2017 (5) TMI 129 - HC - VAT and Sales Tax

Levy of VAT - steel wires - Tribunal was of the view that when steel rod is used to manufacture steel wires, then the product so manufactured would not be liable to be taxed under the provisions of the U.P. Trade Tax Act, as tax has already been paid upon purchase of steel rod - Held that - It is admitted that steel wire is a distinct commodity brought into existence pursuant to manufacturing process undertaken. Since a new commodity has come into existence pursuant to manufacturing activity, Tribunal was not justified in relying the circular to hold that tax is not payable upon such commodity, on the ground that tax was paid upon the rod used for manufacturing - appeal allowed - decided in favor of Revenue.

Summary

Issues:
Interpretation of circular on taxation of manufactured products under U.P. Trade Tax Act.

Analysis:
The High Court considered a case where the Tribunal had ruled that a product manufactured using steel rods would not be taxed under the U.P. Trade Tax Act if tax had already been paid on the purchase of the steel rod, based on a circular by the Commissioner, Sales Tax. However, the Court referred to a notification interpreting the circular and a Supreme Court decision in M/s. Bansal Wire Industries Ltd. & Another Vs. State of U.P., emphasizing that a new commodity resulting from a manufacturing process is taxable under the Act. The Court cited specific sections and clauses to support this interpretation, stating that each commercial commodity transformed by manufacturing becomes a separate taxable entity.

The Court analyzed the language used in the Act, highlighting that the specific entry of "tools, alloy and special steel" does not cover stainless steel wire, and therefore, it cannot be classified under "Iron and Steel" as defined in the Act. The judgment emphasized that statutory language should not be rendered redundant and must be given effect. The Court rejected the argument that "Wire rods and wires" should be grouped with "tools, alloy and special steels," asserting that each entry in the Act is independent and should not depend on others.

Moreover, the Court acknowledged that steel wire is a distinct commodity resulting from the manufacturing process. It concluded that the Tribunal erred in relying on the circular to exempt tax on the manufactured product based on tax paid on the raw material. The judgment clarified that once a new commodity emerges from manufacturing activities, it is subject to taxation, regardless of tax paid on the input material. The Court's decision aligned with the principle that a new product arising from manufacturing is a separate taxable entity, thereby overturning the Tribunal's ruling and establishing the liability to pay tax on the manufactured steel wire.