Consumption in manufacture extends to converting diamonds into jewellery, sustaining purchase tax and revisional interference.

Use of diamonds purchased from an unregistered dealer and embedded in jewellery was treated as consumption in manufacture because the goods lost their separate identity and became a commercially different commodity, attracting purchase tax under Section 6 of the Karnataka Sales Tax Act, 1957. The Commissioner's second revisional power was held exercisable where the appellate and first revisional orders were contrary to binding legal principle and prejudicial to revenue. No breach of natural justice was found because notice was served, objections were filed, and the assessee was heard. The statutory purchase-tax liability and revisional interference were therefore sustained.

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Issues: (i) Whether diamonds purchased from an unregistered dealer and used in making jewellery were consumed in manufacture so as to attract purchase tax under Section 6 of the Karnataka Sales Tax Act, 1957; (ii) whether the Commissioner could validly exercise second revisional power under Section 22(a)(ii) of the Karnataka Sales Tax Act, 1957 to interfere with the orders of the appellate and first revisional authorities; and (iii) whether the impugned order was vitiated for breach of natural justice.

Issue (i): Whether diamonds purchased from an unregistered dealer and used in making jewellery were consumed in manufacture so as to attract purchase tax under Section 6 of the Karnataka Sales Tax Act, 1957.

Analysis: Section 6 fastens liability where a dealer purchases taxable goods and consumes them in the manufacture of other goods or otherwise disposes of them otherwise than by sale. The diamonds were not sold as such; they were embedded in jewellery and thereby lost their identity as separate goods. Conversion of one commodity into another commercially different commodity amounts to consumption in the statutory sense, and the use of the diamonds in jewellery manufacture satisfied that test.

Conclusion: The purchase tax under Section 6 was rightly held payable, against the assessee.

Issue (ii): Whether the Commissioner could validly exercise second revisional power under Section 22(a)(ii) of the Karnataka Sales Tax Act, 1957 to interfere with the orders of the appellate and first revisional authorities.

Analysis: The revisional power under Section 22(a)(ii) is intended to correct orders that are erroneous and prejudicial to the interests of revenue. As the appellate and first revisional authorities had proceeded on a view inconsistent with the binding legal principle that consumption includes conversion into a commercially different commodity, the Commissioner was entitled to interfere.

Conclusion: The second revision was within jurisdiction and was correctly exercised, against the assessee.

Issue (iii): Whether the impugned order was vitiated for breach of natural justice.

Analysis: The assessee received notice, entered appearance, filed detailed objections, and was heard. In these circumstances, the complaint that the notice was perfunctory or that there was denial of fair opportunity could not be sustained.

Conclusion: There was no violation of natural justice, against the assessee.

Final Conclusion: The statutory purchase-tax liability was upheld, the revisional interference was sustained, and the challenge to the order failed in full.

Ratio Decidendi: Use of taxable goods in manufacturing a commercially different commodity constitutes consumption for the purpose of purchase tax, and revisional interference is justified where subordinate orders are contrary to binding law and prejudicial to revenue.

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