2016 (7) TMI 1371 - HC - VAT and Sales Tax

Manufacture - lead plates - revisionist purchases old and scrap batteries, extracts the lead plates therefrom, melts them, undertakes a cleaning process and then converts them into a flat form which is described as lead plate. These plates are then sold to manufacturers of batteries - whether the process amounts to manufacture ? - Held that - the mere act of cleaning cannot be placed on the same pedestal as the activity undertaken by the revisionist where admittedly the lead plates were melted and cleaned and the lead extracted therefrom then made into lead plates. In the absence of any reasoning having been adopted or assigned either by the assessing authority or the first appellate authority while quantifying the turnover the orders are not liable to be sustained - revision allowed in part.

Summary

Issues Involved:
1. Classification of the revisionist as a manufacturer under the U.P. Trade Tax Act, 1948.
2. Computation of turnover on a best judgment basis.

Analysis:

Issue 1: Classification as a Manufacturer
The revisionist contended that the process of extracting lead plates from scrap batteries did not amount to manufacturing, arguing that no new commodity was created. Reference was made to a judgment involving a jeweler cleaning old ornaments to support this argument. However, the Court analyzed the definition of "manufacture" under Section 2(e-1) of the U.P. Trade Tax Act, which includes activities like processing, treating, or adapting goods. The Court found that the revisionist's process of melting, cleaning, and forming lead plates from old batteries fell within the definition of manufacture. The Court emphasized that the creation of a new commercial commodity distinct from the original was not necessary for an activity to qualify as manufacturing. The Court also highlighted the broad scope of the term "manufacture" under the Act, distinguishing it from other statutes. The judgment cited emphasized that the commercial identity of goods need not change for an activity to be considered manufacturing.

Issue 2: Computation of Turnover
Regarding the computation of turnover on a best judgment basis, the assessing authority had rejected the declared turnover of the revisionist and estimated it at ?10,00,000 without providing reasoning for this figure. The Court acknowledged that best judgment assessments involve some degree of estimation but require a basis in empirical principles rather than being arbitrary. As the assessment order lacked reasoning for the quantification of turnover, the Court deemed the orders unsustainable. Consequently, the Court allowed the revision in part, setting aside the orders related to turnover quantification and remitting the matter to the assessing authority for a fresh decision based on the observations made.

In conclusion, the judgment clarified the classification of the revisionist as a manufacturer under the U.P. Trade Tax Act, emphasizing the broad definition of "manufacture" under the Act. Additionally, it highlighted the necessity of providing reasoned basis for turnover estimation in best judgment assessments to ensure compliance with empirical principles.