2014 (9) TMI 503 - HC - VAT and Sales Tax

Sales tax exemption - production of computer stationery under the Assam Industries (Sales Tax Concessions) Scheme, 1997 - Held that - It is seen that for production of computer stationery the raw materials used are paper rolls and carbon rolls. In order to qualify any product as computer stationery, the said product must be perforated on both sides/ edges of the paper and must also be foldable. Such perforation must be of certain specifications so that such paper can be fed into the computer printers and if it is a continuous paper, such paper must be horizontally perforated so that the continuous paper can be folded and torn off. Therefore, unless such paper is subjected to such perforation with certain specifications, the same cannot be used as computer stationery. Petitioner was engaged in the manufacturing of computer stationery with carbon. The carbon papers are attached to the plain papers and thereafter perforated with necessary specifications and the end-products are papers with carbon for the use by the computer. The carbon element, which is another raw material for production of the computer stationery becomes an integral part of the product which when properly implanted to the normal paper becomes an identifiable distinct product to be used only for the purpose of computer printing and known in the commercial parlance as computer stationery. While ordinary paper may be also used for computer printing, computer stationery having distinct characters as stated above is used only for computer printing. Activity of the petitioner, involving certain processes with the aid of machines by integrating plain paper with carbon and which is perforated under certain specifications, and known in the common trade parlance as a computer stationery, would qualify as a manufacturing process. The process applied results into transformation of the two commodities of paper and carbon used as raw materials to an integrated and non-separable product assuming an identity of a different article or commodity known as computer stationery in the common trade parlance. Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility for sales tax exemption under the Assam Industries (Sales Tax Concessions) Scheme, 1997, and Assam Industries (Tax Remission) Scheme, 2005.
2. Definition and scope of "manufacture" under section 2(30) of the Assam Value Added Tax Act, 2003.
3. Inclusion of the petitioner's activities in the negative list under the Assam Industries (Tax Remission) Scheme, 2005.

Issue-wise Detailed Analysis:

1. Eligibility for Sales Tax Exemption:
The petitioner, a proprietorship concern, sought sales tax exemption for the production of computer stationery under the Assam Industries (Sales Tax Concessions) Scheme, 1997, and Assam Industries (Tax Remission) Scheme, 2005. The petitioner argued that the industrial policies of Assam provided various incentives, including sales tax exemption for new and expanding industries. Despite applying for eligibility certificates under these schemes, the petitioner's application was kept pending, and a demand notice was issued for tax and interest payable for the assessment year 2005-06. The authorities later informed the petitioner that the unit was not considered an industrial unit engaged in manufacturing, thus ineligible for sales tax exemption.

2. Definition and Scope of "Manufacture":
The core issue was whether the production of computer stationery amounted to "manufacture" under section 2(30) of the Assam Value Added Tax Act, 2003. The petitioner contended that the process involved multiple mechanical steps, including cutting, perforating, and integrating carbon paper, resulting in a distinct end-product known as computer stationery. The court examined the definition of "manufacture," which includes any activity that transforms an article into a new and different article with a distinct name, character, and use. The court referenced several Supreme Court decisions, emphasizing that "manufacture" involves transformation into a commercially distinct commodity.

3. Inclusion in the Negative List:
The authorities argued that the petitioner's activities were essentially "cutting paper from roll paper," which was included in the negative list under the Assam Industries (Sales Tax Concessions) Scheme, 1997, and thus ineligible for tax remission under the 2005 scheme. The petitioner contended that their activities went beyond mere paper cutting, involving several mechanical processes to produce computer stationery, which should not be included in the negative list by inference.

Judgment:
The court held that the petitioner's activities constituted "manufacture" as defined under section 2(30) of the Assam Value Added Tax Act, 2003. The process involved transforming paper and carbon into a distinct product known as computer stationery, which has a unique identity in commercial parlance. The court found that the authorities' view that the petitioner's activities did not amount to manufacture was unsustainable. Consequently, the court directed the respondents to treat the petitioner's production of computer stationery as "manufacture" and set aside the impugned order dated January 27, 2009. The respondents were instructed to take necessary actions, including recalling the certificate of public demand and notices issued under the Bengal Public Demand Recovery Act, 1913, and to pass appropriate orders regarding the petitioner's eligibility and entitlement certificate under the Assam Industries (Tax Remission) Scheme, 2005.

Conclusion:
The writ petition was allowed, and the court directed the respondents to recognize the petitioner's production of computer stationery as a manufacturing activity eligible for tax exemption under the relevant schemes. The court emphasized the distinct commercial identity of the end-product and the comprehensive mechanical processes involved in its production. The parties were directed to bear their own costs.