.

Analysis: The agreement did not end with the description in the first schedule. Clause 7(iv) prohibited removal of timber unless it was hammer-marked at the stump site by the forest department. That condition necessarily required the trees to be felled before removal, and the marked standing trees could not be treated as goods in a deliverable state until they were felled and so marked. The property in the goods passed only after that stage.

Conclusion: The contract was to be read as relating to logs hammer-marked at stump site, and not merely to standing trees as such.

Issue (ii): Whether the respondent was a manufacturer within the meaning of section 2(17) of the Bombay Sales Tax Act, 1959, in respect of the goods purchased under the agreement.

Analysis: The only activity attributed to the respondent was felling of the timber before the hammer-mark was put at the stump site and before the sale took place. Since this activity preceded the passing of property, it constituted manufacturing activity in relation to the goods purchased under the agreement.

Conclusion: The respondent was a manufacturer within the meaning of section 2(17) of the Bombay Sales Tax Act, 1959.

Final Conclusion: The reference was answered in a manner adverse to the respondent's claim for resale exemption, and the revenue's position prevailed.

Ratio Decidendi: Where contractual conditions require standing timber to be felled and hammer-marked at stump site before removal, the goods are not in a deliverable state until that process is completed, and the pre-sale felling activity amounts to manufacture for sales tax purposes.

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