Paper conversion into exercise books is manufacture when a distinct commercial commodity emerges, not mere processing.

Converting plain paper into exercise books and bound books by cutting, stitching, sizing and binding is manufacture, because a distinct commercially known commodity with separate identity and use emerges. The court applied the settled test that manufacture exists where processing produces a commercially different product, and rejected the earlier view that treated the activity as mere processing. A later statutory definition of manufacture was treated as clarificatory, supporting the conclusion that processing is included within manufacture and reflecting the correct legal position under the Orissa Sales Tax Act, 1947.

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Issues: Whether converting plain paper into exercise books and bound books amounts to manufacture under the Orissa Sales Tax Act, 1947, and whether the earlier view treating the activity as mere processing stated the correct position of law.

Analysis: The activity involved cutting, rolling, stitching, sizing and binding plain paper into marketable exercise books and bound books by machinery and labour. Applying the settled principle that manufacture occurs where a commercially different commodity emerges with a distinct identity, use and commercial incidents, the conversion of paper into exercise books was held to be a manufacturing process and not a mere change in form. The later statutory insertion of the definition of manufacture was treated as explanatory and clarificatory, supporting the view that processing is included within manufacture. The earlier contrary view was found inconsistent with the proper legal test.

Conclusion: The activity amounts to manufacture, and the earlier decision holding otherwise does not lay down the correct legal position.

Final Conclusion: The reference was answered in favour of the petitioners on the substantive issue of manufacture, and the matters were sent back for fresh decision on their own merits in light of that conclusion.

Ratio Decidendi: Where a process converts paper into exercise books or bound books so that a distinct commercially known commodity emerges, the activity is manufacture rather than mere processing, and a later clarificatory definition may be treated as reflecting the existing legal position.

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