2004 (3) TMI 709 - HC - VAT and Sales Tax

Whether any manufacture in tems of the notification is be carried on by the petitioner at Mangalore in the given circumstances. - held that - The Homogenisation may be at best be a process but not a process which results in production or manufacture. Therefore the respondents are right in their submission that there is no manufacture at Mangalore. The finding of the committee of no manufacture is based on facts and is supported by the decisions of both the Apex Court and this court. I do not find any factual or legal errors warranting by interference. There is one more reason as to why the petitioner cannot be given the concession in this case. It can be forgotten that the State by offering concessions, is losing substantial revenue legally due to it. The said concession is granted in the light of the availability of employment and the fixed assets etc. in fact, in the case on had, annexure-E would show that no eligibility certificate as such is available to the petitioner on the facts of this case.

Issues Involved:
1. Validity of the impugned order dated 14-11-2003 (Annexure-Q).
2. Determination of whether the homogenization process at Mangalore constitutes "manufacture" under the relevant notifications.
3. Eligibility for sales tax exemption/deferment under the Karnataka Sales Tax Act, 1957.

Detailed Analysis:

1. Validity of the Impugned Order (Annexure-Q):
The petitioner, a limited company, sought a writ of certiorari to quash the impugned order dated 14-11-2003 (Annexure-Q). The petitioner challenged the rejection of its request for sales tax exemption/deferment by the State Level Committee. The petitioner argued that the homogenization process at its Mangalore unit constituted manufacturing, thus qualifying for the incentives under the notifications dated 15-6-1996.

2. Determination of Whether Homogenization Constitutes "Manufacture":
The core issue was whether the homogenization process at Mangalore amounted to "manufacture" under the relevant notifications. The petitioner contended that homogenization improved the quality of cement, making it marketable, and thus should be considered a manufacturing process. The petitioner relied on several judgments to support this claim, arguing that the process resulted in a commercially different product.

Judicial Precedents:
- Chowgule & Co. Pvt. Ltd. v. Union of India: The Supreme Court ruled that blending different qualities of ore to meet contractual specifications did not constitute manufacturing as it did not result in a commercially new and distinct commodity.
- Deputy Commissioner of Sales Tax v. Pio Food Packers: The Supreme Court held that a process must result in a new and distinct article for it to be considered manufacturing.
- M. Salgaocar Bros. (P) Ltd. v. CIT: The Karnataka High Court emphasized that the end product must be commercially distinct from the original commodity for a process to be considered manufacturing.
- Brookebond Lipton India Ltd. v. State of Karnataka: The court ruled that blending tea to produce a distinct product with its own price structure constituted manufacturing.

Court's Analysis:
The court noted that the homogenization process at Mangalore did not result in a new product but merely improved the quality of the existing cement. The end product remained homogenized cement, not a new article. The court referred to the judgment in V.M. Salgaocar Brothers (P) Ltd., which clarified that value addition alone does not constitute manufacturing. The court concluded that homogenization was a process but not one that resulted in production or manufacture.

3. Eligibility for Sales Tax Exemption/Deferment:
The petitioner argued that the denial of sales tax exemption would result in financial losses and that the homogenization process should qualify for the incentives. However, the court found that the State Level Committee's decision was based on the factual finding that no manufacturing occurred at Mangalore. The court upheld the committee's decision, stating that the petitioner had not made a strong case to dislodge the factual finding.

Conclusion:
The court rejected the petition, upholding the impugned order (Annexure-Q) and confirming the assessment orders. It concluded that the homogenization process did not constitute manufacturing and that the petitioner was not eligible for the sales tax exemption/deferment under the relevant notifications. The court emphasized that the State's decision was supported by legal precedents and factual findings, and no interference was warranted.

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