2014 (4) TMI 754 - SC - VAT and Sales Tax

Sales Tax Exemption Policy Nature of Work - Purchase of raw materials for iron and steel based industry for manufacturing activity - Annexure V(2) Bihar Finance Act, 1981 Manufacturing Activity Classification Interpretation of Statute - Held that - The definition of Manufacture that finds a place in the Act is wide enough to cover production, making, extracting, altering, ornamenting, finishing or otherwise processing of the raw material This Court has noticed that the raw material that is purchased by assessee is a steel scrap and what is produced with the steel scrap are agricultural implements and the household articles - The activity of assessee would certainly fit into the definition of Manufacture to qualify for the grant of exemption under the notification Relied upon Ashirwad Ispat Udyog and others Versus State Level Committee and others 1998 (11) TMI 527 - SUPREME COURT OF INDIA - Raw material with the help of a shearing machine is cut as per requirement - After some time it become hard - This hard sheet is then put in a furnace so that it becomes soft and thereafter agricultural and household articles are prepared. Relying upon Sonebhadra Fuels vs. Comm. Trade Tax 2006 (8) TMI 304 - SUPREME COURT OF INDIA - Referred B.P. Mills Ltd vs. Sales Tax Tribunal 1998 (9) TMI 507 - SUPREME COURT OF INDIA - Definition of manufacture in Uttar Pradesh Trade Tax Act, 1948 is very wide to include processing, treating or adapting any goods and therefore it held that even if the processing of coal to make coal briquettes, did not amount to a different commercial commodity, eventhough it did, it would still amount to manufacture as it is processing, treating or adapting coal to make coal briquettes which are altogether different in shape, size, moisture and characteristics. Therefore, revisional authority and High Court was not justified in rejecting the request of the appellant for grant of exemption under Notification dated 04.04.1994 - Impugned judgment and order is set aside Decided in favour of assessee.

Summary

Issues Involved:
1. Legitimacy of the sales tax exemption certificate issued to the appellant.
2. Definition and scope of 'manufacture' under the Bihar Finance Act, 1981.
3. Applicability of the Industrial Incentive Policy, 1993, and Notification No.1995 dated 04.04.1994.

Detailed Analysis:

Legitimacy of the Sales Tax Exemption Certificate:
The appellant-industry approached the Deputy Commissioner of Commercial Taxes, Dhanbad Circle, for an exemption certificate under the Industrial Incentive Policy, 1993. The certificate granted on 30.04.1997 exempted "all types of iron and steel material (including defective cutting and rejects)" from sales tax. However, the Joint Commissioner of Commercial Taxes initiated suo moto proceedings, questioning the certificate's validity. After a remand order, the Deputy Commissioner concluded that the appellant did not manufacture any article from the raw materials, thereby denying the exemption. This decision was upheld by the Commissioner of Commercial Taxes and the High Court.

Definition and Scope of 'Manufacture':
The central issue was whether the appellant's activities constituted 'manufacture' under the Bihar Finance Act, 1981. The Act's definition of 'manufacture' includes "producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating, adapting any goods." The appellant argued that converting steel scrap into agricultural and household articles fell within this definition. The Supreme Court noted that the appellant's activities, as detailed in the inspection report, involved significant processing and transformation of raw materials, thereby fitting the Act's broad definition of 'manufacture.'

Applicability of the Industrial Incentive Policy, 1993, and Notification No.1995:
The Industrial Incentive Policy, 1993, and Notification No.1995 dated 04.04.1994, provided sales tax exemptions for raw materials used directly in manufacturing goods. The Notification specified that the exemption applied to raw materials "directly converted into finished goods." The appellant contended that their activities met this criterion. The Supreme Court referenced the inspection report, which detailed the processes involved in converting steel scrap into finished products, supporting the appellant's claim. The Court also cited previous judgments, including Ashirwad Ispat Udyog and Sonebhadra Fuels, to reinforce that the appellant's activities constituted 'manufacture' under the Act.

Conclusion:
The Supreme Court concluded that the revisional authority and the High Court erred in rejecting the appellant's exemption request. The appellant's activities qualified as 'manufacture' under the Bihar Finance Act, 1981, and met the conditions of the Industrial Incentive Policy, 1993, and Notification No.1995. The appeal was allowed, and the Department was directed to issue an appropriate exemption certificate within two months.