Swatanter Kumar, J. - (1.) M/s. Malayala Manorama Co. Ltd., Kottayam, purchased printing ink for Rs. 1,00,03,050/- from M/s. Quality Ink Manufacturing, Kottayam during the year 2001-2002. The ink so purchased was to be used for printing newspapers by the said firm. This firm filed Form No. 18 under the Kerala General Sales Tax Act, 1963 (for short 'the Act') for purchase of raw material for use in the manufacture of 'finished goods' i.e. newspaper and in terms of Section 5(3) of the Act they were liable to pay only concessional tax at the rate of 3% for that period.
(2.) There was no dispute at any point of time that this concern was engaged in printing of newspapers. However, the Department felt that no manufacturing was involved in the process of printing of newspapers and, as such, purchase of printing ink effected by issuing Form No. 18 was not the correct statement in terms of the statutory provisions of the Act. The case of the Department was that the declarations thus furnished by the firm were not accurate, according to law and there was misuse of statutory forms. This resulted in issuance of a notice for imposition of penalty under Section 45(A) of the Act providing an opportunity to the firm to respond thereto and file its objections, if any. It was proposed to impose a penalty of Rs. 18,19,208/- on the said assessee, being double the amount of tax due on the purchase turnover.
(3.) The reply to the notice was filed by the assessee firm admitting that printing ink was purchased and that Sub-section 3 of Section 5 does not stipulate that there should be manufacture of taxable goods. It was specifically pleaded that the provisions of Section 5(3) of the Act were amended by the Finance Act, 2000 with effect from 01.04.2000 deleting the provision that manufacture items shall be taxable. The impact of the amendment was such that, according to the assessee firm, the issuance of notice was not proper. It was also stated that amended section does not contemplate any 'manufacturing' activity and the word used was 'production' and there is a clear distinction between the two. The assessee relied upon the judgment of this Court in the case of Aspinwall & Co. Ltd. v. Commissioner of Income Tax, Ernakulam, (2001) 7 SCC 525 : (2002) 125 STC 101 (SC) wherein it was held that 'manufacture' means use of raw materials for production of goods commercially different from raw materials used. When the end product is a commercially different product, it amounts to manufacturing.;