Manufacture for sales tax exemption requires a commercially distinct product; purified bottled water did not qualify

Processing ground water into mineral water or packaged drinking water was not treated as manufacture under the sales tax exemption notification because the commodity remained water in substance and use, and mere purification, bottling, or improved marketability did not create a commercially distinct product. The exemption claimed on the basis of eligibility certificates was also found unavailable where the product had been misdescribed as mineral water and the certificate lacked a proper factual foundation. Separate exemption for the turnover of empty bottles was left open for examination by the competent authority.

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Issues: (i) Whether the processing of ground water into mineral water or packaged drinking water amounted to "manufacture" within S.R.O. No. 1729 of 1993 so as to qualify for sales tax exemption. (ii) Whether the appellants were entitled to retain exemption on the strength of eligibility certificates and whether the turnover of empty bottles used for packing drinking water could claim separate exemption.

Issue (i): Whether the processing of ground water into mineral water or packaged drinking water amounted to "manufacture" within S.R.O. No. 1729 of 1993 so as to qualify for sales tax exemption.

Analysis: The notification defined manufacture as the use of raw materials resulting in goods commercially different from the raw materials, while excluding mere packing and other specified processes. The decisive test was whether, after the applied processes, the original commodity lost its identity and a new and distinct commercial commodity emerged. The Court applied the settled principles that a process does not amount to manufacture if the commodity retains its substantial identity, and that improvement in quality or marketability alone is insufficient. On the facts, the treated product remained water in substance and use, and did not become a commercially different article merely because it was purified and bottled.

Conclusion: The processing of ground water into mineral water or packaged drinking water did not amount to manufacture, and the exemption on that basis was not available.

Issue (ii): Whether the appellants were entitled to retain exemption on the strength of eligibility certificates and whether the turnover of empty bottles used for packing drinking water could claim separate exemption.

Analysis: The Court held that an eligibility certificate can be vitiated where it is founded on misrepresentation or issued without a proper factual basis, and found that the appellants had represented their product as mineral water though it did not satisfy the relevant standards. That misdescription vitiated the benefit claimed under the certificate. As to bottles, the Court held that empty bottles manufactured by the appellants could be considered for exemption as a separate item, and directed the competent authority to examine that turnover and pass appropriate orders.

Conclusion: The eligibility-certificate based exemption was not available to the appellants, but the claim relating to empty bottles was left open for consideration by the competent authority.

Final Conclusion: The principal claim for sales tax exemption failed, but a limited consideration was directed in relation to the turnover of empty bottles manufactured by the appellants.

Ratio Decidendi: For exemption under a notification defining manufacture, the product must emerge as a commercially distinct article with a different identity, character or use, and a certificate obtained on a misdescription of the product cannot sustain the exemption.

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