2011 (4) TMI 592 - SC - VAT and Sales Tax

Whether or not bottles and crates used by the respondent could be said to be essential apparatus or equipments or components for the establishment and running of the factory of the respondent - The assessee-respondent applied for the grant of eligibility certificate under Section 4A of the U.P. Trade Tax Act read with Notification No. 640 dated 21-2-1997 - he question of law that was framed by the High Court was answered in favour of the assessee holding that such bottles and crates are to be treated as fixed capital investment. It was also held that the period of exemption was for 15 years - It was also submitted that the use of word Apparatus in the definition of Fixed Capital Investment is restricted to such apparatus which are actually used in the manufacture of finished product and that it cannot be extended to such apparatus which are used for storing of finished products - there is also no such notification issued by the State Government giving a restricted meaning to the expression fixed capital investment which as per provision enacted also includes all such investment made for equipment, apparatus, components and machinery which are necessary for running of the factory or workshop - Held that so far bottles are concerned, they are essential part of components and equipments necessary for the running of the factory and therefore such value of the investment would form part of the fixed capital investment and would be entitled to exemption as provided for - Appeal is disposed of

Issues Involved:
1. Whether bottles and crates used by the respondent can be considered as essential apparatus or equipment for the establishment and running of the factory.
2. Whether the value of bottles and crates should be included in the "Fixed Capital Investment" under Section 4-A of the U.P. Trade Tax Act.

Detailed Analysis:

Issue 1: Essential Apparatus or Equipment
The respondent, engaged in the manufacturing and sale of soft drinks and beverages, applied for an eligibility certificate under Section 4A of the U.P. Trade Tax Act. The Divisional Level Committee initially granted the certificate, which included exemptions for a period of ten years. The respondent later sought a review to extend this period to fifteen years and to include the investment in glass bottles and crates as part of the fixed capital investment, arguing these items were essential for manufacturing soft drinks and running the beverage unit.

The Divisional Level Committee agreed to include the investment in bottles and crates, but the U.P. Tribunal, Trade, Tax, Lucknow, overturned this decision, stating that bottles and crates were neither directly nor indirectly used in the manufacture of beverages and thus could not be considered as "Apparatus" under Section 4-A of the Act. The Allahabad High Court, however, reversed the Tribunal's decision, holding that bottles and crates are essential apparatus in a captive industry where the liquid is prepared and collected in bottles, which are then stored in crates. Therefore, both bottles and crates should be accepted as "apparatus" within the meaning of Explanation (4)(b)(i) to Section 4-A of the U.P. Trade Tax Act.

Issue 2: Inclusion in Fixed Capital Investment
The appellant challenged the High Court's decision, arguing that bottles and crates should not be considered as "Fixed Capital Investment" necessary for the establishment or running of the factory. The appellant relied on a precedent from the Supreme Court in the case of State of Bihar and Others v. Steel City Beverage Limited and Another, which held that plant and machinery used for manufacturing soft drinks do not include articles like crates and bottles used for storing the manufactured goods.

The Supreme Court examined the provisions of Section 4-A of the U.P. Trade Tax Act, which defines "Fixed Capital Investment" to include land, building, plants, machinery, equipment, apparatus, components, etc., necessary for the establishment or running of the factory. The Court noted that the provisions for exemption from sales tax aim to increase production and promote industrial development, and such provisions should be liberally construed to advance their objective.

The Court distinguished the present case from the Steel City Beverage case, noting that the provisions of the U.P. Trade Tax Act are broader and do not have specific notifications excluding bottles and crates from the definition of "Fixed Capital Investment." Therefore, the Court held that bottles, being essential for the manufacturing process and running of the factory, should be included in the fixed capital investment. However, crates, used primarily for marketing and transporting the bottled beverages, do not qualify as necessary for running the factory and thus should not be included.

Conclusion:
The Supreme Court partially allowed the appeal, upholding the High Court's decision regarding bottles but setting aside the decision concerning crates. Bottles are deemed essential components and equipment necessary for running the factory and thus included in the fixed capital investment. Crates, used for marketing purposes, are excluded from the fixed capital investment. The appeal was disposed of with no order as to costs.

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