1998 (3) TMI 635 - HC - VAT and Sales Tax

Summary

Issues Involved: Eligibility for sales tax exemption, definition of "manufacture" under S.R.O. No. 968 of 1980 and S.R.O. No. 499 of 1990, applicability of notifications, and rejection of eligibility certificate.

Detailed Analysis:

1. Eligibility for Sales Tax Exemption:
The petitioner, a partnership firm engaged in metal crushing, applied for sales tax exemption under S.R.O. No. 968 of 1980 and S.R.O. No. 499 of 1990. The application was rejected by the General Manager, District Industries Centre, Trichur, on the grounds that the petitioner's unit did not qualify as a "manufacturing" unit per the definitions in the relevant circulars. The petitioner contended that their unit should be eligible for exemption, citing a similar exemption granted to another metal crushing unit, M/s. Mattathil Granite Metals.

2. Definition of "Manufacture":
The primary issue was whether the conversion of big boulders and stones into metals of different sizes (20 mm, 12 mm, and 6 mm gravel) constituted "manufacture" or "production" under the notifications. The petitioner argued that the process involved significant machinery and labor, thus qualifying as "manufacture" under S.R.O. No. 968 of 1980. The respondent countered that the end product was not commercially different from the raw materials, thus failing to meet the definition of "manufacture."

3. Applicability of Notifications:
The petitioner set up the unit in 1985 under S.R.O. No. 968 of 1980, which provided tax exemption for goods produced by new small-scale industrial units. S.R.O. No. 499 of 1990, issued later, provided exemption for goods "manufactured" by such units. The court noted that modifications to S.R.O. No. 968 of 1980 would not apply to industries set up under that notification, as per the Supreme Court's decision in Pournami Oil Mills v. State of Kerala.

4. Rejection of Eligibility Certificate:
The court examined whether the process of converting boulders into smaller metal sizes could be considered as producing a new and distinct commercial commodity. The Supreme Court's definitions of "manufacture" and "production" were referenced, emphasizing that a new commodity must emerge from the process. The court concluded that the end product (smaller metal sizes) did not lose its identity as metal, thus not qualifying as a new commodity. Consequently, the petitioner did not meet the criteria for sales tax exemption under S.R.O. No. 968 of 1980.

Conclusion:
The court held that the rejection of the petitioner's application for an eligibility certificate was justified, as the conversion process did not result in a new commercial product. The communications (exhibits P8 and P10) were deemed valid. Although the petitioner's unit was recognized as a small-scale industrial unit and significant investments were made, the court dismissed the petition, noting that the matter of extending tax exemptions to such units was for the government to consider in public interest and according to industrial policy. The original petition and the associated C.M.P. were dismissed.