2008 (11) TMI 644 - HC - VAT and Sales Tax

Whether fuel that used for the manufacture of parts is liable to tax under section 7A, as it stood prior to 1997? Held that - Fuel, which is used by the manufacturer of goods, is not taxable if it is used for the manufacture and not in the manufacture . The assessment year in the present case is 1993-94. Kerosene which was used for the manufacture of cycle parts cannot be taxed since at that time, the words, for the manufacture were not included in section 7A. In fact, it is seen that with regard to the same assessee for the assessment year 1995-96, the case of the assessee has been accepted on the facts that the kerosene is used for the manufacture of the end-products and not in the manufacture of the finished goods and the case was decided in favour of the assessee. Therefore, on the facts, it was clear that kerosene, which is the fuel in question, was used only for the manufacture of the other goods. Question is answered in favour of the assessee.

Summary

Issues:
Interpretation of tax liability under section 7A of the Tamil Nadu General Sales Tax Act, 1959 for fuel used in manufacturing cycle parts.

Analysis:
The judgment concerns the tax liability of an assessee, a manufacturer of cycle parts, for local purchase of kerosene used in the manufacturing process. The Revenue levied tax under section 7A on the assessee, prompting an appeal before the Tribunal. The Tribunal ruled that the kerosene was not used "for the manufacture of end-products" and upheld the tax assessment, leading to the issue of whether fuel used in manufacturing parts is liable to tax under section 7A.

The learned counsel for the assessee argued that prior to November 6, 1997, the fuel used "for the manufacture of" finished goods could not be taxed under section 7A. The counsel relied on relevant case laws such as Deputy Commissioner of Sales Tax v. Thomas Stephen & Co. Ltd. and Coastal Chemicals Ltd. v. Commercial Tax Officer, emphasizing that consumption of fuel must be "in the manufacture as raw material" to be taxable.

In analyzing the legal position, the judgment referred to the text of section 7A before and after the amendment by Act 60 of 1997. The critical distinction lies in the use of the phrase "for the manufacture of" as opposed to "in the manufacture of" other goods. The judgment highlighted that fuel used by the manufacturer is not taxable if it is used for the manufacture and not "in the manufacture." In this case, for the assessment year 1993-94, the kerosene used for manufacturing cycle parts was found to be used "for the manufacture" of end-products, not "in the manufacture" of finished goods.

Drawing parallels to a similar assessment for the year 1995-96 where the assessee's case was accepted based on the usage of kerosene "for the manufacture" of end-products, the judgment concluded that the fuel in question was indeed used only for the manufacture of other goods. Consequently, the question was resolved in favor of the assessee, and the tax case was allowed without costs.