JUDGMENT
Mehta, J.
1. At the instance of the assessee, the Gujarat Sales Tax Tribunal has referred the following question to us for our opinion under section 69 of the Gujarat Sales Tax Act, 1969 :
“Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that kathi purchased and used by the applicant for packing of the goods for sale was not purchased and used as consumable stores in the process of manufacture of goods for sale ?”
2. The assessment period with which we are concerned in this reference is S.Y. 2028. The assessee is carrying on the business of manufacturing crockery and carborundum and is selling the same as a registered dealer under the Gujarat Sales Tax Act, 1969. The assessee had purchased kathi (twine) worth Rs. 12,867 on the certificate that the said article was required for use in the manufacture of goods for sale. The article in question was used for the purpose of packing goods manufactured by the assessee and sold thereafter. The Sales Tax Officer levied purchase tax on purchase of the said article in question under section 16 of the Act and he was of the opinion that those goods could not have been purchased on certificate since they were not raw materials, processing materials or consumable stores required for use in the manufacture of the goods in question. He also levied penalty at the rate of 10 per cent. of the purchase tax under section 45(1)(a) of the aforesaid Act. The assessee carried the matter in appeal before the Assistant Commissioner and the Sales Tax Tribunal with no avail. The contention of the assessee was rejected since, in the opinion of the Appellate Commissioner as well as the Tribunal, the Articles in question were neither raw materials nor processing materials nor consumable stores which could be purchased under section 13(1)(B) of the said Act on a certificate in form No. 19. The assessee, therefore, sought the reference to this Court which was granted accordingly.
3. At the time of hearing of this reference, the learned Advocate appearing for the assessee urged that the Tribunal committed an error of law in ascribing a very limited meaning to the term “in the manufacture of taxable goods for sale” prescribed by the legislature in section 13(1)(B) for entitling a manufacturer to purchase raw or processing materials or consumable stores with that end in view, tax-free, on furnishing a certificate under section 13(1)(B). In the submission of the learned Advocate, it would not have been commercially possible for the assessee to manufacture taxable goods for sale without the use of the articles in question and that it is not necessary that such articles should necessarily be required strictly for the purpose of producing a finished product. On the other hand, on behalf of the revenue, this contention was sought to be repelled by urging that the legislative intent has been clearly evinced in section 13(1)(B) that all those articles, which are more or less in the nature of packing materials, cannot be purchased by a manufacturer since they are neither raw materials nor processing materials nor consumable goods and this intent is clearly manifest if the comparison is made with the corresponding provision contained in section 12(1)(b) of the earlier Act, namely, the Bombay Sales Tax Act, 1959, where a manufacture was entitled to purchase raw materials and packing materials required by him for use in the manufacture of goods for sale as tax-free on furnishing the prescribed certificate. It was further urged on behalf of the revenue that the article in question cannot in any case be said to be consumable stores without violence to the language since the words “consumable stores” in section 13(1)(B) should and must take colour from the preceding words, namely, “raw or processing materials” and it would be unwarranted in the language employed by the legislature to enlarge the meaning of the term “consumable stores” and it should, be necessary implication, be restricted by giving a restricted meaning so as to put them at par with the raw materials or processing materials since it is not any and every stores which can be purchased by a manufacturer as tax-free but only those stores which are consumable and, therefore, necessary in the manufacturing process which can therefore be included in the said term. In our opinion, the contention urged on behalf of the assessee should prevail for the following reasons.
4. In J. K. Cotton S. & W. Mills Co. Ltd. v. Sales Tax Officer ([1965] 16 S.T.C. 563 (S.C.).), a question arose under the Central Sales Tax Act, 1956, as to what should be the meaning ascribed to the expression “in the manufacture of goods” in section 8(3)(b) of the said Act. The assessee-company before the Supreme Court was a mill company manufacturing cotton textiles, tiles and other commodities. The assessee-company applied before the Sales Tax Officer to specify in the certificate goods which the assessee-company purchased in the course of inter-State trade. The certificate included amongst other goods the articles such as “drawing instruments, photographic materials, building materials including iron, steel, cement and lime and certain goods covered under the term electricals”. It appears that the Sales Tax Officer called upon the assessee-company to show cause why the certificate of registration be not amended so as to exclude the aforesaid articles. The company in reply contended inter alia that the said articles were required in the manufacture and processing of goods for sale. The Sales Tax Officer, however, did not accept the contention of the assessee-company and deleted those articles and called upon the assessee-company to surrender the certificate for making necessary amendments. The assessee-company, therefore, moved the High Court of Allahabad for necessary writ, order or direction for quashing the order of the Sales Tax Officer. At the time of hearing before the High Court the assessee-company did not press its claimed so far as the articles of iron, steel and coal were concerned but for the remaining articles it was contended that the same were covered by section 8(3)(b) of the Central Sales Tax Act read with rule 13 framed under section 13 of the Act. The High Court did not agree with the claim of the assessee-company since the articles in question were not comprehended in the expression “in the manufacture or processing of goods for sale” within the meaning of section 8(3)(b) read with rule 13. The assessee-company, therefore, carried the matter before the Supreme Court. Sub-section (1) of section 8 of the Central Sales Tax Act provided for the rates of tax to be paid on the turnover by a dealer selling in the course of inter-State trade or commerce to a registered dealer goods of the description mentioned in sub-section (3). Clause (b) of the said sub-section specified, amongst others, all the goods of the class or classes specified in the certificate of registration of the registered dealer purchasing the goods as being intended for resale by him or subject to any rules made by the Central Government in that behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power.
5. In exercise of the rule-making power under section 13, the Central Government had framed rules which prescribed by rule 13 that the goods referred to in clause (b) of sub-section (3) of section 8, which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, pant, equipment, tools, stores, spare parts, accessories, fuel or lubricants in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power. In this context, the Supreme Court speaking through Shah, J., interpreted the expression “in the manufacture of goods” and held that the said expression should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods and that where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression “in the manufacture of goods”. Shah, J., speaking for the court, held as under :
“To read the expression ‘in the manufacture’ of cloth in that restricted sense, would raise many anomalies. Raw cotton and machinery for weaving cotton and even vehicles for transporting raw and finished goods would qualify under rule 13, but not spinning machinery, without which the business cannot be carried on. In our judgment, rule 13 does not justify the importation of restrictions which are not clearly expressed, nor imperatively intended. Goods used as equipment, as tools, as stores, as spare parts or as accessories in the manufacture or processing of goods, in mining, and in the generation and distribution of power need not, to qualify for special treatment under section 8(1), be ingredients or commodities used in the processes, nor must they be directly and actually needed for ‘turning out or the creation of goods’.
In our judgment, if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in rule 13 will qualify for special treatment. This is not to say that every category of goods ‘in connection with’ manufacture of, or ‘in relation to’ manufacture, or which facilitates the conduct of the business of manufacture will be included within rule 13. Attention in this connection may be invite to a judgment of this court in which it was held that vehicles used by a company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within rule 13, even if the vehicles were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories requires for the effective operation of those vehicles were also held to fall within rule 13. See Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes ([1965] 16 S.T.C. 259 (S.C.).).”
6. In view of this settled legal position, we do not think that the contention urged on behalf of the revenue is well-founded. It is no doubt true that in the corresponding provision in the earlier enactment, namely, section 12(1)(b) of the 1959 Act, a manufacturer was entitled to purchase tax-free on a certificate raw materials or packing materials for use in the manufacture of goods for sale. Section 13(1)(B) of the 1969 Act, with which we are concerned in this reference, does not refer to packing materials but entitles the manufacturer to purchase tax-free, on furnishing certificate, raw materials, processing materials or consumable stores required in the manufacture of taxable goods for sale. We are afraid, we cannot agree with the learned Assistant Government Pleader for the revenue that the legislative intent, therefore, by necessary implication is to exclude packing materials from the category of goods which a manufacturer can purchase tax-free on furnishing a prescribed certificate. The crux of the problem in the present reference is that are the articles in question such that they can be said to be consumable stores required in the manufacture of taxable goods for sale, since admittedly it is neither raw material nor a processing material. The Supreme Court has pointed out in J.K. Cotton S. & W. Mills Co. Ltd.’s case ([1965] 16 S.T.C. 563 (S.C.).) that a process or an activity may not be necessary theoretically for production of finished goods, but if it is such an integral part of the ultimate manufacture of goods that in its absence the manufacture may not be commercially expedient, that activity or process must be considered to be manufacturing activity itself and the goods intended for use in that process or activity should be considered to be goods required in the manufacture of taxable goods for sale. It is not doubt true that the articles which can be purchased tax-free on furnishing a prescribed certificate by a manufacturer must be either raw materials or processing materials or consumable stores. But it is not possible to say much less urged successfully that the consumable stores must necessarily partake the nature of raw materials or processing materials or must more on less stand on the same footing. We do not think that the learned Assistant Government Pleader was right in his contention that consumable stores must be given a very restricted meaning since they are used along with the word “raw or processing materials” in section 13(1)(B). In the ultimate analysis, the relevant question is : are the articles in question the prescribed articles required in the manufacture of taxable goods for sale ? In other word, are they consumable stores of materials required in a process or activity which is integrally connected with the manufacturing activity and without which the activity of manufacture may be commercially inexpedient ? The answer, in our opinion, is that the article in question in this reference, namely, kathi (twine), is part of such consumable stores which would be necessarily required in the activity of marketing the goods which is essentially connected with the larger activity of manufacture. We do not want to say that all the articles or materials which may facilitate the business of manufacture would be such consumable goods as entitled to be purchased tax-free. The ornamental packing of an article for tying carton or boxes in which the manufactured goods are packed so as to make them attractive in the market cannot ex facie claim such exemption provided in section 13(1)(B) since they are also the articles which may be making the goods more attractive and thereby facilitating the manufacturer in his business of marketing. It is not possible in the very nature of things to lay down exhaustively or to suggest a straight jacket formula as to what would be the articles or goods required in a process or activity which though not strictly a manufacturing activity itself but is such an integral part thereof that in its absence the manufacturing activity may not be commercially expedient. It would depend on the facts and circumstances of each case but having regard to the nature of articles with which we are concerned in the present case, we must hold that having regard to its nature, namely, it is a part of consumable stores which must necessarily be used for the purpose of marketing the articles in question, the assessee was entitled to purchase the same on the prescribed certificate under section 13(1)(B) and the Tribunal is clearly wrong in holding that it will not be a consumable article or goods required in the manufacture of taxable goods for sale under section 13(1)(B).
7. The learned Government Pleader, therefore, attempted to persuade us that having regard to the provision contained in section 21, which prescribed a rate of tax on packing material, it is clear that the legislature wanted to distinguish between raw materials, processing materials and consumable stores required for manufacturing goods and the packing materials for manufactured goods and to treat them separately. We have not been able to appreciate how the provisions contained in section 21 would have any bearing even indirectly on the question in issue in this reference. What section 21 does is to prescribed a special rate of tax for packing materials by providing a fiction that the materials in which the goods are packed shall be deemed to have been sold or purchased along with the goods. We do not think that the provision of special rate for packing materials on this deemeing fiction can have any relevance for the purposes of the question in issue in this reference. The learned Assistant Government Pleader has invited our attention to the various notifications issued by the Government from time to time granting exemption from the liability of paying sales tax or purchase tax in respect of different materials purchased by a manufacturer. He has specially invited our attention to item No. 8 of such notification issued by the State Government in Ministry of Finance on 29th April, 1970, where such an exemption is provided from liability of sales tax and general sales tax in respect of goods purchased by a manufacture of cotton fabric or artificial silk described in the appendix to the said item where packing materials have been separately mentioned along with the spare parts and accessories of machinery, consumable stores, processing materials, fuel and lubricants. We have not been able to appreciate how this can be of any assistance to the cause of the revenue represented by the Assistant Government Pleader in this case. Since the State Government was granted certain exemptions from the liability of payment of sales tax and general sales tax, it might have though fit as advised to specify different articles having regard to the nature and use of the articles. It would not, in our opinion, therefore, resolve the question with which we are concerned in the present reference. We have to construe the positive enactment made in section 13(1)(B) where the articles in question are consumable stores required in the manufacture of goods. The expression “manufacture of goods” has been interpreted by the Supreme Court as stated above. We do not find any express warrant in the main enactment of this section or a necessary implication in the context so as to justify us in agreeing with the Tribunal when it has taken a restrictive meaning of the term “manufacture of taxable goods for sale”. The result, therefore, is that we must answer the question in the negative, that is, in favour of the assessee and against the revenue. The Commissioner shall pay the costs of this reference to the assessee.
8. Reference answered in the negative.
