2006 (2) TMI 650 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the process of cutting paper into desired sizes amounts to a manufacturing process under Section 4-A of the U.P. Trade Tax Act.
2. Whether the applicant is entitled to tax exemption for cut size paper as a manufactured product.

Issue-wise Detailed Analysis:

1. Whether the process of cutting paper into desired sizes amounts to a manufacturing process under Section 4-A of the U.P. Trade Tax Act:

The primary question is whether the process of cutting large paper sheets into smaller sizes, which are sold as type paper, duplicate paper, etc., constitutes manufacturing. The applicant argued that the cutting process results in a commercially different product, thus qualifying as manufacturing. The applicant cited several cases to support this claim, including *M/s. Shree Ammonia Chemicals (P) Ltd. v. Commissioner of Trade Tax*, *Ashirwad Ispat Udyog v. State Level Committee*, and others.

The court, however, found no substance in the applicant's argument. It held that merely converting large sheets into smaller ones does not change the fundamental nature of the paper. The paper remains paper, and no new commercial commodity is created. The court referenced Section 2(e-1) of the Act, which defines "manufacture" as producing, making, altering, or otherwise processing goods but does not include mere cutting. The court cited several precedents, including *M/s. Ashok Kumar and Company v. Commissioner of Trade Tax* and *State of Tamil Nadu v. M/s. Pyare Lal Malhotra*, which held that mere cutting does not amount to manufacturing.

2. Whether the applicant is entitled to tax exemption for cut size paper as a manufactured product:

The applicant sought exemption under Section 4-A of the Act, claiming that cut size paper should be considered a manufactured product. The court reviewed the definition of "manufacture" and relevant case law. It cited *Commissioner of Sales Tax v. National Industries Corporation*, where repacking grease in smaller containers was not considered manufacturing, and *Sterling Foods v. State of Karnataka*, where processing shrimps did not change their identity.

The court concluded that cutting large paper sheets into smaller sizes does not constitute manufacturing because the paper's identity and constituent remain unchanged. The court also referenced *State of Maharashtra v. Shive Dutt and Sons*, which emphasized that not all processes result in manufacturing unless a new commercial commodity emerges.

The court found the applicant's cited cases distinguishable. For example, in *M/s. Shree Ammonia Chemicals (Pvt.) Ltd.*, transferring ammonia gas from a large tanker to smaller cylinders involved a technical process at significant cost, which was not comparable to mere paper cutting.

In conclusion, the court held that the process of cutting paper into smaller sizes does not amount to manufacturing under Section 4-A of the U.P. Trade Tax Act. Therefore, the applicant is not entitled to tax exemption for cut size paper as a manufactured product. The revision was dismissed.