ORDER
R.K. Verma, J.
1. This order shall also govern the disposal of M.C.C. No. 214 of 1986 (M.P. Electric Corporation, Ratlam v. Commissioner of Sales Tax, M.P.), M.C.C. No. 215 of 1986 (M.P. Electric Corporation, Ratlam v. Commissioner of Sales Tax, M.P.), M.C.C. No. 267 of 1986 (M.P. Electric Corporation, Ratlam v. Commissioner of Sales Tax, M.P.), M.C.C. No. 285 of 1986 (M.P. Electric Corporation, Ratlam v. Commissioner of Sales Tax, M.P.), M.C.C. No. 289 of 1986 (M.P. Electric Corporation, Ratlam v. Commissioner of Sales Tax, M.P.), M.C.C. No. 291 of 1986 (M.P. Electric Corporation, Ratlam v. Commissioner of Sales Tax, M.P.), M.C.C. No. 293 of 1986 (M.P. Electric Corporation, Ratlam v. Commissioner of Sales Tax, M.P.) and M.C.C. No. 290 of 1986 (M.P. Electric Corporation, Ratlam v. Commissioner of Sales Tax, M.P.).
2. These are nine references made by the Board of Revenue (Sales Tax Tribunal) at the instance of the assessee under Section 44(1) of the Madhya Pradesh General Sales Tax Act, 1958 arising out of the assessments made under the Madhya Pradesh General Sales Tax Act and the Central Sales Tax Act for the assessment years 1976-77 to 1979-80 and under the Central Sales Tax Act for 1981-82, referring the following two common questions of law for opinion of this Court :
(1) Whether, under the facts and circumstances of the case, the Tribunal was justified in holding that the “tape” sold by the assessee was not covered by entry No. 4 of Notification No. 1035-537-ST dated 7th April, 1967, as a different material had come into existence not covered by the said notification ?
(2) Whether, under the facts and circumstances of the case, the Tribunal was justified-in holding that penalty under Section 17(3) of the Madhya Pradesh General Sales Tax Act, 1958 was validly imposed ?
3. The material facts giving rise to these references, briefly are, as follows:
The assessee is a registered dealer at Ratlam engaged in the business of production and sale of wire, nails and tape. During the assessment proceedings, the assessee claimed that the tape being sold by him, had been declared as exempt from tax in terms of Notification No. 1035-537-ST dated 7th April, 1967 issued under Section 12 of the Madhya Pradesh General Sales Tax Act. The assessing authority held that the assessee is not a manufacturer of electrical goods and the tape sold by him is manufactured by using varnish and oil in a significant quantity and, as such, he is not covered by the notification aforesaid. The assessee, was, therefore, assessed to tax under the State Act as well as the Central Act and penalty under Section 17(3) of the State Act was also imposed.
4. In the first appeal, the Appellate Deputy Commissioner of Sales Tax, Ujjain, affirmed the decision of the assessing authority observing that the tape is produced by the assessee by immersing the cloth in a mixture of varnish and oil and the tape so produced is entirely different from the ordinary cloth tape and it is used in connection with the machinery and electrical goods.
5. In the second appeal, before the Tribunal, the assessee contended that mere process of immersion of the tape in the varnish and oil does not change the nature of goods. It was also contended that the tape sold by the assessee does not come up to the specifications of insulating tape. It was also stated that the Central Excise Department is treating the assessee to be a manufacturer of cotton cloth only. The licence issued by the Central Excise Department in this behalf was also produced before the Tribunal to show that the assessee was authorised to manufacture cotton fabrics processing. It was also submitted that the process which the cloth undergoes, does not amount to manufacture.
6. The learned Tribunal did not accept the contentions of the assessee and held that the notification relied upon by the assessee was in respect of things which had direct relation with the cloth, e.g., niwar, laces and tapes, which are the items mentioned in the notification. The learned Tribunal held that the nature of goods is to be determined by its use and not the name only. A mere fact that the tape in question is made from cloth does not mean that it is cloth. It was also observed by the learned Tribunal that the process which the cloth undergoes in making the tape in question is not a reversible process and as such, it is a chemical process. It was also held by the learned Tribunal that a new commercial material has been brought into existence by the assessee and it was different from tape as mentioned in the notification referred to above. The imposition of penalty under Section 17(3) of the said Act was also held to be valid under the circumstances.
7. The assessee, thereafter, by applications made under Section 44(1) of the Madhya Pradesh General Sales Tax Act, 1958, required the Tribunal to refer certain questions of law proposed by the assessee. The learned Tribunal, after hearing the parties, has referred the two questions of law as stated at the outset.
8. The learned counsel for the assessee has submitted that the tape in question is a strip of cloth used for the purpose of binding or wrapping and merely because it has been immersed in linseed oil and varnish, it does not lose its identity as a tape within the meaning of the exempted article “tape” under the aforesaid notification issued under Section 12 of the Act. The process of immersing the cotton cloth tape does not result into a different commercial commodity. Learned counsel has placed reliance on a decision of the Supreme Court in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213 at page 261 wherein it is observed as follows:
We may, however, point out that even where the question is whether a certain process has resulted in a manufacture, the resultant product must be a different commercial commodity and merely because certain articles are known by different names it does not mean that they are different commercial commodities if in fact they are merely different forms of the same commodity.
Learned counsel has also cited a decision of this Court in Universal Chemicals & Industries Pvt. Ltd. v. Commissioner of Sales Tax, M.P. [1984] 17 VKN 320, wherein it is held that cleaning and washing with certain chemicals and cutting into pieces of waste fibre does not amount to a manufacture.
Learned counsel seeks support from this citation to his argument that immersion of cloth tape in the solution of linseed oil and varnish does not amount to manufacture of a new product, commercially different from tape as stich. The learned counsel submits that even though after being subjected to process of immersion the tape retains its original character or identity as a tape of cloth, the State Legislature for the purpose of exigibility to the State Sales Tax Act could treat such a processed tape differently by making a classification, as was done in relation to processed or frozen shrimps, prawns and lobsters by appropriate entry in the Schedule to the Karnataka Sales Tax Act in Sterling Foods v. State of Karnataka [1986] 63 STC 239 (SC) even though there was no essential difference between the raw shrimps, prawns and lobsters and processed or frozen shrimps, prawns and lobsters and they were regarded as commercially the same commodity. In the instant case, the State Legislature has not excluded from exemption a cloth tape which is subjected to process of immersion in a solution of linseed oil and varnish.
9. Learned counsel for the assessee has also relied on the well-settled principle of construction of words and expressions describing an article or commodity in a sales tax enactment, to the effect that the words or expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer. The reason is that it is they who are concerned with it and it is the sense in which they understand it which constitutes the definitive index of the legislative intent when the statute was enacted. The two Supreme Court decisions, which lay down the said principle, have been cited and these are : Indian Aluminium Cables Ltd. v. Union of India [1987] 64 STC 180 and Delhi Cloth & General Mills Co. Ltd. v. State of Rajasthan [1980] 46 STC 256.
10. From the authorities cited as above, it appears that the true test for holding that the tape sold by the assessee was not covered under the notification dated 7th April, 1967 issued under Section 12 of the Madhya Pradesh General Sales Tax Act, 1958 is whether on account of the process of immersion in linseed oil and varnish, the tape had become commercially a new product and had lost its original character or identity. In the instant case, however, there is no conclusive evidence or material placed on record so as to hold that the tape processed by immersion in linseed oil and varnish had become different commercial commodity losing its original identity.
11. Having heard learned counsel for the parties and having considered the case law, we are of the opinion that there was no sufficient material on record for holding that the tape which the assessee is selling, is commercially a different commodity. In the circumstances, we are of the opinion that the Tribunal was not justified in holding that the tape sold by the assessee was not covered by entry No. 4 of Notificaton No. 1035-537-ST dated 7th April, 1967 as a different material had come into existence not covered by the said notification.
12. As regards the other question it is not in dispute that the tax has been deposited by the assessee on the basis of the return submitted by it and therefore, the Tribunal was not justified in holding that penalty under Section 17(3) of the Madhya Pradesh General Sales Tax Act, 1958 was validly imposed.
13. Accordingly, the references are allowed and our answer to each of the two questions referred to us, is in the negative and in favour of the assessee.
14. In the circumstances of the case, there shall be no order as to costs.