2006 (3) TMI 722 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the desilting, filtration, and purification of water by Jal Sansthan amounts to "manufacture" under section 2(e1) of the U.P. Trade Tax Act, 1948.
2. Whether Jal Sansthan is entitled to issue form IIID for the purchase of goods used in the desilting and purification of water.
3. Whether the Jal Sansthan can be treated as a "manufacturer" of pure drinking water supplied by it.

Issue-Wise Detailed Analysis:

1. Definition of Manufacture:
The primary issue was whether the activities of desilting, filtration, and purification of water by Jal Sansthan constitute "manufacture" as defined under section 2(e1) of the U.P. Trade Tax Act, 1948. The learned Standing Counsel argued that these activities amount to manufacture within the meaning of section 2(e1), which defines "manufacture" as producing, making, mining, collecting, extracting, altering, ornamenting, finishing, or otherwise processing, treating, or adapting any goods. The court noted that while section 2(e1) provides a broad definition of manufacture, it opens with the phrase "unless there is anything repugnant in the subject or context," suggesting that the definition might be contextually limited.

2. Entitlement to Issue Form IIID:
The second issue was whether Jal Sansthan was entitled to issue form IIID for purchasing goods used in desilting and purification of water. The assessing authority had imposed tax for the misuse of form IIID, arguing that Jal Sansthan was not entitled to issue the form for such purchases. The Tribunal, however, allowed the appeals and set aside the orders of the assessing authority. The court examined the purpose and functions of Jal Sansthan under the U.P. Water Supply and Sewerage Act, 1975, which include planning, promoting, and executing schemes for water supply and sewerage services, but not engaging in the business of buying and selling goods.

3. Jal Sansthan as a Manufacturer:
The third issue was whether Jal Sansthan could be considered a "manufacturer" of pure drinking water. The court observed that Jal Sansthan's main activities are to provide purified drinking water and manage sanitation in the local area, not to engage in the business of buying and selling goods. The court referred to the Supreme Court's ruling in the case of State of Tamil Nadu v. Board of Trustees of the Port of Madras, which held that if the main activity is not business, then incidental or ancillary activities of sale would not amount to business unless an independent intention to conduct business in these activities is established.

Conclusion:
The court concluded that Jal Sansthan is not engaged in the business of manufacture and cannot be treated as a "manufacturer" of pure drinking water supplied by it. Consequently, the revisions filed by the Commissioner of Sales Tax were dismissed, and it was held that Jal Sansthan was not liable for the tax imposed for the misuse of form IIID. The court emphasized that the Jal Sansthan's primary function is to provide essential public services related to water supply and sewerage, not to engage in commercial manufacturing activities.

Result:
All the revisions failed and were dismissed, with each party bearing its own costs.