Milling paddy into rice is processing, not manufacture; purchase tax cannot arise on that basis.

Hulling or milling paddy into rice was held to be mere processing, not manufacture, because the paddy did not undergo a transformation into a new and different article. Accordingly, consumption of paddy in the manufacture of other goods for sale or otherwise was not established under the purchase-tax provision. The process also did not amount to "disposal" otherwise than by way of sale, because disposal requires transfer of title or absolute possession, not a mere change in use by the owner. In the single-point levy scheme, the purchase turnover of paddy was therefore not taxable on either ground.

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Issues: (i) whether hulling or milling paddy into rice amounts to consumption of paddy in the manufacture of other goods for sale or otherwise under section 6(i) of the Karnataka Sales Tax Act, 1957; and (ii) whether the process amounts to disposal of the paddy in any manner other than by way of sale in the State.

Issue (i): whether hulling or milling paddy into rice amounts to consumption of paddy in the manufacture of other goods for sale or otherwise under section 6(i) of the Karnataka Sales Tax Act, 1957.

Analysis: The expression "manufacture" was not defined in the Act. The relevant test applied was whether the original material undergoes such a transformation that a new and different article emerges. On the facts, dehusking or milling paddy merely liberates the rice already present in the paddy and does not bring into existence a new substance. The process was treated as mere processing and not manufacture.

Conclusion: Hulling or milling paddy does not amount to consumption of paddy in the manufacture of other goods for sale or otherwise, and the levy on that basis was not attracted.

Issue (ii): whether the process amounts to disposal of the paddy in any manner other than by way of sale in the State.

Analysis: The term "dispose" was understood to involve passing of title or absolute possession, not merely a change in use by the owner. Dehusking paddy does not transfer the paddy to anyone else, and the taxed sale was of the rice obtained from the paddy, not of the paddy as such. In a single-point levy scheme, the same transaction could not be taxed again at the purchase stage when the sale of rice had already been subjected to tax.

Conclusion: Dehusking or milling paddy does not amount to disposal of the goods otherwise than by way of sale in the State, so the purchase tax was not payable on that basis.

Final Conclusion: The purchase turnover of paddy was not liable to tax under section 6(i) on either of the grounds urged, and the challenge to the Tribunal's view failed.

Ratio Decidendi: A process amounts to manufacture only when it produces a transformed, new and different article, and "disposal" under a purchase-tax provision requires a transfer of title or possession, not a mere change in use or physical processing.

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