Supreme Court Interpretation of "Manufacture" Excludes Tea Blending and Packaging from UP Trade Tax

Supreme Court Interpretation of "Manufacture" Excludes Tea Blending and Packaging from UP Trade Tax

In a recent ruling, the Supreme Court interpreted the definition of "manufacture" under Section 2(e)(1) of the U.P. Trade Tax Act, 1948, excluding the mere blending and packaging of tea from its scope.

In the case of Chowgule & Co. Private Limited and Anr. vs. Union of India and Others, the Supreme Court's three-judge bench, led by Justices B.V. Nagarathna and Ujjal Bhuyan, pronounced a distinct judgment.

“However, in the instant case, mere mixing of different types of tea only for the purpose of marketing as tea and not a particular type of tea does not involve any process/manufacture within the meaning of the definition. Therefore, judgment and observations in Shiv Datt and Sons are squarely applicable to the present case,” the Apex Court said.

The respondent-assessee, involved in blending and packing tea for sale, was deemed non-manufacturing under Section 2(e)(1) of the U.P. Trade Tax Act, 1948. As the blended tea was not a new product, it did not meet the 'manufacture' criteria.

In a bid to overturn the Tribunal's verdict, the Commissioner of Trade Tax, UP, sought answers from the Allahabad High Court on two crucial legal points. Firstly, they questioned the legal merit of the Tribunal's conclusion that blending and packing tea was not "manufacturing," arguing its inconsistency with the specific facts and circumstances of the case. Secondly, they raised doubts about the proper application of the Supreme Court's precedent in Chogula and Co. Pvt. Ltd. v. Union of India (1981 U.P.T.C. 702), suggesting the Tribunal might have misinterpreted its principles. However, siding with the assessee, the High Court dismissed both arguments. They asserted that blending and packing didn't transform tea into a distinct commercial product; it remained simply tea, albeit presented differently. This finding effectively quashed the Commissioner's challenge and upheld the Tribunal's initial ruling.

The Additional Advocate General, representing the State of Uttar Pradesh, contended that the High Court erred in neglecting the formation of a novel commodity through the blending of distinct teas. Because the assessee actively generated a differentiated product, their blending process qualified as "manufacture" within the definition provided by the Act.

The state invoked the Supreme Court's Chowgule & Co. et al. judgment, asserting that the High Court's erroneous application of a lower tax rate overlooked the appropriate higher rate for the assessee's blended tea products.

Senior Advocate Dhruv Agrawal, representing the respondent-assessee, submitted that the cases relied upon by the Additional Advocate General were distinguishable on their facts and therefore inapplicable in the assessee's present case.

The Court found the definition of "manufacture" in Section 2(e)(1) of the U.P. Trade Tax Act, 1948, to be exhaustive rather than expansive, given the absence of the term "includes."

“On a reading of the said definition of 'manufacture' we note that it does not use the expression 'includes'. This clearly indicates that the intention of the Legislature is to give a strict or a restricted meaning to the expression 'manufacture' and not an expansive meaning,” the Bench said.

Reliance was placed on State of Maharashtra vs. M/s Shiv Datt and Sons and Others, wherein a three-judge bench of the Top Court held that the words "processed or altered in any manner after such purchase" required a narrow interpretation to avoid the absurd and impractical consequences of their overly broad scope.

The Bench presided over by Justice Nagarathna, distinguished the Supreme Court's decision in Chowgule & Co. Private Limited and Anr. on factual grounds. The Court held that the reasoning of Nilgiri Ceylon Tea Supplying Co. v. State of Bombay (Bombay High Court) did not apply in this case, as the mixing of ores, in that case, followed a specific process that resulted in a unique product as per the contract.

Accordingly, the Court held that the Supreme Court's reference to the Bombay High Court's decision in Nilgiri Ceylon Tea Supplying Co. in M/s Shiv Datt and Sons and Others directly applies to the present case.

“The order of the Bombay High Court was not applicable to the facts of the case in Chowgule & Co. Private Limited as in the former the case concerned blending of tea which is also the subject matter of this case; whereas the goods involved in Chowgule & Co. Private Limited was a particular kind of ore contraction which required a mixing up of several types of ores in particular quantities and in a particular manner and a procedure which involved a process and hence the same was covered within the definition of manufacture,” the Court noted.

The Court concluded that simply mixing different types of tea for general marketing purposes, without creating a distinct new variety, does not fall within the definition of "manufacture" under the Act. Consequently, the appeals filed by the Commissioner of Trade Tax, UP, were dismissed.