The activity of dispensing medicines by the dealers constituted 'manufacture' as defined in Section 2 (e-1) of the U. P. Sales Tax Act, 1948, and the medicines dispensed by them were 'manufactured goods'.

( 1 ) AS the learned single Judge before whom these two connected sales tax revision applications came up for hearing felt that the decision of this Court in the case of Commissioner of Sales Tax v. Bharat Oxygen, Lucknow 1980 UPTC 686 on which the Sales Tax Tribunal had placed reliance while disposing of the appeal before it, required reconsideration, he vide his order dated 20th December, 1982, directed that these cases be listed before a larger Bench and this is how the matter has come up before us.

( 2 ) THE two dealers involved in these cases carried on the business of dispensing and selling medicines in the names of M/s. Kaderul Sehat Dawakhana and M/s. Rafekul Sehat Dawakhana at Sambhal in the district of Moradabad. In due course their assessments for the years 1976-77 (in the case of M/s. Kaderul Sehat Dawakhana) and 1977-78 (in the case of M/s. Rafekul Sehat dawakhana) were reopened under Section 21 of the U. P. Sales Tax Act as it was felt that the turnover of sales of medicines dispensed by them on the basis of Hakim Rais Ahmads prescription and supplied to various patients had escaped assessment.

( 3 ) THE Sales Tax Officer concluded that during the relevant assessment years the two assessees had sold certain medicines prescribed by Hakim Rais Ahmad after purchasing the same from the market. Likewise they also sold to various patients medicines prescribed by Hakim Rais Ahmad after dispensing the same from the ingredients which they had purchased from kirana dealers. The two dealers could, in so far as the medicines dispensed by them from out of the ingredients purchased from kirana dealers were concerned be treated to be manufacturers thereof inasmuch as the characteristics of the ingredients had while dispensing of medicines, undergone a basic change. Turnover of sale of such medicines was liable to be taxed under the U. P. Sales Tax Act (hereinafter referred to as the Act) but it had, in the relevant years, escaped assessment. The sales Tax Officer accordingly determined the escaped turnover of the medicines dispensed by the two dealers and assessed them to tax accordingly.

( 4 ) THE order passed by the Sales Tax Officer was affirmed in appeal by the Assistant commissioner (J.), Sales Tax, Moradabad. The dealers then went up in second appeal before the sales Tax Tribunal. The Tribunal referred to following observation made by this Court in the case of Commissioner of Sales Tax v. Bharat Oxygen, Lucknow 1980 UPTC 686 : the following ingredients are necessary to constitute manufacture :

(a) there must be a change in substance, and a different article must emerge having a distinctive character and use from the raw material by the use of physical labour or by mechanical process; (b) the articles produced either by physical labour or by mechanical process should be on a large scale and should pass as a commercial commodity from hand to hand.

and held that as the medicines prepared by the two dealers by mixing kirana goods and herbs on the basis of prescriptions from a hakim were meant to be sold to individual patients only once, they could not be held to be manufacturers of such medicines and the notice issued to them under section 21 of the U. P. Sales Tax Act as also the orders passed in proceedings initiated thereunder deserved to be set aside. In the result the Tribunal allowed the appeals filed by the dealers and set aside the assessments made against them under Section 21 of the Act. Aggrieved, the Commissioner of Sales Tax approached this Court for relief by way of revision under Section 11 (1) of the Act.

( 5 ) WHEN these revision applications came up for hearing before the learned single Judge, the learned standing counsel appearing for the Commissioner of Sales Tax submitted that when on the basis of hakims prescriptions the two dealers prepared the medicines after mixing herbs with kirana goods and sold the same to individual patients, their activity resulted in manufacture of medicines [as de