Definition Of 'Manufacture' U/s 2(e)(1) Of UP Trade Tax Act Does Not Include Blending And Packaging Tea : Supreme Court

Recently, the Supreme Court has held that definition of 'manufacture' under Section 2(e)(1) of the U.P. Trade Tax Act, 1948 does not include blending and packaging tea.

Distinguishing the judgment delivered by a three-judge bench of the Supreme Court in Chowgule & Co. Private Limited and Anr. vs. Union of India and Others, the bench comprising of Justice B.V. Nagarathna and Justice Ujjal Bhuyan held

“However, in the instant case, mere mixing of different types of tea only for the purpose of marketing as tea and not a particular type of tea does not involve any process/manufacture within the meaning of the definition. Therefore, judgment and observations in Shiv Datt and Sons are squarely applicable to the present case.”

Background

The respondent-assesee was engaged in blending and packing of tea and offering it for sale. Assesee did not process or manufacture tea within the meaning of Section 2(e)(1) of the U.P. Trade Tax Act, 1948. Since the blended tea sold by the assesee was not a new product, it did not fall under the definition of 'manufacture'.

The definition of manufacture in Section 2(e)(1) of the U.P. Trade Tax Act, 1948 is

“2.(e-1) 'manufacture' means producing, making, mining, collecting, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods; but does not include such manufacture or manufacturing processes as may be prescribed;”

The Commissioner of Trade Tax, UP filed a revision before the Allahabad High Court raising the following questions of law:

“(i) Whether on the facts and in the circumstances of the case, the Tribunal is legally justified to hold that blending and packing of tea is not manufacturing?

(ii) Whether the order of the Tribunal is correct in view of the decision of Hon'ble Supreme Court in the case of Chogala and Co. Pvt. Ltd. Vs Union of India 1981 U.P.T.C. 702?”

Answering question (i) in favour of the assesee, the Allahabad High Court held that blending of tea did not result in manufacture of a new commercial commodity as the tea which was sold remained tea as such.

Additional Advocate General for the State of Uttar Pradesh argued that the High Court failed to take note that the blending two different teas results in a different commodity. Since, the assesee was blending tea and producing a third commodity, the process of blending by assesee fell within the meaning of 'manufacture' under the Act.

Reliance was placed on the decision of Supreme Court in Chowgule & Co. Private Limited and Anr. vs. Union of India and Others, amongst others, to argue that a higher rate of tax was applicable on the assesee as it was blending of different kinds of tea offered for sale. It was argued that the High Court had erred in ignoring the judgment of the Supreme Court.

Senior Advocate Dhruv Agrawal appearing on behalf of the respondent-assesee submitted that the cases relied on by the AAG are distinguishable on facts and will not be applicable in the assesee's case.

Supreme Court Verdict

The Court observed the definition of manufacture in Section 2(e)(1) of the U.P. Trade Tax Act, 1948 is exhaustive and not expansive. Absence of word 'includes' in the definition makes it restrictive.

“On a reading of the said definition of 'manufacture' we note that it does not use the expression 'includes'. This clearly indicates that the intention of the Legislature is to give a strict or a restricted meaning to the expression 'manufacture' and not an expansive meaning.”

Reliance was placed on State of Maharashtra vs. M/s Shiv Datt and Sons and Others wherein a three judge bench of the Apex Court held that it was important to read down the words “processed or altered in any manner after such purchase” which had a very wide scope and would lead to absurd and impractical consequences.

However, the bench headed by Justice Nagarathna distinguished the decision of the Supreme Court in Chowgule & Co. Private Limited and Anr. on facts. The Court held that the ratio of Nilgiri Ceylon Tea Supplying Co. v. State of Bombay (Bombay High Court) was distinguished in that particular as case ores were being mixed by following a process to bring about the product which was contracted for.

Accordingly, the Court held that the reference made to the decision of the Bombay High Court in Nilgiri Ceylon Tea Supplying Co. by the Supreme Court in M/s Shiv Datt and Sons and Others is squarely applicable to the case before the Court.

“The order of the Bombay High Court was not applicable to the facts of the case in Chowgule & Co. Private Limited as in the former the case concerned blending of tea which is also the subject matter of this case; whereas the goods involved in Chowgule & Co. Private Limited was a particular kind of ore contraction which required a mixing up of several type of ores in particular quantities and in a particular manner and a procedure which involved a process and hence the same was covered within the definition of manufacture,” held the Court.

The Court held that mixing different types of tea for marketing as tea and not a particular type of tea does not fall within the definition of manufacture under the Act.

Accordingly, the appeals filed by the Commissioner of Trade Tax, UP were dismissed.

Case Title: Commissioner Of Trade Tax, U.P. v. M/s Mishra Tea Blending And Packing Industries, UP [CIVIL APPEAL NOS. 5677-5678/2011]

Citation : 2023 LiveLaw (SC) 1076

Counsel for Respondent Assesee: Dhruv Agrawal, Senior Advocate, Nishit Agrawal, AOR, Upasna Agrawal, Kanishka Mittal and Vanya Agrawal, Advocates.

Counsel for State: R. K. Raizada, Senior Advocate, Bhakti Vardhan Singh, AOR and Ankit Khatri, Advocate.

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