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Judgment
H.L. Dattu, J.-The appellant is a dealer registered under the provisions of Karnataka Sales Tax Act, 1957 (hereinafter for the sake of brevity referred to as ''Act, 1957''). In the course of its business activities, the appellant effects purchases of waste or unused oil from non-registered dealers and process them for removal of impurities and obtains re-usable lubricating oil for sale.
For the assessment year 1992-1993, the Assessing Authority has concluded the reassessment under Section 12-A of the Act and in that, had concluded that the waste oil purchased by the appellant was different from lubricating oil and the waste oil purchased from unregistered dealers and used in the consumption of manufacture of lubricating oil for sale attracts levy of tax under Section 6 of the Act and accordingly, had levied tax at 7% on the purchase of waste oil amounting to Rs. 5,69,314/-.
The assessee being aggrieved by the aforesaid order, had carried the matter in an appeal before the First Appellate Authority, who by his order dated 4-4-1998, following the observations made by this Court in the case of G. Subramanya Reddy and Company v Karnataka Appellate Tribunal, Bangalore and Others, (1985)59 STC 84 (Kar.) (DB), has allowed the appeal and has set aside the reassessment order passed by the Assessing Authority vide his order dated 24-6-1996.
The Additional Commissioner of Commercial Taxes being of the view that the orders passed by the First Appellate Authority is erroneous and prejudicial to the interest of the revenue, had initiated suo motu revisional proceedings by issuing a show-cause notice dated 5-1-2000 under Section 22-A(1) of the Act, proposing to set aside the orders passed by the First Appellate Authority and further to restore the reassessment order passed by the Assessing Authority, on the ground that the waste oil purchased by the appellant-assessee is processed to obtain usable lubricating oil and therefore, it cannot be considered that the waste oil and reprocessed lubricating oil continues to be one and the same commodity and therefore, the purchase of waste oil from unregistered dealer would attract levy of purchase tax under Section 6 of the Act. Though the proposal made in the show-cause notice was opposed by the appellant by filing its reply, the Revisional Authority by its order dated 23-2-2000 has confirmed the proposal by relying on the decision rendered by Punjab and Haryana High Court in the case of Phul Chand Arora v State of Punjab and Another, (1986)63 STC 464 (P and H) and the decision of the Madras High Court in the case of Ravi Lubrication v State of Tamil Nadu, (1986)61 STC 27 (Mad.) (DB) and after applying the trade parlance test, has held that the waste oil purchased by the assessee from the hawkers cannot be regarded in the trade as the same commodity as lubricating oil and thus when the assessee effects purchase of waste oil or spent oil from non-registered dealers and has consumed the same in the manufacture of a commercially different commodity, namely, lubricating oil, it attracts levy under Section 6 of the Act. Aggrieved by this finding and conclusion reached by the Revisional Authority, the appellant is before this Court in the appeal filed under Section 24(1) of the Act.
Sri Rabinathan, learned Counsel for the appellant, placing reliance on the decision of the Bombay High Court in the case of Commissioner of Sales Tax, Maharashtra State, Bombay v Oil Processors Private Limited, (1998)108 STC 44 (Bom.) (DB), would contend that the process undertaken by the dealer on the used lubricating oil, to make the same fit for re-use as lubricating oil cannot be regarded as a process of manufacture and therefore, the purchase of non-lubricating oil from unregistered dealers are not consumed in the manufacture of lubricating oil for sale and therefore, the charging provision namely Section 6 of the Act is not attracted and therefore, the Revisional Authority was not justified in interfering with the orders passed by the First Appellate Authority, who had granted relief to the appellant.
6.Per contra, Sri Anand, learned Government Advocate for the revenue would submit that when used lubricating oil is processed to make the same for re-use as lubricating oil, it involves several processes and the end product obtained would not have the same properties and characteristics and therefore, what is purchased, which has not suffered tax is consumed in the manufacture of new commodity which will not retain its original identity. In aid of his submissions, the learned Government Advocate relies on several case-laws which have explained the meaning of the expression ''manufacture'' and therefore, submits that the Revisional Authority was justified in taking exception to the orders passed by the First Appellate Authority, who had set aside the orders of reassessment passed by the Assessing Authority for the assessment year 1992-1993.
The question of law raised for our consideration and decision of this Court is, whether on the facts and in the circumstances of the case, the Revisional Authority was justified in levying purchase tax under Section 6 of the Act, on purchases of lubricating oil, from non-dealers and processed to remove impurities and make fit as re-usable lubricating oil, is sustainable in law?
Section 6 of the Act deals with levy of purchase tax in the following circumstances, namely, when a dealer purchases in the course of his business taxable goods in circumstances in which no tax under Section 5 of the Act is leviable on the sale price of such goods; when the dealer consumes such goods in the manufacture of other goods for sale; when the dealer otherwise disposes such goods in any other manner than by way of sale within the State; and when the dealer despatches the goods to a place outside the State, except as a direct result of sale or purchase in the course of inter-State trade or commerce.
The expression ''consumption'' is explained by the Supreme Court in the case of Union of India and Another v M/s. V.M. Salgaoncar and Brothers (Private) Limited, AIR 1998 SC 1367, wherein the Court has observed that "the word ''consumption'' may involve in the narrow sense using the article to such an extent as to each the stage of its non-existence. But the word ''consumption'' in fiscal law need not be confined to such a narrow meaning. It has a wider meaning in which any sort of utilisation of the commodity would as well amount to consumption of the article, albeit that article retaining its identity ever after its use".
The expression ''manufacture'' implies a change but every change is not a ''manufacture'', something more is necessary. There must be a transformation as a result of the process undertaken on the product and a new and different article having a distinctive name or character must emerge. The true test for determining whether a manufacture has taken place is, whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity.
The only question that requires to be considered and decided in this appeal is, whether the used lubricating oil is consumed in the manufacture of lubricating oil, in order to attract levy of purchase tax under Section 6 of the Act?
To decide this issue, the steps that are taken by the assessee-appellant to make the used lubricating oil into lubricating oil requires to be noticed. The learned Counsels for the parties to the lis have not placed any material in this regard and therefore, the process involved as noticed by the Bombay High Court in the case of Oil Processors Private Limited, requires to be taken note of by us to understand that when unused lubricating oil is subjected to some processing, whether any new and different article having a distinctive name or character would emerge or not in order to determine whether a manufacture has taken place or not. In the said decision, the Bombay High Court has noticed.-
"Lubricating oils during service, get contaminated with abrasive materials like metal particles-sediments, carbon particles from combustion in auto engines, dust particles from atmosphere as also water and fuel. Therefore, as per the recommendation of machine manufactures, the lubricating oil is drained out of the machine at some fixed time. The oil does not cease to have its lubricating property but due to aforesaid abrasive contaminates it has to be drained. Once the contaminants are removed the oil is as good as the original oil. In order to lauder-reclaim, re-refine or purify the used lubricating oil, it is chemically treated to breakdown the additives that are in the oil. The oil is neutralised by alkali and water dilutants, etc., are removed by distillation. It is then bleached with earth to improve the colour. The oil is then blended with additives to bring it back to its original performance level".
The Bombay High Court in the aforesaid decision, after in depth analysis of the meaning of the expression ''manufacture'' as explained by the Supreme Court in several decisions, has come to the conclusion, that the process undertaken by the dealer on the used lubricating oil to make the same fit for use as lubricating oil, cannot be regarded as a process of manufacture. Nothing was manufactured as a result of process and lubricating oil remaining as lubricating oil even after processing with the only difference, that on removal of impurities etc., by the process undertaken by the dealer, it becomes fit for use as lubricating oil. Both before and after the processing, it is regarded as lubricating oil.
After noticing the process involved in re-refining the used lubricating oil into lubricating oil, we are of the view that no new commodity/article would emerge having a distinctive name, character and use. Therefore, it can be safely be said that the purchases of used lubricating oil effected by the appellant from unregistered dealers and consumed to make it for re-use as lubricating oil cannot be regarded as manufacture for sale. Therefore, we are of the view that the law laid down by Bombay High Court in the case of Oil Processors Private Limited, would squarely apply to the facts and circumstances of this case.
In the result, since the ingredients required to attract levy of purchase tax under Section 6 of the Act is not present in the instant case, in our opinion, the Revisional Authority was not justified in invoking his suo motu revisional powers to annual the orders passed by the First Appellate Authority. Accordingly, we cannot sustain the impugned order.
Accordingly the following.-
ORDER
I. Appeal is allowed;
II. The impugned order passed by the Revisional Authority in SMR. No. 3/99-2000, dated 23-2-2000 is set aside;
III. The impugned order passed by the First Appellate Authority in appeal No. KST.AP.104/96-97, dated 4-4-1998 is restored;
IV. In the facts and circumstances of the case, parties are directed to bear their own costs. Ordered accordingly.