Process of dilution lead to a manufacturing process.

Cheetal Grand Motels (P.) Ltd. v. Commissioner of Trade Tax, U.P.

High Court of Allahabad

Sales/Trade Tax Revision Nos. 76-77 of 2007 & 475 of 2009

Category: Definition and scope of ‘Manufacture’ under Trade Tax

Date of Judgement: October 12, 2017

Relevant Section: Section 2(e1) of the U.P. Trade Tax Act, 1948

Facts of the Case

1. The assessee, Cheetal Grand Motels (P.) Ltd., purchased cold drink concentrate and processed it by diluting with water and infusing gas to create aerated beverages sold through vending machines (Para 3).
2. The assessee contended that this process did not amount to “manufacture” under the U.P. Trade Tax Act, 1948 and therefore should not attract trade tax liability (Para 3).
3. The Assessing Authority held the activity as manufacture; this was overturned by the First Appellate Authority but later reinstated by the Tribunal (Para 5).
4. The assessee relied on SC decisions in Pio Food Packers and Lal Kunwa Stone Crusher (P.) Ltd., asserting that no new marketable commodity emerged (Para 4).

Questions in Consideration

• Whether the process of diluting cold drink concentrate with water and infusing gas to produce an aerated beverage amounts to “manufacture” under Section 2(e1) of the U.P. Trade Tax Act, 1948 (Para 2).

Observations of the Court

1. The Court noted that the cold drink concentrate is not sold in its original form and is materially changed through infusion and dilution, creating a commercially distinct product (Para 6–7).
2. The definition of “manufacture” under Section 2(e1) includes “processing, treating or adapting” goods, making it wider than similar terms in other statutes like the Central Excise Act (Para 7–8).
3. The court quoted from Shyam Behari Lal Keserwani v. Commissioner U.P. Trade Tax and Sonebhadra Fuels to highlight the wide ambit of “manufacture” under the U.P. Act, which includes transformation even without a distinct commercial identity (Para 8).
4. The Court distinguished the cited SC decisions, noting that unlike pineapple slices or crushed stones, an aerated beverage is substantially different in character and market identity from cold drink concentrate (Para 10).

Judgement of the Court

• The High Court upheld the view of the Tribunal and dismissed the revisions filed by the assessee. It held that the process adopted by the assessee did constitute “manufacture” under the U.P. Trade Tax Act, 1948, as it resulted in a commercially distinct commodity (Para 9–11).

Between Fine Lines

• The court confirmed that even minor processes like dilution and carbonation can qualify as “manufacture” if they produce a commercially distinct product.
• The wide definition of “manufacture” under U.P. Trade Tax Act includes processes that may not lead to a new commodity under other laws.
• Aerated beverages made from concentrate are treated as different goods for taxation purposes.
• Cited Supreme Court rulings did not apply due to distinct factual and legal contexts.
• Dealers involved in processing should account for the broader definition of manufacture under state tax laws.

Summary of Referred Cases

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