Marketability-based manufacture test applied to hydrogen gas processing under the Rajasthan incentive scheme.

Processing hydrogen gas by removing moisture, compressing, purifying and drying it was treated as manufacturing under the Rajasthan Sales Tax Incentive Scheme, 1987 because the process converted raw gas into a different marketable commodity. The governing definition was read with the parent Rajasthan Sales Tax Act, 1954, whose wide concept of manufacture covered producing, preparing or making goods unless excluded. The controlling principle was that a process necessary to bring goods to a marketable stage amounts to manufacturing activity. On that basis, the unit qualified for incentive benefits and withdrawal of those benefits was not sustainable.

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Issues: Whether the processing of hydrogen gas by removing moisture, compressing, purifying, and drying it constitutes manufacturing activity so as to qualify the new unit for incentives under the Rajasthan Sales Tax Incentive Scheme for Industries, 1987.

Analysis: The Scheme of 1987 derived its force from section 4 of the Rajasthan Sales Tax Act, 1954, and the meaning of "manufacture" had to be understood in the light of the parent Act. Section 4R of the Rajasthan Sales Tax Act, 1954 gave a wide definition of manufacture, covering any process of producing, collecting, extracting, preparing, or making goods, unless specifically excluded by notification. The processing undertaken by the unit converted raw hydrogen gas into a different marketable commodity by removing moisture, compressing it, purifying it, and drying it. The controlling principle was that a process necessary to bring goods to a marketable stage amounts to manufacturing activity.

Conclusion: The processing activity amounted to manufacture, and the withdrawal of incentive benefits was not sustainable.

Ratio Decidendi: A process that transforms goods into a marketable commodity or is necessary to bring them to marketability constitutes manufacturing activity for the purpose of the incentive scheme.

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