1998 (11) TMI 527 - SC - VAT and Sales Tax

EXEMPTION MANUFACTURE - CUTTING IRON SCRAP BY MECHANICAL PROCESS INTO PIECES FOR CONVENIENT UTILISATION IN ROLLING MILLS AND FOUNDRIES

Summary

Issues:
Interpretation of the term "manufacture" under the Madhya Pradesh General Sales Tax Act, 1959 in the context of processing iron and steel scrap.

Analysis:
The judgment addresses the issue of whether the cutting down of iron and steel scrap into smaller pieces by mechanical processes constitutes "manufacture" under the Madhya Pradesh General Sales Tax Act, 1959. The appellants purchased scrap from various sources and processed it into smaller strips for use by different manufacturers. The State Government issued a notification granting tax exemption to dealers who had established eligible industrial units and processed goods they were licensed to manufacture. The appellants obtained eligibility certificates based on this notification but were later asked to show cause for cancellation due to the lack of manufacturing new items.

The High Court, in its judgment under appeal, emphasized previous decisions under different statutes and concluded that the appellants' activities did not amount to "manufacture" as the basic character of the scrap remained unchanged. The court held that processing the scrap into various shapes required by customers did not alter its identity enough to qualify as manufacturing. However, the appellants argued that the Act's definition of "manufacture" was not limited to producing new articles, citing relevant notifications and orders to support their position.

The Supreme Court analyzed the definition of "manufacture" under the Act, which includes any process of producing, collecting, or preparing goods. The Court noted that the definition did not specify the creation of new articles as a requirement for manufacturing. The Court highlighted that the processing of iron and steel scrap into saleable goods fell within the broad definition of "manufacture" provided in the Act. Therefore, the Court allowed the appeals, setting aside the judgment and orders under appeal, and directed the respondent-authorities to grant relief to the appellants in accordance with the judgment.

In conclusion, the Supreme Court's judgment clarified that the processing of iron and steel scrap into smaller pieces by mechanical means constitutes "manufacture" under the Madhya Pradesh General Sales Tax Act, 1959. The decision emphasized the broad definition of "manufacture" under the Act, which includes preparing goods for sale, without the requirement of creating new articles.