2016 (10) TMI 857 - HC - VAT and Sales Tax

Claim of exemption from tax and Central Sales Tax (CST) - sale by the dealer to the exporter against Form-H - Nature of activity / processing amount to Manufacturing process or not - Section 2(16) of the Gujarat Sales Tax Act - Castor oil - conversion of commercial grade Castor oil to First Special Grade after refining process - Held that - The word as may be prescribed as used under this definition clause is attracting the provision contained under Rule 3 of the rules in which the prescription is made and therefore, referring to this Rule 3 it can be seen that the process which has underwent on their product is not a manufacturing process and therefore, conjoin effect of the aforesaid statutory provision, it appears that the learned Tribunal has rightly come to the conclusion that the process carried out was not a manufacturing process as defined under Section 2(16) of the GST Act - reliance placed on the decision of SHYAM OIL CAKE LTD. Versus COLLECTOR OF CENTRAL EXCISE, JAIPUR 2004 (11) TMI 109 - SUPREME COURT OF INDIA where it was held that merely because some process is carried out on the substance, the same is not to be treated as manufacturing process. Whether the goods exported by the exporter was the same goods purchased from the respondent (dealer) and consequently sale by the dealer to the exporter would be sale prior to export sale and would be covered by section 5(3) of the Central Act? - Held that - wherein the basic characteristic and the use is not drastically changed and since the learned Tribunal has come to the conclusion specifically with examination of process of the material sold by the purchaser is not out of any manufacturing process and therefore, the claim of exemption from the said Sales Tax Act is justified. The categorical finding that exporter who had purchased Castor oil from the opponent herein has not sold the Castor oil in the same form, but has done some process and therefore, it cannot be considered as a manufacturing process and therefore, it appears to this court also that the learned Tribunal has rightly come to the conclusion in passing the order impugned in the appeal. No illegality or irregularity of any nature committed by the learned Tribunal - appeal dismissed - decided in favor of Tribunal.

Summary

Issues Involved:
1. Whether the process carried out by the exporter on goods purchased by the respondent was a manufacturing process as defined under Section 2(16) of the Gujarat Sales Tax Act.
2. Whether the goods exported by the exporter were the same goods purchased from the respondent and if the sale by the dealer to the exporter would be covered by Section 5(3) of the Central Sales Tax Act.

Issue-wise Detailed Analysis:

Issue 1: Manufacturing Process under Section 2(16) of the Gujarat Sales Tax Act

The appellant challenged the Tribunal's decision that the process carried out by the respondent on Castor oil was not a manufacturing process as defined under Section 2(16) of the Gujarat Sales Tax Act. The Tribunal concluded that the process did not alter the basic substance of the Castor oil. The Assistant Commissioner had rejected 'Form H' and held that the exporter had not sold the Castor oil in the same form as purchased, thus considering it a manufacturing process. The Tribunal, however, found that the process undertaken by the exporter did not amount to manufacturing since the basic characteristics and use of the Castor oil were not substantially altered.

The court referred to the definition of 'manufacture' under Section 2(16) and Rule 3 of the Gujarat Sales Tax Rules, which did not categorize the process as manufacturing. The court also cited several Supreme Court decisions, including Shyam Oil Cake Ltd. and Osnar Chemical Pvt. Ltd., which clarified that mere processing does not constitute manufacturing unless it results in a new and distinct commodity. The court agreed with the Tribunal that the process did not transform the Castor oil into a new product, thus upholding the Tribunal's decision.

Issue 2: Sale Prior to Export under Section 5(3) of the Central Sales Tax Act

The second issue was whether the goods exported by the exporter were the same as those purchased from the respondent and if the sale to the exporter would be covered by Section 5(3) of the Central Sales Tax Act. The Tribunal had held that the sale by the respondent to the exporter was a sale prior to export and covered by Section 5(3). The Assistant Government Pleader argued that the process undertaken by the exporter changed the form of the Castor oil, thus not qualifying for exemption under Section 5(3).

The court noted that the Tribunal had examined the entire process and concluded that the basic substance of the Castor oil remained unchanged. The court found that the Tribunal's detailed examination and reliance on expert reports supported the conclusion that the process did not constitute manufacturing. Therefore, the sale by the respondent to the exporter was indeed a sale prior to export and covered by Section 5(3).

Conclusion:

The court upheld the Tribunal's decision, finding no error in its interpretation of the statutory provisions and the definition of 'manufacture.' The court dismissed the tax appeals, concluding that the process carried out on the Castor oil did not amount to manufacturing and that the sale to the exporter was covered by Section 5(3) of the Central Sales Tax Act. The court's analysis was supported by several Supreme Court decisions that clarified the scope of 'manufacture' and the applicability of tax exemptions for sales prior to export.