2010 (1) TMI 1127 - HC - VAT and Sales Tax

Whether in a large beverages manufacturing unit having high speed automatic machines and manufacturing aerated beverages or marketing in consumer convenient glass bottles, running of the factory or workshop is impossible unless such glass bottles and shells are used simultaneously in the machine itself for filling the beverages and under the circumstances whether the Tribunal was justified in overlooking this important aspect of the word fixed capital investment under section 4A of the U.P. Trade Tax Act by merely relying upon the decision under the Bihar Act, namely, Bihar Deferment Rules, where the definition of fixed capital investment is not identical and is restricted to fixed assets ? Held that - The manufacture of soft drink, the bottles and crates are essential apparatus especially in a captive industry where the liquid which is prepared and collected by way of a continuous process in the bottles and thereafter kept it in crates and therefore they (bottles and crates) are to be accepted as apparatus within the meaning of Explanation (4)(b)(i) to section 4A of the U.P. Trade Tax Act. Thus the questions in respect of it being treated as fixed capital investment are to be answered in favour of the assessee and against the Department. The order passed by the Tribunal enveloping that part of the order passed by the Divisional Level Committee also is bad as there is no discussion why the review order on this point has been set aside, especially in view of the fact that the Department when it went in appeal had made no prayer that the period of exemption should be cut down from 15 years as granted in the review to any other period. Therefore this part of the order in appeal is also bad and is set aside. However the exemptions granted for 15 years will continue.

Summary

Issues:
1. Interpretation of "fixed capital investment" under section 4A of the U.P. Trade Tax Act.
2. Justification for granting exemptions on bottles and crates as fixed capital investment.
3. Validity of the appeal filed by the Commissioner, Trade Tax.
4. Consideration of bottles and crates as essential apparatus for a beverage manufacturing unit.
5. Legality of the order passed by the Trade Tax Tribunal.

Interpretation of "fixed capital investment":
The case involved a dispute regarding the interpretation of "fixed capital investment" under section 4A of the U.P. Trade Tax Act. The assessee argued that glass bottles and crates used in the manufacturing process should be considered as essential apparatus falling under this definition. The court agreed with the assessee, emphasizing the necessity of bottles and crates in the manufacturing process of soft drinks, especially in a captive industry. The court ruled in favor of the assessee, stating that bottles and crates should be accepted as "apparatus" within the meaning of the Act.

Exemptions on bottles and crates:
The assessee sought exemptions on bottles and crates as fixed capital investment, citing their essential role in the manufacturing process. The court noted that similar exemptions had been granted to other manufacturers and upheld the assessee's claim. It was argued that bottles and crates were necessary for the complete manufacture of soft drinks, supporting the inclusion of these items under the definition of fixed capital investment.

Validity of the appeal filed by the Commissioner:
The Commissioner, Trade Tax, filed an appeal against the order granting exemptions on bottles and crates. The court found discrepancies in the appeal, including incorrect facts and references, leading to a dismissal of the appeal on procedural grounds. The court highlighted the importance of adherence to rules and procedures in filing appeals, ultimately ruling in favor of the assessee due to the appeal's deficiencies.

Essential apparatus for a beverage manufacturing unit:
The court analyzed the role of bottles and crates in a beverage manufacturing unit, emphasizing their significance in the manufacturing process. The court considered the continuous process of liquid preparation and bottling in glass containers, concluding that bottles and crates were essential apparatus for the unit. This analysis supported the assessee's argument for including bottles and crates under the definition of fixed capital investment.

Legality of the Trade Tax Tribunal's order:
The court reviewed the legality of the Trade Tax Tribunal's order dated May 14, 2002, and found it to be flawed. The court set aside the Tribunal's order, ruling in favor of the assessee on all issues raised in the case. The court concluded that the exemptions granted for 15 years would continue, overturning the Tribunal's decision and allowing the revision in favor of the assessee without costs.