No Trade Tax on Reselling Used/Refined Mobil Oil after Cleaning; Not a Manufactured Product: Supreme Court Affirms Allahabad HC Ruling [Read Order]

The Supreme Court of India has affirmed a ruling delivered by the Allahabad High Court that the resale of used mobil oil after cleaning does not amount to manufacture of a new product and hence is not liable to Trade Tax under the Uttar Pradesh Trade TaxAct, 1948.

The present civil appeal before the Supreme Court arose in relation with the assessment of the assessee from the assessment year 1996–97, where the Respondent herein - M/s Universal Biscos Oil Products (Biscos) had purchased used or burnt mobil oil and after cleaning the oil of impurities, resold the same as mobil oil.

The assessing authority treated the process of cleaning as manufacture and levied tax on both - the purchases under Section 3AAAA of the Act and on the sales, treating the cleaned oil as a new manufactured product. However, the dealer challenged the assessment, contending that the cleaning process merely removed impurities and did not amount to manufacturing as the oil before and after the process remained mobil oil.

The Deputy Commissioner (Appeals), Meerut, partly allowed Biscos’ appeal, holding that the sale of cleaned mobil oil was not taxable as a manufactured product, though the purchase tax under Section 3AAAA was confirmed.

Both the dealer and the Commissioner of Trade Tax carried the matter in revision before the Tribunal, which upheld the Deputy Commissioner’s view. Aggrieved, the dealer and the Commissioner filed separate revisions before the High Court.

Before the High Court, Manish Goyal appeared for Biscos while the Revenue was represented by its Standing Counsel. Biscos reiterated their stance that the oil had not lost its essential character and the cleaning process did not bring into existence any new commodity, while the Revenue maintained that the oil was old, discarded and obsolete goods and that the cleaning amounted to manufacture.

Justice Rajes Kumar of the Allahabad High Court held that the oil, though used, retained its essential characteristics both before and after cleaning.

The Court relied upon earlier precedents, including CST v. Roopji and Sons (2003) and CST v. Oil Processors Pvt. Ltd., (1998) to conclude that used oil continued to be covered under the entry “all kinds of oil” as per Notification No. ST-II-5785/X-10(1)-80-U.P. Act XV-48-Order 81 dated 7.9.1981, and thus could not be classified as a new manufactured product. Consequently, the High Court held that neither purchase tax under Section 3AAAA nor sales tax liability would arise in this situation.

In the present appeal, the revenue was represented by Bhakti Vardhan Singh and Sandeep Singh Somaria while Nikhil Jain and Divya Jain appeared for Biscos.

The Supreme Court bench comprising Justice J.B. Pardiwala and Justice Sandeep Mehta dismissed the appeals instituted by the Revenue, recording that there was no ground to interfere with the common judgment delivered by the Allahabad High Court that cleaning of used mobil oil does not amount to manufacture stands affirmed, confirming that no trade tax liability is attracted on such resale.