H.N. Seth, J.
1. As the learned single Judge before whom these two connected sales tax revision applications came up for hearing felt that the decision of this Court in the case of Commissioner of Sales Tax v. Bharat Oxygen, Lucknow 1980 UPTC 686 on which the Sales Tax Tribunal had placed reliance while disposing of the appeal before it, required reconsideration, he vide his order dated 20th December, 1982, directed that these cases be listed before a larger Bench and this is how the matter has come up before us.
2. The two dealers involved in these cases carried on the business of dispensing and selling medicines in the names of M/s. Kaderul Sehat Dawakhana and M/s. Rafekul Sehat Dawakhana at Sambhal in the district of Moradabad. In due course their assessments for the years 1976-77 (in the case of M/s. Kaderul Sehat Dawakhana) and 1977-78 (in the case of M/s. Rafekul Sehat Dawakhana) were reopened under Section 21 of the U. P. Sales Tax Act as it was felt that the turnover of sales of medicines dispensed by them on the basis of Hakim Rais Ahmad's prescription and supplied to various patients had escaped assessment.
3. The Sales Tax Officer concluded that during the relevant assessment years the two assessees had sold certain medicines prescribed by Hakim Rais Ahmad after purchasing the same from the market. Likewise they also sold to various patients medicines prescribed by Hakim Rais Ahmad after dispensing the same from the ingredients which they had purchased from kirana dealers. The two dealers could, in so far as the medicines dispensed by them from out of the ingredients purchased from kirana dealers were concerned be treated to be manufacturers thereof inasmuch as the characteristics of the ingredients had while dispensing of medicines, undergone a basic change. Turnover of sale of such medicines was liable to be taxed under the U. P. Sales Tax Act (hereinafter referred to as the Act) but it had, in the relevant years, escaped assessment. The Sales Tax Officer accordingly determined the escaped turnover of the medicines dispensed by the two dealers and assessed them to tax accordingly.
4. The order passed by the Sales Tax Officer was affirmed in appeal by the Assistant Commissioner (J.), Sales Tax, Moradabad. The dealers then went up in second appeal before the Sales Tax Tribunal. The Tribunal referred to following observation made by this Court in the case of Commissioner of Sales Tax v. Bharat Oxygen, Lucknow 1980 UPTC 686 :
The following ingredients are necessary to constitute manufacture :
(a) there must be a change in substance, and a different article must emerge having a distinctive character and use from the raw material by the use of physical labour or by mechanical process;
(b) the articles produced either by physical labour or by mechanical process should be on a large scale and should pass as a commercial commodity from hand to hand...
and held that as the medicines prepared by the two dealers by mixing kirana goods and herbs on the basis of prescriptions from a hakim were meant to be sold to individual patients only once, they could not be held to be manufacturers of such medicines and the notice issued to them under Section 21 of the U. P. Sales Tax Act as also the orders passed in proceedings initiated thereunder deserved to be set aside. In the result the Tribunal allowed the appeals filed by the dealers and set aside the assessments made against them under Section 21 of the Act. Aggrieved, the Commissioner of Sales Tax approached this Court for relief by way of revision under Section 11(1) of the Act.
5. When these revision applications came up for hearing before the learned single Judge, the learned standing counsel appearing for the Commissioner of Sales Tax submitted that when on the basis of hakim's prescriptions the two dealers prepared the medicines after mixing herbs with kirana goods and sold the same to individual patients, their activity resulted in manufacture of medicines [as defined in Section 2(e-1) of the Act]. Since the two dealers were the manufacturers and had sold the medicines, they were in respect of the turnover of sales of such medicines, liable to be taxed under the provisions of the U. P. Sales Tax Act. Contention of the two dealers, on the other hand, was that the medicines prepared by them on the basis of the prescriptions of the hakim had been prepared for particular individuals and were incapable of being resold. Accordingly as per decision of this Court in the case of Dr. Sukh Deo v. Commissioner of Sales Tax [1963] 14 STC 581 and that of the Supreme Court in the case of Commissioner of Sales Tax v. Dr. Sukh Deo [1969] 23 STC 385 (SC), the two dealers could not be considered to be manufacturers of such medicines. They further contended that in order to qualify as manufacturing activity, it is necessary that such activity must result in bringing into existence a commodity which is commercially different from the commodities subjected to such activity. They also relied upon certain observations made by this Court and the Supreme Court in the two cases of Dr. Sukh Deo [1963] 14 STC 581 and [1969] 23 STC 385 (SC), which according to them indicate that where on the basis of doctor's prescription a mixture is prepared by mixing various medicines and is then sold to individual patients, such mixture cannot be treated as a commercial commodity different from its ingredients and that the activity of the dispenser in preparing the mixture does not result in any manufacturing activity. The dealers further contended that in any case, their activity of dispensing medicines being on a limited scale does not, as held in the case of Commissioner of Sales Tax v. Bharat Oxygen, Lucknow 1980 UPTC 686 qualify as manufacturing activity.
6. The learned single Judge before whom the matter came up for hearing noticed the definition of the word 'manufacture' contained in Section 2(e-l) as also that of the word 'manufacturer' contained in Section 2(ee) of the Act and was not inclined to agree with the observations made by this Court in the case of Commissioner of Sales Tax v.' Bharat Oxygen, Lucknow 1980 UPTC 686 to the effect that in order to qualify as manufacturing activity, the activity must be carried on, on a large scale. Accordingly he referred the case for decision by a larger Bench.
7. In order to resolve the controversy raised in this case it would, in our opinion, be convenient to refer to certain provisions of the U. P. Sales Tax Act, 1948. Relevant portion of Section 3-A of the Act, as it stood during the years 1976 to 1978 ran thus :
3-A Rates of tax.-(1) Except as otherwise provided in Section 3-AA or Section 3-D, the tax payable by a dealer under this Act shall be levied,-
(a)
(b)
(c) On the turnover in respect of goods specified in the second column of the First Schedule, at the point specified in the third column thereof at such rate not exceeding fifteen par cent, as the State Government may, by notification, declare and different rates may be declared in respect of different goods comprised in any entry in the said schedule.
(2)
(2-A) The turnover in respect of goods other than those referred to in subsections (1) and (2) shall be liable to tax at the point of sale by the manufacturer or importer at the rate of seven per cent :
(3)
8. Item No. 55 of the First Schedule makes the turnover in respect of sale of medicines and pharmaceutical preparations including insecticides and pesticides liable to be taxed at the point of sale effected by the manufacturer or the importer of such goods.
9. It is nobody's case that the dealers in these cases are importers. Accordingly the turnover of sale of medicines dispensed by the two dealers become liable to tax only if it is shown that they can in relation to such medicines be considered to be manufacturer.
10. The expressions 'manufacture' and 'manufacturer', have also been defined in Section 2 of the Act thus :
(e-1) 'manufacture' means producing, making, mining, collecting, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods; but does not include such manufacture or manufacturing processes as may be prescribed;
(ee) 'manufacturer', in relation to any goods means the dealer who makes the first sale of such goods in the State after their manufacture.
11. A perusal of Section 2(ee) of the Act shows that the expression 'manufacturer' has not been used therein in the normal sense of a person who manufactures a commodity. Instead, the expression has been given an artificial meaning according to which a dealer who after the goods are manufactured effects the first sale thereof in the State of U. P. is to be considered to be a manufacturer. Accordingly the two dealers would, in relation to the medicines dispensed by them, be manufacturers :
1. the said medicines have been manufactured and if so,
2. the two dealers were, after manufacture of such medicines, the first persons to effect their sale in the State of U. P.
12. Again the word 'manufacture' in the Act has not been used in the sense in which it is understood in common parlance. The question whether the medicines dispensed by the two dealers can be said to be manufactured or not has necessarily to be decided in the light of the definition of the word 'manufacture' contained in Section 2(e-l) of the Act and any reference to case law wherein the word 'manufacture' has been explained otherwise than in the context of definition of Section 2(e-l) would not be apt.
13. According to the definition of the word 'manufacture' contained in Section 2(e-l) of the Act any of the following activities, viz.,
1. producing,
2. making,
3. mining,
4. collection,
5. extracting,
6. altering,
7. ornamenting,
8. finishing or otherwise processing,
9. treating or adapting,
in relation to any goods amounts to its manufacture and the goods which have been subjected to any of the aforementioned activities can be said to have been manufactured.
14. It is also evident that the expression 'manufacture' covers within its sweep not only such activities carried on by a person 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 article on which such activity was carried on, for example, where an activity by way of ornamenting of goods is carried on, the ornamented goods may not be goods commercially different from the goods which had been subject to ornamentation. But then a manufacturing activity, as defined by Section 2(e-1) having been carried on in respect of goods orginally produced the ornamented goods will have to be treated as a goods which have again been manufactured. Likewise where a goods known to the trade has been prepared or produced (i. e., brought into existence) but then certain changes are effected in it to adapt the same for a particular purpose it may despite some changes continue to be the same commercial commodity. But then if it has been so adapted for a particular purpose it has been subjected to a manufacturing process and the goods so adapted would again be a goods which for the purpose of the Act has been manufactured afresh.
15. Again the expression 'manufacture' as defined in Section 2(e-l) included within its ambit the activity of mining, collecting and extracting of goods as well. In such cases when a mineral is taken out after mining, the mining activity does not have the effect of altering the nature of the mineral and in bringing into existence a new commercial commodity, yet for purposes of the Act the extracted mineral is to be treated as a goods which had been manufactured. Same is the position with regard to collecting of goods. We are accordingly of opinion that according to the artificial meaning which has been given to the expression 'manufacture' in Section 2(e-l) of the Act, the coming into existence of a new commercial commodity is not the sine qua non for treating the said goods as goods obtained by way of manufacture. It is true that where an activity carried on is such which has the effect of bringing into existence a new commercial commodity it would fall within the ambit of the expression 'manufacture' as used in the Act. But then, the way in which the expression has been defined in the Act, it would also cover within its sweep such activities where despite those activities the commercial identity of the concerned goods does not undergo a change. Legislative intendment clearly seems to be that whenever the goods are produced or made or subjected to process of the nature specified in Section 2(e-l) of the Act, they are to be treated as goods that have been manufactured. In the case of goods that are liable to be taxed at the point of sale by the manufacturer, sales tax liability would be attracted each time a dealer, after the goods subjected to the process of the nature specified in Section 2(e-l) sells the same for the first time in Uttar Pradesh. In this connection whether the commercial identity of the goods subjected to process of 'manufacture' changes or not, does not appear to be very material. Had the legislature intended that it would have contented itself by defining in Section 2(e-l) of the Act the phrase 'manufacture' to mean producing or making (in which case it might have been possible to urge that the goods produced or made should be commercially different from the goods from which they are produced or made) and it would not have included within its ambit mining, collecting, extracting, altering, ornamenting, finishing or otherwise processing, treating and adapting of goods in which cases generally the commercial identity of the concerned goods do not despite being subjected to such processes, undergo any change.
16. In the instant case it cannot be doubted that when the two dealers mixed various ingredients (kirana and herbs) in the proportion indicated in the hakim's prescription, they in fact prepared or made a pharmaceutical preparation as contemplated by item No. 55 of the First Schedule to the Act. In any case they had, by so mixing the ingredients, adapted such ingredients for specific use by the patient for whom the pharmaceutical preparation had been prepared. The activity of the two dealers in preparing such medicine/pharmaceutical preparation, therefore, was manufacturing activity of the nature described in Section 2(e-l) of the Act and the goods that medicine/pharmaceutical preparation brought into existence as a result of such activity were goods that had been manufactured. Accordingly, when the two dealers sold such manufactured medicine/pharmaceutical preparation to various patients, they squarely fell within the ambit of the expression 'manufacturer' as defined in Section 2(ee) of the Act, and as per entry No. 55 of the First Schedule, the turnover of such sale became liable to tax in their hands.
17. We now proceed to consider various cases cited at the Bar in support of the submission that notwithstanding the wide way in which the word 'manufacture' has been defined in Section 2(e-l) of the Act, 'manufacture', for the purpose of the Act, takes place only when as a result of certain activity a new commercial commodity is brought into existence. As already stated, in this connection reliance was placed by the learned counsel for the dealers on the judgments of this Court and that of the Supreme Court in Dr. Sukh Deo's cases reported in [1963] 14 STC 581 and [1969] 23 STC 385 (SC) wherein it was held that as by mixing medicines no new commercial commodity comes into existence, it could not be said that the person dispensing mixtures was, for purposes of the U. P. Sales Tax Act (as it then stood), a 'manufacturer'. A careful perusal of the two judgments show that in those cases this Court and the Supreme Court pronounced upon the ambit and scope of the expression 'manufacture' at a time when the Sales Tax Act did not contain any definition of the said expression, and in the context in which the expression was understood in common parlance. As already explained, these decisions would not be apt when we have to determine the ambit of the said expression in the light of the definition contained in Section 2(e-l) of the Act which gives to it an expanded meaning.
18. The next case cited at the Bar was the case of Commissioner, Sales Tax v. Bechu Ram Kishori Lal, Faizabad 1976 UPTC 253. In that case, a Division Bench of this Court was concerned with the question as to whether the product obtained by adding scent to til oil for being sold as hair-oil can be said to be a manufactured commodity. The Bench appeared to be of the view that controversy before it stood completely covered by the decision of the Supreme Court in Harbilas Rai's case [1968] 21 STC 17 (SC), wherein it had been held that the word 'manufacture' had various shades of meaning and in the context of the sales tax legislation, if the goods to which some labour is applied remains essentially the same commercial article it could not be said that the final product was the result of manufacture. Accordingly as the process of adding scent to ordinary til oil did not bring about a new commodity, it could not be said that the oil so prepared had been manufactured. It is significant to note that in Harbilas Rai's case [1968] 21 STC 17 (SC) the Supreme Court considered the question as to the meaning to be given to the word 'manufacture' used in sales tax legislation at a time when the Sales Tax Act did not contain any definition of the said expression. In the circumstances, the Supreme Court proceeded to interpret the word 'manufacture' in the sense in which it was used in common parlance and held that if the goods to which some labour is applied remains the same commercial article, it cannot be said that the final product is the result of manufacture. The Supreme Court was not concerned with interpreting the provision of Section 2(e-l) of the Act which, while denning the word 'manufacture', gives to it an artificial meaning. In Bechu Ram Kishorilal's case [1976] 38 STC 236; 1976 UPTC 253 the learned Judges neither referred to the definition of the word 'manufacture' contained in Section 2(e-l) of the Act nor did they make any attempt to pronounce upon the ambit and scope thereof. This decision, therefore, is not at all helpful in determining the scope and manner of the expression 'manufacture' as defined by Section 2(e-l) of the Act.
19. The next case cited at the Bar was that of Commissioner of Sales Tax, U. P. v. Alsbah Enterprises 1979 UPTC 1423. In this case the question that arose for consideration before the learned single Judge of this Court was as to whether the assessee who had after purchasing mutton tallow from butchers removed the dust and bone-pieces, etc., therefrom and thereafter had offered the same for sale, could be called a 'manufacturer' of mutton tallow as defined by Section 2(e-l) of the Act. The learned Judge observed thus :
It is correct that the definition of the expression 'manufacture' has now been given a wider import but when grinding of wheat into flour is not manufacture : vide U. P. Atta Chakki Vyavasai Sangh, Varanasi v. Krishi Utpadan Mandi Samiti, Varanasi 1976 UPTC 322 or where the mixing of scents in ordinary til oil purchased by a dealer has not been held to amount to manufacture of perfumed oil: vide Commissioner of Sales Tax v. Bechu Ram Kishorilal 1976 UPTC 253, it cannot be said with any justification that the sale of mutton tallow by the assessee after removing dust and bone-pieces would amount to manufacture.
20. It will be said that in this case the learned single Judge held the activity of the, concerned assessee as not amounting to manufacture on the basis of the decision of this Court in U.P. Atta Chakki Vyavasai Sangh, Varanasi v. Krishi Utpadan Mandi Samiti, Varanasi 1976 UPTC 322 and that in the case of Bechu Ram Kishorilal 1976 UPTC 253. So far as the case of U. P. Atta Chakki Vyavasai Sangh, Varanasi 1976 UPTC 322 is concerned, that was a case in which the question whether the activity of converting wheat into atta amounted to manufacture or not was considered in the light of the provisions in the (U. P.) Krishi Utpadan Mandi Samiti Adhiniyam and not in the light of the definition of the word 'manufacture' as contained in Section 2(e-1) of the Act. We have already shown that the decision in Bechu Ram Kishorilal's case 1976 UPTC 253 is not helpful in determining the ambit and scope of the word 'manufacture' as defined by Section 2(e-l) of the Act. In the circumstances, we are unable to agree with the reason given by the learned single Judge for holding that the activity in Alsbah Enterprises' case 1979 UPTC 1423 did not result in 'manufacture' as defined in Section 2(e-l) of the Act. We may, however, hasten to add that at present we are not expressing any opinion on the question as to whether the activity of the assessee in that case in removing dust and bone-pieces from mutton tallow was an activity of the nature specified in Section 2(e-1) of the Act.
21. In the case of Mineral Sales Corporation v. Commissioner of Sales Tax 1980 UPTC 382 a learned single Judge of this Court made the following observation while dealing with the scope of the definition of the word 'manufacture' contained in Section 2(e-l) of the Act:
The learned standing counsel urged that this decision is not helpful to the assessee as the entire basis of it was that the process by which wolfram was obtained did not amount to manufacture whereas Sub-section (e-1) added to Section 2 by U. P. Act No. 38 of 1975 with retrospective effect from 13th October, 1972, defines manufacture to mean even processing or treating. According to him, as items in dispute were crushed and processed to make them marketable, it amounted to manufacture and therefore, a. new commercial commodity shall be deemed to have come into being. The argument is correct only to the extent that even processing amounts to manufacture. But if by processing no new commercial commodity has been produced it is doubtful if it can be treated as separate item for taxability. Manufacture means to produce, to bring out something. If nothing has been produced, no new thing has been brought out, then an item cannot be said to have been manufactured. It was open to the Legislature to give an artificial meaning to the word 'manufacture'. But that did not result in altering the basic concept of taxable event which arises by coming into being of different or new commodity and not by the inclusion of the word 'process' in 'manufacture'.
22. Likewise in the case of Commissioner of Sales Tax v. Dwarika Prasad Antu 1981 UPTC 650, the same learned single Judge reiterated the view that unless a change was brought out in the nature of the commodity or a new commercial commodity was produced, it could not be said that any manufacture had taken place.
23. For the reasons already stated by us, we are unable to accept the position that for purposes of Section 2(e-1) of the Act manufacture takes place only if as a result of the processes mentioned therein a completely new commercial commodity comes into existence.
24. We are accordingly of the opinion that the cases cited by the learned counsel for the dealers do not help their case. So far as the case of Commissioner of Sales Tax v. Bharat Oxygen, Lucknow 1980 UPTC 686 is concerned, in that case also while observing that in order to constitute manufacture the article produced either by physical labour or by mechanical process should be on a large scale and should pass as a commercial commodity from hand to hand could be valid only if the expression 'manufacture' was to be understood in the sense in which it was used in common parlance. That observation loses validity when viewed in the light of the artificial definition of the word 'manufacture' contained in Section 2(e-1) of the Act.
25. In the result both these revision applications succeed and are allowed. The order of the Sales Tax Tribunal dated 22nd March, 1982, is set aside and that passed by the Sales Tax Officer and affirmed by the Assistant Commissioner (Judicial), Moradabad, in appeal in the cases of the two assessees are restored. Parties are directed to bear their own costs.