Manufacture in tax-holiday units turns on distinct commercial identity and the operations the unit is required to perform.

Goods were treated as manufactured in the newly set-up unit where the registration scheme contemplated only the processing assigned to that unit and did not require every earlier stage, such as forging and cutting, to be completed in-house. The unit received forged rings and carried out machining into S.S. C.T.C. segments, which produced a distinct commercial commodity with a different trade identity and market use. As machining went beyond mere polishing and the finished goods attracted excise duty, the activity was held to amount to manufacture. On that basis, the eligibility certificate was directed to be issued and the tax-holiday refusal failed.

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Issues: (i) whether goods could be treated as manufactured in the newly set-up industrial unit for the purpose of rule 3(66a) of the Bengal Sales Tax Rules, 1941 when the principal processing, namely forging and cutting, was done outside the unit; and (ii) whether the processing carried out in the unit, namely machining of forged rings into S.S. C.T.C. segments, amounted to manufacture.

Issue (i): whether goods could be treated as manufactured in the newly set-up industrial unit for the purpose of rule 3(66a) of the Bengal Sales Tax Rules, 1941 when the principal processing, namely forging and cutting, was done outside the unit

Analysis: The relevant rule required that the sales must be of goods manufactured by the newly set-up small-scale industry and that the goods must be manufactured in such industry. The manufacturing activity shown in the registration certificate determined the nature of the industrial unit and the operations it was required to perform. The certificate in question contemplated production of S.S. C.T.C. segments while forging was to be done from outside, and the raw material brought into the factory was only S.S. forged rings for further processing. In that setting, the unit was doing the work it was required to do under the scheme, and it was not necessary that every earlier stage of production be completed within the factory itself.

Conclusion: The first issue was answered in favour of the assessee, and the goods were held to be manufactured in the unit within the meaning of rule 3(66a).

Issue (ii): whether the processing carried out in the unit, namely machining of forged rings into S.S. C.T.C. segments, amounted to manufacture

Analysis: Manufacture in sales tax law requires emergence of a new commercial commodity having a distinct name, character, market or use. Mere polishing would not satisfy that test, but machining is a different process from polishing and may involve shaping or giving form by machine. On the facts, the forged rings brought into the factory were further processed by lathe machine into S.S. C.T.C. segments, the products had different trade names, the final product was treated as distinct in the market, and excise duty was paid on the finished goods, supporting the conclusion that a new commodity emerged.

Conclusion: The second issue was also answered in favour of the assessee, and the activity in the factory was held to amount to manufacture.

Final Conclusion: The eligibility certificate was directed to be issued, and the challenge to the refusal of tax-holiday benefit failed.

Ratio Decidendi: For tax-holiday eligibility under the relevant sales tax scheme, goods are regarded as manufactured in the unit when the unit performs the manufacturing operations it is required to perform under its registration, and the process carried out there produces a new commercial commodity with a distinct name, character or use.

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