Manufacture of processed milk and concessional packing materials were upheld where fresh milk became a distinct commercial product.

Converting fresh milk into pasteurised milk or recombined milk was treated as manufacture because the process produced a commercially distinct product and Rule 3(h) defined a manufacturer as one who produces, prepares or makes goods for trade. The text also notes that, for the relevant assessment year, milk was a First Schedule commodity, while the exemption notification separately referred to fresh milk, recombined milk and milk drink, supporting their distinct treatment. On that basis, the assessee was entitled to concessional levy on packing materials used for the processed milk, and the penalty based on rejection of the concessional claim was not sustainable.

---

---

Issues: (i) whether converting fresh milk into pasteurised milk or recombined milk amounts to manufacture and whether milk for the relevant assessment year was a First Schedule commodity, and (ii) whether the assessee was entitled to concessional levy on packing materials under Section 3(3) and consequential relief from penalty.

Issue (i): whether converting fresh milk into pasteurised milk or recombined milk amounts to manufacture and whether milk for the relevant assessment year was a First Schedule commodity

Analysis: The assessment year in question was 1993-94, when milk fell under the First Schedule and not the Third Schedule. The exemption notification specifically referred to fresh milk, recombined milk and milk drink with or without addition, showing that the statute and the notification treated them as distinct commercial commodities. Rule 3(h) of the Tamil Nadu General Sales Tax Rules, 1959, defining a manufacturer as one who produces, prepares or makes goods for trade, supported the view that processing fresh milk into pasteurised or recombined milk involved manufacture. Applying the common parlance understanding of manufacture, the conversion produced a commercially different product.

Conclusion: The conversion of fresh milk into pasteurised milk or recombined milk amounts to manufacture, and milk was a First Schedule commodity for the relevant assessment year.

Issue (ii): whether the assessee was entitled to concessional levy on packing materials under Section 3(3) and consequential relief from penalty

Analysis: Once the processed milk was treated as manufactured goods falling within the statutory scheme for concessional purchase of packing materials, the use of polythene sheets for packing such goods attracted Section 3(3). The penalty rested on the rejection of the concessional claim and misuse of declaration forms; once the main levy was held unsustainable, the foundation for penalty also disappeared.

Conclusion: The assessee was entitled to concessional levy on packing materials, and the penalty was not sustainable.

Final Conclusion: The revision succeeded, the assessment was set aside, and the assessee obtained full relief including deletion of penalty.

Ratio Decidendi: In the absence of a restrictive statutory definition, a process that converts goods into a commercially distinct product amounts to manufacture, and the benefit attached to manufacture extends to packing materials used for the sale of such goods.

---