Case Note & Summary
The applicant, M/s R.K. Patel & Company, a partnership firm engaged in the manufacture and sale of chewing tobacco (Jarda) from raw tobacco, was assessed by the Sales Tax Officer, Jalgaon, who disallowed a set-off claim of Rs.2,50,285/- for tax paid on packing materials under Rule 41D of the Bombay Sales Tax Rules, 1959, on the ground that the conversion of raw tobacco into Jarda did not amount to manufacture under Section 2(17) of the Bombay Sales Tax Act, 1959. The applicant appealed to the Assistant Commissioner of Sales Tax (Appeals), Nashik, who confirmed the disallowance. A second appeal to the Sales Tax Appellate Tribunal was also dismissed. The applicant then filed an application under Section 61(1) of the Act, leading to the present reference. The High Court examined the process of manufacturing Jarda, which involves cleaning, cutting, grinding, mixing with spices and additives, and aging, resulting in a product distinct from raw tobacco and known commercially as Jarda. The court held that this process constitutes manufacture as it brings into existence a new and distinct commodity. Consequently, the set-off claim for packing materials was allowed. The court answered the question of law in the negative, i.e., against the Revenue, and in favor of the applicant.
Headnote
A) Sales Tax - Manufacture - Definition - Section 2(17) Bombay Sales Tax Act, 1959 - The process of converting raw tobacco into chewing tobacco (Jarda) constitutes manufacture as it results in a distinct product known in the market as Jarda, different from raw tobacco. The court held that the activity involves substantial processing and brings into existence a new and distinct commodity, thus qualifying as manufacture under the Act. (Paras 2-10)
B) Sales Tax - Set-off - Packing Material - Rule 41D Bombay Sales Tax Rules, 1959 - Since the process of converting raw tobacco into Jarda amounts to manufacture, the applicant is entitled to claim set-off of tax paid on packing materials used in the manufacture of Jarda. The court allowed the set-off claim of Rs.2,50,285/-. (Paras 4-10)
Issue of Consideration
Whether the process of converting raw tobacco into chewing tobacco (Jarda) amounts to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act, 1959.
Final Decision
The High Court answered the question of law in the negative, i.e., against the Revenue, holding that the process of converting raw tobacco into chewing tobacco (Jarda) amounts to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act, 1959. Consequently, the applicant is entitled to the set-off claim of Rs.2,50,285/- for packing materials.
Law Points
- Manufacture
- Process
- Raw Tobacco
- Chewing Tobacco
- Jarda
- Set-off
- Packing Material
- Section 2(17) Bombay Sales Tax Act
- 1959
- Rule 41D Bombay Sales Tax Rules
Case Details
2010 LawText (BOM) (07) 98
Sales Tax Reference No. 7 of 2005 in Reference Application No. 29 of 2003
V. C. Daga, S. J. Kathawalla
Mr. P. V. Surte a/w Mr. Subhash Surte i/by P.V. Surte & Co. for the Applicant, Mr. V. A. Sonpal, ‘A’ Panel Counsel for the Respondent
M/s R. K. Patel & Company
The Commissioner of Sales Tax, Maharashtra State
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Nature of Litigation
Sales Tax Reference under Section 61(1) of the Bombay Sales Tax Act, 1959, seeking decision on a question of law regarding whether conversion of raw tobacco into chewing tobacco amounts to manufacture.
Remedy Sought
The applicant sought a decision that the process of converting raw tobacco into Jarda constitutes manufacture, thereby entitling it to set-off of tax paid on packing materials.
Filing Reason
The Sales Tax Officer disallowed the applicant's claim for set-off of tax paid on packing materials on the ground that the process of converting raw tobacco into Jarda does not amount to manufacture.
Previous Decisions
The Sales Tax Officer disallowed the set-off claim; the Assistant Commissioner of Sales Tax (Appeals) confirmed the disallowance; the Sales Tax Appellate Tribunal dismissed the second appeal on the same ground.
Issues
Whether the process of converting raw tobacco into chewing tobacco (Jarda) amounts to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act, 1959.
Submissions/Arguments
The applicant argued that the process of converting raw tobacco into Jarda involves substantial processing and results in a distinct product known in the market as Jarda, thus constituting manufacture.
The respondent argued that the process does not amount to manufacture as raw tobacco and Jarda are essentially the same commodity.
Ratio Decidendi
The process of converting raw tobacco into chewing tobacco (Jarda) constitutes manufacture under Section 2(17) of the Bombay Sales Tax Act, 1959, as it brings into existence a new and distinct commodity known in the market as Jarda, different from raw tobacco. Therefore, the applicant is entitled to set-off of tax paid on packing materials used in such manufacture.
Judgment Excerpts
Whether the Tribunal was correct in holding that the process carried on by the Applicant for converting raw tobacco into chewing tobacco does not amount to manufacture within the meaning of Section 2(17) of the Bombay Sales Tax Act ?
The learned Counsel explained the process of manufacturing as under: Raw Material: Raw tobacco is an agricultural produce which is mainly purchased by the applicant from the two states, namely, ...
Procedural History
The Sales Tax Officer disallowed the set-off claim on 8th October 2001. The applicant appealed to the Assistant Commissioner of Sales Tax (Appeals), Nashik, who confirmed the disallowance on 18th March 2002. The applicant then filed a second appeal before the Sales Tax Appellate Tribunal, which dismissed it on 8th April 2005. The applicant filed an application under Section 61(1) of the Bombay Sales Tax Act, 1959, leading to the present reference.
Acts & Sections
- Bombay Sales Tax Act, 1959: Section 2(17), Section 61(1)
- Bombay Sales Tax Rules, 1959: Rule 41D
