V.A. Mohta, C.J.
1. Whether the case of Savitri Industries v. State of Orissa, OJC No. 1269 of 1990, decided on (2-5-1991) lays down the correct position of law is the question referred to the Full Bench. It has arisen in the context of the orders passed by authorities under the Orissa Sales Tax Act, 1947 (the Act) taking a view that paper was not a raw material for preparing the exercise book and hence was not entitled to exemption under the Industrial Policy Resolutions of the State of Orissa.
2. The petitioners are registered dealers under the Act. Certificates of registration issued under Section 9 of the Act, indicate the nature of their business as manufacturing and wholesale distribution. The certificates further state that the dealers intend to use paper, board, binding cloth rexines thread stitching wire, ink, maida and marble paper in the manufacture/processing of goods for re sale and that they carry on business, inter alia, of manufacturing and otherwise producing for sale exercise books, registers, etc. The petitioners purchased requisite machines for manufacturing exercise books, etc. and their factories were provisionally registered as S. S. I. units on 13-2-1987. Entry 26-D was inserted in the I. P. Resolutions in the list of tax-free goods for giving exemption for a period of five years from the date of production to small industries purchasing raw materials irrespective of whether such industries are Manufacturing or processing industries. The petitioners were also assessed for some years in which the exemption availed for the raw materials purchased for producing exercise books was accepted.
3. The audit party raised objection to the exemption allowed by the Sales Tax Officer/relying upon the decision of the Supreme Court in the case of Rameswarlal Murlidhar v. State of Orissa, 51 STC 401. One of the petitioners .Sri Jagannath Industries, had submitted a memorandum dated 9-1-1990 to the STO explaining the correct legal position. Even after such audit objection the STO used to issue I-E forms prescribed for claiming exemption and the said petitioner also continued to claim exemption. Notices under Section 12 of the Act have been issued to the petitioners for reopening the assessments and so also cause notices have been issued asking as to why the registration certificates under the Act should not be amended as conversion of paper into exercise book does not amount to manufacturing. The petitioners submitted reply but the STO deleted the word 'manufacturing' from the certificates of registration with retrospective effect. On the basis of the decision of this Court in Savitri Industries (supra), it was held by the Sales Tax authorities that transformation of paper into exercise book did not constitute manufacture of a distinct commodity with character and use different from paper. The conversion only amounted to processing of goods. The petitioners have challenged those orders/actions of the Sales Tax authorities.
4. Undisputed factual position about the activity of petitioners in the preparation of exercise book, bound book, etc. is as follows : The petitioners purchase plain papers and by separate machines cut them, roll them, stitch them apply sizing and bind them either by cloth or leather and sell these articles in the market as bound books, exercise book etc. All these processes are done in the factory by different machines, such as cutting machine, rolling machine, stitching machine, sizing machine as well as by manual labour.
5. 'Is the above activity a manufacturing process ?' is the first basic question. The law on the point seems to be well settled In the case Ujagar Prints v. Union of India, AIR 1989 SC 516, subjecting the 'Gray-fabric' to the various processes like bleaching, dyeing, sizing, printing, finishing etc. has been held to be manufacturing since what emerges thereafter is a different commercial commodity with its own price structure and other commercial incidents. In the case of Ganesh Trading Co. v. State of Haryana, 32 STC 623, it has been held that although rice is produced out of paddy, paddy does not continue to be paddy after husking, since rice and paddy are two different things in ordinary parlance and there is a clear change in the identity of the goods by the process. As recently as on 20-9-1994, the Supreme Court in the case of M/s. In Indian Cable Company Ltd. v. Collector of Central Excise, Calcutta, 1994 AIR SCR 4071, has held that in construing the relevant item or entry in the fiscal statute if it is of common use, the concerned authority must normally construe it as to how it is understood in common parlance or in the commercial world. It must be given its popular meaning. in the case of Jagannath Cotton Company v. State of Orissa (OJC No.1166 of 1992) and Ors. connected cases decided on (29-7-1984) it has been held that the activity of obtaining cotton from waste cotton amounted to manufacture of a product under the Act so as to attract the exemption from levy of sales tax under the Industrial Policy Resolutions. In arriving at the conclusion, the basic concept of manufacture and the insertion of the definition of the term manufacture in the Sales Tax Act by Act No. 21 of 1991 with effect from 1-8-1991 was also taken into consideration. The term production has a somewhat different connotation as held in Commissioner of Income Tax Orissa v. N. C. Budharaja, AIR 1993 SC 2529. It is also held that the words 'manufacture' and 'production' have received extensive judicial attention both under the I. T. Act as well as Central Excise Act and the various Sales Tax Law and the word 'production' has a wider connotation then the word manufacture While every manufacture can be characterised as production, every production need not amount to manufacture.
6. The case of Savitri Industries has some historical background and it is this :
In the case of Rameswarlal Muralidhar v. State of Orissa 45 STC 115 it was held by this Court that by converting paper into exercise books and selling them as such, the assessee violated the declaration and attracted the liability to pay tax under the proviso to Section 5(2)(A)(a)(ii) of the Act. The assessee had contended that in the process of converting the paper into exercise books no declaration was violated since both the commodities substantially were the same and this contention was repelled. In the case of Remeswarlal Muralidhar v. State of Orissa, 50 STC 312, this Court reiterated the legal position that for the purposes of the Act, paper and exercise books which are manufactured out of paper are not one and the same thing but are two different things. This time the assessee relied upon a decision of the Supreme Court in the case of Maharaja Book Depot v. State of Gujarat. AIR 1979 SC 180. in support of his stand that paper and exercise books constituted the same commodity. This Court held that Maharaja Book Depot's case was concerned with the provisions of the Essential Commodities Act and the Gujarat Essential Articles Dealers' Regulation Order made thereunder in which item at serial No. 14 paper included newsprint, paper board, straw board and exercise note books. For violation of the Act and the Order, the entire stock of exercise books was confiscated on the basis that they were included in the item paper The earlier decision rendered in Rameswarlal Muralidhar(45 STC 115) was challenged by the assessee in the Supreme Court In Rameswarlal Muralidhar v. State of Orissa, 51 STC 401, the following short order allowing the appeal was passed :
It is agreed on all hands that the question raised in this appeal is covered by the decision of this Cout in Maharaja Book Depot v. State of Gujarat, (1979) 2 SCR 136, and also by the ratio of the decision in Deputy Commissioner, Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers, (1980) 46 . STC 63 : AIR 1980 SC 1227. The appeal is accordingly allowed with no order as to costs.'In the case of Dy. Commr. Sales Tax, Ernakulam v. Pio Food Packers, AIR 1980 SC 1227, the term 'consumption of commodity in process of manufacture found in Section 5-A(1)(a) of the Kerala General Sales Tax Act, 1963 fell for consideration. The Court ruled that the processing of pinciple fruit into its slices for selling in sealed cans does not involve consumption of commodity in the process of manufacturing.
7. Relying on the ratio of the case of Maharaja Book Depot (supra), which was noticed in Rameswarlal Muralidhar (51 STC 401), it was held by this Court in Savitri Industries' case that transformation of paper into bound exercise book amounted to only processing and hot manufacturing.
8. The Supreme Court in the case of Commissioner of Sales Tax U.P. v. Macnoill and Barry Ltd., 61 STC 76, has held that ammonia paper or ferro paper which is made of paper of a rough and special texture by applying a chemical process and giving a chemical coating thereon, and which is used for preparing prints and sketches of site plans, cannot be regarded as paper in the popular sense of that term This decision has been rendered in the context of the U. P. Sales Tax Act. This time also attention of the learned Judges was drawn to the case of Maharaja Book Depot (supra) but Its ratio was held to be not applicable to sales tax law on the ground that therein conclusion was supported by reference to nature of item and the object and purpose of the Essential Commodities Act and the Regulation Order made thereunder. It may be mentioned that the decision in Macnoill and Barry (supra) is a decision by the co-ordinate Bench of the Supreme Court rendered later than Maharaja Book Depot's case. It is obvious that Macnoill and Barry's case is not only a later decision but also is a direct decision in the context of Sales Tax law and it distinguishes the earlier case under different enactments.
9. In this background, the controversy as to whether Supreme Court decision in Rameswarlal Muralidhar was rendered only on the basis of concession and, therefore, has no binding effect on us need not be gone into.
10. In the Act the term manufacture or processing was not defined however by Ordinance No. 6 of 1991 (later on converted into Act No. 21.of 1991) the definition of the term was introduced by adding Section 2 (dddd) reading as under:
(dddd) 'manufacture' with all its grammatical variations and cognate expressions, means producing, extracting, altering, ornamenting finishing of otherwise processing or adopting any goods, but shall not include such manufacture or manufacturing process as the State Government may, by notification, specify from time to time .'
It is worthwhile noticing that the term processing is considered to be 'manufacture. On 26-3-1994 the Finance Department in exercise of the powers conferred by Section 6 of the Act amended the declaration Form I-B retrospectively with effect from 1-4-1986 and introduced in it the term manufacturing/processing industries. From these steps of the State .it seems clear to us that the term manufacture though not defined, was always considered on the lines of the definition clause. The definition of the term manufacture recently introduced is nothing new. It is a usual definition of the term to be found in several taxing statutes. There are therefore enough circumstances to presume that the insertion of the term manufacture in the definition clause was essentially explanatory, clarificatory or declaratory. Such provision can be read as intended to have retrospective effect. No explanation was given about the circumstances in which introduction of the definition of the term 'manufacture' in the Act was thought of.
11. Having regard to the totality of the background, it seems to us that the process undertaken by the petitioners in preparing exercise and bound books out of paper is nothing but manufacturing process. Several Courts have taken this view and one decision is of the Allahabad High Court in the case of Laxmi Paper Mart v. State of U.P. 35STC164.
12. The learned Standing Counsel for the Sales Tax Department contended that manufacture implies the change, but every change is not manufacture and for that purpose relied upon a decision of the Supreme Court in Idandas v. Anant Ramchandra Phadhe, AIR 1982 SC 127. That was a decision under Section 106 of the Transfer of Property Act. In that case conversion of wheat into flour in the flour-mill was held to be a manufacturing process. The ratio of that decision does not render any assistance to the State. It was also contended by him that the definition in. the enactment would be presumed to be only prospective in the absence of express provision about retrospectivity and, therefore the petitioners could not rely on the new definitions since their cases pertain to the earlier period. One of the factors which was pressed before us for not considering it retrospectively in the serious consequences of the heavy burden which may be put on the State as a result thereof. We fail to see how that consideration will determine the question about the retrospectivity of the definition clause. It may be mentioned th3t the circumstances in which Form l-B was amended retrospectively have also not been explained by the State.
13. In the ultimate analysis, we conclude that Savitri Industries case does not lay down the correct legal position.
14. The question referred is answered as indicated above. The petitions be remitted back for decision in accordance with law on their own merits in the light of what is held in this reference.
D.P. Mohapatra, J.
14. I agree.
R.K. Patra, J.
15. I agree.