Manufacturing outside Delhi breached the sales tax declaration, as finishing and polishing in Delhi did not amount to manufacture.

The Delhi High Court considered whether sending standard gold/bullion outside Delhi for conversion into ornaments contravened the third proviso to Section 4(2)(a) of the Delhi Sales Tax Act, 1975. It accepted that manufacturing for the statutory declaration had to occur in Delhi and held that the substantial transformation of gold into ornaments took place outside Delhi, while finishing and polishing in Delhi did not amount to manufacturing. The court therefore upheld the finding of contravention of Section 4(2)(a)(v) and rejected the argument that part-manufacturing outside Delhi was permissible.

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Issues: Whether goods purchased against statutory declaration for use as raw material in manufacture in Delhi were liable to be included in the purchasing dealer's taxable turnover when the goods were sent outside Delhi for manufacture and only finishing activities were claimed to have been done in Delhi.

Analysis: The statutory scheme of Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975 required the raw material to be used for manufacture in Delhi and not to be transferred outside Delhi for manufacturing purposes. The declaration furnished in the prescribed form was an undertaking that the goods would be so utilised, and breach of that undertaking attracted inclusion of the purchase price in the purchasing dealer's taxable turnover. On the facts found by the tax authorities, the standard gold was sent out of Delhi for conversion into ornaments, where a new and different commodity came into existence. The claimed polishing, finishing, or attachment of accessories in Delhi was unsupported by evidence and was found insufficient to constitute manufacture in Delhi.

Conclusion: The transfer of raw material outside Delhi for manufacture violated Section 4(2)(a)(v) of the Delhi Sales Tax Act, 1975, and the purchase value was rightly includible in the petitioner's taxable turnover.

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