Holding

The making of coal briquettes is a manufacture involving processing, treating or adapting coal, resulting in a distinct commercial commodity, and therefore the sale of coal briquettes is liable to tax.

Summary

M/S Sonebhadra Fuels, which manufactures coal briquettes (coal tikli), sought exemption/rebate of sales tax on the basis that the briquettes were the same commodity as coal, which had already been taxed. The Assessing Authority, Appellate Authority and the Sales Tax Tribunal rejected the claim, holding the briquettes to be taxable. The Supreme Court examined the definition of "manufacture" under Section 2(e‑1) of the Uttar Pradesh Trade Tax Act, which includes processing, treating or adapting any goods. Relying on earlier decisions, the Court held that the process of making coal briquettes transforms coal dust into a distinct commercial commodity, thereby constituting manufacture. Consequently, the briquettes are liable to tax and the appellant's claim for exemption was dismissed.

Issues considered

Whether coal briquettes are the same commercial commodity as coal for purposes of tax exemption under Section 3‑A of the UP Trade Tax Act.
Whether the process of making coal briquettes amounts to "manufacture" within the meaning of Section 2(e‑1) of the UP Trade Tax Act.
Whether tax can be imposed on coal briquettes when tax has already been levied on coal under the Central Sales Tax Act.

Legislation cited

Subjects

manufacturecoal briquettessales tax exemptionUP Trade Tax Actdefinition of manufacturecommercial commoditytaxabilityprocessing

Judgment

M/S. SONEBHADRA FUELS A
v.
COMMISSIONER, TRADE TAX, U.P. LUCKNOW

AUGUST I, 2006

[ASHOK BHAN AND MARKANDEY KATJU, JJ.] B

UP Trade Tax Act;

Section 3-A-Coal briquettes-exemption/rebate of sales tax-whether
permissible-Held, on facts, the process of making coal briquettes will amount C
to 'manufacture' and as such the coal briquettes are not the same commercial
commodity as coal, hence, liable to tax-Section 2(e-1).

The appellant is carrying on business in coal and aloo manufactures
'coal briquettes,, popularly known as 'coal tikil'. The assessee applied for D
exemption/rebate of sales tax claiming that the coal briquettes are the same
commodity as coal which had already been subjected to tax. However, his
claim was rejected by the Assessing Authority, the appeal was also
dismissed by the Appellate Authority. Further appeal to the Tribunal was_
referred to a larger Bench of five members which decided against the
assessee. Notifications issued, at different stages, under Section 3-A of the E
UP Trade Tax Act provided that coal included coke in all its forms, but
excluded charcoal. Coal is a declared commodity under Section 14 of the
Central Sales Tax Act, 1956 and the entry given in clause (i-a) reads "coal
including coke in all its forms, but excluding charcoal."

It was contended by the appellant, that coal briquettes are same as F
coal and hence no liability of tax can be fastened on the sale of coal
briquettes. It was further contended that under Section 15 of the Central
Sales Tax Act, tax cannot be imposed on declared goods at more than one
stage. As the ·coal-dust has already been subjected to tax, he submitted
that 'coal tiklies' are not taxable. It was also contended that coal briquettes G
are produced merely by using a binding material such as clay or molasses
along with the coal, and hence he submitted that the identity does not
change.

It was contended by the respondent that coal briquettes is a different
213 H
214 SUPREME COURT REPORTS (2006] SUPP. 4 S.C.R.

A chimerical commodity from coke or coal, and since coal tiklies are made
from coal dust by processing or manufacturing in which the coal dust loses
its original form, quality etc., it amounts to 'manufacture."

Dismissing the appeals, the court

B HELD: I.I. The definition of 'manufacture' in Section 2(e-I) of the
UP Trade Tax Act 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
C the articles on which such activity was carried on, meaning thereby that
the commercial identity of the goods subjected to the processin~, treating
or adapting changes or not, is not very material. (220-D-E-F-G(

Mis. B.P. Oil Mills ltd. v. Sales Tax Tribunal and Ors., AIR (1998) SC
3055, relied upon.
D Chowgule & Co. Pvt. ltd. v. Union of India, AIR (1981) SC 1014; Devi
Das Copa! Krishnan etc. v. State of Punjab and Ors., AIR (1967) SC 1895;
Ashirwad !spat Udyog and Ors. v. State level Committee and Ors., (1998( 8
SCC 85; Deputy Commissioner ofSales Tax (law), Board of Revenue (Taxe:,~,
Ernakulam v. Mis. Coco Fibres, AIR (1991) SC 378; Mis. Saraswati Sugar
E Mills v. Haryana State Board and Ors., AIR (1992) SC 224; Union of Jndia
and Anr. v. Delhi Cloth and General Mills Co. ltd., AIR (1963) SC 791;
Rajasthan State Electricity Board v. Associated Stone Industries and Anr.,
(2006) 6 SCC 141; State of Maharashtra and Anr. v. Mahalaxmi Stores,
(2003( I SCC 70; Aspinwall & Co. ltd. v. Commissioner of lncome Tax,
Ernakulam, (2001 ( 7 SCC 525; Ujagar Prints and Ors. v. Union of India and
F Ors., [1989) 3 SCC 488; Decorative laminates (lndia) Pvt. ltd. v. Collector
a/Central Excise, (1996] 10 SCC 46; Gramophone Co. India ltd v. Collector
of Customs, (2000] I SCC 549 and laminated Packings (P) ltd. v. Collector
of Central Excise, (1990( 4 SCC 51, referred to.

G 2. I. The coal briquettes are not the same commercial commodity as
coal. Coal is a raw material for making coal briqut:ttes. The method of
manufacturing coal briquettes certainly is a processing, treating or
adapting the coal. The findings of fact given by the Tribunal that 'coal
dust' and 'coal briquettes' are entirely different commerical commodities

H
are not to be interfered with, (221-C-F(
--
SONEBHADRA FUELS'· COMMISSIONER. TRADE TAX. U.P. LUCKNOW [MARKANDEY KAT JU, J.] 215

2.2. The process of making coal briquettes will amount to A
'manufacture' as it is processing, treating or adapting coal. By the
processing of coal to make coal briquette, the coal dust loses its identity.
Coal briquettes and coal dust are two different commodities in substance
as well as in characteristics. The coal briquettes are altogether in different
shape, form and moisture as well as characteristics, as compared to coal B
dust. 1221-D-El

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1790 of2005.

From the Judgment and Order dated 25.6.2004 of the High Court of
Allahabad in Trade Tax Revision No. 1261 of 2004.
c
WITH

C.A. Nos. 1791, 1792 and 1793/2005.

Rakesh Dwivedi, C.L. Pandey, P.K. Goswami and P.K, Jain for the
Appellant. D
Subodh Markandeya, Kamlendra Mishra, Rajeev Dubey and C.S. Ashri
for the Respondent.

The Judgment of the Court was delivered by
E
MARKANDEY KATJU, J. Civil Appeal No. 1790 of 2005 has been
filed against the judgment and order dated 25.6.2004 of the learned Single
Judge of the Allahabad High Court in Trade Tax Revision No. 1261 of2004
Mis. Sonebhadra Fuels, Ravinagar, v. Commissioner, Trade Tax, U.P.,
Lucknow.
F
Heard learned counsel for the parties.

The appellant is carrying on business in coal and also manufactures
'coal briquettes', popularly known as 'coal tikli'.

The assessee applied for exemption/rebate of sales tax claiming that the G
coal briquettes are the same commodity as coal which had already been
subjected to tax. However, his claim was rejected by the Assessing Authority
vide Assessment Order dated 31.3.1999. Aggrieved, he filed an appeal which
was dismissed by the Appellate Authority vide order dated 19.7.2001. His
further appeal to the Tribunal was referred to a larger Bench of five members H
216 SUPREME COURT REPORTS [2006] SUPP. 4 S.C.R.

A which decided against the assessee vide its order dated 16.3.2004.
The short argument submitted by Shri Rakesh Dwivedi, learned senior
counsel for the appellant, was that coal briquettes are as same as coal and
hence no liability of tax can be fastened on the sale of coal briquettes.

B Learned counsel for the appellant submitted that Notification No. ST-
11-5782 dated 7.9.1980, issued under Section 3-A of the UP Trade Tax Act
provided that coal included coke in all its forms, but excluded charcoal. The
same meaning was given to the word 'coal' in the subsequent Notification
No. ST-11-3685 dated 31.7.1986. In both the Notifications, the rate of tax was
C @4%. A similar meaning has been given in Notification No. ST-TIF-11-2372
dated 23.3.1998. Coal is a declared commodity under Section 14 of the
Central Sales Tax Act, 1956 and the entry given in clause (i-a) reads "coal
including coke in all its forms, but excluding charcoal". Learned counsel
submitted that under Section 15 of the Central Sales Tax Act, tax cannot be
imposed on declared goods at more than one stage. As the coal-dust has
D already been subjected to tax, he submitted that 'coal tiklies' are not taxable.

In reply, learned counsel for the respondent submitted that coal briquettes
is a different commercial commodity from coke or coal, and since coal tiklies
are made from coal dust by processing or manufacturing in which the coal
dust loses its original form, quality etc, it amounts to 'manufacture'.
E
The definition of'manufacture' in Section 2(e-I) of the U.P. Trade Tax
Act is as under:

"Manufacture means producing, making, mining, collecting, extracting,
altering, ornamenting, furnishing or otherwise processing, treating or
F adapting any goods, but does not include such manufactures or
manufacturing process as may be prescribed."

The above definition is very wide as held by this Court in Mis. B.P. Oil
Mills ltd v. Sales Tax Tribunal and Ors., AIR (1998) SC 3055. The definition
of 'manufacture' in Section 2(e-I) of the Act includes 'processing, treating
G or adapting any goods'. Thus, the meaning of 'manufacture' in the UP Trade
Tax Act is wider than that in the. Central Excise· Act, 1944. A dealer will be
liable to pay tax on sale of any goods he makes by processing, treating, or
adapting the goC1ds he purchased by complying with the requirements of
clause (ii) of Section 3(b) of the UP Trade Tax Act.
H
SONEBHADRA FUELS"· COMMISSIONER. TRADE TAX, UP. LUCKNOW [MARKANDEY KA TJU, J] 2 J7
In Mis. B.P. Oil Mills (supra), this Court referred to a large number of A
earlier rulings on this point and it is not necessary for us to refer to all of
them here. We may, however, refer to the decision in Chowgule & Co. Pvt.
Ltd. v. Union of India, AIR (1981) SC 1014 where this Court observed that
where any commodity is subjected to a process or treatment with a view to
its development or preparation for the market it would amount to processing. B
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. The Court further
observed that whatever be the means employed for carrying out the processing
operation, it is the effect of the operation on the commodity that is material
for the purpose of determining whether the operation constitutes processing. C
In B.P. Oil Mills (supra), the Supreme Court observed that refining
crude oil amounts to a 'manufacture'.

A Constitution Bench in Devi Das Gopal Krishnan etc. v. State of
Punjab & Ors., AIR ( 1967) SC 1895, while considering the case of extracting D
the oil from oil-seeds, held that the edible oils produced were different from
the oil seeds, and hence the edible oil produced is taxable though tax has
already been paid on the oil seeds. This Court referred to the dictionary
meaning of the 'manufacture' as 'to transform or fashion raw material into
a changed form for use' and held that oil is produced out of the seeds. The
process certainly transforms the raw materials into different articles for use, E
and therefore is taxable as a new commercial commodity. This Court further
explained that in a case where the scrap iron ingots undergo a vital change
in the process of manufacture and are converted into different commodities,
i.e. rolled steel sections, during the process the scrap iron loses its identity
and becomes a new marketable commodity and, therefore, the process is p
certainly one of manufacture.

In Ashirwad !spat Udyog & Ors. v. State Level Committee & Ors.,
[1998] 8 SCC 85, this Court considered the scope of the definition of the
term 'manufacture' under the provisions of Section 2U) of the Madhya Pradesh
General Sales Tax Act, 1958, which is in para-materia with Section 2( e-1) G
of the Act, and held that manufacture is not confined to a riew marketable
commodity but also includes old articles made saleable. The Court held as
under:

"Decisions construing the meaning of the word 'manufacture' as
used in other statutes do not apply unless the definition of that word H
218 SUPREME COURT REPORTS 12006] SUPP. 4 S.C.R.

A in the particular statute under consideration is similar to that construed
in the decisions. The plain construction of the special definition of
the word in a particular Act must prevail. In the special definition
given in Section 2(j) of the said Act 'manufacture' has been defined
as including a process or manner of producing, extrading, preparing
or making any goods. There can be no doubt whatsoever that
B 'collecting' goods does not result in the production of a new article.
There is, therefore, inherent evidence in the definition itself that the
narrow meaning of the word 'manufacture' was not intended to be
applied in the said Act. Again the definition speaks of 'the process
of lopping of branches (of trees), cutting the trunks'. The lopping of
c branches and the cutting of tnmks of threes also, self evidently, does
not produce a new article. The clear words of the definition therefore,
must be given due weight and cannot be overlooked 'llerely because
in other contexts the word 'manufacture' has been judicially held to
refer to the process of manufacture of new articles."

D In Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes),
Ernakulam v. Mis. Coco Fibres, AIR 1991 SC 378, this Court considered the
provisions of the Kerala General Sales Tax Act, 1984 wherein the term
'manufacturing process' was considered and held that conversion of coconut
husk into a coconut fibre was a manufacturing process. This Court held that
E by the process of manufacture, something is produced and brought into
existence which is different from that out of which it is made, in the sense
that the thing produced is by itself a commercial commodity capable of being
sold or supplied. The material from which the thing or product is manufactured,
may necessarily lose its identity or may become transformed into the basic
or essential prop~rties. The article that would emerge as a result of the process
F of manufacture must be a distinct and new article recognized or known as
such in the commercial parlance for sale or supply.

In Mis. Saraswati Sugar Mills v. Haryana State Board & Ors., AIR
( 1992) SC 224, this Court explained the distinction between manufacture and
processing observing that the construction of words and the meaning to be
G given for such words shall normally depend on the nature, scope and purpose
of the Statute in which it is occurring and to the fitness of the matter to the
Statute. This Court held that if a matter is processed, the product may not
lose its original character. For example, the vegetables may be processed
which even after processing, retain its character as vegetable while in
manufacturing, something is necessarily to be brought into existenc.! which
H
SONEBHADRA FULES '· COMMR. TRADE TAX. U.P. LUCKNOW [MARKANDEYKATJU, J] 2 J9
is different from that which originally existed in the sense that the thing A
produced is a commercially different mticle. Thus, a Statute is required to be
interpreted strictly and the definition clause must be examined in a correct
perspective giving the meaning of each word contained therein. The Court
held as under:

"Manufacture implies a change but every change is not B
manufacture, and yet every change of an article is the result of
treatment, labour and manipulation. The essential point thus is that in
manufacturing, something is brought into existence which is different
from that which originally existed in the sense that the thing produced
is by itself a commercially different commodity whereas in the case
of processing, it is not necessary to produce a commercially different C
article. Processing essentially effectuates a change in the form, contour,
physical appearance or chemical combination or otherwise by artificial
or natural means and in its more complicated form involves progressive
action in performing, producing or making something. (Vide Corn
Products Refining Co. v. Federal Trade Commission, (1944) CCA D
7)."

In Union of India & Anr. v. Delhi Cloth & General Mills Co. Ltd., AIR
(1963) SC 791, this Court explained the word 'manufacture' used as a verb
which is generally understood to mean bringing into existence of a new
substance and does not mean merely to bring some change in a substance, E
however, minor in consequence the change may be. In a manufacture, there
must be transformation and a different article must emerge having a distinctive
name, character or use.

A similar view has been reiterated in Rajasthan State Electlricity Board
v. Associated Stone Industries & Anr., (2000) 6 SCC 141. p
In State of Maharashtra & Anr. v. Mahalaxmi Stores, (2003) I SCC
70, this Court held that processing or variation of the goods or finishing of
goods would not amount to manufacture unless it results in emergence of a
new commercial commodity.

In Aspinwall & Co. Ltd v. Commissioner of Income Tax, Ernakulam, G
[2001] 7 SCC 525, this Court considered the meaning of the word
'manufacture' as it occurred in Section 32-A(I) & (2)(iii) in Income Tax Act
and held that the word must be understood in common parlance and it may
mean production of articles for use from raw or prepared materials by giving
such materials new forms, qualities or combination whether by hand labour H
220 SUPREME COURT REPORTS [2006] SUPP. 4 S.C.R.

A or machines. If the change made in the article results in a new and different
article, then it would amount to a manufacturing activity. In the said case, the
assessee after plucking or receiving the raw coffee berries made it undergo
nine processes to give it the shape of coffee beans. The net product was
absolutely different and separate from the input. The change made in the
article resulted in a new and different article which was recognized in the
B trade as a new and distinct commodity.

Similar views have been reiterated in Ujugar Prims und Ors v. Union
of India and Ors., [1989] 3 SCC 488; Decorative Laminates (India) Pvt. Ltd.
v. Collector of Central Excise, [ 1996] l 0 SCC 46; and <Jramophone Co.
C India Ltd. v. Collector of Customs, [2000] 1 SCC 549.

In Laminated Packings (P) Ltd. v. Collector of Central Excise, [1990]
4 sec 51. this Court held that lamination amounts to manufacture as it is
made out of the laminated kraft paper by a manufacturing process oflamination
using polyethylene etc. and, therdore, an entirely different good comes into
existence.
D
We may mention that, as noted above. decisions construing the word
'manufacLUrc' in other statutes are not necessarily applicable when interpreting
Section 2(e- I) of the UP Trade Tax Act. As stated above, the definition of
'manufacture' in Section 2(e-l) of the UP Trade Tax Act is very wide, which
includes processing, treating or adapting any goods. Hence, in our opinion,
E the expression '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
F of ornamenting of goods does not result in manufacturing any goods which
are commercially different from the goods which had been subjected to
ornamentation, but yet it will amount to manufacture within the meaning of
Section 2(e-l) of the UP Trade Tax Act since an artificial meaning of
'manufacture is given in Section 2(e-I ). Hence, whether the commercial
G identity of the goods subjected to the processing. treating or adapting changes
or not, is not very material.

The method of making coal briquettes is as follows:

"The raw material for coal briquettes is coal ground to generally,
below 2 mm. size. The crushed coal is mixed with suitable binders
H and pressed in briquetting press out of which regular shape required,
SONEBHADRA FUELS"· COMMISSIONER, TRADE TAX. U.P. LUCKNOW [MARKANDEY KATJIJ, J.) 22 J

briquettes may be carbonized in suitable carboniser. The size of coal A
(30-1 OOmm) required for manufacturing Special Smokeless Fuel (SSF)
is coal briquettes. No hinder is required to be used for production of
SSF)."
In our opinion, the process mentioned above is clearly processing,
treating or adapting the coal. Hence, in our opinion, it is a 'manufacture'. B
Learned counsel for the appellant Shri Rakesh Dwivedi submitted that
coal briquettes are produced merely by using a binding material 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 the same commercial commodity as C
coal. In our opinion, coal is a raw material for making coal briquettes. The
method of manufacturing coal briquettes has been stated above, and this
certainly is a processing, treating or adapting the coal. The appellant
manufactures coal 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 breeze, D
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 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 E
our opinion, by the processing of coal to make coal briquette, the coal dust
loses its identity. Coal briquettes and coal dust are tw'o different commodities
in substance 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.
F
A finding of fact has been given by the Tribunal that 'coal dust' and
'coal briquettes' are entirely different commercial commodities and we cannot
interfere with this finding of fact. The appeal is accordingly dismissed. No
costs.

Civil Appeal No. 1791-179312005 G
In view of the decision in Civil Appeal No. 1790/2005, these appeals
are accordingly dismissed. No costs.

B.K. Appeals dismissed.