2014 (7) TMI 488 - HC - VAT and Sales Tax

Issuance of Form D - construction of road whether a manufacturing activity - Revenue contends that in view of Explanation-I to Section 13(1) of the U.P. VAT Act the petitioner, not being a manufacturer was not entitled for Form-D - Held that - Petitioner has been granted a recognition certificate under Section 4-B(2) of the U.P. Trade Tax Act and in view of Rule 25-B(1) of the U.P. Trade Rules, the petitioner is entitled to avail concessional rate of tax provided he furnishes a certificate, which is called a declaration form to the selling dealer. Such provision is, however, non-existent under the U.P. VAT Act but concessional rate of tax is provided through notifications issued under Section 4 of the U.P. VAT Act Commissioner committed a manifest error in its order issued under Section 59 of the Act in holding that a person engaged in the construction of roads was not a manufacturer. The Commissioner further erred in holding that under the Explanation to Section 13(1)(e), the transfer of property in goods involved in the execution of a works contract amounts to a resale of goods and, therefore, the assessee was entitled to the benefit of input tax credit under Section 13 of the Act and cannot be called a manufacturer. The issuance of a show cause notice to the petitioner by the Deputy Commissioner (Assessment), based on this decision of the Commissioner, is also erroneous. The definition of the word manufacturer as defined under Section 2(u) of the U.P. VAT Act is solely relevant for the purpose of giving the benefit of the notification dated 10th January, 2008 issued under Section 4(4) of the U.P. VAT Act. Explanation to Section 13(1)(e) does not in any manner override the definition of the word manufacturer as defined under Section 2(u) of the Act . Order of the Commissioner was not passed in the case of the petitioner and, consequently, the petitioner could not file an appeal. However, the order of the Commissioner is binding on the Assessing Authority pursuant to which the show cause notice was issued to the petitioner. The Court is of the view that rule of alternative remedy is one of discretion and is not one of compulsion - writ petition was entertained in the year 2008 and an interim order was issued directing the authorities to issue Form-D. Affidavits have been exchanged and, consequently, it would not be appropriate to delegate the petitioner at this stage to avail the alternative remedy - Decided in favour of assessee.

Issues involved:
1. Entitlement of the petitioner to concessional tax rates under the U.P. VAT Act.
2. Definition of "manufacturer" and "manufacture" under the U.P. VAT Act.
3. Validity of the Commissioner's order and the show cause notice issued to the petitioner.
4. Availability of alternative remedies for the petitioner.

Detailed Analysis:

1. Entitlement of the petitioner to concessional tax rates under the U.P. VAT Act:

The petitioner, a public limited company engaged in construction, was initially granted a recognition certificate under Section 4-B(2) of the U.P. Trade Tax Act, allowing them to purchase raw materials at a concessional tax rate. With the enactment of the U.P. VAT Act on January 1, 2008, the petitioner sought to continue availing this benefit under the new regime. The State Government issued a notification on January 10, 2008, under Section 4(4) of the U.P. VAT Act, reducing the tax rate on diesel oil sold to registered dealers for manufacturing taxable goods to 4%, provided a prescribed certificate (Form-D) was issued. The petitioner applied for Form-D but was issued a show cause notice instead, questioning their status as a manufacturer.

2. Definition of "manufacturer" and "manufacture" under the U.P. VAT Act:

The definitions of "manufacturer" and "manufacture" under the U.P. Trade Tax Act and the U.P. VAT Act are nearly identical. "Manufacture" includes producing, making, altering, or processing goods, while "manufacturer" refers to a dealer who makes the first sale of such goods in the state. The petitioner argued that they qualify as a manufacturer of Hot Mix material, which is used in road construction. This position was supported by the Supreme Court in the case of PNC Construction Co. Ltd., where Hot Mix was deemed a notified good, and the contractor was entitled to tax benefits under Section 4-B of the U.P. Trade Tax Act.

3. Validity of the Commissioner's order and the show cause notice issued to the petitioner:

The Commissioner of Commercial Taxes had issued an order stating that a person engaged in road construction was not a manufacturer, thereby denying the petitioner the benefit of Form-D. This order was based on an interpretation that the transfer of property in goods involved in a works contract amounts to a resale, not manufacturing. The court found this interpretation erroneous, citing the Supreme Court's decision in PNC Construction Co. Ltd., which affirmed that the petitioner was indeed a manufacturer entitled to concessional tax rates. Consequently, the show cause notice issued to the petitioner based on the Commissioner's order was also deemed erroneous.

4. Availability of alternative remedies for the petitioner:

The court addressed the argument that the petitioner should have pursued alternative remedies, such as filing an appeal before the Tribunal. It noted that the Commissioner's order was not passed in the petitioner's case, making an appeal impractical. The court emphasized that the rule of alternative remedy is discretionary, not compulsory, especially when fundamental rights are at stake or when orders are without jurisdiction. Given the circumstances, the court decided to hear the writ petition directly.

Conclusion:

The court quashed the impugned order of the Commissioner of Commercial Taxes and the show cause notice issued by the Deputy Commissioner (Assessment). It allowed the writ petition and issued a writ of mandamus directing the Deputy Commissioner (Assessment) to issue and authenticate adequate numbers of certificates in Form-D to the petitioner for the purchase of diesel oil and furnace oil for manufacturing Hot Mix materials.

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