COMMISSIONER OF TRADE TAX versus M/S. KUMAR PAINTS AND MILL STORES THROUGH ITS PROPRIETOR on 2 March 2023

1. The question which is urged in all these appeals is the correctnessof the view of the High Court that the process which the product in thepresent case underwent – i.e., mixture of the base paint with differentcolours – did not result in a ‘new’ product, and therefore did not resultfrom the process of ‘manufacture’ as defined under Section 2(e)(i) ofEthe U.P. Trade Tax Act, 1948 (“Act”).

2. The facts in all these cases are that the assessees are dealersin inter alia paints. The Revenue contended that the sale of paints whichhad undergone mixing (through a computerised process with the aid of aDTS machine) amounted to ‘manufacture’, thereby resulting in a newFproduct, which was a fresh incidence of taxation. The assessee on theother hand contended that mixing per se did not amount to ‘manufacture’,and that on an application of the established principles, no newrecognizable product or article had emerged from the process. It is amatter of record that both the base paint and the colourant are taxedGseparately.

3. The High Court on a previous occasion had accepted theassessees’ contentions and held that the process did not amount to‘manufacture’. Upon the Revenue’s appeal in some cases, this Courthad remitted the matter for fresh consideration after taking into accountHexpert opinion. The process was observed, and a report dated 20.01.2004

COMMISSIONER OF TRADE TAX v. M/S. KUMAR PAINTS AND MILLSTORES THROUGH ITS PROPRIETOR [S. RAVINDRA BHAT, J.]

was issued by the Harcourt Butler Technical University, Kanpur. Thesaid report pertinently stated as follows: - “The base paint used in “point of Sale” tinting systems itself,therefore, is a paint irrespective of colourant being added toget a desired shade or colour. It is in the form of paint andpossession the basic ingredients and characteristics. Thetinting does not bring new or different product into existence.

The base paint can also be used as paint.”

4. In the impugned order, the High Court after noticing a judgmentof this court in State of Maharashtra Vs. Mahalaxmi Stores (2003) 1SCC 70, held that the process involved in the present case did not amountto ‘manufacture’. The High Court also distinguished the ruling inSonebhadra Fuels Vs. Commissioner Trade Tax, U.P., Lucknow(2006) 7 SCC 322. Therefore, the High Court allowed the revisions filedbefore it.

5. The Revenue urged that the findings in the impugned order areerroneous, and relied upon Sonebhadra Fuels (supra) to argue that theHigh Court was bound by this Court’s decision since it was directly onan interpretation of the expression ‘manufacture’ in the same enactment.In Sonebhadra Fuels, the court had considered whether coal briquettesfell with the generic description of ‘coal’. This court held that the processinvolved mixing crushed coal with suitable binders pressed in briquettingpress, from which regular shaped briquettes were suitably carbonised.This process was held to amount to ‘manufacture’.

6. The definition of ‘manufacture’ under the Act is as follows: - “2 (e-1). ‘manufacture’ means producing, making, mining,collecting, extracting, altering, ornamenting, finishing orotherwise processing, treating or adapting any goods; butdoes not include such manufactures or manufacturingprocesses as may be prescribed.”

7. In Mahalaxmi Stores (supra), this court relied on previousdecisions such as Commissioner of Sales Tax Vs. Pio Food Packers(1980) Suppl. SCC 174, and Chowgule and Company(P) Limited Vs.Union of India (1981) 1 SCC 653 to state that the manufacturing processcan vary, and that the process of producing every type of variation, orfinishing of goods, would not amount to ‘manufacture’ as contained in A

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Athe statute unless it resulted in the emergence of a new commercialcommodity.

8. In Sonhbadra, this court while deciding the facts of the casebefore it cited a large number of decisions rendered in the context ofwhat was meant by ‘manufacture.’ This court specifically noticed inBUnion of India V. Delhi Cloth and General Mills (1963) Suppl. 1 SCR586 that ‘manufacture’ meant bringing into existence a ‘new’ substanceand did not mean merely to bring about some change in the substance.In Mahalaxmi Stores, it was held that processing or variation/finishingof goods would not per se amount to manufacture unless it resulted inthe emergence of a new commercial commodity. The decision inCAspinwall & Co. Ltd. V. Commissioner of Income Tax, Ernakulam(2001) 7 SCC 525 follows the same principle. The court held thatmanufacture must be understood in common parlance and meansproduction of articles for use from raw or prepared materials by givingthem forms, qualities or combination. Importantly however, it was heldDthat if the change made in the article resulted in a ‘new’ and ‘different’article, it would amount to ‘manufacturing’. The tipping point, or thedeterminative test, therefore is that the result of the process (amountingto ‘manufacture’) must be the emergence of a commerciallyrecognizable new commodity, and not mere variation of an existing one.

E9. In the present case, the findings based on the expert’s evidenceare that the base paint was mixed with colouring as an additive. Both ofthese had suffered tax. The resultant article i.e., the paint of a differentshade, did not result in a new commercial product. In common parlance,the new product was nothing else but ‘paint’, and not a different article.

F10. In these circumstances, in the opinion of this Court, the HighCourt did not fall into error. The appeals therefore fail, and are hencedismissed. Pending application(s), if any, shall stand disposed of. Thereshall be no order as to costs.

GAnkit Gyan

(Assisted by : Shloka Sah and Mahendra Yadav, LCRAs)

Appeals dismissed.

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