Important Point
Processing of crude oil to make it refined oil brings later liable to tax on its sale under U.P. Trade Tax Act, 1948.

Judgment

M.K. Mukherjee, J.-The appellant carries on business in manufacture and sale of oils at Agra in the State of Uttar Pradesh (U.P.). As a part of their business they purchase crude oil of different varieties, such as linseed oil, castor-oil, mustard-oil and, after refining, sell as refined oil. The refinement is brought about by first treating the oil with alkali to remove the acid contents, then bleaching it with absorbent cotton or activated carbon and lastly deodorising it with steam.

2. To ascertain whether they were liable to pay tax on the sale of refined oil as they had already paid tax for purchase of the crude oil and, if so, what would be the rate thereof, the appellant approached the Com­missioner of Sales Tax, U.P. invoking the provisions of Section 35 of the U.P. Trade Tax Act, 1948 (‘Act’ for short). By his order dated June 19, 1985, the Commissioner held that the appellant was liable to pay sales tax notwithstanding the fact that they had paid tax on the purchase of the crude oil and that the rate of tax would be 4%. Assailing the order of the Commissioner the appellant preferred an appeal before the Sales Tax Tribunal which was dismissed. They then approached the Allahabad High Court by filing a petition under Article 226 of the Constitution of India which was also dismissed. Hence this appeal by special leave.

3. Mr. Swarup, the learned counsel appearing for the appellant, first­ly submitted that they were not liable to pay tax on the sale of refined oil for even after refinement it continues to retain its basic character as oil. According to Mr. Swarup, mere processing of the crude oil for its conversion to refined oil, cannot be said to be ‘manufacture’ of new goods so as to make the appellant liable for tax thereupon under Section 3(3)(b)(iii) of the Act. In support of his con­tention he relied upon the judgments of this Court in “M/s. Tungabha­dra Industries Ltd. v. The Commercial Tax Officer, Kurnool1, M/s. Sterling Foods v. State of Karnataka & Anr.2 and State of Maharashtra v. M/s. Shiv Datt & Sons & Ors.3.”

4. In response Mr. Misra, appearing for the respondent-State, submit­ted that the appellant was liable to pay tax on the refined oil inas­much the meaning of the word ‘manufacture’ in Section 2(e-1) of the Act clearly envisages any sort of processing. Therefore, he contended, the question whether the crude oil maintained its character as oil even after refinement was redundant.

5. Under Section 2(e-1) of the Act ‘manufacture’ means producing, making, mining, collecting, extracting, altering, ornaments, finishing or otherwise processing, treating or adapting any goods; but does not include such manufacture or manufacturing processes as may be pre­scribed. Section 3 of the Act, so far as it is relevant for our pur­poses reads as under :

“3. Liability to tax under the Act.-

(1) Subject to the provisions of this Act, every dealer shall, for each assessment years, pay a tax at the rates provided by or under Section 3-A or Section 3-D on his turnover of sales or purchases or both, as the case may be which shall be determined in such manner as may be prescribed.

(2) No dealer shall, except as otherwise provided in Section 18, be liable to tax under sub-section (I) if, during the assessment years, the aggregate of his turnover of -

(a) ...........

(b) ...........

(c) ...........

(d) ...........

(3) Nothing in sub-section (2) shall apply in respect of -

(a) ......

(b) the sale by a dealer of -

(i) ...............

(ii) goods purchased or imported by furnishing and declaration or certificate prescribed under any provision of this Act; and

(iii) goods manufactured by him by using the goods referred to in sub-clause (I) or sub-clause (ii).

(4) ..........

(5) ..........”

6. When the provisions of the above Section are read in juxtaposition with the definition of the w