Twine for Packing Goods: Consumable Stores in Manufacturing Process

The High Court held that kathi (twine) used for packing goods is considered consumable stores in the manufacture of taxable goods for sale. The Court determined that kathi is integral to the manufacturing process and falls within the definition of goods used in the manufacture of goods. The Court rejected the Tribunal's interpretation and ruled in favor of the assessee, ordering the Commissioner to pay the costs of the reference.

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Issues Involved:
1. Whether kathi (twine) used for packing goods can be considered as consumable stores in the process of manufacture of goods for sale.
2. Interpretation of the term "in the manufacture of taxable goods for sale" u/s 13(1)(B) of the Gujarat Sales Tax Act, 1969.
3. Applicability of section 21 regarding the rate of tax on packing material.

Summary:

1. Whether kathi (twine) used for packing goods can be considered as consumable stores in the process of manufacture of goods for sale:
The Tribunal held that kathi purchased and used by the assessee for packing goods was not consumable stores in the process of manufacture of goods for sale. The Sales Tax Officer levied purchase tax and penalty on the purchase of kathi, stating it was not raw materials, processing materials, or consumable stores required for manufacturing goods. The Appellate Commissioner and the Tribunal upheld this view, leading to the reference to the High Court.

2. Interpretation of the term "in the manufacture of taxable goods for sale" u/s 13(1)(B) of the Gujarat Sales Tax Act, 1969:
The High Court referred to the Supreme Court's interpretation in J.K. Cotton S. & W. Mills Co. Ltd. v. Sales Tax Officer, which held that the term "in the manufacture of goods" encompasses the entire process of converting raw materials into finished goods. The Court concluded that if a process is integrally connected with the ultimate production of goods, making it commercially inexpedient without it, then goods used in that process fall within the expression "in the manufacture of goods." The Court found that kathi (twine) used for packing is part of consumable stores required for marketing the goods, which is integrally connected with the manufacturing process.

3. Applicability of section 21 regarding the rate of tax on packing material:
The learned Government Pleader argued that section 21, which prescribes a rate of tax on packing materials, indicates a legislative intent to treat packing materials separately from raw materials, processing materials, and consumable stores. However, the Court found that section 21, which provides a special rate of tax for packing materials, does not affect the interpretation of section 13(1)(B). The Court held that the legislative intent in section 13(1)(B) does not exclude packing materials from the category of goods that can be purchased tax-free on furnishing a prescribed certificate.

Conclusion:
The High Court concluded that kathi (twine) used for packing goods is part of consumable stores required in the manufacture of taxable goods for sale. The Tribunal's restrictive interpretation of "manufacture of taxable goods for sale" was incorrect. The question was answered in the negative, in favor of the assessee and against the revenue. The Commissioner was ordered to pay the costs of the reference to the assessee.

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