Conversion of logs into different sizes and shapes amounts to manufacture and production of a different commodity, attracting the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, 1947.

JUDGMENT

PANDA, J. - This is a reference made by the Member, Sales Tax Tribunal, under section 24(1) of the Orissa Sales Tax Act, 1947 (Act 14 of 1947) (hereinafter referred to as the Act) at the instance of the State of Orissa posing the following two points of law said to be arising out of its judgment dated 4th December, 1972, for answer by this court :

"(1) Whether, on the facts and in the circumstances of the case, the Member, Sales Tax Tribunal, is right in holding that conversion of logs into different sizes and shapes does not amount to manufacture and production of a different commodity ?

(2) Whether, on the facts and in the circumstances of the case, the Member, Sales Tax Tribunal, is right in holding that there is no contravention of the provisions contained in the proviso to section 5(2)(A)(a)(ii) of the Orissa Sales Tax Act, when the opponent converted logs and timbers into different sizes and sold the same inside the State of Orissa ?"

2. The opposite party, Patel Saw Mill, is a registered dealer carrying on business in logs and timbers. It purchased logs from various sources, processed the same in its mill and sold sized timbers either in the State of Orissa or in the course of inter-State trade and commerce.

3. Admittedly, the assessee-opposite party purchased the logs and timber from registered dealers free of tax by furnishing declarations under rule 27(2) of the Orissa Sales Tax Rules, 1947 (hereinafter referred to as the Rules), and resold the same after converting the same into different shapes such as planks, rafters, railway sleepers, beams, ribs and other sized timbers by processing the same in its saw mill. This turnover of the assessee has escaped regular assessment made by the Assistant Sales Tax Officer, Sambalpur Circle III, Jharsuguda. Accordingly, he initiated proceedings under section 12(8) of the Act for the years 1961-62, 1962-63 and 1963-64. Following a decision of the Calcutta High Court in Shaw Bros. and Co. v. State of West Bengal [[1963] 14 S.T.C. 878], the assessing officer held that by converting the logs into planks, beams, rafters, etc., a different commodity had come into existence and, therefore, the transaction attracted the proviso to section 5(2)(A)(a)(ii) of the Act. Accordingly, he taxed the turnover and levied an extra demand.

The assessee preferred appeals before the learned Assistant Sales Tax Officer, Sambalpur Circle III, Jharsuguda, who confirmed the assessments of the first two years, but reduced the assessment of the third year, i.e., 1963-64. He, however, annulled the penalty imposed under section 12(8) of the Act on the ground that there had been no concealment of the turnover by the assessee.

The assessee as against that order filed Second Appeals No. 1001 to 1003 of 1966-67, respectively, before the Tribunal, who, by its consolidated order dated 4th December 1972, held that the conversion of logs into different sizes for different uses did not amount to manufacture and production of different commodities. According to the Tribunal, the logs were only sawn and converted into different sizes for convenience of marketing and also for use, and thus there was no contravention of section 5(2)(A)(a)(ii) of the Act. The learned Tribunal relied on a decision of the High Court of Madhya Pradesh reported in 14 S.T.C. 101 palpably wrong for Mohanlal Vishram v. Commissioner of Sales Tax, Madhya Pradesh, Indore [[1969] 24 S.T.C. 101], and interpretation of the term "manufacture" as given by their Lordships of the Supreme Court in A.I.R. 1960 S.C. 171 palpably wrong for Union of India v. Delhi Cloth and General Mils Co. Ltd. [A.I.R. 1963 S.C. 791].

4. As against this decision of the Tribunal, the State of Orissa filed an application for reference and, accordingly, the above two questions have been referred to us in S.J.C. Nos. 94 to 96 of 1973, which were heard together and will be governed by this common judgment. At the time of argument, the learned counsel for both the parties