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PUNJAB & HARYANA HIGH COURT
P.C.Pandit and Rajendra Nath Mittal JJ.
Sidhu Ram Atam Parkash
Versus
State Of Haryana
General Sales Tax Reference No. 1 of 1973,
Decided On : MAY 9, 1974
MANUFACTURER - FOREST CONTRACTOR - PUNJAB GENERAL SALES TAX ACT, 1948, SECTION 2(f) - A forest contractor who cuts standing trees and converts them into logs, planks, rafters, and firewood is not a manufacturer.
Fact of the Case:
The assessee, a forest contractor, entered into a contract with the forest department to cut trees. The assessee felled the trees, cut them into logs, and then converted them into rafters, planks, and firewood. The assessing authority held that the assessee was a manufacturing dealer and was liable to pay sales tax at the rate of 10,000 rupees. The assessee appealed to the Sales Tax Tribunal, which reduced the penalty but upheld the assessment. The assessee then filed a reference to the High Court.
Finding of the Court:
The High Court held that the assessee was not a manufacturing dealer. The Court held that the process of converting logs into planks and rafters did not involve a manufacturing process and that a new substance or article did not come into being. The Court also held that the view of the Calcutta High Court in Shaw Brothers and Company V/s. State of West Bengal [1963] 14 S.T.C. 878, which held that the sawing of planks from timber amounted to manufacture, was incorrect.
Issues: Whether a forest contractor who cuts standing trees and converts them into logs, planks, rafters, and firewood is a manufacturer.
Ratio Decidendi: The Court held that the process of converting logs into planks and rafters did not involve a manufacturing process and that a new substance or article did not come into being. The Court also held that the view of the Calcutta High Court in Shaw Brothers and Company V/s. State of West Bengal [1963] 14 S.T.C. 878, which held that the sawing of planks from timber amounted to manufacture, was incorrect.
Final Decision: The Court answered the question in the negative, i. e., in favor of the assessee.
Prem Chand Pandit, J.
1. The following question of law has been referred to us under Section 22(1) of the Punjab General Sales Tax Act, 1948 , hereinafter called the Act, by the Sales Tax Tribunal, Haryana, for our opinion:
Whether, on the facts and in the circumstances of the case, the petitioner who is a forest contractor and whose business is to cut the standing trees is a manufacturer?
2. Messrs. Sidhu Ram Atam Parkash, a partnership-firm of Gohana in Rohtak District, got a contract from the forest department for cutting trees. This contract was operated for only four months in 1969-70 and the whole financial year of 1970-71. During the year in question, i. e., 1969, the firm got a contract for Rs. 68,000, while they actually sold goods worth Rs. 1,10,000, after cutting the trees. The Assessing Authority was of the view that since this firm, after felling the trees, cut them into logs and then converted them into rafters, planks and firewood, etc., the entire process by which the goods were thus produced fell within the definition of "manufacture" and the firm was not covered by the definition of "general" dealer for whom the taxable quantum was Rs. 40,000. The firm was held to be a "manufacturing" dealer and it could get exemption for sales up to Rs. 10,000 only. It was assessed to sales tax of Rs. 436.34 as such and a penalty of Rs. 200 was also imposed for not applying for a registration certificate under Section 11(6) of the Act for the year 1969-70. Similarly, the firm was assessed to sales tax of Rs. 6,438 for the year 1970-71 and a penalty of Rs. 3,000 was also imposed.
3. This order of the Assessing Authority was confirmed on appeal by the Deputy Excise and Taxation Commissioner, but the penalty for 1970-71 was, however, reduced to Rs. 2,000.
4. The firm then went in further appeal before the Sales Tax Tribunal, who reduced the penalty to Rs. 100 for the year 1969-70 and Rs. 500 for 1970-71. Thereafter, the firm applied for referring certain questions of law to this court for opinion and out of them only the above-mentioned question has been so referred.
5. It is the common case of the parties that the trees were felled by the petitioner-firm, made into logs and then converted into planks, rafters and firewood. Does all this involve a manufacturing process and can such a firm, which engages in a business of this kind, be called a "manufacturing" dealer? The taxable quantum for a dealer, who himself manufactures goods, is Rs. 10,000 and for a general dealer it is Rs. 40,000.
6. In order to decide this question, we have to find out what the word "manufacture" means. Several dictionary meanings of this word had been quoted before us, but for us it is enough to say that this expression has been explained by the Supreme Court in Union of India and Anr. V/s. Delhi Cloth and General Mills Co. Ltd. and Ors. A.I.R. 1963 S.C. 791. There it was held:
According to the learned counsel manufacture is complete as soon as by the application of one or more processes, the raw material undergoes some change. To say this is to equate processing to manufacture and for this we can find no warrant in law. The word manufacture used as a verb is generally understood to mean as bringing into existence a new substance and does not mean merely to produce some change in a substance, however minor in consequence the change may be. This distinction is well brought about, in a passage thus quoted in Permanent Edition of Words and Phrases, Volume 26, from an American judgment. The passage runs thus: "Manufacture" implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.
7. From the above, it is clear that "manufacture" means bringing into existence a new substance and does not mean merely to produce some chan
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