Declared goods processing and form-based purchase tax: manufacture was rejected, but pro rata levy was upheld for missing proof.

Processing of declared iron and steel goods does not amount to manufacture where the resultant product remains within the description of the relevant Schedule entry, so additional purchase tax could not be levied on that basis. By contrast, where a dealer failed to produce supporting material showing that zinc purchased against form No. 19 was used only for taxable goods sold within the State, purchase tax under the breach-of-form provision was permissible, including on a pro rata estimate when exact identification was not possible. The assessment was therefore set aside only to the extent of the section 15B levy, while the section 16 liability was sustained.

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Issues: (i) whether processing of iron and steel goods, where the resultant product does not go out of the description in the relevant Schedule entry, amounts to "manufacture" so as to attract additional purchase tax under section 15B; and (ii) whether, in the absence of supporting material, purchase tax could be levied under section 16 for alleged breach of form No. 19, including on a pro rata basis.

Issue (i): whether processing of iron and steel goods, where the resultant product does not go out of the description in the relevant Schedule entry, amounts to "manufacture" so as to attract additional purchase tax under section 15B.

Analysis: The governing interpretation was that rule 3(xvii) excludes from "manufacture" any activity on declared goods in Schedule II if the resultant product is not taken out of the description in that entry. Reading section 2(16), section 2(26) and rule 3(xvii) together, the Court applied the earlier binding view that such goods remain within the rubric of "resale" and cannot be treated as manufactured goods merely because some process is applied. The assessing authority was, therefore, not justified in ignoring that settled position.

Conclusion: The levy of additional purchase tax under section 15B was held unsustainable, and this issue was decided in favour of the assessee.

Issue (ii): whether, in the absence of supporting material, purchase tax could be levied under section 16 for alleged breach of form No. 19, including on a pro rata basis.

Analysis: The petitioner failed to produce material to establish that zinc purchased against form No. 19 was in fact used only for taxable goods sold within the State. In the absence of reliable evidence, the authority was entitled to reject the bare assertion and to adopt a rational estimating method. The Court followed the principle that where exact identification is not possible and the records do not establish actual end-use, assessment on a pro rata basis is permissible.

Conclusion: The levy under section 16 was upheld, and this issue was decided against the assessee.

Final Conclusion: The impugned assessment was interfered with only to the extent that the assessee could not be treated as a manufacturer for section 15B purposes, while the purchase tax liability arising from the form No. 19 issue was maintained.

Ratio Decidendi: For declared goods, processing does not amount to manufacture where the resultant product remains within the description of the relevant Schedule entry, but a dealer who claims exemption from purchase tax on form-based purchases must prove actual use; failing that, the authority may adopt a reasonable estimating method such as pro rata assessment.

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