Manufacture test for repair and reconditioning receipts: no distinct commercial product meant works contract treatment.

Receipts from rewinding, repairing, reconditioning and rebuilding of commutators, armatures and similar items were examined to determine whether they arose from manufacture-based sales or from works contracts. The record showed that the assessee processed customer-supplied goods under bills and correspondence describing the activity as repair or return of entrusted articles, and it did not show emergence of a commercially different product. The revenue also failed to prove by inspection or other evidence that new manufactured goods came into existence. Applying the test that manufacture requires a distinct commercial commodity, the receipts were treated as labour-and-material based works contract receipts, not taxable sales from manufacture.

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Issues: Whether the receipts from rewinding, repairing, reconditioning and rebuilding of commutators, armatures and similar items constituted taxable sales from manufacture or were receipts from works contracts.

Analysis: The records showed that the assessee's activity consisted of repairing, reconditioning, rewinding and rebuilding articles supplied by customers, with supporting bills and correspondence describing the work as repair or return of the entrusted goods. The materials on record did not show production of a commercially different article. The authorities also failed to establish by inspection, investigation or other evidence that new manufactured goods came into existence. Applying the principle that manufacture requires emergence of a different commercial commodity, and that on the facts the revenue had not proved a taxable sale, the transactions were held to be essentially labour-and-material based works.

Conclusion: The receipts were not taxable as manufacture-based sales; they were treated as works contract receipts, in favour of the assessee.

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