C.P. Sen, J.
1. In this writ petition, the petitioner is challenging the order of the Divisional Deputy Commissioner of Sales Tax, Jabalpur, in revision, affirming the order of assessment of the Sales Tax Officer, Jabalpur, disallowing the claim of the petitioner for deduction of tax, subject to goods under Section 2(r)(ii) of the Madhya Pradesh General Sales Tax Act, 1958, and under notification dated October 11, 1977, under the Central Sales Tax Act, 1956.
2. The petitioner is a registered firm, carrying on the business of purchase of dolomite from registered dealers and it is also registered as a dealer under both the Acts. The petitioner purchases dolomite in the form of lumps from registered dealers on payment of tax at full rate within the State. The lumps are then crushed and the chips and powder, which are obtained, are sold to various glass manufacturers within and outside the State. The petitioners follow the calendar year. The relevant period of assessment is May 23, 1981 to December 31, 1981. In the quarterly returns submitted by it under the State Act and the Central Act, the petitioner claimed that sales were of tax-paid goods and no tax was, therefore, payable under Section 2(r)(ii) of the State Act and under notification No. 3326-3081/V-ST, dated October 11, 1977, under the Central Act and placed reliance on two decisions of the Allahabad High Court. According to the petitioner, by crushing lumps into chips and powder, there was no manufacture inasmuch as no different commercial commodity came into being. What was sold was also dolomite in the form of chips and powder, instead of lumps. However, the Sales Tax Officer rejected the claim of the petitioner and held that a different commodity is obtained by crushing dolomite lumps into chips and powder. Since there was a manufacture within the meaning of Section 2(j) of the State Act, he disallowed the claim of deduction on account of sale of tax-paid goods under Section 2(r)(ii) of the Act. He assessed sales at Rs. 23,000 as taxable at 10 per cent and levied tax of Rs. 12,300 under the State Act and held sales of Rs. 3,62,000 in the course of inter-State trade or commerce, which were taxed at 4 per cent supported by C forms and a tax of Rs. 14,480 was levied, by disallowing the exemption claimed under the notification. The petitioner preferred a revision before the Divisional Deputy Commissioner of Sales Tax against both the orders of assessment and by a common order, the revision was dismissed. According to the Divisional Deputy Commissioner, the definition of 'manufacture' in Section 2(j) of the State Act is very wide and includes any process or manner of producing, collecting, extracting, preparing or making any goods. Crushing lumps will be within the activity of manufacture. Dolomite in the form of lumps cannot be said to be the same thing as in the form of chips and powder. The commercial utility of both is different. There cannot be exchange for lumps with chips or powder, they being different commercial commodities. The petitioner, by breaking lumps into chips and powder, manufactures new commercial commodity. Therefore, he did not accept that the petitioner sold tax-paid goods.
3. According to the petitioner, chips and powder are obtained by breaking lumps only for the purpose of convenience for their use and the chips and powder retain the same characteristics and qualities as dolomite lumps. Except for change in shape, there is absolutely no transformation, so as to bring a new commercial commodity with different characteristics and qualities. In commercial world, dolomite, whether in lumps or as chips or powder, is dolomite. Therefore, the sales tax authorities were in error in law in holding that dolomite chips and powder were different marketable commodities from dolomite lumps and thereby disallowing the claim of deduction under Section 2(r)(ii) of the State Act and the notification in question referred to earlier under the Central Act.
4. The respondents, in their return, submitted that the petitioner purchased dolomite lumps from registered dealers, but the petitioner sold dolomite chips and powder, after crushing, which are different commercial commodity brought into existence by the process of manufacture. The definition of 'manufacture' in Section 2(j) is wide enough to include any activity, even crushing lumps into chips and powder. By way of additional return, the respondents tried to show from the purchase vouchers that dolomite lumps, chips and powder are different commercial commodities and the prices are also different, depending upon the purpose for which it is purchased by the manufacturer. By a rejoinder, the petitioner reiterated that dolomite remains commercially the same commodity when lumps are crushed into chips or powder. The breaking of dolomite lumps into chips or powder will not mean 'manufacture' within the meaning of Section 2(j) of the State Act, as no different commercial commodity is brought about by breaking. Dolomite chips and powder are mostly sold to glass manufacturers by the petitioner, who use lumps, chips and powder, as evident from the vouchers produced by the respondents. The only difference is that smaller pieces melt earlier and chips and powder are costlier. As dolomite lumps are purchased at the mines, these are sorted out and good quality transported to the place of crushing. Then they are packed in gunny bags and thereafter sent to the railway station for transportation by rail. This explains the difference in the prices between the lumps and chips or powder.
5. The only question for consideration is as to whether, the petitioner who purchased dolomite lumps from registered dealers, sells dolomite chips and powder after crushing the lumps, no different commodity is thereby produced and as such is entitled to deduct those sales from taxable turnover under Section 2(r)(ii) of the State Act and under the notification dated October 11, 1977, under the Central Act, and, therefore, the respondents erred in levying tax over again on the assumption that by breaking lumps into chips and powder, a new commodity is produced, which has been sold.
6. In the Directory of Mineral Consumers in India, published by the Indian Bureau of Mines, in the Chapter on 'Dolomite', at page 480, of Vol.1 it is mentioned :
'Dolomite is a double carbonate of magnesium and calcium (CaCo3, MgCo3). Theoretically, it contains 21.7 per cent MgO and 30.4 per cent CaO and the remaining being Co2. However, in nature much variation takes place in the composition. It is of sedimentary origin and is supposed to have been formed due to alteration of calcium carbonate sediments or rocks by sea-water rich in magnesis.
The use of dolomite is gaining rebound and considerably diversified although iron and steel and refractory industries continue to be the potential consumers. Due to gradual change in the practice of manufacturing steel by basic open hearth furnace and L D process, the importance of dolomite as refractory material has greatly increased. Dead burned dolomite or high magnesium limestone is used as a refractory lining in basic open hearth furnace and gessemer converters. Dolomite added as basic flux in the smelting of iron ore in blast furnace removes alumina and silica as slag. But large quantities of magnesium oxide give rise to viscous slag and thus the dolomite fluxes are objectionable to a certain degree. All the seven steel plants in the country consume dolomite. Bhilai, Durgapur, Bokaro and VISL's plants consume in steel melting shop only, while the remaining three, viz., IISCO, TISCO and Rourkela plants consume both for blast furnace and steel melting shop. Right quality of dolomite in the furnace besides giving good fluxing effect also imparts requisite fluidity to the melt and this helps in completing good reaction in the melt. It has been found as a useful support to limestone in removing sulphur. In steel and ferro-alloys industries, the dolomite is identified into two grades : blast furnace grade and steel melting shop grade depending upon the total insolubles present. In BP grade, total insolubles up to 10 per cent is tolerated but for SMS it should be below 4 per cent. Ferro-manganese and ferro-silicon industries generally use SMS grade. Dolomite for such purposes should be hard and fine grained because crystalline dolomite gives fritting effect in the furnace, is also consumed in fertiliser industry for making calcium, ammonium nitrate and also as a costing material for fertilisers.
Glass industry is another important consumer of dolomite where it is valued for its magnesium content in the manufacture of sheet and optical glasses. For this purpose consumers prefer to have dolomite free from iron content. Other minor uses of dolomite are many, such as in paints and varnishes, as filler in the manufacture of mineral wool, as hardening agent in rubber and as an accelerator in vulcanising process and some time as soil conditioner. Crystalline and metamorphosed dolomite takes good polish and is extensively used as decorative building material. Dolomite marble chips are used for floorings'.
R.K. Sinha, in his book, Industrial Minerals, 1982 Edition : crystalline dolomite in Bhedaghat of Jabalpur district is of exceptionally high purity, containing very low percentage of iron. The dolomite from this deposit is also supplied to important glass factories, like Indo-Ashahi Glass Co. Ltd., Hazaribagh and Hindusthan Pilkington Glass Works Ltd., Calcutta. The petitioner's purchases are from Bhedaghat only and after crushing the lumps, the chips and powder are supplied to the glass manufacturers.
7. Section 2(j) of the State Act defines 'manufacture' as including any process or manner of producing, collecting, extracting, preparing or making any goods, and in respect of trees which have been severed from the land or which have been felled, also the process of lopping the branches, cutting the trunks or converting them into logs, poles or bailies or any other articles of wood, but does not include such manufactures or manufacturing processes as may be notified. Though the definition is very widely worded and any process or manner of producing any goods is manufacture, the Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63 (SC), has held :
'When pineapple fruit is processed into pineapple slices for the purpose of being sold in sealed cans, there is no consumption of the original pineapple fruit for the purpose of manufacture and the case does not fall within Section 5A(1)(a) of the Kerala General Sales Tax Act, 1963. Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity continues to possess its original identity, notwithstanding the removal of inedible portions, the slicing and thereafter canning it on adding sugar to preserve it.'
The following observation of the American Supreme Court in Anheuser Busch Brewing Association v. United States 52 L Ed 336, has been quoted with approval :
'Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary.........There must be transformation ; a new and different article must emerge, 'having a distinctive name, character or use'.'
'At some point processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage, we cannot say that it has been 'manufactured'.'
In Chowgule & Co. Pvt. Ltd. v. Union of India [1981] 47 STC 124, the Supreme Court has held :
'The test that is required to be applied is : does the processing of the original commodity bring into existence a commercially different and distinct commodity?'
8. The Supreme Court in State of Orissa v. Titaghur Paper Mills Co. Ltd. [1985] 60 STC 213, has held :
'Timber and sized and dressed logs are one and the same commercial commodity. Logs are nothing more than wood cut up or sawn and would be timber. Planks, beams and rafters would also be timber.'
Again, in Sterling Foods v. State of Karnataka [1986] 63 STC 239, the Supreme Court has held :
'Processed or frozen shrimps, prawns and lobsters are commercially regarded the same commodity as raw shrimps, prawns and lobsters. When raw shrimps, prawns and lobsters are subjected to the process of cutting of heads and tails, peeling, deveining, cleaning and freezing, they do not cease to be shrimps, prawns and lobsters and become another distinct commodity. They are in common parlance known as shrimps, prawns and lobsters. There is no essential difference between raw shrimps, prawns and lobsters and processed or frozen shrimps, prawns and lobsters. The dealer and the consumer regard both as shrimps, prawns and lobsters.'
Further in Atul Glass Industries (P.) Ltd. v. Collector of Central Excise [1986] 63 STC 322 (SC), it has also been held :
'A glass bowl, a glass vase, a glass tumbler, a glass table-top and so on are all articles in which the primary component is glass. They are nothing more and nothing less. Any treatment of an ornamental nature applied to such articles does not derogate from their fundamental character as glass articles. It is quite the contrary in the case of a glass mirror.
In the case of a glass mirror, the consumer recalls primarily the reflective function of the article more than anything else. It is a mirror, an article which reflects images. It is referred to as a glass mirror only because the word 'glass' is descriptive of the mirror in that glass has been used as a medium for manufacturing the mirror. The basic or fundamental character of the article lies in its being a mirror.'
Similarly, the Supreme Court, in Deputy Commissioner of Sales Tax v. A.B. Ismail [1986] 62 STC 394 has held :
'The slaughter of the animals and their conversion into meat is the consequence of consumption of the animals in a legal sense. In such conversion, a process of manufacture can also be inferred. Lifeless meat is, by any standard, 'other goods', different from 'goat and sheep'.'
9. However, in G.R. Kulkarni v. State [1957] 8 STC 294, a Division Bench of this Court held that the breaking of boulders into metal (gitti) is manufacture within the meaning of the Madhya Pradesh Sales Tax Act, 1947, and the essence of manufacture is the changing of one object into another for the purpose of making it marketable. For this purpose, the Division Bench relied on another single Bench decision of this Court in State of M.P. v. Wasudeo [1955] 6 STC 30 where it has been held that fashioning of timber into logs for the purpose of sale, is manufacture. But this decision was dissented from by another Division Bench in Mohanlal Vishram v. Commissioner of Sales Tax [1969] 24 STC 101 (MP) holding that by felling standing timber trees, cutting trees and converting some of them into ballis, did not alter their character as timber or using them for the manufacture of 'other goods' within the meaning of Section 8(1) of the Madhya Pradesh General Sales Tax Act, 1958. The court observed : 'with all due respect, we think that the so called advance from the original form did not alter their basic character as timber and, therefore, purchase tax could not be levied under Section 8(1) of the Act'. It may be mentioned that the view taken in State of M.P. v. Wasudeo [1955] 6 STC 30 (MP) is contrary to the subsequent decision of the Supreme Court in State of Orissa v. Titaghur Paper Mills [1985] 60 STC 213. Relying on the decision of the Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63, a Division Bench of the Karnataka High Court in Reliable Rocks Builders and Suppliers v. State of Karnataka [1982] 49 STC 110, has held that the process of breaking boulders into jelly cannot be described as a manufacturing process. A Division Bench of the Kerala High Court in Deputy Commissioner of Sales Tax v. Sulaiman [1986] 61 STC 331, has held that the bone-meal manufactured for sale as fertiliser in market has a separate commercial identity distinct from those raw-bones purchased, even though the process of manufacture involved is only the crushing and powdering such raw-bones, by relying on the decision of the Supreme Court in Deputy Commissioner of Sales Tax v. Pio Food Packers [1980] 46 STC 63. The Bench dissented from the contrary decision of the Division Bench of the Madras High Court in State of Tamil Nadu v. Subbaraj and Co. [1981] 47 STC 30.
10. Here, the petitioner, after purchasing lumps of dolomite from registered dealers, crushed them and sold chips and powder to glass manufacturers. What was purchased was dolomite and sale was also of dolomite. Chips and powder of dolomite are not different commercial commodities than dolomite lumps. It is not the respondents' case in their return that anything more is required to be done, except crushing the lumps to get chips and powder from the lumps and that the composition of the end-product is different from lumps. The lumps are broken into chips and powder for convenience in use but they retain the same characteristics and qualities of dolomite lumps. Except for change in shape, there is absolutely no transformation into composition to bring about a new commercial commodity. It appears from the vouchers produced by the respondents that the petitioner had supplied dolomite lumps, chips and powder to different glass manufacturers as required by them. Some manufacturers may not be having crushing facilities or of sufficient capacity. So they purchased in powder form also. However, the respondents by their additional return stressed that while dolomite lumps were sold for Rs. 38 per metric ton, dolomite powder was sold at the rates between Rs. 150 per metric ton, thereby suggesting that some lengthy process is required for getting the powder. The learned counsel for the petitioner has given us the break-up of the price of dolomite powder. As extra cost of Rs. 88 per metric ton is incurred in getting powder from the lumps by way of extra lead for taking the lumps to the crushing machine, loading, unloading charges, breaking charges and packing them in bags and stitching them. About 20 gunny bags are required for packing 1 metric ton powder in bags of 50 kg. each. Lumps are transported in bulk and not required to be packed in gunny bags. For breaking 1 ton lumps into powder, the breaking and labour charges are about Rs. 35 and another Rs. 35 are the costs of 20 gunny bags and stitching charges. This explains the difference in price of lumps and powder of dolomite by about Rs. 90 or so per ton. As the dolomite lumps, chips and powder are the same commodities, there is no manufacture by crushing lumps into chips and powder. So the respondents erred in holding that there is manufacture by breaking lumps into chips and powder and by levying tax over again in respect of the same lax-paid goods. So the petitioner is justified in deducting from his taxable turnover, the sale price of dolomite lumps purchased from registered dealers on payment of full sales tax under Section 2(r)(ii) of the State Act and under the notification dated October 17, 1977, under the Central Act.
11. With the result, the petition is allowed with costs. The order in revision by the Divisional Deputy Commissioner of Sales Tax and the order of assessment by the Sales Tax Officer are quashed and the respondents are directed to refund the excess amount to the petitioner, which has been recovered from it. Counsel's fee Rs. 200, if certified. The outstanding security amount be refunded to the petitioner.