Holding

Mounting the body on the chassis creates a new commercial commodity, amounting to "manufacture" under Section 2(e‑1) of the U.P. Sales Tax Act, 1948, and therefore the sale is liable to purchase tax under Section 3‑AAAA.

Summary

M/S Kumar Motors, Bareilly purchased auto‑rickshaw chassis and bodies separately and assembled them before sale. The issue was whether this assembly amounted to "manufacture" under Section 2(e‑1) of the U.P. Sales Tax Act, 1948 and consequently attracted purchase tax under Section 3‑AAAA despite the use of Form III‑A. The Court held that mounting the body on the chassis creates a new commercial commodity, qualifying as manufacture, and that the exemption under Form III‑A applies only when the goods are sold in the same form and condition as purchased. Accordingly, the sale of the assembled auto‑rickshaw was liable to purchase tax. The appeal was dismissed with costs.

Issues considered

Whether mounting the body of an auto‑rickshaw on a chassis constitutes "manufacture" within the meaning of Section 2(e‑1) of the U.P. Sales Tax Act, 1948.
Whether the sale of the assembled auto‑rickshaw is liable to purchase tax under Section 3‑AAAA despite the exemption provisions of Form III‑A.
Whether the exemption under Form III‑A applies when the purchased components are altered to create a different commercial commodity.

Legislation cited

Subjects

purchase taxmanufactureU.P. Sales Tax ActForm III‑Aauto rickshawstatutory interpretationcommercial commoditytax liability

Judgment

A M/S KUMAR MOTORS, BA REILLY
v.
COMMISSIONER OF SALES TAX, U.P. LUCKNOW

FEBRUARY 2, 2007

B [S.B. SINHA AND MARKANDEY KATJU, JJ.]

U.P. Sales Tax Act, 1948-ss. 2 (e-1) and 3-AAAA-Purchase tax-Sale
of Auto Rickshaw after mounting the body on the chasis thereof-Liability
C to purchase tax-Held: Sales made by the assessee of chasis with mounted
body would be a selling product which is in different condition from the
chasis or the body and hence liable to purchase tax-U.P. Sales Tax Rules,
1948-r. l 2-A.

Interpretation of Statutes-Provisions of statutes-Interpretation of-
D Held: While interpreting provisions of a statute, Court is required to
give a literal meaning to the expression used by legislature.

Taxing Statute-Interpretation of-Held: In construing a taxing Statute, ,
vis-a-vis the taxable event, no hypothesis ordinarily should be raised. .
E Words and Phrases:

'Manufacture'-Meaning of in the context of U.P. Sales Tax Act, 1948.

The question for consideration in the present appeal was whether
F mounting of the body of the Auto Rickshaw on the Chasis thereof would
amount to 'manufacture' within the meaning of section 2 (e-1) ofU.P. Sales
Tax Act, 1948 and thus whether such manufacturer was liable to pay purchase
tax on the sale thereof.

Dismissing the appeal, the Court
G HELD: 1. The sales made by the assessee of chassis with mounted body
would be selling a product which is in different condition from the chassis or
the body, and, thus, the same would be liable to purchase tax under sub-section
(a) of Section 3-AAAA of the Act. (Para 13] (179-DI

H 174
~·

KUMAR MOTORS. BAREILLY '· COMMNR. OF SALES TAY., U.P. LUCKNOW 175
2. It is not in dispute that the appellant sold Auto Rickshaw after the A
~r-
body was mounted on the chassis with the help of nuts and bolts. The meaning
of 'manufacture' in terms of the statutory provision is of wide amplitude. It
takes within its sweep not only a new product but also alterations made in an
existing product. 'Auto Rickshaw' in ordinary commercial parlance cannot
be said to be its body or chassis. It has a definite connotation. [Para 11)
[178-H; 179-A)
B
3. A commodity is identified by ordinary commercial parlance. Auto
rickshaw is an auto rickshaw. It can be sold only as a combination of chassis
~ and the body mounted thereupon, and not body or chassis separately. If it is
so done, consequences may be different. (Para 15) (179-G)
c
4. The Tribunal also opined that by mounting auto rickshaw body on the
chassis a new product comes into being. However, it had proceeded to hold
that both chassis and auto rickshaw being under the same entry no tax would
be payable. The Tribunal was not correct in that behalf as it failed to take
into consideration the fact that if two articles were purchased by the assessee
D
and the articles it sold were different commodities; purchase tax would be
payable therefor as the terms and conditions laid down in Form 3-A had not
been satisfied. [Para 22] (183-E]
~
5. The Court is required to give a literal meaning to the expression
used by the Legislature, while interpreting the provisions of a statute. In terms E
of Form III-A, a trader would be exempted from payment of purchase tax only
in the event the terms and conditions thereof are satisfied. Necessary condition
for obtaining such exemption is that the assessee must sell the commodity it
purchased in the same form and condition. (Para 13) [179-C)

6. Tax is payable when the taxable event occurs. In construing a taxing F
statute, vis-a-vis, the taxable event, no hypothesis ordinarily should be raised.
(Para 141

Commercial Tax Officer, Anti Evasion-I v. Rajesh Motors and Anr.,
(1997) 107 468, disapproved.
G
Dy. Commissioner of Sales Tax (Law) Board of Revenue (Taxes),
Ernakulam v. Mis. Pio Food Packers (1980) Suppl. SCC 174; Mis. Stre/ing
-t Foods. Partnership film represented by its partner Sh. Amesh Dalpatram v.
State of Karnataka and Anr., (1986] 3 SCC 469, distinguished.

Sonebhadra Fuels v. Commissioner, Trade Tax, U.P. Lucknow, [2006) 7 H
176 SUPREME COURT REPORTS (2007] 2 S.C.R.

A SCC 322; State ofKarnataka v. Azad Coach Builders (P) Ltd. and Ors., (2006)
3 SCC 338; Kores India ltd, Chennai v. Commissioner of Central Excise,
Chennai, (200S I 1 SCC 38S; O.K. Play (India) Ltd. v. Commissioner of
Central Excise-II, New Delhi, [200S) 2 SCC SSS, referred to

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 427 of2007.
B
From the final Judgment and Order dated 26-4-2004 of the High Court
of Judicature at Allahabad in S.T.R. No. 189311993.

Dhruv Agarwal and Praveen Kumar for the Appellant.

C Gaurav Banerjee, Kamlendra Mishra and Rajeev Dubey for the
Respondents.

The Judgment of the Court was delivered by

S.B. SINHA, J. I. Leave granted.
D
2. Appellant herein deals in manufacture and sale of Auto Rickshaw.
For the said purpose, it purchases body of Auto Rickshaw from Mis. Apollo
Builders, a sister concern of Mis. Scooters India Ltd. and chassis thereof from
Mis. Scooters India Ltd.

E 3. The question which arises for consideration in this appeal is as to
whether mounting of the body of the Auto Rickshaw on the Chassis thereof
would amount to 'manufacture' within the meaning of Section 2 (e-1) of the
U.P. Sales Tax Act, 1948 ('the Act', for short).

4. It is not in dispute that the appellant had purchased 'Vikram three
F wheeler Chassis' upon issuing III-A form from Mis. Scooters India Ltd. It did
not pay any purchase tax in respect of the purchases made from Mis. Appolo
Builders. Appellant was held to be liable to pay purchase tax on the premise
that upon mounting the body of Auto Rickshaw on the chassis and sale
having not been made on the same condition and form, purchase tax was
G leviable.
5. The contention of the appellant is that having regard to the provisions
contained in Section 3-AAAA of the Act, no purchase tax is payable as the
condition remained the same. In any event having regard to the Entry 43B
and having regard to the fact both chassis and body of three wheelers came
H within the purview of 'auto rickshaw', which find place in the same entry,
KUMAR MOTORS, BAREILLY '· COMMNR. OF SALES TAX, U.P. LUCKNOW [S.B. SINHA, l.) J77

no tax was payable. Reliance, in this behalf, has been placed on the decision A .
of Commercial Taxes Officer, Anti Evasion-I v. Rajesh Motors & Anr., [1997]
107 STC 468; the decision of a Rajasthan Taxation Tribunal as also the
decision of Dy. Commisioner of Sa/ex Tax(Law). Board of Revenue (Taxes),
Ernakulam v. Mis. Pio Food Packers, [1980] Supp. S.C.C. 174 and Mis.
Sterling Foods, a Partnership firm represented by its partner Sh. Amesh B
Dalpatram v. State of Karnataka & Anr., [I 986] 3 SCC 469.

6. The Act was enacted to provide for levy on the tax of purchase of
goods in the State of U.P.

7. 'Manufacture' has been defined in section 2(e-l) of the Act to mean: C
"(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."

8. Section 3-AAAA provides for liability to pay tax on goods under D
certain circumstances. It reads as under:-

"I. Subject to the provisions of section 3, every dealer who purchases
any goods liable to tax under this Act:-

(a) from any registered dealer in circumstances in which no tax is E
payable by such registered dealer, shall be liable to pay tax on the
purchase price of such goods at the same rate at which, but for such
circumstances, tax would have been payable on the sale of such
goods;

(b) from any person other than a registered dealer whether or not Tax F
is payable by such person, shall be liable to pay tax on the purchase
price of such goods at the same rate at which tax is payable on the
sale of such goods:

Provided that no tax shall be leviable on the purchase price of such
goods in the circumstances mentioned in clauses (a) and (b) if- G
(i) Such goods purchased from a registered dealer have already been
subjected to tax or may be subjected to tax under this Act;

(ii) tax has already been paid in respect of such goods purchased from
any person other than a registered dealer; H
178 SUPREME COURT REPORTS [2007] 2 S.C.R.

A (iii) the purchasing dealer resells such goods within the State or in the
course of inter-State trade or commerce or exports out of the territory
of India, in the same form and condition in which he had purchased
them;

(iv) such goods are liable to be exempted under Section 4-A of this
B Act."

9. It has been noticed herein before that in regard to the purchases
made from Mis. Scooters India Ltd. Form IIIA has been utilized. Similar
purchases of Auto Rickshaw body were made from Appolo Builders against ~
issuance ofForrn III-A prescribed in terms of Rule 12-A of the U.P. Sales Tax
C Rules, 1948, which, inter-alia, provides for the following condition :

"2. I further certify that out said form has purchased for sale in the
same condition (description of goods) against Bill/Cash memo
No ............... ., dated .................. from Mis ............................... .

D Place ............ .

Date ............... "

10. Entry at serial No. 43(1) contained in the Notification dated 7.9.1981
reads as under:
E "43(1) Motor vehicles including motor cars, motor taxi cabs, motor
cycles, motor cycle combinations, motor scooters, mopeds, motorists,
motor omnibuses, motor vans, motor lorries, motor trucks, jeeps, station
wagons and chassis of motor vehicles and bodies or tankers or motor
caravans built or meant for mounting on chassis of motor vehicles,
F but excluding tractors whether on wheels or on tracts."

11. The entry states which goods would come within the purview of the
the 'Motor Vehicle' for the levy of the tax. It does not say even if tax had
not been paid, despite changes in the form, no tax would be payable. In our
opinion, the goods in terms of the aforementioned condition contained in
G Form III-A should, thus, have been made for in the same condition. It is not
in dispute that the appellant sold Auto Rickshaw after the body was mounted
on the chassis with the help of nuts and bolts. The question which arises for
consideration is as to whether the end product sold by the appellant is a ~
different commercial commodity which came into existence only upon
H undertaking the 'manufacturing process' as is defined under Section 2(e-i) of
KUMAR MOTORS, BAREILL Y ,., COMMNR. OF SALES TAX, U.P. LUCKNOW [S.B. SINHA, l.] J79

the Act. The meaning of 'manufacture' in terms of the statutory provision is A
of wide amplitude. It takes within its sweep not only a new product but also
alterations made in an existing product.

12. 'Auto Rickshaw' in ordinary commercial parlance cannot be said to
be its body or chassis. It has a definite connotation. The contention that
once those nuts and bolts are removed the chassis and the body would be B
restored to their original position, in our considered opinion, is of not of much
significance.

13. The Court is required to give a literal meaning to the expression used
by the Legislature, while interpreting the provisions of a statute. In terms of C
Form III-A, a trader would be exempted from payment of purchase tax only
in the event the terms and conditions thereof are satisfied. Necessary condition
for obtaining such exemption is that the assessee must sell the commodity
it purchased in the same form and condition. The requirement of law, thus,
is that goods once sold to a registered dealer must be sold in the same form
and condition in which he had purchased. We have no doubt in our mind that D
the sales made by the assessee of chassis with mounted body would be
selling a product which is in different condition from the chassis or the body,
and, thus, the same would be liab.le to purchase tax under sub-section (a) of
Section 3-AAAA of the Act.

14. The decision of the Rajasthan Taxation Tribunal in Rajesh Motors E
(supra) in our opinion does not lay down the correct law. In that case the
Tribunal proceeded on a wrong premise that on removal of nuts and bolts
fixed the chassis and body would get separated and the original position
would be restored without their change in the structure, nature and identity.
It was, in our opinion, not a relevant question. Tax is payable when the F
taxable event occurs. In construing a taxing statute, vis-a-vis, the taxable
event, no hypothesis ordinarily should be raised.

15. A commodity is identified by ordinary commercial parlance. Auto
rickshaw is an auto rickshaw. It can be sold only as a combination of chassis
and the body mounted thereupon, and not body or chassis separately. If it G
is so done, consequences may be different.

~ 16. Furthermore, the definition of 'manufacture' under the Rajasthan
Sales Tax Act, 1994 is different from the one under the U.P. Act, which is as
under:
H
180 SUPREME COURT REPORTS [2007] 2 S.C.R.

A "Manufacture" iRcludes every processing of goods which bring into
existeRce a commercially different and distinct commodity but shall
not include such processing as may be notified by the State
Government."

17. A bare comparison of the definitions of the said term under the
B Rajasthan Act and the U.P. Act categorically points out that the definition of
'manufacture' under the latter is wider. This has been so held in Sonebhadra
Fuels v. Commissioner, Trade Tax, U.P. Lucknow, [2006] 7 SCC 322 in the
following terms :

"We may mention that, as noted above, decisions construing the
c word "manufacture" in other statutes are not necessarily applicable
when interpreting Section 2( e-1) of the U.P. Trade Tax Act. As stated
above, th1: definition of "manufacture" in Section 2(e-I) of the U.P.
Trade Tax Act is very wide, which includes processing, treating or
adapting any goods. Hence, in our opinion, the expression
D "manufacture" covers within its sweep not only such activities which
bring into existence a new commercial commodity different from the
articles on which that activity was carried on, but also such activities
which do not necessarily result in bringing into existence an article
different from the articles on which such activity was carried on. For
example, the activity of ornamenting of goods does not result in
E manufacturing any goods which are commercially different from the
goods whic.h had been subjected to ornamentation, but yet it will
amount to manufacture within the meaning of Section 2(e-I) of the U.P.
Trade Tax Act since an artificial meaning of "manufacture" is given
in Section 2(e-.J). Hence, whether the commercial identity of the goods
subjected to the processing, treating or adapting changes or not, is
F
not very material.

xxx xxx xxx xxx

Learned counsel for the appellant, Shri Rakesh Dwivedi submitted
that coal briquettes are produced merely by using a binding material
G such as clay or molasses along with the coal, and hence he submitted
that the identity does not'change. We regret, we cannot agree with
his submission. Firstly, we do not agree that the coal briquettes are t
the same commercial commodity as coal. In our opinion, coal is a raw
material for making coal briquettes. The method of manufacturing coal
H briquettes has been stated above, and this certainly is processing,
KUMAR MOTORS, BAREILLY '- COMMNR. OF SALES TAX, UP. LUCKNOW [S.B. SINHA, J.] 181

treating or adapting the coal. The appellant manufactures coal A
briquettes by compiling the hard coke breeze mechanically with the
help of cinders, which is usually 5% of the total hard coke breeze. In
the compilation of the hard coke breeze, 95% of the hard coke hreeze,
which is known as coal dust or breeze coke is taken which is compiled
with the help of clay and molasses. Hence, in our opinion, coal B
briquettes is a different commercial commodity from coal. Moreover,
even if it is not a different commercial commodity, the process of
making coal briquettes will amount to a "manufacture" as it is
processing, treating or adapting coal. In our opinion, by the processing
of coal to make coal briquettes, the coal dust loses its identity. Coal
briquettes and coal dust are two different commodities in substance C
as well as in characteristics. The coal briquettes are altogether in
different shape, form and moisture as well as characteristics, as
compared to coal dust."

18. We are, however, not oblivious of the fact that a Division Bench of
this Court in State of Karna/aka v. Azad Coach Builders (P) Ltd. and Ors., D
[2006] 3 SCC 338, in view ofthr provisions of Section 5(3) of the Central Sales
Tax Act, 1956 vis-a-vis the provisions of the Karnataka Sales Tax Act, 1957
had referred the question of interpretation of the words 'in relation to such
exports' to a larger Bench, noticing the decisions of this Court in Mohd.
Serajuddin v. State of Orissa, [1975] 2 SCC 47, on the one hand and Sterling E
Foods v. State ofKarnataka, [ 1986] 3 SCC 469 and Vijayalaxmi Cashew Co.
v. C.T.O., [1996] I SCC 468 on the other. We, however, are not concerned with
such a question in this case.

19. We may also notice that the term "manufacture" has been considered
in Kores India Ltd., Chennai v. Commissioner of Central Excise, Chennai, p
-J [2005 I SCC 385 by this Court stating ;

"At this juncture it is relevant to point out that the assessee had
contended before the Collector that the inputs/raw materials used
have suffered excise duty and if any duty is payable, they should be
allowed MODY AT credit and the proportionate amount on account of G
such credit should be deducted from the proposed demand. This plea
was turned out as required documentary evidence to show that entire
quantity of inputs used have suffered tax was not produced. Before
CEGA T it was accepted that there was possibility that manufacturers
were operating under exemption available to SSI units and the goods
H
182 SUPREME COURT REPORTS [2007] 2 S.C.R.

A would have discharged "nil" duty. It was also accepted that since the
goods were received from the depots and not directly received from
one factory, therefore, any duty (paying documents) were not available.
It is to be noted that once the jumbo rolls are cut into smaller sizes,
they completely lose their earlier identity and cannot be used for the
same purpose as was done before cutting. In a hypothetical case,
B even if the smaller-sized ribbons are stitched together or fixed together
in any manner, there is no possibility of its use as jumbo rolls. The
factual findings recorded that the processing resulted in coming into
existence of a commercial product having distinct name, character, and
use are on terra finna"
c 20. In O.K. Play (India) Ltd. v. Commissioner of Central Excise-II.
New Delhi, [2005] .2 SCC 555 it has been held :

"Section 2(f) contains two clauses and instead of setting out the
activities in respect of different tariff items, sub-cla\lse (ii) simply
D states that any process, which is specified in section/chapter nott>~
of the schedule to the Tariff Act, shall amount to "manufacture".
Under sub-clause (ii), the legislature intended to levy excise duty on
activities that do not result in any new commodity. In other words,
if a process is declared as amounting to "manufacture" in the section
or chapter notes, it would come within the definition of "manufacture"
E under section 2(f) and such process would become liable to excise
duty. The effect of this definition is that excise duty can be levied
on activities which do not result in the production of a new commodity
or where the raw material does not undergo such a transfonnation as
to lose its original identity."
F 21. The decision of this Court in Mis. Pio Food Packers (supra), is not
applicable to the facts of this case. Therein, this Court was concerned with
the provisions of Kerala General Sales Tax Act. The assessee therein used to
carry on business of manufacturing and selling of canned fruit. Having
regard to the factual matrix involved therein it was held that there was no
G difference between pineapple fruit and the canned pineapple slices. Mis. Pio
Food (supra) was followed by this Court in Mis. Sterling Foods (supra).
Therein again the Court was concerned with selling of shrimps. It was held:
t
"Here in the present case, it was not disputed on behalf of ·
revenue that the purchases of raw shrimps, prawns and lobsters were
H
KUMAR MOTORS, BAREILL Y "· COMMNR OF SALES TAX, U.P. LUCKNOW [S.8. SINHA,J.] 183
made by the appellants for the purpose of fulfilling existing contracts A
for export and after making such purchases the appellants subjected
raw shrimps, prawns and lobsters purchased by them to the proces~
of cutting of heads and tails, peeling deveining, cleaning and freezing
and exported such processed and frozen shrimps, prawns and lobsters
in fulfillment of the contracts for export. The only argument raised B
on behalf of revenue was that the goods which were exported were
not the same as the goods purchased by the appellants because raw
shrimps, prawns and lobsters after processing ceased to be the same
commodity and became a new distinct commodity. But, for reasons
which we have already discussed, this argument cannot be sustained.
The shrimps, prawns and lobsters purchased by the appellants did C
not lose their original character and identity when they were subjected
to processing for the purpose of export. So far as commercial parlance
or popular usage is concerned, they remained the same goods and
hence the purchases of raw shrimps, prawns and lobsters by the
appellants must be held to be purchases in the course of export and
hence exempt from liability to tax under the Karnataka Sales Tax Act." D

The said decision has no application to the facts of the present case.

22. The Tribunal also opined that by mounting auto rickshaw body on
the chassis a new product comes into being. However, it had proceeded to
ho Id that both chassis and auto rickshaw being under the same entry no tax E
would be payable. The Tribunal was not correct in that behalf as it failed to
take into consideration the fact that if two articles were purchased by the
assessee and the articles it sold were different commodities; purchase tax
would be payable therefor as the terms and conditions laid down in Form 3-
A had not been satisfied. F
23. For the reasons aforementioned, we do not find any merit in this
appeal. It is dismissed accordingly with costs. Counsel's fee .assessed at
Rs. I 0,000/-.

K.K.T. Appeal dismissed. G