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Commissioner of Trade Tax vs M/S. Kumar Paints and Mill Stores (2023): C.A. No. 5937 of 2011

Civil Appeal · 2023 INSC 193Decided 2 Mar 2023
Civil Appeal No. 5937 of 2011
S. Ravindra Bhat · Dipankar Datta

Background

Paint dealers used a computerised tinting machine to mix a base paint with colourants to produce paint of a desired shade, and both the base paint and the colourant had already been separately taxed. The tax department (Revenue) argued that this mixing process created a "new" product and therefore amounted to "manufacture" under Section 2(e)(i) of the U.P. Trade Tax Act, 1948, making it liable to a fresh round of tax. The Allahabad High Court had ruled in favour of the dealers, relying on an expert report from Harcourt Butler Technical University stating that tinting does not create a new or different product. The Revenue appealed to the Supreme Court.

Decision Breakdown

The Court reviewed its earlier precedents (including State of Maharashtra v. Mahalaxmi Stores and Sonebhadra Fuels v. Commissioner Trade Tax) on what counts as "manufacture," reaffirming that the test is whether the process results in the emergence of a commercially new and distinct product, not merely a variation of an existing one. Based on the expert findings that the tinted product remained "paint" in common commercial parlance, just a different shade, the Court held that mixing base paint with colourant did not create a new commercial commodity and therefore did not amount to "manufacture." The High Court's view was upheld and the Revenue's appeals were dismissed with no order as to costs.

Lesson Learnt

Under tax law, a process only counts as "manufacture" attracting fresh taxation if it produces a genuinely new and distinct commercial product: merely changing the shade, colour or minor characteristics of an existing product (like mixing a colourant into base paint) is not enough.

Official source (sci.gov.in)View Judgment (PDF)

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