Manufacture and reassessment principles: wire rod conversion and audit report alone cannot justify reopening.

Heating, annealing, picking and drawing wire rods into wires of different diameters was treated as not creating a distinct commercial commodity, because wire rods and wires remained within the same sales tax category and the goods had already suffered tax; on that footing, the process was not treated as manufacture of a different commercial product. Reassessment under section 19(1) could not be sustained merely on the basis of an audit report, because reopening required material showing under-assessment, escaped assessment or assessment at a lower rate. A different classification view alone was insufficient to confer jurisdiction for reassessment.

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Issues: (i) Whether the process of heating, annealing, picking and drawing wire rods into wires of different diameters amounted to manufacture of a different commercial product; (ii) Whether reassessment proceedings could be initiated under section 19(1) on the basis of the audit report.

Issue (i): Whether the process of heating, annealing, picking and drawing wire rods into wires of different diameters amounted to manufacture of a different commercial product.

Analysis: Manufacture under section 2(j) is wide, but the decisive question was whether the process brought into existence a distinct commercial commodity. Wire rods and wires were treated in the sales tax scheme as part of the same category, and the material had already suffered tax. On the facts, the process did not create a different commercial product and the levy could not be sustained on the footing of a separate manufacture.

Conclusion: The process did not amount to manufacture of a different commercial product, and the issue was decided in favour of the assessee.

Issue (ii): Whether reassessment proceedings could be initiated under section 19(1) on the basis of the audit report.

Analysis: Reassessment required material showing under-assessment, escaped assessment, or assessment at a lower rate. Since the process itself did not result in a taxable new commodity, the audit report could not furnish the requisite cause for reopening. A different view on classification was insufficient to found jurisdiction for reassessment.

Conclusion: The reassessment proceedings were without justification or jurisdiction, and this issue was also decided in favour of the assessee.

Final Conclusion: The reference was answered against the department, and the assessee succeeded on both referred questions.

Ratio Decidendi: Where the process applied to goods does not create a distinct commercial commodity and the goods have already suffered tax, reassessment cannot be founded merely on an audit report unless there is material showing escaped or under-assessed turnover within the statutory conditions for reopening.

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