2015 (10) TMI 449 - HC - VAT and Sales Tax

Exemption of tax under section 4A - Satisfaction of requirement of diversification the assessee pertaining to land with regard to its ownership and tenancy for seven years - Held that - requirement relating to land, building, etc., are contemplated in Explanation (1) in the context of a new unit but in respect of units which are already existing but have undergone expansion, diversification or modernization, the matter is governed by Explanation (5) of Section 4A - revisionist-assessee was claiming certain benefits as a result of expansion and diversification of an existing industrial undertaking, hence the requirement of Explanation (1) could not have been read under Explanation (5), particularly in absence of anything available in the statute book permitting to do so. - it was required to satisfy the requirements contemplated in Explanation (5) and the requirement under Explanation (1) have wrongly been taken into account by the Tribunal in the impugned order, as the same is not applicable. It cannot be said that a person, manufacturing a particular compound in tablet form, if starts manufacturing the same compound in injection form, there is no change and it is one and the same thing. Moreover a different form of a particular item per se cannot be said that it amounts to manufacturing the same item. On the face of also, it amounts to manufacturing an item with expansion of industrial establishment for the reason that machines, plants and other items will have to be added so as to go for manufacturing different form of item. - when a person demands a particular pesticides in a particular form, the supplier does not make him available the item in whatever form he had. In common parlance also, therefore, the dust pesticides and liquid pesticides are treated differently. At least in this regard no otherwise finding has been recorded by the Tribunal and in fact it has gone only on the aspect that since the two things are different in forms only, therefore, they are same. This approach on the part of the Tribunal is totally erroneous and in any case the inference drawn by the Tribunal also cannot be upheld. - Decided in favour of assessee.

Summary

Issues:
1. Eligibility for tax exemption under section 4A for diversification.
2. Classification of liquid pesticides and powder pesticides.

Eligibility for Tax Exemption under Section 4A for Diversification:
The High Court addressed the first issue concerning the eligibility for tax exemption under section 4A for diversification. The court clarified that for existing units that have undergone expansion, diversification, or modernization, the eligibility criteria are governed by Explanation (5) and not Explanation (1) of section 4A. The court emphasized that there is no requirement regarding land or building for such cases. The Tribunal was found to have erred in considering lease deed and registration issues, which would have been necessary for a new unit under Explanation (1). The court ruled in favor of the assessee, stating that the requirements of Explanation (5) should have been applied, and Explanation (1) was wrongly taken into account by the Tribunal.

Classification of Liquid Pesticides and Powder Pesticides:
Regarding the second issue of classifying liquid pesticides and powder pesticides, the court examined the raw materials and machinery used in their production. The court noted that the ingredients and machinery for manufacturing these two types of pesticides differ significantly. Despite both being pesticides, they serve different purposes, have distinct ingredients, and require different manufacturing processes. Drawing an analogy to pharmaceuticals, the court highlighted that producing the same compound in different forms still constitutes diversification and expansion. The court disagreed with the Tribunal's view that the two types of pesticides are the same merely because of a change in form. Ultimately, the court ruled in favor of the assessee, stating that liquid pesticides cannot be considered the same item as powder pesticides, and manufacturing both constitutes expansion and diversification. Consequently, the court allowed the writ petition, quashed the Tribunal's order, and remanded the matter to the Tribunal for further proceedings in line with the court's observations and legal principles.