The main legal point established in the judgment is that the transformation of a commodity into a new and distinct commercial commodity, recognized in the trade as such, satisfies the test of a manufacturing activity.

(PRABHA SRIDEVAN,J)

1. In this writ petition, the question is whether process by which the wet blue leather is turned into finished leather amounts to manufacture. This question assumes importance in the context of Section 3(3) of the Tamilnadu General Sales Tax Act (hereinafter referred to as the Act).

2. The petitioner is a manufacturer of finished leather. They purchased chemicals, dyes and pigments against Form XVII to convert wet blue leather into finished leather. The dealer is allowed concessional rate of tax under Section 3(3) of the Act, if a declaration in Form XVII is obtained from the purchasing dealer and produced before the Assessing Authority; after having bought the goods at the concessional rate of tax, he must use them for the manufacture of goods for sale. If he misuses them or disposes them off in any other manner, the concession will not be available to him. Thirdly, the buying dealer must maintain a separate stock for the goods purchased by availing the concession. According to them, to convert wet blue leather into finished leather, several processes and manufacturing activities take place, which include splitting, shaving, neutralizing, bleaching, dyeing, fat-liquoring, stuffing, setting out, samming, drying, staking and finishing and therefore, they fully complied with the provisions of Section 3(3) of the Act.

3. The Original Authority was not inclined to accept it. On appeal, the Appellate Authority found that the leather industry is of three types. One is the industry of tanning raw skins and manufacturing finished leather, which is called the full-fledged unit; the next kind is wet unit or wet skin unit by which, the raw skins are turned into semi tanned leather i.e wet blue; and the third unit, by which, the wet blue leather is converted into finished leather. The Appellate Authority, therefore, found that is a commercially distinct commodity and the wet unit or crust or wet blue leather is not the same as finished leather and that therefore, such processing will certainly amount to manufacture and allowed the appeal.

4. Against that, the State filed an appeal before the Tribunal. The Tribunal referred to various decisions, which dealt with the question of what is manufacture and what is processing and then concluded that it cannot be said that there is a process of manufacture, when wet skins are converted into finished leather. According to Tribunal, as far as leather industry was concerned, leather was "raw hides and skins", which are the basic materials or "dressed hides and skins", which are the finished products and since wet blue leather had crossed the stage of raw hides and skins, it is the same as finished leather. They are one and the same commodity and that therefore, it cannot be said that when wet blue leather is converted into finished leather, a manufacturing activity takes place. The Tribunal drew strength from the fact that as per item 7B of Schedule II to the Act, wet blue leather would be included under the description dressed hides and skins. This re-enforced the view of the Tribunal that wet blue leather, not being raw hides and skins, would be equivalent to finished leather, which, in turn, would mean that there is no manufacture when wet blue leather turns into finished leather. Against this, the present writ petition has been filed.

5. Learned counsel for the petitioner submitted that a detailed description of various stages that the wet blue leather undergoes to transform into a finished leather was explained before the Appellate Authority, who was, thereafter, satisfied that this would meet "the test of manufacture" as laid by the Supreme Court in various cases. The Appellate Authority was also satisfied that the wet blue leather and the finished leather were commercially distinct commodities in the industry concerned and one cannot be equated to the other. Learned counsel also produced the samples of wet blue leather and finished leather to show that they a