Manufacture under VAT law confirmed for sesame processing, supporting input tax credit and rejection of penalty and interest.

Processing natural sesame seeds by cleaning, grading, washing with caustic soda, drying and removing the upper layer to produce huld sesame was treated as manufacture under the Gujarat VAT Act because the operation created a distinct marketable and edible product with a real change in form, quality and use. On that basis, input tax credit was available, and the associated penalty and interest were not sustained. The Court distinguished Revenue authorities cited on the facts, as those cases did not involve a comparable transformation of the original commodity. The Tribunal's view was affirmed and the tax appeals were dismissed.

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Issues: Whether the process of cleaning, grading, washing with caustic soda, drying and removing the upper layer of natural sesame seeds to produce huld sesame amounted to "manufacture" under Section 2(14) of the Gujarat Value Added Tax Act, and whether the dealer was entitled to input tax credit and consequential relief from penalty and interest.

Analysis: The process undertaken converted the original commodity into a distinct marketable and edible product with a change in form, quality and use. Applying the broad statutory meaning of "manufacture" and the principle that a commodity undergoes manufacture when it experiences a change as a result of processing, the Court held that the activity was not a mere incidental or insignificant treatment. The authorities relied upon by the Revenue were distinguished on facts, as those cases involved processes that did not bring about such a transformation.

Conclusion: The process amounted to manufacture under Section 2(14) of the Gujarat Value Added Tax Act, and the dealer was entitled to input tax credit; the deletion of penalty and interest was also upheld.

Final Conclusion: The Tribunal's view was affirmed, no substantial question of law arose, and the tax appeals were dismissed.

Ratio Decidendi: Where processing operations bring about a new marketable and usable product with a real change in form and character, the activity constitutes manufacture for the purpose of input tax credit under the VAT law.

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