Manufacture requires a new commercial commodity; blended pan-masala retaining identity was not manufacture and tobacco-based pan-masala stayed exempt.

Processing or blending of pan-masala ingredients did not amount to manufacture where the constituent goods retained their substantial identity and no new commercial commodity emerged; the sales could therefore be treated as resales under the Gujarat Sales Tax Act, 1969. Tobacco-based pan-masala also continued to retain the character and use of tobacco despite treatment with chuna and sopari, so it remained a form of tobacco and was not liable to tax. The reference was answered in favour of the assessee, and the State's challenge to the Tribunal's view failed.

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Issues: (i) Whether the blending of sopari, variyali, dhana-dal and flavoured powder, or the treatment of tobacco with chuna and sopari, amounted to manufacture so as to deny resale treatment under the Gujarat Sales Tax Act, 1969. (ii) Whether pan-masala containing tobacco remained a form of tobacco and was therefore exempt from tax.

Issue (i): Whether the blending of sopari, variyali, dhana-dal and flavoured powder, or the treatment of tobacco with chuna and sopari, amounted to manufacture so as to deny resale treatment under the Gujarat Sales Tax Act, 1969.

Analysis: Manufacture under the Act is wide enough to include processing, treating or adapting goods, but not every change in goods amounts to manufacture. The decisive test is whether a new and distinct article emerges with a different name, character or use, or whether the processed goods retain their substantial identity. The constituent ingredients of both varieties of pan-masala were found to retain their original form and substantial identity. Mere mixture of ingredients or addition of chuna did not bring into existence a new commercial commodity.

Conclusion: The activity did not amount to manufacture and the sales were capable of being treated as resales. The finding was in favour of the assessee.

Issue (ii): Whether pan-masala containing tobacco remained a form of tobacco and was therefore exempt from tax.

Analysis: The tobacco-based pan-masala was held to continue to retain the character and use of tobacco despite treatment with chuna and accompaniment by sopari. The collective name pan-masala did not by itself create a distinct commercial commodity where the underlying constituent retained its identity as tobacco.

Conclusion: The tobacco-based pan-masala remained a form of tobacco and was not liable to tax. The finding was in favour of the assessee.

Final Conclusion: The reference was answered for the assessee, and the State's challenge to the Tribunal's view failed.

Ratio Decidendi: A commodity is manufactured only when processing, treatment or adaptation results in a new and distinct article with a different commercial identity; where the goods retain their substantial identity, there is no manufacture.

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