1996 (1) TMI 386 - HC - VAT and Sales Tax

Summary

Issues:
1. Challenge to order of reassessment under section 12(8) of the Orissa Sales Tax Act for the assessment year 1989-90.
2. Determination of manufacturing process involved in producing "cotton" from "waste cotton".
3. Consistency of provisions of the Industrial Policy Resolution with the Orissa Sales Tax Act.

Analysis:

1. Challenge to Reassessment Order:
The petitioner, a small-scale industrial unit engaged in processing waste cotton, challenged the order of reassessment under section 12(8) of the Orissa Sales Tax Act for the assessment year 1989-90. The earlier judgment set aside the reassessment order and notices, deeming them illegal. However, appeals by the Commissioner of Sales Tax and Sales Tax Officer led to a remand by the Supreme Court for fresh consideration based on observations made in their judgment. The Supreme Court emphasized that incentives were meant for units engaged in manufacturing or production of goods, not mere processing. The High Court was directed to consider relevant provisions of the Sales Tax Act before forming a final opinion.

2. Manufacturing Process Inquiry:
The key questions to be determined were whether a manufacturing process was involved in producing "cotton" from "waste cotton" and whether the Industrial Policy Resolution provisions aligned with the Orissa Sales Tax Act. The definition of "manufacture" under the Orissa Sales Tax Act was crucial, emphasizing the emergence of new and different goods after processing. Various Supreme Court decisions highlighted that for a process to be considered manufacturing, the resulting goods must be distinct from the raw materials used. The petitioner demonstrated the transformation of waste cotton into usable cotton through a detailed manufacturing process, supported by expert opinion. This transformation indicated a manufacturing process, making the industrial unit eligible for claimed exemptions.

3. Consistency of Provisions:
The Senior Standing Counsel confirmed the consistency between the Industrial Policy Resolution and the Orissa Sales Tax Act, eliminating the need for further analysis on this aspect. The core issue revolved around whether waste cotton and cotton were the same products and if a manufacturing activity was involved in their conversion. The judgment cited precedents where processing raw materials into distinct commercial commodities constituted a manufacturing process. The petitioner's innovative recycling of waste cotton into usable cotton for sale demonstrated a clear manufacturing process, entitling the unit to claimed exemptions.

Conclusion:
The High Court allowed the writ applications, quashing the reassessment orders and notices. The detailed analysis focused on the manufacturing process involved in converting waste cotton to cotton, aligning with legal definitions and precedents. The judgment emphasized the importance of differentiating between raw materials and finished goods to determine the existence of a manufacturing process, ultimately supporting the petitioner's entitlement to exemptions.