1994 (6) TMI 202 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the Government policy and the notification are to be construed conjointly and the term "manufacture" broadly construed.
2. Whether the appellants' packing unit at Dharwar is covered by the exemption notification.
3. Whether the blending of tea undertaken by the appellants at Dharwar can be said to have been subjected to manufacturing process.
4. Whether the appellants are entitled to relief on the ground of promissory estoppel.
5. Whether the certificate issued by the competent authority is binding on the sales tax authorities.
6. Whether the impugned assessment orders suffer from a patent error of law and are unjustified on merits.

Summary:

Issue 1: Conjoint Construction and Broad Interpretation of "Manufacture"
The court held that the Government policy (annexure A) and the notification (annexure B) must be read together. However, both terms "output" and "goods manufactured and sold" are synonymous and emphasize that new industries must manufacture or produce new outputs. The term "manufacture" must be interpreted as the creation of a new product from inputs, not just any process that results in an output. Therefore, the term "manufacture" cannot be broadly construed to include non-manufacturing activities.

Issue 2: Coverage of Packing Unit by Exemption Notification
The court rejected the argument that the appellants' packing unit is covered by the exemption notification. It was held that the notification requires the goods to be manufactured and sold by the new industrial unit. Simply blending and packing tea does not amount to manufacturing a new product. Therefore, the appellants' packing unit does not qualify for the exemption.

Issue 3: Blending of Tea as Manufacturing Process
The court held that blending and mixing tea does not constitute a manufacturing process. The Supreme Court's decisions in Commissioner of Sales Tax v. D. S. Bist and Chowgule & Co. Pvt. Ltd. v. Union of India established that blending different qualities of a commodity does not result in a new and distinct commercial product. Therefore, the appellants' activity of blending tea does not qualify as manufacturing.

Issue 4: Promissory Estoppel
The court found that no promise was held out by the State of Karnataka or the Commissioner of Commercial Taxes that the appellants' product would be covered by the sales tax exemption. The appellants took a calculated risk and proceeded with the project without receiving the required confirmation. Therefore, the doctrine of promissory estoppel does not apply, and the appellants are not entitled to relief on this ground.

Issue 5: Binding Nature of Certificate Issued by Competent Authority
The court held that the certificate issued by the Director of Industries and Commerce only certifies that the appellants' unit is a new industrial unit. It does not cover whether the goods manufactured by the unit are eligible for exemption. The assessing authorities under the Sales Tax Act have the jurisdiction to determine if the goods are manufactured and sold by the new industrial unit. Therefore, the certificate is not binding on the sales tax authorities regarding the manufacturing aspect.

Issue 6: Validity of Assessment Orders
The court acknowledged that the assessment orders erroneously relied on the Commissioner's clarification dated April 2, 1992. However, the final conclusion of the assessing authority that the appellants' product does not qualify for the exemption was upheld on merits. The assessment orders were confirmed based on the finding that the blending and packing of tea do not constitute manufacturing.

Final Order:
The appeals were dismissed, and the assessment orders were confirmed. The interim stay against the recovery of the remaining tax amount was vacated, and no order as to costs was made.

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