1994 (7) TMI 327 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Whether the activity of obtaining cotton from waste cotton constitutes manufacturing or mere processing.
2. Eligibility for exemption from sales tax under the Industrial Policy Resolutions of 1986 and 1989.
3. Jurisdiction of sales tax authorities to reassess and deny exemptions granted by the Industries Department.

Detailed Analysis

Issue 1: Manufacturing vs. Processing
The central issue in these writ applications is whether the activity of obtaining cotton from waste cotton constitutes manufacturing or mere processing. The petitioner argued that this activity involves a process of manufacturing, thereby entitling them to sales tax exemptions under the Industrial Policy Resolution. The sales tax authorities, however, contended that no manufacturing is involved, and thus the petitioner is ineligible for the exemption.

The court examined the definition of "manufacture" and referred to precedents, including the Supreme Court's decision in South Bihar Sugar Mills Ltd. v. Union of India, which held that "manufacture" implies a change resulting in a new and different article with a distinctive name, character, or use. Applying this principle, the court concluded that cotton produced from waste cotton is a distinct article, thereby involving a manufacturing process.

Issue 2: Eligibility for Sales Tax Exemption
Under the Industrial Policy Resolution of 1986, all new small industries are exempt from sales tax on the purchase of raw materials and sale of finished products for five years from the date of commercial production. The petitioner, recognized as a small-scale industrial unit, argued that they are entitled to this exemption. The court noted that the Policy Resolution does not explicitly use the terms "manufacture" or "processing," and grants exemptions to all small-scale industries.

The court found that the petitioner's commercial production started on December 14, 1989, making them eligible for the exemption for the assessment year 1989-90. The court held that the petitioner's unit, being a small-scale industrial unit, is exempt from sales tax on both raw materials and finished products.

Issue 3: Jurisdiction of Sales Tax Authorities
The sales tax authorities issued a reassessment notice under section 12(8) of the Orissa Sales Tax Act, contending that the initial exemption was granted under a mistake. They argued that the issuance of a declaration form and certificates by the Industries Department is not conclusive for entitlement to the exemption.

The court disagreed, stating that the sales tax authorities do not have the jurisdiction to override the eligibility certificates granted by the competent authority of the Industries Department. The court referred to a similar decision by the Allahabad High Court in Kumar Fuels v. State of Uttar Pradesh, which held that the Commissioner of Sales Tax cannot sit in judgment over the grant of eligibility certificates.

Conclusion
The court concluded that the activity of producing cotton from waste cotton involves a manufacturing process, thereby entitling the petitioner to the sales tax exemptions under the Industrial Policy Resolution of 1986. The reassessment order by the Sales Tax Officer was quashed, and the petitioner was granted the exemption. The other writ applications were disposed of with a direction to conclude proceedings in line with this judgment.

Separate Judgment
R.K. Patra, J., concurred with the judgment.

Final Disposition
All writ applications were disposed of accordingly, with no order as to costs.