Holding

Refining crude oil into refined oil constitutes ‘manufacture’ within the meaning of the Act, and multistage taxation under Sections 3(3)(b)(ii) and (iii) is permissible.

Issues considered

Whether the refining of crude oil into refined oil amounts to ‘manufacture’ of a new good under Section 2(e‑1) of the U.P. Trade Tax Act, 1948.
Whether the imposition of sales tax on the refined oil, despite tax already paid on the crude oil, violates the principle of double taxation.

Legislation cited

U.P. Trade Tax Act, 1948s. 2(e-1), s. 3(3)(b)(ii), s. 3(3)(b)(iii)

Subjects

sales taxmanufactureprocessingdouble taxationrefined oilmultistage taxationdefinition of manufactureU.P. Trade Tax Act

Judgment

B.P. OIL MILLS LTD. A
v.
SALES TAX TRIBUNAL AND ORS.

SEPTEMBER 3, 1998

(S.P. BHARUCHA, M.K. MUKHERJEE AND B
G.T. NANAVATI, JJ.)

- U.P. Trade Tax Act, 1948: Sections 3(3)(b)(iii) and 2(e-1).

Sales Tax-Refi11ed oil-Manufacture of-Scope-Refined oil obtai11ed C
after processing of cmde oil such as li11seed oil, castor oil and mustard
oil-Liability to sales tax-Held : Such refined oil is "goods manufac-
tured''-Hence, liable to sales tax.

Sales Tax--Double Taxation-Refined oil obtai11ed after processing
cmde oil on which tax already paid-Refined oil-Liability to sales tax-Held: D
S.3(3)(b)(ii) a11d (iii) provide imposition of multistage taxation-Hence,
subjecti11g such refined oil to sales tax, pennissible.

Words and Phrases :

"Mamtfacture''-Meaning of-111 the co11text of S.2(e-1) of the U.P. E
TI·ade Tax Act, 1948.

"Processing''-Mea11ing of

The appellant purchased crude nil of different varieties, such as
linseed nil, castor oil, and mustard oil and, after refining, sold as refined F
oil. The refinement is brought about by first treating the nil with alkali to
remove the acid contents, then bleaching it with absorbent cotton or
activated carbon and lastly deodorising it with steam.

The Commissioner of Sales Tax held that the appellant was liable to G
pay sales tax on the sale of refined oil. The Sales Tax Tribunal dismissed
the appeal. The High Court also dismissed the writ petition filed by the
appellant. Hence this appeal.

On behalf of the appellant it was contended that mere processing of
crude oil for its conversion into refined oil was not "manufacturing" of new H
397
398 SUPREME COURT REPORTS [1998] SUPP.1 S.C.R.

A goods so as to make the appellant liable for tax thereupon under Section
3(3)(b) (iii) of the U.P. Trade Tax Act, 1948.

Dismissing the appeal, this Court

HELD : 1. Viewed in the context of the meaning given to the word
B "processing" by this Court in Chowgule's case there cannot be any manner
of doubt that the nature and extent of the process to which the crude oil
is subjected to make it refined oil brings the latter within the meaning of
the expression "goods manufactured" in Section 3(3)(b)(iii) of the U.P.
Trade Tax Act, 1948 so as to make the appellant liable to pay tax on its
C 'sale. [401-E]
-
Chowgule & Co. Pvt. Ltd. v. Union of India, [1981] 1 SCC 653, relied
on.

Tungabhadra lndustlies Ltd. v. CTO, [1961] 2 SCC 14; Sterling Foods
D v. State of Kamataka, [1986] 3 SCC 469 and State of Maharashtra v. Shiv
Datt & Sons, [1993] Supp. 1 SCC 222, held inapplicable.

Dy. CST v. Pio Food Packers Ltd. [1980] 3 SCR 1271, referred to.

Webster's Dictio11a1y, referred to.
E
2. Although the appellant had purchased the crude oil after payment
of tax yet subjecting refined oil to sales tax is permissible because Section
3(3)(b)(ii) and (iii) expressly provide imposition of multistage taxation.
[402-F-GJ
F CIVIL APPELLATE JURISDICTION: Civil Appeal No. 10453 of
1995.

From the Judgment and Order dated 20.7.94 of the Allahabad High
Court in C.M.W.P. (Tax) No. 550 of 1987.
G
Pramod Swarup, Praveen Swarup and Ms. Prerna Swarup for the
appellant.

R.B. Misra and K. Misra for the Respondents.

H The Judgment of the Court was delivered by
.
B.P. OIL MILLS LTD. v. SALESTAXTRIBUNAL IM.K. MUKHERJEE, J.] 399

M.K. MUKHERJEE, J. The appellant carries on business in A
manufacture and sale of oils at Agra in the State of Uttar Pradesh (U.P.).
As a part of their business they purchase crude oil of different varieties,
such as linseed-oil, castor-oil, mustard-oil and, after refining, sell as refined
oil. The refinement is brought about by first treating the oil with alkali to
remove the acid contents, then bleaching it with absorbent cotton or
B
activated carbon and lastly deodorising it with steam.

To ascertain whether they were liable to pay tax on the sale of refined
oil as they had already paid tax for purchase of the crude oil and, if so,
what would be the rate thereof, the appellant approached the Commis-
sioner of Sales Tax, U.P. invoking the provisions of Section 35 of the U.P. C
Trade Tax Act, 1948 ('Act' for short). By his order dated .Tune 19, 1985,
the Commissioner held that the appellant was liable to pay sales tax
notwithstanding the fact that they had paid tax on the purchase of the crude
oil and that the rate of tax would be 4%. Assailing the order of the
Commissioner the appellant preferred an appeal before the Sales Tax
Tribunal which was dismissed. They then approached the Allahabad High D
Court by filing a petition under Article 226 of the Constitution of India
which was also dismissed. Hence this appeal by special leave.

Mr. Swamp, the learned counsel appearing for the appellant, firstly
·- submitted that they were not liable to pay tax on the sale of refined oil for E
even after refinement it continues to retain its basic character as oil.
According to Mr. Swamp, mere processing of the crude oil for its conver-
sion to refined oil, cannot be said to be 'manufacture' of new goods so as
to make the appellant liable for tax thereupon under Section 3(3)(b)(iii)
of the Act. In support of his contention he relied upon the judgments of F
this Court in "Mis. Tungabhadra Jndustlies Ltd. v. 11te Commercial Tax
Office1; Kwnool, [1961) 2 SCC 14; M/s. Sterling Foods v. State of Kamataka
& Anr., [1986) 3 SCC 469 and State of Maharashtra v. M/s. Shiv Datt & Sons
and Ors., [1993) supp. (1) SCC 222."

In response Mr. Misra, appearing for the respondent-State, sub- G
mitted that the appellant was liable to pay tax on the refined oil inasmuch
the meaning of the word 'manufacture' in Section 2( e-1) of the Act clearly
envisages any sort of processing. Therefore, he contended, the question
whether the crude oil maintained its character as oil even after refinement
was redundant. H
400
.
SUPREME COURT REPORTS [1998) SUPP.1 S.C.R .

A Under section 2(e-I) of the Act '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. Sec-
tion 3 of the Act, so far as it is relevant for our purposes reads as under:

B "3. Liability to tax under the Act.

(1) Subject to the provisions of this Act, every dealer shall, for
each assessment years, pay a tax at the rates provided by or
under Section 3-A or Section 3-D on his turnover of sales or
purchases or both, as the case may be which shall be deter-
c mined in such manner as may be prescribed.

(2) No dealer shall, except as otherwise provided in Section 18,
be liable to tax under sub-section (I) if, during the assessment
years, the aggregate of his turnover of-
D
(a}........ .

(b) ........ .

(c) ........ .
E (d) ........ .

3. Nothing in sub-section (2) shall apply in respect of-

(a) ........

F ' (b) the sale by a dealer of -

(i) .........

(ii)· goods purchased or imported by furnishing and declaration
of certificate prescribed under any provision of this Act; and
G
(iii) goods manufactured by him by using the goods referred to in
sub-clause (I) or sub-clause (ii).

4 .......... .

H 5 ..........."
B.P. OIL MILLS LTD. v. SALES TAX TRIBUNAL [M.K MUKHERJEE, J.J 401

When the provisions of the above Section are read in juxtaposition A
.vi.th the definition of the word 'manufacture' it is abundantly clear that a
dealer will be liable to pay tax on sale of any goods he manufactures by
processing the goods he purchased by complying with the requirements of
clause (ii) above.

B
The word 'processing' has, however, not been defined under the Act
but it has been the subject matter of interpretation by this Court in various
cases including that of Chowgule & Co. Pvt. Ltd. & Anr. v. Union of India
& Ors. (1981] 1 SCC 653. Taking a cue from the definition of the word
'process' in Webster Dictionary, this Court observed therein that where any
commodity is subjected to a process or treatment with a view to its c
development or preparation for the market it would amount to processing.
The nature and extent of processing may vary from case to case; in one
case the processing may be slight and in another it may be extensive; but
in each process suffered the commodity would experience a change. This
Court further observed that whatever be the means employed for carrying D
out the prncessing operation, it is the effect of the operation on the
commodity that is material for the purpose of determining whether the
operation constitutes processing. Viewed in the context of the above mean-
ing given to the word 'processing' by this Court there cannot be any manner
of doubt that the nature and extent of the process to which the crude oil
is subjected to make it refined oil brings the latter within the meaning of E
the expression 'goods manufactured' in Section 3(3)(b)(iii) of the Act so
as to make the appellant liable to pay tax on its sale.

Coming now to the decisions relied upon by Mr. Swarup, we find
that none of them has any manner of application to the facts of the instant F
case. In Tungabhadra Industries (supra) the sole question that came up for
consideration was whether consequent upon its conversion to
hydrogenated oil by improving its quality ground nut oil lost its identity. In
answering this question in the negative this Court held that refined
groundnut oil (hydrogenated· oil) continues to be groundnut oil not-
withstanding that such oil does not possess the characteristic colour, or G
taste, odour etc. of the raw groundnut oil. Indeed, the controversy in that
I
case centred round the interpretation of the expression 'groundnut -qi!'
appearing in Madras General Sales Tax (Turnover and Assessment) Rules,
1939. Neither the expression 'manufacture' nor the expression 'processing'
directly came up for interpretation in that case. In Sterling Foods (supra) H
402 SUPREME COURT REPORTS (1998) SUPP. l S.C.R.

A the question that arose for determination was whether shrimps, prawns and
lobsters subjected to processing like cutting of heads and tails, peeling,
deveining, cleaning and freezing cease to be the same commodity and
become a different commodity within the meaning of section 5 of the
Central Sales Tax Act, 1956. In answering the above question this Court
B applied the 'commercial parlance' test and relying upon its earlier judg-
ment in Dy. C.S. T. v. Pio Food Packers, (1980] 3 SCR 1271 held that
processed shrimps, prawns and lobsters are not a new and distinct com-
modity but they retain the same character as the original shrimps, prawns
and lobsters even after the processing. This case is of no assistance to the
appellant for unlike the above commodity, the crude oil does not at all
C retain its earlier character after processing.

In Shiv Datt and Sons (supra) the question was whether the dealer
was entitled to the concession provided in Section 8 of the Bombay Sales
Tax Act, 1959 of such part of their turnover as represented the resale of
D batteries purchased by them from a registered dealer. Interpreting the
meaning of the word 'resale' under Section 2(26), and the word
'manufacture' in that Act and the nature of process applied by the dealer
before their sale, this Court held that basically speaking the goods pur-
chased by the dealer from the manufacturers as well as the goods sold by
the former are one and the same for nothing was done to the goods afresh
E which had not been done already. The above case also does not come in
aid of the appellant: firstly, because it considered the definition of
'manufacture' (which, of course, is identical with its definition under the
Act) in the context of 'resale' of goods as defined in that Act and secondly,
because of the nature and extent of the process which the crude oil
F undergoes to radically change itself to marketable refined oil.

The other contention raised by Mr. Swamp was that they had pur-
chased the crude oil after payment of tax and hence they cannot be made
liable to pay tax again for its sale. This contentio~ has to be stated only to
be rejected for the Act expressly provides imposition of multistage taxation
G under clauses (ii) and (iii) of Section 3(3)(b) of the Act.

For the foregoing discussion the appeal fails and is hereby dismissed,
There will be no order as to costs.

v.s.s. Appeal dismissed.