Packing and labelling as manufacture: materials used to make goods marketable qualified for sales tax concession.

Packing, labelling and sealing processes used to bring Horlicks to a marketable stage were treated as part of manufacture under the Tamil Nadu General Sales Tax framework. Applying the broad meaning of manufacture in Rule 3(h), the Court noted that the intermediate product was subjected to several preparatory steps in Tamil Nadu and that caps, seals and labels were integral to the finished marketable commodity. On that basis, goods purchased for such use qualified for concessional levy under section 3(3), and the penalty and differential tax demand based on alleged misuse of Form XVII were not sustainable.

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Issues: Whether the purchase of caps, seals and labels for use in making Horlicks marketable qualified for concessional levy under section 3(3) of the Tamil Nadu General Sales Tax Act, and whether levy of penalty and differential tax on the footing of misuse of Form XVII was sustainable.

Analysis: The relevant provision, both before and after amendment, granted concessional tax on goods purchased for use in manufacture, and the later form of the section specifically included packing materials and labels. The Act did not define manufacture, so the Court applied Rule 3(h) of the Tamil Nadu General Sales Tax Rules, which treats manufacture broadly as producing, preparing or making goods for trade. On the facts, the intermediate product underwent several processes in Tamil Nadu to bring it to a marketable form, including packing, labelling, sealing and quality-control steps. Those activities were held to be part of manufacture, and the caps and labels were treated as integral to the finished marketable commodity rather than merely incidental items. The authorities relied on by the Revenue were distinguished on the ground that they arose under different enactments and did not control the interpretation of the Tamil Nadu provisions.

Conclusion: The purchase of caps, seals and labels was entitled to concessional treatment under section 3(3), and the levy of penalty and the differential tax demand could not be sustained.

Ratio Decidendi: Where packing, labelling and related processes are necessary to bring goods to a marketable stage, those activities form part of manufacture for the purpose of concessional sales tax, and the materials used for such purpose qualify for the statutory concession.

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