2015 (5) TMI 293 - HC - VAT and Sales Tax

Denial of input tax credit - Whether the process undertaken by the dealer while converting Natural Sesame Seeds (NSS) to Huld Sesame (HS) can be said to be the process of manufacture and will tantamount the manufacture within the definition of Section 2(14) of the Act and consequently, the dealer on such process shall be entitled to the input tax credit or not - Held that - From the order passed by the Assessing Officer as well as the first Appellate Authority and even from the impugned common judgment and order passed by the learned Tribunal, it appears that while converting the NSS to HS, the dealer was required to undertake the process of cleaning, drying and brushing with chemicals and removing the upper layer of NSS. - after undertaking the process, the product NSS will be converted into altogether a new product named Huld Sesame. Thus, not only the form will be changed but the NSS initially which was not eatable, would now become eatable and marketable. Process undertaken by the dealer can be said to be process of manufacture within the meaning of Section 2(14) of the Act and, therefore, as such, no error has been committed by the learned Tribunal in holding that the process undertaken by the dealer to convert the NSS to HS can be said to be the process of manufacture within the meaning of Section 2(14) of the Act and consequently, the dealer would be entitled to the input tax credit. As observed hereinabove, as such, by the process undertaken by the dealer, seeds which was initially not marketable and eatable, would become eatable and marketable and, therefore, there will be change in the form. - no reason to interfere with the impugned common judgment and order passed by the learned Tribunal - Decided against Revenue.

Summary

Issues Involved:
1. Whether the Tribunal erred in adjudicating issues on merits instead of restricting itself to the issue of pre-deposit.
2. Whether the process undertaken by the dealer is "manufacture" as per Section 2(14) of the Gujarat Value Added Tax Act.
3. Whether the Tribunal erred in deleting the levy of penalty under Section 34(12) of the Act and the levy of interest.

Issue-wise Detailed Analysis:

1. Tribunal Adjudicating on Merits Instead of Pre-deposit:
The State of Gujarat initially raised the question of whether the Tribunal erred by adjudicating the appeals on merits instead of restricting itself to the issue of pre-deposit. However, the appellant did not press this issue during the hearing. Consequently, the focus shifted to the merits of whether the process of converting Natural Sesame Seeds (NSS) to Huld Sesame (HS) constitutes "manufacture."

2. Process as "Manufacture" under Section 2(14) of the Act:
The core issue was whether the process undertaken by the dealer to convert NSS into HS qualifies as "manufacture" under Section 2(14) of the Gujarat Value Added Tax Act. The Tribunal, relying on the Division Bench decision in Laxmi Oil Mills Ltd. v. Commissioner of Sales Tax, held that the process does constitute "manufacture." The process involved cleaning, drying, brushing with chemicals, and removing the upper layer of NSS, resulting in a new, marketable, and edible product, HS. The Tribunal concluded that this transformation meets the statutory definition of "manufacture," thus entitling the dealer to input tax credit.

3. Deletion of Penalty and Interest:
The Tribunal also addressed the deletion of penalties and interest. The Assessing Officer had denied input tax credit and imposed penalties and interest, asserting that the process did not amount to "manufacture." However, the Tribunal, having determined that the process was indeed "manufacture," quashed the penalties and interest. This decision was based on the premise that the dealer was entitled to input tax credit, and thus, the penalties and interest were unjustified.

Detailed Judgment Analysis:
The High Court reviewed the Tribunal's decision and the arguments presented by the State. The State contended that the Tribunal erred in its interpretation of "manufacture" and relied on precedents that did not support the Tribunal's conclusion. Specifically, the State argued that the process of cleaning, drying, and brushing with chemicals did not create a new product, as the seeds remained seeds. The State referenced decisions such as Polson Model Dairy v. State of Gujarat and State of Maharashtra v. Shiv Datt and Sons to support its argument that not every process constitutes "manufacture."

The High Court, however, upheld the Tribunal's decision, emphasizing the statutory definition of "manufacture" and the specific processes undertaken by the dealer. The Court noted that the transformation of NSS to HS involved significant changes, making the seeds marketable and edible, thus meeting the criteria for "manufacture." The Court distinguished the cited precedents, explaining that the processes in those cases did not result in new, marketable products, unlike the present case.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the process of converting NSS to HS constitutes "manufacture" under Section 2(14) of the Gujarat Value Added Tax Act. Consequently, the dealer is entitled to input tax credit, and the penalties and interest imposed by the Assessing Officer were rightly quashed. The appeals were dismissed, and no substantial question of law was found to warrant interference with the Tribunal's judgment.