Manufacture and timber turnover taxation turn on commercial identity and proof of taxable source, not mere cutting or conjecture.

Mere cutting of iron and steel scrap into smaller pieces for transport or convenience did not amount to manufacture because the commercial identity of the scrap remained unchanged; the resulting turnover was therefore not exigible to sales tax. Old railway sleepers purchased within Uttar Pradesh were also not taxable as timber turnover in the absence of evidence of import from outside the State or any taxable source under the Act. The discussion emphasises that tax liability cannot rest on conjecture, and that goods already bought as scrap or as old sleepers retain their tax character unless the statute clearly brings them within charge.

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Issues: (i) whether iron and steel scrap purchased from railway authorities in Uttar Pradesh and sold after cutting into smaller pieces became exigible to tax as manufactured goods; (ii) whether old railway sleepers purchased from railway authorities in Uttar Pradesh were taxable as timber turnover.

Issue (i): Whether iron and steel scrap purchased from railway authorities in Uttar Pradesh and sold after cutting into smaller pieces became exigible to tax as manufactured goods.

Analysis: The turnover related to iron and steel scrap already purchased as scrap from railway authorities within the State. No reliable evidence showed import from outside the State or that the assessee had manufactured new scrap. The mere fact that scrap was cut into smaller sizes for transport or convenience did not change its commercial identity or amount to manufacture. Iron and steel, including scrap, is subject to single point taxation, and the statutory definition of manufacture could not be stretched to treat cutting scrap into smaller pieces as manufacture.

Conclusion: The levy of sales tax on the iron and steel scrap was held to be unjustified and was set aside in favour of the assessee.

Issue (ii): Whether old railway sleepers purchased from railway authorities in Uttar Pradesh were taxable as timber turnover.

Analysis: The sleepers were admittedly old railway sleepers purchased from railway authorities within Uttar Pradesh. There was no evidence that they were imported from outside the State or sold by any category of person from whom timber turnover became taxable under the Act. In the absence of such material, the turnover could not be brought to tax merely because the goods were timber in nature.

Conclusion: The turnover of old railway sleepers was held not liable to tax and the assessee succeeded on this issue as well.

Final Conclusion: The common order of the Tribunal was interfered with to the extent that the turnover figures were upheld but the entire turnover was declared not taxable under the U.P. sales tax regime, resulting in partial allowance of the departmental levy and complete relief to the assessee on liability.

Ratio Decidendi: Mere cutting of already purchased scrap into smaller pieces for transport or convenience does not amount to manufacture when the commercial identity of the goods remains unchanged, and goods purchased within the State without proof of import or a taxable source cannot be subjected to tax on conjecture.

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