2003 (4) TMI 528 - HC - VAT and Sales Tax

Conversion of Bricks to Gitti Not Manufacturing; No Additional Tax on Sale

Chandi Prasad Upadhyay Versus Commissioner of Sales Tax, UP., Lucknow

Chandi Prasad Upadhyay Versus Commissioner of Sales Tax, UP., Lucknow - [2004] 137 STC 587 (All) Issues Involved:Whether converting bricks into small pieces (gitti) amounts to manufacturing and if the applicant is liable to tax on the sale of gitti despite tax being paid on bricks.Analysis:The case involves a revision filed by the applicant-assessee under section 11 of the U.P. Sales Tax Act against the Tribunal's order related to the assessment year 1979-80. The applicant purchased bricks, converted them into small pieces (gitti), and claimed that since tax was paid on bricks, gitti should not be taxed. However, the assessing authority considered the conversion process as manufacturing, making the applicant liable for tax on gitti. The first and second appeals were rejected, leading to this revision.The key question is whether converting bricks into gitti constitutes manufacturing and if the applicant should be taxed on the sale of gitti. The Supreme Court's judgments in similar cases are crucial for determining the tax liability. In the case of Divisional Deputy Commissioner of Sales Tax v. Bherhaghat Mineral Industries, the Court held that certain processes may not result in a new commercial commodity, thus not constituting manufacturing. Similarly, in Commissioner of Sales Tax, U.P. v. Lal Kunwa Stone Crusher (P) Ltd., the Court emphasized that goods retaining their identity after processing may not be taxed again.Referring to the case of State of Maharashtra v. Mahalaxmi Stores, the Supreme Court clarified that converting boulders into gitti does not amount to manufacturing under the Bombay Sales Tax Act. The definition of 'manufacture' under section 2(17) of the Act was analyzed to determine that the activity must result in the emergence of a new commercial commodity to be considered manufacturing.The Court observed that bricks and gitti are essentially the same product, with gitti being small pieces of bricks. Following the precedent set by the Supreme Court judgments, it was held that gitti made from taxed bricks is not subject to additional tax. Consequently, the revision was allowed, the Tribunal's order was set aside, and the Tribunal was directed to pass an appropriate order under section 11(8) of the Act.In conclusion, the judgment clarifies the concept of manufacturing in the context of converting bricks into gitti for tax purposes, emphasizing the importance of retaining the identity of goods after processing and the emergence of new commercial commodities.