1. This is a reference under section 61(1) of the Bombay Sales Tax Act, 1959 (hereinafter referred to as 'the said Act'). The question referred to us for our determination is as follows :
'Whether, on the facts and in the circumstances of the case and on a proper interpretation of section 13 of the Bombay Sales Tax Act, 1959, the Tribunal was correct in law in holding in its judgment in Appeal No. 134 of 1968 that no purchase tax was payable under the said section on the purchase of the ship 'Jalapratap' by the appellants under the instrument dated 10th November, 1965, and which ship was dismantled ?'
2. The facts giving rise to this reference are as follows : The respondents are a registered dealer under the said Act and deal in iron and steel, iron scrap, electric motors and machinery. They also purchase unserviceable ships for scrapping and dismantling. Under an instrument of sale dated 10th November, 1965, the respondents purchased a ship named 'Jalapratap' along with its boats and appurtenances from the Scindia Steam Navigation Co. Ltd. This purchase was made by the respondents for the purpose of breaking and scrapping the said ship. On 19th September, 1968, the respondents made an application under section 52 of the said Act to the Deputy Commissioner of Sales Tax for determination of the question as to whether any tax was payable on the purchase of the said ship and if so, to determine the rate of that tax. In this application the respondents stated that they had purchased the said ship under the said instrument of sale and that the said ship was purchased for 'breaking and scrapping purposes' as mentioned in the bill of entry. The Deputy Commissioner of Sales Tax held that purchase tax was payable on this transaction under entry 22 of Schedule E to the said Act. The Deputy Commissioner rejected the contention urged on behalf of the respondents that the provisions of section 13 of the said Act were not applicable as it could not be said that the said ship was used by the respondents in the manufacture of goods. The respondents then preferred an appeal before the Sales Tax Tribunal. Before the Tribunal the respondents did not dispute that the process of breaking, dismantling or scrapping came within the definition of 'manufacture' under clause (17) of section 2 of the said Act. It was, however, contended by the respondents before the Tribunal that it could not be said that the said ship was used in the manufacture of goods and this contention was accepted by the Tribunal. The Tribunal, therefore, allowed the appeal of the respondents and held that the purchase of the ship by the respondents did not attract the levy of the purchase tax under the provisions of section 13(a) of the said Act. The question posed for determination before us arises out of the said decision of the Tribunal.
3. When the reference first came before us for hearing we found that the statement of facts then furnished was not sufficient for the determination of the question raised, as the statement of facts did not show as to what was the nature of the dismantling process involved, nor did it show as to what were the goods, if any, which were obtained from the dismantling of the said ship or as to what was the process or activity which was necessary to be done in connection with the ship in order to obtain these goods. By our order dated 10th January, 1975, in this reference we directed the Tribunal to furnish a fuller statement of facts incorporating the aforesaid particulars. When the matter went back to the Tribunal, both the sides agreed that the particulars of the goods which were obtained from the breaking up and dismantling of the ship were available on the record. From the statement of the case it appears that what was obtained from the breaking up and dismantling of the said ship was iron or steel scrap, iron or steel plates, wooden planks and rivets, bolts, boilers, fans and some other articles, a list of which has been annexed to the statement of the case as annexure A. before the Tribunal both the sides have agreed that information regarding the process or activity which was necessary to be done in connection with the ship in order to obtain these goods was not available on the record. The submission made before the Tribunal on behalf of the respondents herein was that the process could be assumed to be one of extraction. The fact, which we have set out earlier are, it may be pointed out, from the statement of the case which has been furnished by way of an additional statement of facts by the Tribunal.
4. Before coming to the arguments advanced before us, it would be useful to refer to certain relevant provisions of the said Act. The relevant portion of section 13 of the said Act reads as follows :
'Where a dealer who is liable to pay tax under this Act purchases any goods specified in Schedule B, C, D or E, from a person or a Government who or which is not a registered dealer, and -
(a) uses them within the State in the manufacture of goods, or in the packing of goods (whether manufactured by him or not), or ......
then, there shall be levied, subject to the provisions of sub-section (3) of section 7, a purchase tax on the turnover of such purchases at the rate set out against each of such goods in the aforesaid schedules.'
5. Clause (17) of section 2 of the said Act, which gives an extended definition to the term 'manufacture' reads as follows :
'manufacture' with all its grammatical variations and cognate expressions, means producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating, or adapting any goods; but does not include such manufactures or manufacturing process as may be prescribed.'
6. It may be pointed out a this stage that it is common ground that the goods purchased would be covered by the opening part of section 13 in view of the fact that entry 22 of Schedule E to the said Act is a residuary entry and would certainly cover the goods in question.
7. The submission of Mr. Sanghvi, the learned Advocate for the applicant, is that, in the present case, what the respondents have purchased is a ship and they are carried out the process of dismantling the same. It is submitted by Mr. Sanghvi that the process of dismantling the ship so as to obtain scrap iron and steel, steel plates and so on could not have been a simple process at all and must necessarily have been carried out with the use of appliances like acetylene torches and elaborate devices for the cutting of the ship. This process, it is submitted, would clearly fall within the extended definition given to the term 'manufacture' under clause (17) of section 2 of the said Act which we have set out earlier. As a result of this manufacturing process the respondents have obtained the new commercial commodities described above, and hence the respondents are liable to pay purchase tax on the purchase of the ship under the provisions of section 13(a) of the said Act. We may at this stage point out that the attention of Mr. Sanghvi was drawn to the various goods which were obtained by the breaking up and dismantling of the said ship as set out in the aforesaid statement of the case and annexure A thereto. We have already referred to the goods described in the statement of the case as having been obtained by the breaking up and dismantling of the ship. The goods set out in annexure A to the said statement of the case are like propeller, anchors, lifeboats, navigation signals and so on. Mr. Sanghvi has conceded that the only goods with regard to which it was being urged that the same were obtained by the respondents by the activity of manufacture with the use of the ship were iron and steel scrap, iron and steel plates, wooden planks excluding loose planks, rivets and bolts. As far as the other goods obtained as aforesaid are concerned, it is conceded by Mr. Sanghvi that it could not be said that he same were manufactured with the use of the said ship within the scope of section 13(a) of the said Act. The submission of Mr. Sanghvi is that purchase tax would be payable on the price which could be attributed to the framework or the hull or body proper of the ship out of which iron and steel scrap, etc., were obtained and that no purchase tax would be payable by the respondents on that part of the price attributable to the other goods like boilers, fans, propellers, lifeboats and so on, which we have already referred to earlier. It appears to us that there is considerable force in this submission. The term 'manufacture' has been given an extended definition in clause (17) of section 2 of the said Act which we have already set out. In our judgment in Commissioner of Sales Tax v. Dunken Coffee Manufacturing Company  35 S.T.C. 493, we have held that the definition of the term 'manufacture' in section 2(17) of the said Act is very wide and includes within its scope certain activities which, in ordinary parlance, may not be considered as manufacture. But even under the very definition, the various activities set out therein must result in a different commercial commodity in order that such activities may amount to manufacture of goods. Now, in the present case, it is not disputed by Mr. Sheth, the learned Advocate for the respondents, that the process of dismantling the ship so as to obtain from it iron and steel scrap or steel plates which had been formerly welded together is an elaborate process requiring the use of appliances such as acetylene torches. This process of dismantling would undoubtedly prima facie, be covered by the definition of the term 'manufacture' in clause (17) of section 2 of the said Act. A new commercial commodity, viz., iron and steel scrap, was obtained by applying the process of dismantling on the ship and hence it appears to us that the provisions of section 13(a) of the said Act would be attracted and the respondents would be liable to the payment of purchase tax on the price attributable to the frame or hull or body proper of the ship. In our opinion, it could be said that the iron and steel scrap was produced or manufactured with the use of the said ship. It is not necessary to consider whether iron and steel plates, wooden planks excluding loose once, rivets and bolts could be said to be new commercial commodities or manufactured with the use of the said ship, as these have admittedly been obtained also from the framework or hull or body proper of the said ship.
8. The first contention of Mr. Sheth is that what was purchased by the respondents was not a ship at all but merely iron and steel scrap, and hence there is no new commercial commodities brought into existence by the process applied by the respondents on the said ship. It is contended by him that the ship purchased was a condemned and unserviceable ship and it was purchased on the condition that it had to be scrapped. It is submitted by Mr. Sheth that in these circumstances the ship purchased must be looked upon as scrap itself. We find that there is nothing on the record to support the contention of Mr. Sheth that the ship was purchased as scrap. The instrument of sale which is on the record shows that what the respondents purchased was all the shares in the ship and its boats and appurtenances. The instrument of sale refers to section 42 of the Merchant Shipping Act, 1958. The relevant portion of section 42 of that Act provides that no person shall transfer or acquire any Indian ship without the previous approval of the Central Government. Reference to section 42 of this Act in the instrument of sale would suggest that what was purchased was a ship and not scrap. In the application under section 52 of the said Act, made on 19th September, 1968, what the respondents have stated is that they have purchased a ship and not that they have purchased iron and steel scrap, although it has been stated that the ship was purchased for breaking and scrapping purposes. It has not been urged anywhere by the respondents, either before the Deputy Commissioner of Sales Tax or before the Tribunal, that what they had purchased was scrap and not a ship at all. The mere fact that the respondents had purchased the said ship for the purpose of breaking up and scrapping the same would, in our opinion, not convert the ship into scrap. There is nothing on the record to show that the said ship and become unserviceable or had been condemned. As we are of the view that there is nothing on the record to show that the said ship was purchased as scrap or had become unserviceable and, on the other hand, the evidence brought on the record shows that it was purchased as a ship, we need not consider the argument of Mr. Sheth based on the assumption that the said ship was purchased as scrap.
9. It was next submitted by Mr. Sheth that we should discharge the question referred to us and send the matter back to the Tribunal, as the Tribunal had not taken evidence regarding the written contract for the purchase of the said ship. In this regard Mr. Sheth relied on the decision of the Supreme Court in Arun Electrics v. Commissioner of Sales Tax  17 S.T.C. 576 (S.C.). In that case, the Deputy Commissioner of Sales Tax had come to the conclusion that the transaction in question was not an indivisible works contract merely on the basis on an invoice which was filed by the appellants. On appeal the Sales Tax Tribunal held that the invoice evidenced a single contract. On reference the High Court took the view that the transaction evidenced by the invoice was not a 'pure works contract', but a combination of two distinct and separate contracts, one for the supply or the sale of goods for consideration, and the other for the supply of work and labour. It was held by the Supreme Court that the conclusions recorded by the Deputy Commissioner and the Tribunal were based on no evidence, and the High Court should not have recorded an answer on the reference. It was further held that the question whether in respect of a transaction sales tax is exigible may be determined only on the terms of the contract and not from the invoice issued by the person entitled to receive money under the contract. In our view, this decision has no application to the case before us. It cannot be said, in the present case, that there is no material on the record regarding the terms of the contract between the respondents and the Scindia Steam Navigation Company from whom they purchased the said ship. The respondents have annexed to their application under section 52 of the said Act the instrument of sale, to which we have already referred, and this instrument contains the terms on which this ship was sold to the respondents. There is nothing on the record to show that there is any contract for the sale of the said ship apart form the said instrument. If there was such a contract, the respondents should have brought the same to the notice of the Deputy Commissioner or the Tribunal. If they have failed to do so, there is no reason why we should discharge the question as suggested by Mr. Sheth and allow the respondents a fresh opportunity to lead evidence which they have neglected to do so far. The aforesaid submission of Mr. Sheth must, therefore, be rejected.
10. The next submission of Mr. Sheth is that, in the present case, although the process or activity applied by the respondents on the ship might amount to manufacture, it could not be said that the said ship which was purchased by the respondents was used by the respondents in the manufacture of goods. It was urged by him that only three categories of goods could be said to be used in the manufacture of other goods. The first category is of good which are reflected in the manufactured goods. The second category is of goods which are consumed in the process of manufacture like fuel and lubricants and the third category consists of goods which are not consumed in the manufacture but are necessary for converting goods into other kinds of goods, for example, machinery. It is urged by him that any goods other than such goods as fall within these three categories cannot be considered to be goods used in the manufacture of goods. In support of this contention, Mr. Sheth relied on the unreported decision of a Division Bench of the Gujarat High Court in Commissioner of Sales Tax v. Ajay Printery (Pvt.) Ltd. [S.T.R. No. 9 of 1962 decided by J. M. Shelat, C.J. (as he then was), and P. N. Bhagwati, J. (as he then was), on 20th November, 1963, the judgment having been delivered by Bhagwati, J.]. The question in that case arose out of an application made to the Sales Tax Officer under section 25 of the said Act for recognition in respect of certain items of goods. The question was as to what could be regarded as goods used by a recognised dealer in the manufacture or packing of taxable goods for sale by him within the scope of clause (b) of section 12 of the said Act, as it stood at the relevant time. It was held by the court that manufacture of goods means the process of converting raw materials into finished goods and whatever goods are required for converting raw materials into finished goods can be said to be goods used in the manufacture of finalised goods. Every item of goods which has a use in the manufacture of finished goods, which plays some role in the process of manufacture and without which manufacture would not be possible, would be goods used in the manufacture of finished goods. The Division Bench of the Gujarat High Court has observed that there are three kinds of goods which could be required to be used in the manufacture of finished goods. They may be raw materials or consumable stores or non-consumable goods. The Division Bench has held that even non-consumable goods which are required for use in the process of manufacture in the sense that they are necessary to be used for transforming raw materials into finished goods by the process of manufacture can be regarded as goods used in the manufacture of goods for sale. If may be mentioned that the extended definition give to the term 'manufacture' in clause (17) of section 2 of the said Act does not appear to have been pointed out to the Division Bench of the Gujarat High Court which decided that case. Apart from this, it is significant that what has been held there is that certain categories of goods could be considered to be goods purchased by a recognised dealer for use by him in the manufacture of taxable goods for sale by him for the purposes of section 12(b) of the said Act. It has however been held in that case that any particular category of goods is to be excluded from the purview of clause (b) of section 12 of the said Act. The observations relied on by Mr. Sheth are altogether in a different context from that in the present case. Moreover, this decision, far from supporting Mr. Sheth's arguments, tends to negative the same. The view has been clearly expressed in this judgment that raw materials used in the manufacture of finished products must be regarded as goods used in the manufacture of finished goods. It must be remembered that in the present case the ship which was purchased by the respondents could well be regarded as the raw material and the scrap iron and steel obtained from the ship by dismantling and breaking up the same could be regarded as finished products. Apart from this, as we have already pointed out in the case of Commissioner of Sales Tax v. Dunken Coffee Manufacturing Company  35 S.T.C. 493, what is essential for an activity to amount to manufacture is that it must result in a different commercial article or commodity. In our view, the scrap iron and steel which were obtained by the respondents by dismantling and breaking up of the said ship must be regarded as a different commercial commodity from the ship itself, and hence the activity would amount to manufacture. The goods manufactured would be the scrap iron and steel contained or manufactured by the dismantling and breaking up of the ship and the goods used in the manufacture of this scrap iron and steel would be the ship itself. The case is, therefore, clearly covered by the provisions of section 13(a) of the said Act and the purchase tax is payable by the respondents in respect of the purchase price attributable to the frame or hull or the body proper of the ship out of which scrap iron and steel and steel plates as well as wooden planks excluding the loose ones and rivets and bolts were obtained by the respondents.
11. In the result, we answer the question referred to us in the negative so far as the purchase of the frame or hull or the body proper of the ship 'Jalapratap' is concerned. The respondents to pay to the applicant the costs of this reference fixed at Rs. 300.
12. Reference answered accordingly.