Holding

The processed stone material remains stone and is not a commercially distinct good, so no additional sales tax is payable.

Summary

The respondent, a stone crusher, bought stone boulders and crushed them into stone chips, gitti and dust for resale, contending that sales tax had already been paid on the boulders and therefore the processed material should not attract tax again. The assessing authority disagreed, but the Assistant Commissioner and the Tribunal held that the crushing did not constitute manufacture of a new commodity and that the resulting material remained "stone" for tax purposes. The Revenue appealed, and the High Court dismissed the revision petition, upholding the Tribunal's view. The Supreme Court affirmed that the processed stones retain their identity as stone, are covered under Entry 40 of the 1981 Notification, and do not constitute a separate taxable good. Consequently, the appeal and special leave petition were dismissed.

Issues considered

Whether crushing stone boulders into smaller stones, gitti and dust creates a new taxable commodity under the U.P. Sales Tax Act, 1948.
Whether such processing amounts to "manufacture" within the meaning of Section 2(e-1) of the Act.

Subjects

sales taxmanufactureprocessingstonegittinotificationidentity of goodsdouble taxationU.P. Sales Tax Actcommercial goods

Judgment

A COMMISSIONER OF SALES TAX, U.P.
v.
MIS. LAL KUNWA STONE CRUSHER (P) LTD. ETC.

MARCH 14, 2000

B [S. RAJENDRA BABU AND S.N. PHUKAN, JJ.]

SALES TAX:

U.P. Sales Tax Act, 1948 : Section 2(e-1 ).

c Sales Tax-Commercial goods-Processing of-No change in identity
of goods-Series of sales-Levy of tax-'-Pennissibility of-Stone boulders-
Sales tax paid at the time ofpurchase-Crushing of boulders into stone chips,
gitti and dust-Held such goods continue to be stone-They were not commer-
cially different goods fort he purpose ofsaks tax-Notification dated 7.9.1981-
D Applicability of
\

The respondent-company was purchasing stone boulders and crush-
ing them into stone chips, gitti and dust for further sale. Its claim that as at
the time of purchase of boulders sales tax has been paid and hence goods
emerging out of boulders were not liable to tax again was rejected by the
E assessing authority. On appeal the Assistant Commissioner of sales tax
accepted the claim of respondent holding that the trader had neither
manufactured gitti nor has sold it having crushed boulders into small
stones and dust. On second appeal, the Tribunal, by majority, upheld the
view taken by the Assistant Commissioner. It held that the goods continue
to be stone and they are not commercially different goods to be identified
F
differently for the purposes of sales tax. The Revision Petition preferred by
Revenue before the Allahabad High Court was dismissed. Hence this ap-
peal.

Dismissing the appeal, this Court
G . HELD : 1. The view taken by the m·ajority of the Tribunal and
affirmed by the High Court is correct. The purpose of sales tax is to levy
tax on sale of goods and not the sale of the substance out of which they may
have been made. As soon as separate commercial commodities emerge or
come into existence, they become separately taxable goods for purposes of
H sales tax. Where commercial goods, without change of their identity as
276
COM.MR. OF SALES TAX v. LAL KUNWA STONE CROSHER (P) LID. 277
such goods, are merely subjected to some processing or finishing, they A
may remain commercially the same goods which cannot be taxed again, in
a series of sales, so long as they retain their identity as goods of a
particular type. [278-G-H; 279-A-B]

2. In the present case, the goods that are brought into taxation are
B
enumerated in Entry 40 of the Notification dated September 7, 1981.
Stone, as such, and gitti and articles of stones are all of similar nature
though by size they may be different. Even if gitti, kankar, stone-ballast,
etc. may all be looked upon as separate in commercial character from
stone boqlders offered for sale in the market, yet it cannot be presume~ C
that Entry 40 of the Notification is intended to describe the same as not
stone at all. In fact the term 'stone' is wide enough to include the various
forms such as gitti, kankar, stone ballast. [278-F -G; 279-D-E]

State of Tamil Nadu v. Pyare I.Al Malhotra, [1978) 2 SCC 552, relied
on. D
Reliance Rocks Builders & Suppliers v. State of Kamataka, (1983) 49
STC 110, held inapplicable.

CIVIL APPELLATE JURISDICTION Civil Appeal No. 5654 of
1998 Etc. E
From the Judgment and Order dated 7 .11.97 of the Allahabad High
Court in S.T.R. No. 656 of 1993.

Ms. Niti Dikshit, Pradeep Misra, Kavin Gulati, (Adarsh Kumar Goel)
Additional Advocate General and S.N. Bhatt for the Appellant. F
.:: ...

Dhruv Agrawal and Praveen Kumar for the Respondents.

The Judgment of the Court was delivered by

RAJENDRA BABU, J. We are concerned in this case with the G
notification dated 7.9.81 bringing to sales tax the following items at the
point of sale to the consumer :

"Ramraj, geru, surk.hi, sand, lime, bajri, marble-chips, moram, gitti,
kankar, stone-ballast; stone and articles of stone except of glazed
stone." H
278 · SUPREME COURT REPORTS [2000) 2 S.C.R.
A The respondent is a dealer engaged in purchasing of stone boulders and
crushing them into stone chips, gitti and dust for the purpose of further sale.
The contention put forth by the dealer is that at the time of purchase of
boulders, sales tax has been paid and hence goods emerging out of the same
as small stones, dust, etc. are not liable to be taxed again. The process
adopted by him in conversion of boulders to the aforesaid goods may be
B
manufacture, still tax cannot be imposed as what has been produced by him
is physically and chemically not different from the original goods. The
assessing authority rejected the contention of the dealer. On appeal, the
Assistant Commissioner· of Sales Tax noticed that the trader had neither
manufactured gitti nor has sold it having crushed boulders into small stones
c and dust. He is of the view that tax was not attracted on both transactions.
On second appeal, the Tribunal, by majority, upheld the view of the Assistant
Commissioner of Sales Tax. The Department carried the matter further in
revision to the High Court and the High Court in a very cryptic order
disniissed the petition. The Department is in appeal before us.
D The question raised before us is whether gitti, stone chips and dust
. continue to be stone or on crushing stone boulders into gitti, stone chips and
dust, different commercial goods emerge so as to attract tax on their sale.
On behalf of the Department, it was contended that the process adopted by
the dealer would amount to manufacture as per the definition of 'manufac-
E ture' under Section 2(e-l) of the U.P. Sales Tax Act, 1948. Under the said
provision,, 'manufacture' has been defmed to mean producing, making,
mining, collecting, extracting, altering, ornamenting, fmishing or otherwise
processing, treating or adopting any goods. Thus it was submitted that the
definition used for the purpose of manufacture in the Act makes it very clear
that every activity in relation to goods not only altering the same but also
F processing of ~e same has also been included.

· Here in the present case, the goods that are brought into taxation are
enumerated in Entry 40 of the notification dated September 7, 1981 to which
we have adverted to earlier. Each one of the items enumerates various goods,
which could be brought to tax. The purpose of sales tax is to levy tax on
sale of goods of each variety and not the sale of the substance out of which
they may have been made. As soon as separate commercial commodities
emerge or come into existence, they become separately, taxable goods for
purposes of sales tax. Where co,nunercial goods, without change of their
identity as such goods, are merely subjected to some processing or finishing,
H they may remain commercially the same goods which cannot be taxed again,
COMMR. OF SALES TAX"· LAL KUNWA STONE CROSHER (P) LTD. (RAJENDRA BABU, J.] 279
in a series of sales, so long as they retain their identity as goods of a A
particular type. We are fortified in this view by the decision in State of Tamil
Nadu v. Pyare !Al Malhotra, [1978] 2 SCC 552. What is to be seen in the
present case is whether stone gilti, chips, etc. continue to be identifiable with
the stone boulders, which have been bought by the dealer.

The view taken by the Tribunal as affirmed by the High Court is that B
the goods continue to be stone and they are not commercially different goods
to be identified differently for the purposes of sales tax. The decision relied
on by minority view in the Tribunal in Reliance Rocks Builders & Suppliers
v. State of Kamataka, (1983) 49 STC 110, turned on the concept of
consumption of goods for the purpose of bringing into existence new goods. c
In that case the Court was not concerned with an entry of the nature with
which we are concerned in the present case. Where the dealer had brought
into existence new commercial goods by consuming the builders to bring out
small pieces of stone, it was held that such activity attracted purchase tax.
In the present case, however, stone, as such, and gitti and articles of stones
are all of similar nature though by size they may be different. Even if gitti, D
kankar, stone-ballast, etc. may all be looked upon as separate in conimercial
character from stone boulders offered for sale in the market, yet it cannot
be presumed that Enny 40 of the notification is intended to describe the same
as not stone at all. In fact the term 'stone' is wide enough to include the
various forms such as gitti, kankar, stone ballast. In that view of the matte1~ E
we think that the view taken by the majority of the Tribunal and affirmed
by the High Court stands to reason. We are, therefore, not inclined to
interfere with the same.

In the result, the appeal and the special leave petition are dismissed. In
the circumstances of the case, there shall be no orders as to costs. F
T.N.A. Appeal and Petition dismissed.

i