1. At the instance of the State Government this reference has been made to us under section 61 of the Bombay Sales Tax Act, 1959 (hereinafter referred to as 'the Bombay Act'). This reference arises out of the common judgment and order of the Gujarat Sales Tax Tribunal delivered in Second Appeal No. 374 of 1974 with Second Appeal No. 34 of 1975. The said two appeals arose out of the two orders of assessment passed by the Sales Tax Officer, Ahmedabad - one under the Central Sales Tax Act, 1956 (being Second Appeal No. 374 of 1974), and another under the Bombay Sales Tax Act, 1959 (being Second Appeal No. 34 of 1975). The assessment period with which we are concerned in this reference is the financial year 1965-66. These appeals were preferred by the Oil and Natural Gas Commission. The objects of the said Commission, inter alia, are to explore the oil and gas deposits; to extract natural gas and crude oil from gas wells and oil wells located in different parts of the country and to remove the impurities from such oil and sell them. For the purposes of carrying out these activities, the Commission, which has got different projects in different parts of the country, has to purchase various kinds of materials. The Ahmedabad project of the Commission, with which we are concerned in this reference, accordingly purchases such materials which include heavy machineries, vehicles, electrical goods, etc. These articles are purchased form inside the State as well as from outside the State. Some of the purchases which are effected from outside the State are effected against the declarations in form C, stating, inter alia, that these are required 'for use in the manufacture of goods for sale'. Certain local purchases were made from the registered dealers on payment of tax either directly or by inclusion in the sale price. The machineries and other goods as well as the spare parts of the vehicles so purchased were treated as for use in the manufacture of the goods for sale and in respect of these purchases a set-off was claimed before the Sales Tax Officer. It should be noted that since the purchases in the assessment period with which we are concerned were in the initial stages of the activity of the Ahmedabad project, the detailed records in respect of the use of various kinds of goods purchased against the declarations in form C as well as in respect of which set-off under rule 41 of the Bombay Sales Tax Rules, 1959 (hereinafter referred to as 'the Bombay Rules'), was claimed have not been kept. It is common ground that all the goods purchased either against the declarations in form C or in respect of which set-off was claimed were not used in their entirety for the purposes of manufacture. In the course of the assessment when the Sales Tax Officer called upon the Commission to produce the necessary details in respect of the use to which the various goods were put to, the authorities of the Ahmedabad project could not comply with the requisition. In other words, the particulars required for substantiating the claim of set-off or in respect of the goods purchased against the declarations in form C that they were used in the manufacture of the goods for sale were not produced before the Sales Tax Officer. In the absence of these requisite particulars, the Sales Tax Officer inferred that certain goods purchased against the declarations in form C were used for the purposes other than manufacture of oil or gas. He, therefore, treated these purchases as unauthorised and for the breach of the declarations contained in form C, imposed penalty under section 10(d) read with section 10A of the Central Sales Tax Act, 1956. On the same reasoning, the claim of set-off in respect of the tax paid on the purchases made from the local registered dealers was disallowed partially. Being dissatisfied with these two orders of the Sales Tax officer, the Commission went in appeal before the Assistant Commissioner of Sales Tax. In the course of hearing of the appeal, no evidence was produced before the Assistant Commissioner to substantiate the twofold claim made before the Sales Tax Officer. It was contended before the Appellate Assistant Commissioner that where the Commission has given a declaration in form C it should be presumed and accepted by the sales tax authorities that those goods were purchased for use in the manufacture of goods for sale; otherwise the appellants would have purchased all the goods against the declarations in C form. As regards the claim for set-off it was contended that having regard to the multifarious activities which the Commission has to undertake in its business of mining and processing, the claim of set-off should be allowed on some percentage basis. The Assistant Commissioner, on consideration of these contentions in the light of the nature of the business and the activities of the Commission, held that certain purchases in respect of which claim of set-off has been made under the Bombay Rules should be considered for use in the production of oil and the rest of the purchases should be held as not for this purpose in respect of which the claim of set-off was rejected. He also took similar view in respect of the purchases made against the declarations in form C. In respect of the goods which were purchased against the declarations in form C but which were found to be not used in the manufacture of the goods for sale, the Assistant Commissioner, though confirmed the order of penalty imposed by the Sales Tax Officer under section 10(d) read with section 10A of the Central Act granted partial reduction therein. He thus allowed partially the appeals by directing that the part of the goods purchased against the declarations in form C should be treated as if used in the manufacture of goods for sale and similarly also upheld partially the claim of set-off. The Assistant Commissioner thus allowed the claim of set-off in respect of the purchases locally made under the Bombay Rules as under :
Goods Set-off allowed 1. Electric goods, pump and hardware 20 per cent 2. Timber and tools, welding materials 25 per cent 3. Rubber goods 60 per cent 4. Auto spares 30 per cent 5. Pump and hardware 20 per cent 6. Cement 15 per cent 7. Drawing materials 80 per cent
2. As regards the purchases of the parts of drilling rigs, no set-off was allowed on the ground that the parts of drilling rigs are prohibited goods. Similarly for the purchases of paints, gas and pipe fittings also no set-off was allowed with which we are not concerned in this reference. We are also not concerned with that part of the order of the Assistant Commissioner where he held that there was a breach of the undertaking contained in the declarations in form C inasmuch as only some of the goods purchased against such declarations were used in the manufacture of the goods for sale.
3. The Commission, therefore, carried the matter in further appeal before the Tribunal by the aforesaid two appeals. The Tribunal, following the decision of the Supreme Court in Chrestien Mica Industries v. State of Bihar  12 STC 150 (SC) held on consideration of the entire nature of the activity, the functions and the business of the Commission, that the Commission was extracting oil and gas from the earth and, therefore, involved in the process of mining and manufacturing natural gas and crude oil and, therefore, entitled to claim set-off of the tax paid on the parts of the drilling rigs under the Bombay Rules since in the ultimate analysis the drilling rigs were merely equipments and not machinery. The Tribunal, therefore, allowed appeal No. 34 of 1975 by its judgment and order of 31st March, 1976, by which appeal No. 374 of 1974 under the Central Sales Tax Act was also disposed of with which we are not concerned in this reference.
4. At the instance of the State Government, therefore, the following two questions have been referred to us for our opinion under section 61 of the Bombay Act :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the process of extracting unrefined crude oil from earth is a process of producing unrefined crude oil and, therefore, the opponent is a manufacturer as defined under the Bombay Sales Tax Act, 1959, and that this process of manufacturing starts from the stage of drilling or boring of the earth and not after the raw product is brought to the oil gathering plant
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in allowing set-off under rule 41 of the Bombay Sales Tax Rules, 1959, in respect of the tax paid on the purchases of parts of drilling rigs when drilling rigs taken by itself are held not to be machinery used in the manufacture of goods for sale ?'
5. At the time of hearing of this reference, Mr. J. R. Nanavati, the learned Government Pleader appearing for the State Government, urged that the Tribunal has committed an error of law in not appreciating the true effect of the term 'manufacture' as defined in section 2(17) of the Bombay Act inasmuch as it failed to appreciate that the entire activity of the Commission can be divided broadly into two categories : (i) of mining minerals by extracting the oil and natural gas and (ii) of refining them. In the submission of the learned Government Pleader, the first category is known as mining which could not be by any stretch of imagination without violence to the language said to be manufacturing activity, and the second as processing which can rightly be called as manufacturing. This contention urged on behalf of the State Government is sought to be repelled by the learned Advocate appearing on behalf of the Commission by contending that where a dealer is engaged both in mining operation as also in processing the mined minerals the two processes being interdependent, the entire activity should be treated as integrated part of the operation of processing and, therefore, the Tribunal was justified in treating the activity of the Commission as that of manufacturing.
6. The next question of law, therefore, arises as to whether the Tribunal was justified in holding that the Commission in so far as it carried on the activity of extracting the crude oil from the earth and refining it was a process and, therefore, entitled to claim set-off on the purchases of the parts of drilling rigs as goods purchased for use in the manufacture of the goods for sale. It is necessary to shortly advert as to how the Commission carries on its activity. The objects of the Commission, inter alia, are, in the first place, to locate the oil and gas deposits in different parts of the country after geological and geophysical tests and reports about the existence of oil bearing zones or strata. In the fields so located, the areas are pinpointed for holding drilling operations. The Commission, for drilling operations, adopts rotary drilling methods which comprises of rotating a bit against the rock for penetration to make a deep hold down the earth to the oil reservoir. The drills consist of drilling bit, drilling collar, drilling pipes and kelly which are rotated by means of a heavy rotary table forcing the bit to drill through the hole. In the course of drilling, artificial pressure is required to be built either by injection of specially prepared mud or by injection of water so as to force the rock debris to come out. Geological tests are again held by taking out samples of the rock when oil is struck at the desired level of the reservoir. It comes out under its own pressure or it is pumped out in its crude form. Extraction of oil is controlled through an elaborate system of valves and plugs and other equipments fixed on a completed well. The Tribunal has made the following findings of fact :
The geological and geophysical surveys of the areas having possibility of oil and gas deposits are carried out. After obtaining the expert's report on the point, the Commission drills sample bores for confirming the presence of oil or gas deposits. On such confirmation the particular bores will be known as gas or oil wells. From the gas wells either gas in its natural form or petroleum known as condensate is obtained. From the oil wells crude oil in its unpurified form along with traces of gas is obtained. The crude oil so obtained is subjected to the process of separation and de-emulsification. This process of separation and de-emulsification is applied after the oil extracted from the well is taken to the gathering plant. The gas is thereafter separated from the oil with the help of a separator. The water and the mud contents are taken out from the impure oil, which process is known as process of de-emulsification. This impure oil is known as crude oil. It is in other words in unrefined form. This unrefined crude oil is sold to the refinery where various petroleum products are manufactured out of this unrefined crude oil.
7. The contention of the learned Government Pleader that the operation of mining mineral from the earth or for that matter extracting oil from the oil well cannot be considered to be a process which can be included in the term 'manufacture' as defined in section 2(17) of the Bombay Act. It is, therefore, necessary to set out what is the definition of the term 'manufacture' in section 2(17) of the Bombay Act. It reads as under :
'2. (17) 'manufacture', with all its grammatical variations and cognate expressions, means producing, making extracting, altering, ornamenting, finishing or otherwise processing, treating, or adopting any goods; but does not include such manufactures or manufacturing processes as may be prescribed.'
8. It is common ground that extracting of crude oil from the earth is not an excluded process under the Bombay Rules. On the plain reading of the term 'manufacture', the extracting of any goods or for that matter minerals from the earth would squarely fall within the definition of the said term 'manufacture'. The word 'extracting' which is included in the definition of the term 'manufacture' is a word of widest amplitude and it cannot be restricted to extracting by process of crushing only as is done for producing oil in a solvent extraction plant. Even otherwise any processing of the goods is included in the definition of the term 'manufacture'. The question, therefore, would arise as to what is meant by processing. In the submission of the learned Government Pleader, the processing would commence only after the oil which has been extracted from the oil wells is brought to the gathering plant. Till crude oil is extracted from the oil wells and brought at the well-head, and then taken to the gathering plant, it cannot be said that the activity so far carried out is an activity of processing or manufacturing. The operation of the processing or manufacturing would commence only after the process of separation and de-emulsification is applied. We are afraid that this is too narrow a view of the matter which the learned Government Pleader is persuading us to take. The reasons which prompt us to disagree with the learned Government Pleader are that all the integrated activities commencing from the extracting of the oil from the oil wells and ending with the purification of crude oil would be one indivisible process which go to make the business of extracting and purifying crude oil which cannot be artificially bifurcated or divided so as to put them in two watertight compartments.
9. A similar question arose before the Supreme Court in Chowgule & Co. Pvt. Ltd. v. Union of India  47 STC 124 (SC) where the assessee-company was carrying on the business of mining iron-ore and selling it in the export market after dressing, washing, screening and blending it. The entire activity of the assessee-company comprised of seven different operations, one following upon the other, namely, (1) extraction of ore from the mine; (2) conveying the ore to the dressing plant; (3) washing, screening and dressing the ore; (4) conveying of the ore from the mine site to the riverside; (5) transport of the ore from the diverside to the harbour by means of barges; (6) stacking of the ore at the harbour in different stock piles according to its physical and chemical composition; and (7) blending of the ore from different stock piles with a view to producing ore of the required specifications and loading it into the ship by means of the mechanised ore handling plant. The assessee-company applied for inclusion of 36 items of goods in its certificate of registration on the ground that the said items were being purchased by it for use in mining ore and processing it for sale in the export market and, therefore, they were goods falling within section 8(3)(b) of the Central Sales Tax Act read with rule 13 of the Central Sales Tax (Registration and Turnover) Rules, 1957. The inclusion of those goods in the certificate enabled the seller of those goods to the assessee in the course of inter-State trade or commerce to pay sales tax at the concessional rate of 3 per cent. The Sales Tax Officer included only 11 items in the certificate of registration and disallowed 25 items. The items which were included were all goods purchased for the use of the assessee in mining which came to an end once the ore was extracted from the mines washed, screened and dressed in the dressing plant. The goods which were not included in the certificate of registration were those goods which were required in the course of loading through the mechanical ore handling plant which, in the opinion of the Sales Tax Officer, did not amount to manufacture or processing of ore. In revision, the Assistant Commissioner of Sales Tax took the same view as the Sale Tax Officer did in regard to the nature of operations carried on by the assessee but on examination of 25 items disallowed by the Sales Tax Officer, after applying the criteria as approved by the 'Assistant Commissioner, allowed further 6 items to be specified in the certificate of registration and rejected the appeal in respect of the 19 items. In further revision to the State Government, the view of the Assistant Commissioner was approved and the application was rejected. A writ petition was filed by the assessee in the Court of Judicial Commissioner for quashing the order of the Government and directing the inclusion of remaining 19 items in the certificate of registration. The Judicial Commissioner also took the same view as the sales tax authorities in regard to the nature of operation, but on consideration of the nature of the goods allowed further 4 items to be included in the certificate with the result that 15 items remained unincluded therein. The assessee carried the matter in appeal after obtaining certificate to the Supreme Court. In that context, the Supreme Court, speaking through Bhagwati, J., posed two questions for the consideration of the court. The first question to which the court addressed itself was whether the blending of ore in the course of loading it in the ship by means of the mechanical ore handling plant constituted manufacture or processing of ore for sale within the meaning of section 8(3)(b) and rule 13 and secondly whether the process of mining, conveying the mined ore from the mining site to the riverside, carrying it by barges to the harbour and then blending and loading it in the ship through the mechanical ore handling plant constituted one integrated process of mining and manufacture or processing of ore for sale, so that the items of goods purchased for use in mining and integrated operations could be said to be goods purchased for use in mining and manufacturing or processing of ore for sale falling within the scope and ambit of section 8(3)(b) and rule 13 of the said Act and the Rules. What is the meaning of 'processing' was answered by the Supreme Court after referring with approval to its earlier decision in Deputy Commissioner of Sales Tax v. Pio Food Packers  46 STC 63 (SC), which had earlier ruled that the relevant test which is required to be applied in this behalf is whether the processing of original commodity brings into existence a commercially different and distinct commodity or not. The nature and extent of processing may be different in different cases; the nature and extent of the change is also not material. What is necessary in order to characterise an operation as 'processing' is that the commodity must, as a result of the operation, experience some basic and material change. The court, therefore, held that blending of ore of diverse physical compositions in the course of loading by mechanical ore handling plant results in a change in the physical and chemical composition of ore and, therefore, the blended product suffered a change in its respective chemical and physical composition. The Supreme Court disapproved the view of the Bombay High Court in Nilgiri Ceylon Tea Supplying Co. v. State of Bombay  10 STC 500 where the Bombay High Court had held that manual mixing of different kinds of tea would not bring into any product of different characteristic, name or use and, therefore, mixing cannot be said to be any process of manufacturing. The Supreme Court held that the said decision did not lay down the correct law because the means employed for the purpose of carrying out the operation would not be relevant for purposes of determining whether any process is applied or not, but it is the effect of the operation on the commodity that is material for purposes of determining whether the operation constituted 'processing' or not. In that view of the matter, therefore, the Supreme Court held that in the course of loading the blending of ore taken from different stock piles would amount to processing and, therefore, would be an activity of manufacturing. Answering the second question the court ruled as under :
'The question which then arises is as to whether items of goods purchased by the assessee for use in carrying the ore from mining site to the riverside and from the riverside to the Marmagoa harbour could be said to be goods purchased for use in mining or in processing of ore for sale. Now there can be no doubt, and indeed this could not be seriously disputed that the process of mining comes to an end when ore is extracted from the mines, washed, screened and dressed in the dressing plant and stacked at the mining site and the goods purchased by the assessee for use in the subsequent operations could not therefore be regarded as goods purchased for use 'in mining'. The requirement of section 8(3)(b) and rule 13 is that the goods must be purchased for use 'in mining' and not use 'in the business of mining'. It is only the items of goods purchased by the assessee for use in the actual mining operation which are eligible for inclusion in the certificate of registration under this head and these would not include goods purchased by the assessee for use in the operations subsequent to the stacking of the ore at the mining site.'
10. After referring with approval to its earlier decision in Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes  16 STC 259 (SC), in the context of the contention of the assessee that mining of ore and processing it for the purpose of sale by carrying out blending through the mechanical ore handling plant constitute one integrated process and carrying the ore from the mining site to the riverside and from the riverside to the Marmagoa harbour where the process being done is part of this integral process and therefore the goods required in all phases of different operations should be included in the certificate of registration, Bhagwati, J., speaking for the court, found great force in the submission and held as under :
'........ Where a dealer is engaged both in mining operation as also in processing the mined ore for sale, the two processes being interdependent, it would be essential for carrying on the operation of processing that the ore should be carried from the mining site where the mining operation comes to end to the place where the processing is carried on and that would clearly be an integral part of the operation of processing and, if any machinery, vehicles, barges and other items of goods are used for carrying the ore from the mining site to the place of processing, they would clearly be goods used in processing of ore for sale. It is obvious that, in the present case, the mining of ore is done by the assessee with a view to processing the mined ore through the mechanical ore handling plant at the Marmagoa harbour and the entire operation of mining ore and processing the mined ore is one integrated process of which transportation of the mined ore from the mining site to the Marmagoa harbour is an essential part and, in the circumstances, it is difficult to see how the machinery, vehicles, barges and other items of goods used for transporting the mined ore from the mining site to the Marmagoa harbour can be excluded from consideration on the ground that they are not goods used in processing of ore for sale. The decision of this court in the Indian Copper Corporation's case [19650 16 STC 259 (SC) is directly in point and completely supports this conclusion which we are inclined to reach on principle.'
11. After setting out the facts of the case of Indian Copper Corporation's case  16 STC 259 (SC), the following passage from the decision in that case was quoted with approval :
'We are also of the opinion that in a case where a dealer is engaged both in mining operations and in the manufacturing process - the two processes being interdependent - it would be impossible to exclude vehicles which are used for removing from the place where the mining operations are concluded to the factory where the manufacturing process starts. It appears that the process of mining are and manufacture with the aid of ore copper goods is an integrated process and there would be no ground for exclusion from the vehicles those which are used for removing goods to the factory after the mining operations are concluded. Nor is there any ground for excluding locomotives and motor vehicles used in carrying finished products from the factory. The expression 'goods intended for use in the manufacturing or processing of goods for sale' may ordinarily include such vehicles as are intended to be used for removal of processed goods from the factory to the place of storage. If this be the correct view, the restrictions imposed by the High Court in respect of the vehicles and also the spare parts, tyres and tubes would not be justifiable.'
12. It is clear from the aforesaid two decisions of the Supreme Court that where a dealer carries on the activity of mining as well as manufacturing as integrated parts of his business activity, it would be difficult to make any artificial division of the operations. The contention of the learned Government Pleader that since the business of the present assessee, namely, ONGC, in the present case, of refining oil involves two activities, namely, extracting the crude oil and after purifying it selling it to the company for further refinement it cannot be said that these are two unconnected activities undertaken by the Commission and, therefore, not entitled to claim set-off of the tax paid on the purchases of the goods used in the activities of extracting the oil from the earth. The entire activity of the Commission has to be considered as an integrated and connected activity of extracting the oil and refining it and then selling to the refineries for further refinement and the produce of petroleum products by employment of sophisticated technology. As a matter of fact, the important point which we would like to emphasis is that in Indian Copper Corporation's case  16 STC 259 (SC), as well as in Chowgule & Co.'s case  47 STC 124 (SC), the stand taken by the revenue was that the manufacturing or processing activity consisted of mining the ore and taking the mined ore to the plant site for dressing and cleaning and beyond that there would be no manufacturing activity. Even this stand of the revenue was not approved and the Supreme Court has ruled that the diverse operations commencing from mining of mineral to the last stage of storing them or loading them in the ships should be treated as an integrated activity of manufacturing and processing and no artificial dichotomy would be justified on any ground. The stand which has been taken by the State Government in the present reference is slightly reverse. The stand which has been taken before us is that till the oil is extracted from the earth and taken to the point of gathering plant, there is no activity of processing or manufacturing which commences only after the process of separation and de-emulsification is over. We are of the opinion that the contention is devoid of any substance in view of the finding of fact made by the Tribunal that the entire activity of the Commission from extracting the oil till purifying it and passing over to the refineries for further refinement is a well-knit and integrated activity and, therefore, must be considered to be an activity of manufacturing. In that view of the matter, therefore, we must answer the first question referred to us in the affirmative, that is, in favour of the assessee and against the State Government.
13. The second question is merely a consequential question which has been referred to us. Since all the goods which are required in the operation of extracting oil and purifying it would be the goods which are required for use in the manufacture of goods for sale, there is no dispute that the conditions which will qualify the assessee for set-off are complied with. The only question is whether the parts of drilling rigs on which the tax has been paid by the Commission can be allowed to be set-off when the drilling rigs taken by themselves are held not to be machinery used in the manufacture of goods for sale. The argument which has been advanced on behalf of the State Government runs like this : that if the drilling rigs which are used for operation of drilling bores are held not to be machinery used in the manufacture of goods for sale, how can the spare parts required for keeping the drilling rigs in perfect condition and operation be held to be machinery required or used in the manufacture of goods for sale. What the Tribunal has held in fact is that drilling rigs are merely equipments and not machinery and, therefore they would not fall within entry 15 of Schedule C to the Bombay Act but would be liable to be taxed under entry 22 of Schedule E to the said Act which is a residuary entry subjecting the goods which are not specified in other schedules to tax. The contention which has, therefore, been urged is not well-founded and we must hold that the Tribunal was right in allowing the set-off because of the goods required for diverse processes constituting the activity of manufacturing or processing would be the goods used in the manufacture of the goods for sale and if they are not prohibited goods the assessee paying tax thereon would be entitled to claim set-off. The second question, therefore, also should be answered in the affirmative, that is, in favour of the assessee and against the State Government.
14. The reference of the State Government is, therefore, rejected. The State Government shall pay the costs of this reference to the opponent-assessee.
15. Reference answered in the affirmative.