Papad and badi treated as manufactured goods, not merely processed cereals and pulses, so tax exemption was denied.

Conversion of cereals and pulses into papad and badi was treated as manufacture, not mere processing, because the raw material lost its identity and a new commercially distinct product with separate utility emerged. On that reasoning, papad and badi could not be brought within entry 51(ix) of Schedule I to the M.P. General Sales Tax Act, 1958 as processed articles of cereals and pulses. The exemption claim was therefore rejected, and the goods were held taxable rather than exempt.

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Issues: Whether badi and papad, prepared from cereals and pulses, are merely processed articles falling within entry 51(ix) of Schedule I of the M.P. General Sales Tax Act, 1958, and therefore entitled to exemption from tax.

Analysis: The conversion of cereals and pulses into papad and badi was held to bring into existence a new commercial commodity with a distinct identity and utility. Once the raw material loses its identity and a different marketable product emerges, the process is treated as manufacture rather than mere processing. On that basis, papad and badi could not be regarded as processed items of cereals and pulses for purposes of the exemption entry.

Conclusion: The issue is answered against the assessee and in favour of the Revenue. Papad and badi do not fall within entry 51(ix) of Schedule I and are not entitled to tax exemption.

Ratio Decidendi: Where the transformation of raw agricultural produce results in a new commercially distinct commodity, the activity constitutes manufacture and not mere processing for exemption purposes.

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