2014 (2) TMI 414 - HC - VAT and Sales Tax

Manufacturing of goods or not - Double taxation liability - Cutting of small paper from large paper reels - Whether process of cutting big size paper into small size of paper does not amount to manufacture of paper - Held that - in order to establish manufacture a new and different article must emerge having a distinctive name, character and use - Following decision of Union of India Vs. Delhi Cloth & General Mills 1962 (10) TMI 1 - SUPREME COURT OF INDIA - Decided in favour of assessee. Whether entry tax @5% having been paid by the seller of the applicant who had issued Form-E in respect of entire papers sold to the applicant and hence in view of notification no.732 dated 7.3.2005 issued under section 5 of U.P.Trade Tax Act, Trade Tax rebate was allowed to the full extent since entry tax was paid @ 5%. Accordingly, in view of Notification no.1307 dated 28.4.2005 no State Development Tax is leviable in view of clause (3) of the Notification dated 28.4.2005 - Held that - where the rate of entry tax and trade tax is at 5%, consequently rebate has to be given on trade tax - Following decision of M/s Rana Papers Limited through Director Noor Salim Rana Vs. The State of U.P. and others 2013 (9) TMI 71 - ALLAHABAD HIGH COURT - Decided against assessee.

Summary

Issues:
1. Whether cutting big size paper into small size amounts to manufacture of paper for tax purposes?
2. Whether entry tax paid by the seller entitles the buyer to a trade tax rebate?

Analysis:
1. The revisionist challenged an assessment order imposing tax on paper cut into small size, arguing that cutting paper does not constitute manufacturing. The revisionist relied on a previous court decision and the definition of manufacture under the Act. The High Court referred to the definition of manufacture and a Supreme Court case to conclude that cutting paper does not create a new commercial commodity, ruling in favor of the assessee against the department on this issue.

2. The second issue concerned whether entry tax paid by the seller entitled the buyer to a trade tax rebate. The High Court cited a Division Bench decision where it was held that if entry tax and trade tax were both at 5%, a rebate on trade tax must be given. Therefore, the third question was answered in favor of the revenue and against the assessee.

In conclusion, both revisions were disposed of based on the above analysis of the issues raised, with the High Court ruling in favor of the assessee on the first issue regarding the definition of manufacture and in favor of the revenue on the second issue concerning trade tax rebate eligibility based on entry tax payment.