1996 (5) TMI 391 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the processing of scrap by the petitioner amounts to "manufacture" under the Madhya Pradesh General Sales Tax Act, 1958.
2. Validity of the retrospective cancellation of the eligibility certificate for tax exemption.
3. Applicability of the principle of estoppel against the respondents.

Detailed Analysis:

Issue 1: Whether the processing of scrap by the petitioner amounts to "manufacture" under the Madhya Pradesh General Sales Tax Act, 1958.

The petitioner set up a small-scale industry for processing mild steel and iron steel materials from scrap, receiving a registration certificate from the District Industries Centre, Durg, and the Sales Tax Officer, Durg Circle II. The petitioner also obtained an eligibility certificate for tax exemption under the State and Central Acts. However, the Sales Tax Officer issued notices to the petitioner to show cause why the raw materials specified in the registration certificate should not be deleted retrospectively, arguing that the processing undertaken did not qualify as "manufacture" as defined in section 2(j) of the Act of 1958. The State Level Committee later canceled the eligibility certificate, stating that the petitioner was not engaged in manufacturing but merely processing, which did not result in new and different goods.

The Court examined the definition of "manufacture" under section 2(j) of the Act of 1958, which includes producing, collecting, extracting, preparing, or making any goods. The Court referred to various precedents, including the Supreme Court's decision in State of Madhya Bharat v. Hiralal, which held that iron and steel scrap re-rolled into bars, flats, and plates did not lose their character as iron and steel and thus did not qualify as manufacturing. The Court concluded that the petitioner's activities of cutting, sizing, twisting, or straightening scrap did not amount to manufacturing as the basic composition of the material remained the same. Therefore, the petitioner was not entitled to the tax exemption under the notification dated October 16, 1986.

Issue 2: Validity of the retrospective cancellation of the eligibility certificate for tax exemption.

The eligibility certificate was issued on April 19, 1990, and later canceled retroactively from the same date by the State Level Committee. The petitioner argued that the retrospective cancellation caused undue hardship as they had acted upon the eligibility certificate. The Court agreed with the petitioner, stating that while the authority could revoke the eligibility certificate, it could not do so with retrospective effect. The Court held that the withdrawal of the eligibility certificate should be effective from the date of the order, not retroactively, to avoid causing greater hardship to the petitioner.

Issue 3: Applicability of the principle of estoppel against the respondents.

The petitioner contended that the principle of estoppel should apply as the eligibility certificate was granted after due verification, and its subsequent revocation was based on a change of opinion. The Court rejected this argument, stating that there was no question of estoppel as the exemption was initially granted but later revoked upon realizing it was erroneously issued. The notification itself allowed for the revocation of the eligibility certificate if issued based on false information or misrepresentation of facts. Therefore, the principle of estoppel did not apply, and the authority had the power to revoke the certificate.

Conclusion:

The Court dismissed the writ petition and other related petitions, upholding the State's position that the petitioner's processing activities did not amount to manufacturing and thus did not qualify for tax exemption. However, the Court ruled that the revocation of the eligibility certificate could not be retrospective and should be effective from the date of the order. There were no orders as to costs, and any security was to be refunded to the petitioner.

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