Holding

Mining activity is distinct from manufacturing, and electricity used for pumping water from a mine does not qualify for exemption under the Rajasthan Electricity (Duty) Act, 1962.

Summary

The Rajasthan State Electricity Board (RSEB) sought electricity duty from Associated Stone Industries, which excavated stones from mines and cut them into slabs, arguing that the electricity used to pump water from the mines was part of the manufacturing process and therefore exempt under the 1962 notification. Subsequent notifications in 1963 and 1965 withdrew the exemption for mines, prompting RSEB to issue notices for duty. The trial court dismissed the plaintiff's injunction, the District Judge reversed that decision, and the High Court upheld the reversal. On appeal, the Supreme Court examined whether pumping water for mining constitutes "manufacture, production, processing or repair of goods" within the meaning of Section 3(3) of the Rajasthan Electricity (Duty) Act, 1962. The Court held that mining activity is distinct from manufacturing, the exemption for mines was consciously removed, and pumping water does not amount to a manufacturing process. Consequently, the plaintiff was not entitled to any exemption or reduced duty, and the suit was dismissed.

Issues considered

Whether electricity consumed for pumping water from a mine falls within the definition of "manufacture, production, processing or repair of goods" under Section 3(3) of the Rajasthan Electricity (Duty) Act, 1962.
Whether the cutting and polishing of stones into slabs constitutes manufacture of goods.
Whether the 1963 and 1965 notifications effectively withdrew the exemption granted to mines under the 1962 notification.

Subjects

electricity dutyexemptionmanufactureminingpumping watertaxationnotificationsinterpretation of statutes

Judgment

)Y
RAJASTHAN STATE ELECTRICITY BOARD Al
v.
ASSOCIATED STONE INDUSTRIES AND ANR.

MAY8, 2000

[SYED SHAH MOHAMMED QUADRI AND SHIVARAJ V. PATIL, JJ.] B

Rajasthan Electricity (Duty) Act, 1962-Section 3(3)-1962 Notifica-
tion exempted energy consumed in any industry in manufacture, production,
processing or repair of goods including mining activity-Notifications issued
in 1963 and 1965 withdrew exemption given to mines-Respondents consumed c
electricity for pumping water out of mines to facilitate mining activity-Notice
issued for payment of electricity duty after withdrawal of exemption-Trial
Court dismissed injunction suit filed by respondent which was later allowed
by District Judge-High Court con.finned order of injunction-On appeal
Held, Mining activity is distinguished from a manufacturing activity and the
exemption was consciously removed by the legislature-Excavation of stores D
from a mine and then cutting and polishing them into slabs does not amount
to manufacture of goods-When no new product comes into existence there is
no process of manufacture-Energy consumed for pumping out water cannot
be accepted as energy consumed in an industry in the manufacture, process-
ing, or repair of goods so as to claim exemption or reduced duty under the E
1963 and 1965 Notifications.

Words and Phrases-"Manufacture"-Meaning of.

A Notification was issued in 1962 exempting from duty the energy
consumed in any industry in the manufacture, production, processing or F
repair of goods, which also included mining activities. However, the two
subsequent Notifications issued in 1963 and 1965 withdrew the exemption
given to mines by the earlier notification.

The respondents excavate stones and convert them into slabs by
cutting and polishing. Electricity was being consumed for pumping out G
water from the mines in order to facilitate the mining activities. Electricity
}fl..
duty was levied under Section 3(3) of the Rajasthan Electricity (Duty) Act,
1962 as the exemption given to mines was withdrawn. Trial Court dis-
missed the injunction suit filed by the respondents but was later on allowed
by the District Judge. High Court confirmed the said order. Hence this H
1179
1180 SUPREME COURT REPORTS [2000] 3 S.C.R.
A appeal.

Appellant contended that consumption of energy for pumping out
water from the mine cannot be construed as energy consumed for manu-
facture, production, processing or repair of goods, that excavating stones
and then cutting and polishing them into slabs did not amount to manu-
B facture; and that the last two notifications had clearly withdrawn the
exemption in respect of mines.

Respondents contended that excavation of stones and then cutting
and polishing them into slabs amounted to manufacture.

C Allowing the appeal, the Court

HELD : 1. In the 1962 Notification tax was expressly exempted for
the energy consumed by or in respect of mines which was subsequently
omitted by the Notifications issued in 1963 and 1965. Electrical energy
was being consumed for pumping out water from mines for making them
D
ready for mining activity namely, excavating stones and thereafter cut-
ting and polishing them into slabs. Mining activity is distinguished from a
manufacturing activity and removal of this exemption in respect of mines
was done consciously so as to bring the mining activity within the purview
of Section 3 of the Rajasthan Electricity (Duty) Act. (1185-B-E]
E
2.1. The exemption given by the 1962 Notification was specifically
taken away. It was never pleaded that electricity was being used for
pumping out water from the mines which formed part of manufacturing
process. Excavation of stones from a mine and thereafter cutting them
and polishing them into slabs does not amount to manufacture of goods.
F The word "manufacture" generally and in the ordinary parlance in the
absence of its definition in the Act should be understood to mean bringing
into existence a new and different article having distinctive name, charac-
ter or use after undergoing some transformation. When no new product
as such comes into existence, there is no process of manufacture. The
G cutting and polishing of stones into slabs is not a process for manufacture
for obvious and simple reason that no new and distinct commercial
product came into existence as the end product still remained stone and
thus its original identity continued. (1186-C-F]

2.2. The word "manufacture" is not defined in the Act under which
H the three Notifications were issued. The words "manufacture" used in the
RAJASTHAN STATE ELECTRICITY BOARD v. ASSOCIATED INDUSTRIES [SffiVARAJ V. PATIL,J.] 1181
Notifications under Section 3(3) of the Act, a taxing statute should be A
understood in its commi;rcial sense, in the absence of the definition ofit in
the statute itself. The definitions of''manufacture'' given in other enactments
such as Factories Act, Industrial Dispute Act or the Excise A.ct cannot be
applied while interpreting the expreS8ion "manufacture" in relation to the
provisions of the Act. [1185-F)
B
Union of India ·v. Delhi Cloth and General Mills Co. Ltd. & Ors.,
(1977) ELT (J. 199) and Collector of Central Excise, Jaipur v. Rajasthan
State Chemical Works, Deedwana, Rajasthan, [1991) 4 SCC 473, relied on.

3. If any operation in the course of manufacture is so integrally
connected with the further operations which result in the emergence of
c
manufactured goods and such operation is carried on with the aid of
power, the process in or in relation to the manufacture must be deemed to
be one carried with aid of power. Pumping out of water, excavation of
stones and cutting and polishing them into slabs cannot be said to be
integrally connected with manufacturing of goods. The energy consumed D
for pumping out water from a mine cannot be accepted as the energy
consumed by a consumer in any industry in the manufacture, processing
or repair of goods so as to claim exemption or reduced rate of duty by
virtue of the Notifications issued in 1963 and 1965. [1188-B-C; E-F)
>
CIVILAPPELLPJE JURISDICTION: Civil Appeal No. 1568of1991.
E

From the Judgment Order dated 14.8.86 of the Ra,jasthan High Court
in S.B.C.S.A. No. 258 of 1976.

Pradeep Aggarwal, A. Misra, Ms. Anjali Doshi, A.P. Dhamija, Ms.
Madhurima Tatia and Sushil Kr. Jain for the Appellant.
F

Pramod Dayal, K.K. Jain, Rakesh C. Agrawal and Ajay K. Jain for the
Respondents.

The Judgment of the Court was delivered by
G
SHIVARAJ V. PATIL, J. In the light of the contentions raised and
submissions made before us, the only question that arises for consideration
and decision in this appeal is whether pumping out water from a mine comes
within the meaning of manufacture, production, processing or repair of goods
so as to claim exemption from duty under Notifications issued under sub- H
1182 SUPREME COURT REPORTS [2000] 3 S.C.R.
A section 3 of Section 3 of the Rajas!han Ele~tricity (Duty) - Act. 1962 (for
short the 'Act')?

2. This appeal is by the Rajasthan State Electricity Board. Jaipur, the
Defendant in the suit.

B 3. In shmt and substance, the facts which are considered relevant and
necessary for disposal of this appeal are the following.
-y
4. The Plaintiff-Respondent No. 1 is a registered public limited com-
pany. It is engaged. in excavating stones from the collieries and thereafter
converting them into slabs by cutting and polishing. The Rajasthan State
c Government levied electricity duty under the provisions of the Act. A
No~cation dated 26.3.1962 was issued by the State under Section 3(3) of
the Act granting exemption from tax on the energy consumed by a consumer
in any industry in the manufacture, production, processing or repair of goods f-
and by or in respect of any mine as defined in the Indian Mines Act, 1923.
D
5. Subsequently a notification was issued on 2.3.1963 superseding the
aforesaid Notification dated 23.3.1962, remitting the electricity duty on the
energy consumed in electro-chemical industry and in electric furnaces of
elecro-thermo industries and reducing such duty on the energy consumed in
other industries in the manufacture, production, processing or repair of goods, -(
E from 3 naya paise per unit to 1 naya paise per unit. Further one more
Notification was issued on 1.11.1965 superseding the earlier two Notifications
mentioned above and fixing duty at 5 paise per unit as the rate at which
electricity duty" shall be computed. However, by clause (c) of the said
notification, the State of Rajasthan reduced the duty on the energy consumed
F in industries other than those mentioned in clause (a) of the Notification in
\
the manufacture, production, processing or repair of goods to l paise per unit.
The same was later on enhanced to 2 paise by Notification dated 5.3.1979.

6. The Defendant issued three notices dated 30.6.1972, 21.12.1973 and
30.11.1974 asking the Plaintiff to pay electricity duty at the full rate of 0.05
G pe1 unit holding that the Plaintiff was not entitled either for exemption of
electricity duty or to a reduced rate of duty. Hence the Plaintiff filed the suit ~
for injunction restraining the defendant from realising the electricity duty as
per the demands made in the said notices. The trial court dismissed the suit.
The Plaintiff filed the appeal in the court of the District Judge at Kota. The
H learned District Judge allowed the appeal reversing the judgment, and decree
RAJASTHAN STATE ELECTRICITY BOARD v. ASSOCIATED INDUSTRIES [SHIVARAJ V. PATIL, J.] 1183

of the trial court and passed the d~cree in favour of the Plaintiff. The A
Defendant filed the second appeal ln the High Court of Judicature for
Rajasthan at Jaipur Bench, Jaipur. The learned Single Judge of the High Court
dismissed the appeal confirming the judgment and decree passed in favour
of the Plaintiff. Hence the Defendant has filed this appeal challenging the
validity and correctness of the said judgment and decree passed by the High B
Court.

'f 7. Shri Pradeep Aggarwal learned counsel for the defendant No. 1 -
appellant urged that (1) consumption of energy for pumping out water from
the mine cannot be construed as energy consumed by industry in the
manufacture, production, processing or repair of the goods: further excavat- C
ing stones from a mine and thereafter cutting and polishing them into slabs
did not amount to any manufacture. (2) The subsequent. two notifications
dated 2.3.1963 and l.11.i965 have clearly removed exemption in relation
to any mine.. In support of his submissions1 he relied on the decision of
this Court in Collector of Central Excise, Jaipur v. Rajasthan State Chemi- D
cal Works, Deedwana, Rajasthan, [1991] 4 SCC 473.

8. Per contra, the learned counsel for the plaintiff made submissions
supporting the impugned judgment and decree. He argued that excavation of
stones thereafter cutting and polishing them into slabs amounted to manufac-
ture. E
9. We have considered the submissions made by the learned counsel
for the parties. The 3 Notifications t~ the extent they are relevant are extracted
hereunder:- !

Notification dated 26.3.1962
F
"In pursuance of sub-clause 3 of clause 3 of the Rajasthan Electricity
(Duty) Bill, 1962, read with the declaration inserted therein under
section 3 of the Rajasthan Provisional Collection of Taxes Act, 1958
(Rajasthan Act 23 of 1958), the State Government being of the
opinion that it is inexpedient in public interest to do so, hereby
exempts from tax the energy consumed -
G

(1) by a consumer in any industry in the manufacture, production,
processing or repair of goods; and

(2) by or in respect of any mine as defmed in the Indian Mines Act,
1923 (Central Act of 1923)," H
1184 SUPREME COURT REPORTS [2000] 3 S.C.R.
I A Notification dated 2.3.1963

"In exercise of the powers conferred by sub-section (3) of section
3 of the Rajasthan Electricity (Duty Act, 1962 (Rajasthan) Act 12
of 1962) and in supersession of Excise and Taxation Department
Notification No. F.9(2) E&T/62/1 dated the 26th March. 1962,
B the State Government being of the opinion that it is expedient in
public interest to do so, hereby remits the electricity duly on the
energy consumed in electro chemical industries and in electric
furnaces of electro-thermal industries and red11ces such duty on the
energy consumed in other industries in the manufacture, production,
c processing or repair of goods, from three naya paise per unit to one
paisa per unit."

Notification dated 1.11.1965

"In exercise of the powers conferred by section 3 of the Rajasthan
D Electricity (Duty) Act, 1962 (Rajasthan Act 12 of 1962) and in
supersession of Government Notification No. F.9(2)/E&T/62-11 dated
the 26th March, i962 and No. F.(6)FD/RT/63 dated the 2nd March,
1963, the State Government being of the opinion that it is expedient
in public interest to do so, hereby fixes, with immediate effect, five
E paise per. unit as the rate at which the electricity duty shall be
computed and subject to the conditions laid down in the third proviso
to the said section -

(a) remits, with immediate effect, the electricity duty on the energy
consumed (i) in electrochemical industries, and (ii) in electro
F furnaces of electro thermal industries.

(b) remits with eff~t on and from the 1st November, 1964, the
electricity duty on· energy c9nsumed ·by or in respect of any
municipal Board or Council or Panchayat or Panchayat Sarniti
or other authority for the purpose of or in respect of public street
G
lighting; and

(c) reduces with immediate effect such duty on the energy con-
sumed in industries, other than those mentioned in (a) above, in
the manufacture, production, processing or repair of good. to
H (two paise per unit)".
{

RAJASTHAN STATE ELECTRICITY BOARD v. ASSOCIATED INDUSTRIES [SfllVARAJ V. PATIL, J.] 1185
10. There is no dispute that the controversy related to claim for A
exemption or reduced rate of duty in relation to consumption energy for
pumping out water from the mines. In the Notification dated 26.3.1962 the
tax was exempted expressly for the energy consumed by or in respect of
mines as defined in the Indian Mines Act, 1923. The two subsequent
Notifications of 2.3.1963 and 1.11.1965 have omitted provision of exemption
B
in respect of mines. It is not the case of the Plaintiff that electrical energy
was consumed in any industry in the manufacture, production, processing or
repair of goods. The specific case of the Plaintiff is that the electrical energy
was consumed for pumping out water from nrines to make mines ready for
mining activity namely, excavating stones and thereafter cutting and polishing
them into slabs. The 1963 Notification superseded the 1962 Notification and c
1965 Notification superseded both 1962 and 1963 Notifications. As already
noticed above, 1963 and 1965 Notifications have not made any provision for
exemption. of duty on the electricity consumed by or in respect of mines. It
is the case of the Plaintiff that" the electricity was used for the purpose of
pumping out water from the mines to facilitate mining activity, namely D
excavating of stones. It must be also kept in mind that a mining activity is
distinguished from a manufacturing activity. It appears this removal of
exemption in the said Notifications in respect of mines was done consciously
so as to bring the mining activity within the purview of Section 3 of the Act.
Hence we consider it unnecessary to deal with the notification of 1962 in
E
relation to the claim for exemption by or in respect of a mine.

11. The word "manufacture" is not defined in the Act under which
aforementioned three Notifications were issued. The word "manufacture"
used in the Notifications under Section 3(3) of the Act, a taxing statute should
be understood in its commercial sense, in the absence of the definition of it p
in the statute itself. The definitions of "manufacture" given in other enactments
such as Factories Act,· Industrial Dispute Act or the Excise Act cannot be
applied while interpreting the expression "manufacture" in relation to the
provisions of the Act.

12. The learned Judge in the judgment under appeal has stated thus : G
"it is also admitted that the electricity was utilised for pumping out water from
the mines. It cannol be disputed that the Plaintiff could not have worked his
mines unless the water had been pumped out from the mines and, therefore,
pumping out the water from the mines was incidental with the excavation of
stones on the mines"
H
)

1186 SUPREME COURT REPORTS [2000] 3 S.C.R.
A Further having referred to various decisions dealing with "manufac-
turing" and "manufacturing process" has stated thus-

"In my opinion, the pumping out of water from mines was nece.ssary
and essential for carrying of the work of excavation of stones from
the mines and, therefore, it should be held to be a part of the
B manufacturing process of the whole industries and business carried
out by the plaintiff."

13. In the Notification dated 26.3.1962 the State had exempted from
duty the energy consumed in any industry in the manufacture, production,
processing or repair of goods and also by or in respect of any mine as defmed
c in the Indian Mines Act, 1923. As can be seen from subsequent two
Notifications of 2.3.1963 and 1.11.1965 the exemption given to the mines
.in the Notification dated 26.3.1962 was withdrawn. The intention appears
to be clear that the exemption available to mines specifically. was taken
away. It appears the Plaintiff did not plead specifically that the eiectricity
D was being used for pumping out water from the mines which formed part
of the manufacturing process. This apart excavation of stones from mines
and thereafter cutting them and polishmg them into slabs did not amount
to manufacture of goods. The word "manufacture" generally and in the
ordinary parlance in the absence of its defmition in the Act should be
E understood to mean bringing to existence a new and different article having
distinctive name, character or use after undergoing some transformation.
When no new product as such comes into existence, there is no process of
manufacture. The cutting and polishing stones into slabs is not a process
of manufacture for obvious and simple reason that no new and distinct
commercial product came into existence as the end product still remained
F stone and thus its· original identity continued.

14. This Court in Union of India & Ors. v. Delhi Cloth and General
Mills Co. Lld. & Ors., (1977) E.L.T. (J.199) as to the meaning of "manufac-
ture" in para 14 has stated thus:-

G "The word "manufacture" used as a very is generally understood to
IJ!ean as "bringing into existence a new substence" and does not mean
merely "to produce some change in a substance", however minor in
consequence the change may be. This distinction is well brought
about in a passage thus quoted in Permanent Edition of Words and
Phrases. Vol. 26, from an American Judgment. The passage runs thus:
H
{
t

RAJASTHAN STATE ELECTRICITY BOARD v. ASSOCIATED INDUSTRIES [SHIVARAJ V. PATIL, I.] 1187
"Manufacture implies a change, but every change is 11ot manu- A
facture and yet every change of an article is the result of treat-
ment, labour and transformation: a new and different article must
emerge having a distinctive name, character or use."

Para 17 of the same judgment reads thus:-
B
"These definitions make it clear that to become "goods" an a1ticle
must be something which can ordinarily come to the market to be
brought and sold."

15. In the case of Collector of Central Excise, Jaipur v. Rajasthan State
Chemical Works, Deedwana, Rajasthan, [1991] 4 SCC 473 this Court was c
considering "process" connected with the manufacture; for manufacturing
common salt brine pumped into salt pans by using diesel pump and for
manufacturing lime, coke, and limestones lifted to the pfatform at the head
kiln ·by aid of power. It was held that pumping of brine and lifting of raw-
material constituted processes in or in relation to the manufacture. Para 16 D
of the judgment reads thus:-

"The expression "in the manufacture of goods" would normally
encompass the entire process carried on by the dealer of converting
raw materials into finished goods. Where any particular process is so
integrally connected with the ultimate production of goods that but E
for that process manufacture or processing of goods would be
commercially inexpedient, goods required in that process would, in
our judgment, fall within the expression "in the manufacture of
goods."

This Court in the same judgment in para 21 has stated thus:- F

"A process is a manufacturing process when it brings out a complete
transformation for the whole components so as to produce a commer-
cially different article or a commodity. But, that process itself may
consist of several processes which may or may not bring about any G
change at every intermediate stage. But the activities or the operations
may be so integrally connected that the final result is the production
of a commercially different article. Therefore, any activity or opera-
tion which is the essential requirement and is so related to the further
operations for the end result would also be a process in or in relation
to manufacture to attract the relevant clause in the exemption H
J

1188 SUPREME COURT REPORTS [2000] 3 S.C.R.
A notification. In our view, the word 'process' in the context in which
it appears in the aforesaid notification includes an operation or
activity in relation to manufacture."

16. In conclusion, it is said that if any operation in the course of
manufacture is so integrally connected with the further operations which
B result in the emergence of manufactured goods and such operation is carried
on with the aid of power, the process in or in relation to the manufacture must
be deemed to be one carried with the aid of power. Pumping out of water,
excavation of stones and cutting and polishing them into slabs cannot be said
to be integrally connected in the manufacturing of goods.
c 17. Keeping in view what is stated above, we find it difficult to accept
the view of the learned Judge that the energy consumed for pumping out of
water from the mines should be held to be a part of the manufacturing process
of the whole industry and the business. carried out by the Plaintiff. It is also
not possible to accept that excavation of stones and thereafter cutting and
D polishing them into slabs resulted in any manufacture of goods. On the basis
of evidence, the trial court found that there are two separate elecu:ic meters;
one for pumping out water whenever required, the other Jor the workshop
to which the stones excavated are carried. The trial court also concluded that
the electricity consumed for pumping out water was no.t consumed in the
E manufacturing business of the Plaintiff,

18. In the light of what is stated above, we are of the considered
opinion that the energy consumed for pumping out water from a mine cannot
be accepted as the energy consumed by a consumer in any industry in the
manufa~ture, production, processing or repair of goods so as to· claim
F exemption or reduced rate of duty by the plaintiff by virfue of the aforemen-
tioned' two notifications dated 2.3 .1963 and 1.11.1965. In the view, we have
taken, the appeal is entitled to succeed.· Hence it is allowed, the judgment and
decree wider appeal are set aside and the suit of the plaintiff is dismissed.
Parties to bear their own costs, in the facts and circumstances of the case.
G Appeal allowed.
A.Q.