2017 (8) TMI 8 - HC - VAT and Sales Tax

Exemption from payment of tax - the activity of converting raw milk into slim/skim milk - entitlement certificate - Held that - It is not a matter of debate that the Respondent has been issued an entitlement certificate. The entitlement certificate also details the following products, milk, milk products viz., desi ghee, whole milk/ skim milk, butter etc - on and from the date of cancellation of entitlement certificate the unit shall cease to be eligible for exemption from the payment of tax. The procedure is also laid down for cancellation of the entitlement certificate. 41C (1) (b) lays down that the certificate of entitlement if is inconsistent with any of the provisions of this Act, rules or notification issued under the Act or any of the relevant package scheme of incentive shall be cancelled by the Commissioner after giving the eligible unit an opportunity of being heard. There is no dispute among the parties that the entitlement certificate of the respondent/unit is not cancelled and was in force at all material time. The entitlement certificate is in force and as long as the entitlement certificate is in operation, the Petitioner would be entitled for exemption benefits qua the activity referred to in the entitlement certificate - appeal allowed - decided in favor of assessee.

Summary

Issues:
Whether the activity of converting raw milk into slim/skim milk qualifies as a manufacturing activity for exemption benefits based on the entitlement certificate issued to the respondent.

Analysis:
The main issue in this case revolves around determining whether the conversion of raw milk into slim/skim milk constitutes a manufacturing activity, thereby entitling the respondent to exemption benefits as per the entitlement certificate granted. The revenue's counsel argues that this activity does not fall under the scope of manufacturing activity, emphasizing that the entity must engage in manufacturing to qualify for tax exemption, as per section 41 of the Sales Tax Act. Both the Tribunal and the Commissioner had previously concluded that this specific activity does not amount to manufacturing. On the other hand, the respondent's counsel asserts that as long as the entitlement certificate remains valid, the respondent should be allowed exemption benefits. The counsel relies on a previous court order to support their argument.

The court carefully considered the arguments presented by both parties. It acknowledged that the respondent had indeed been issued an entitlement certificate listing various products, including milk and milk products. The court also reviewed an addendum to the entitlement certificate, which detailed modifications to the products covered. Additionally, the court referenced section 41C of the Act, which outlines the cancellation of entitlement certificates under certain circumstances. It highlighted that if an entitlement certificate is canceled, the unit loses eligibility for tax exemption.

The court emphasized that as long as the entitlement certificate remains valid and in force, the assessing officer cannot override it. The authority that issued the entitlement certificate holds the power to determine its validity, not the assessing officer. The court clarified that the assessing officer must abide by the entitlement certificate, and only the Commissioner has the authority to take action if the certificate is found to be inconsistent with relevant laws or schemes. Since the entitlement certificate in this case was valid and in operation, the court ruled in favor of the respondent, stating that they are entitled to exemption benefits for the specific activity mentioned in the certificate.

In conclusion, the court's decision hinged on the validity and operation of the entitlement certificate, emphasizing that the assessing officer cannot disregard it and that only the Commissioner has the authority to address any inconsistencies. The court's ruling favored the respondent, affirming their entitlement to exemption benefits for the activity specified in the valid entitlement certificate.