1995 (7) TMI 337 - SC - VAT and Sales Tax

Whether the respondent is entitled to the benefit of exemption from sales tax under the Industrial Policy Resolution of 1986 as well as of 1989? Whether the process undertaken by the respondent, applying which he obtains cotton from waste cotton, can be called manufacturing activity? Held that - Appeal allowed. A reading of the Industrial Policy Resolution (I.P.R.) of 1986 as well as of 1989 clearly shows that several concessions at substantial cost to public exchequer were provided only with a view to accelerate the pace of industrialisation in the State. The High Court seems to have proceeded on the assumption that the I.P.R. by itself is enough to provide the exemption from the sales tax. But where the provisions of the Sales Tax Act are also amended providing for exemption, then the court has to see whether they are the same as the I.P.R. or are they different-and if different, what is the effect of such difference. It is, therefore, necessary to ascertain the relevant provisions in the Sales Tax Act, Rules and notifications, if any, issued thereunder before expressing a final opinion in the matter. The dealers and assessees normally contend that the process undertaken by them does not involve manufacture, that no new goods have come into existence and that, therefore, no tax or duty is leviable. But here the respondent is adopting a converse position because it is beneficial to him under the I.P.R. Thus the proper course would be to remit the matter to the High Court for a decision afresh in the light of the observations made herein.

Summary

Issues:
1. Entitlement to exemption from sales tax under the Industrial Policy Resolution of 1986 and 1989.
2. Determination of whether the process of obtaining cotton from waste cotton constitutes "manufacturing" activity.

Analysis:
The Supreme Court examined the appeals against the Orissa High Court's judgment on five writ petitions filed by Jagannath Cotton Company. The primary issue was whether the respondent was entitled to sales tax exemption under the Industrial Policy Resolution of 1986 and 1989 and whether the process of obtaining cotton from waste cotton qualified as manufacturing activity. The Industrial Policy Resolution aimed to promote industrialization in the state by providing incentives, including sales tax exemptions for certain industries. The High Court had granted the writ petitions based on two grounds: exemption from sales tax did not require engagement in manufacturing, and the process of obtaining cotton from waste cotton amounted to manufacturing.

Regarding the first ground, the Supreme Court disagreed with the High Court, emphasizing that the incentives under the Industrial Policy Resolution were intended for units engaged in manufacturing or production of goods. The Court highlighted that the concessions were specifically for units involved in creating new and different goods, as evidenced by provisions exempting raw materials and finished products for manufacturing units. The Court stressed that the purpose of the exemptions was to encourage manufacturing activities, not mere processing where goods remained unchanged.

The Court also noted the importance of aligning provisions of the Orissa Sales Tax Act with the Industrial Policy Resolution to determine exemption eligibility. It highlighted the need to compare the Act's provisions with the Resolution and assess any differences' implications. Additionally, the Court pointed out the lack of clarity regarding the exact process employed by the respondent to obtain cotton from waste cotton. Understanding the specific process was crucial in determining whether it constituted manufacturing or production under the law.

Given the uncertainties and lack of essential information, the Supreme Court decided to remit the matter back to the High Court for a fresh decision. The Court emphasized the need for a detailed examination of the process involved and a thorough analysis of relevant legal principles before reaching a final conclusion. Ultimately, the appeals were allowed, the High Court's judgment was set aside, and the matters were sent back for reconsideration without costs.