2002 (4) TMI 907 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Eligibility for sales tax exemption on "drinking water" packed in bottles.
2. Whether the processes involved in producing "drinking water" constitute "manufacture" under Notification S.R.O. No. 1729/93.
3. The relevance of the negative list in the notification.
4. The impact of previously granted sales tax exemptions and their withdrawal without notice.

Detailed Analysis:

1. Eligibility for Sales Tax Exemption:
The petitioners claimed sales tax exemption on "drinking water" packed in bottles, previously sold as "mineral water." The exemption was sought under Notification S.R.O. No. 1729/93, which grants sales tax exemption to new SSI units engaged in the manufacture and sale of products. The core issue was whether the processes used to produce "drinking water" qualify as "manufacture" under the notification.

2. Definition and Scope of "Manufacture":
The notification defines "manufacture" as the use of raw materials to produce goods commercially different from the raw materials used, excluding mere packing, cleaning, grading, etc. The petitioners argued that their processes (alum dosing, sedimentation, chlorination, aeration, sand filtration, G.A.C. filtration, series filtration, ultraviolet sterilization, and ozonation) amounted to manufacture. They cited various Supreme Court and High Court decisions to support their claim that the resultant product, "drinking water," had a different commercial identity from the raw water.

3. Analysis of Processes:
The court found that the processes described by the petitioners amounted only to the purification and sterilization of water, making it fit for human consumption. These processes are similar to those used by municipal and water supply authorities. The court noted that the petitioners' product did not conform to the standards for "mineral water" as prescribed under the Prevention of Food Adulteration Rules, 1955. The change in the product's name from "mineral water" to "drinking water" confirmed that it was not mineral water. The court concluded that there was no change in the commercial identity from water to drinking water, as water in its natural form can also be clean and potable.

4. Negative List and Exclusion from Manufacture:
The court held that the processes engaged by the petitioners did not qualify as "manufacture" under the notification, as they were essentially purification and sterilization processes. The notification specifically excludes processes such as cleaning, blending, and packing from the definition of "manufacture." Therefore, the petitioners' argument that their processes were not in the negative list was irrelevant.

5. Withdrawal of Sales Tax Exemption Without Notice:
The petitioners argued that the sales tax exemption once granted could not be withdrawn without notice. The court acknowledged that notice should have been issued, as the withdrawal amounted to an adverse order. However, it noted that the petitioners had misdescribed their product as "mineral water" to obtain the exemption. Since the petitioners admitted that their product was not mineral water but drinking water, the court held that the denial of opportunity before withdrawing the exemption did not affect its validity.

Conclusion:
The court dismissed the petitions, ruling that the processes engaged by the petitioners in producing and bottling "drinking water" did not constitute "manufacture" under Notification S.R.O. No. 1729/93. Consequently, the petitioners were not entitled to sales tax exemption. The court also rejected the petitioners' claim for exemption on the bottles, as the exemption was claimed on the item sold in the containers, not on the bottles themselves.