2008 (8) TMI 772 - HC - Central Excise

Manufacture - Cutting the wood in small pieces by converting it into pulpwood amounts to manufacture

Summary

Issues:
Challenging legality and validity of the order dated 7th of April, 2000 under Section 11 of the U.P. Trade Tax Act for the assessment year 1997-98.

Analysis:
1. The dealer contested the tax liability on the purchase of timber from an unregistered dealer, converting it into pulpwood, and selling it to M/s. Star Paper Mills. The assessing officer taxed the purchases and pulpwood turnover. The Deputy Commissioner partially allowed the appeal, and the tribunal set aside the entire assessment order.

2. The questions raised in the memo of revision included the legality of the dealer's exemption from tax despite selling pulpwood manufactured from timber purchased from an unregistered dealer, the classification of the dealer as a manufacturer, and the applicability of tax under Section 3AAAA of the U.P. Trade Tax Act.

3. The dealer argued that converting timber into pulpwood does not constitute manufacturing, thus exempting the sale from tax under Section 3AAAA. However, the court held that since the timber was not sold in the same form and condition, the dealer was liable for tax on such purchases as per Section 3AAAA(b).

4. The sale of timber to unregistered dealers was deemed taxable under Section 3AAAA(1)(b) of the Act, as clarified by a relevant notification.

5. The court referred to precedents like Hotel Balaji v. State of Andhra Pradesh to emphasize that Section 3AAAA aims to ensure no untaxed sale transactions occur, with tax liability falling on either the seller or purchaser.

6. The court reiterated that the definition of "manufacture" under Section 2(e-1) of the Act is broad and includes activities like processing or adapting goods, contrary to the dealer's argument that converting timber into pulpwood does not constitute manufacturing.

7. Following the Apex Court's interpretations on manufacturing activities, the tribunal and first appellate authority's decisions were deemed incorrect, leading to the revision's success and restoration of the assessment order.

Outcome:
The revision was allowed, setting aside the tribunal and first appellate authority's orders, and restoring the assessment order. No costs were awarded in this matter.