2018 (8) TMI 1561 - HC - VAT and Sales Tax

Exemption from payment of Entry tax - Whether the revisionist is a manufacturer of Compressed Natural Gas (C.N.G.) and Piped Natural Gas (P.N.G.) in terms of section 2 of the U.P. Tax on Entry of Goods Act 2000 read with section 2(ee) and section 2(e-1) of the U.P. Trade Tax Act 1948 so as to be eligible for the benefit of exemption from payment of entry tax on capital goods or machinery brought into the local area from any place outside that local area for use in manufacturing of the aforesaid C.N.G. and P.N.G., under the Notification dated 18.2.2003 issued under section 4-B of the Act 2000? Held that - The Tribunal has gravely erred in being persuaded by the definition of Natural Gas as contained in the petroleum and Natural Gas Laboratories Board Act 2006, consequently, it has arrived at an erroneous conclusion. The process involved in making C.N.G. and P.N.G. involves its manufacture and the product has a different commercial identify. Even if it did not have a different commercial identity, even then, it would still be a manufacture within the meaning of section 2(2) of the Act 2000 read with section 2(e-1) of the Act 1948. The Court also finds that the revisionist has been issued a license under Rule 9 of the Central Excise Rules 2002 made under the Central Excise Act for operating as a manufacturer of excisable goods at C.N.G. Mother Station etc. , a copy of which is annexed as Annexure-6 to the writ petition, which also goes to show that he is a manufacturer even as per the definition of the term under the Excise Act and the Rules thereunder, but the Court is not persuaded only by this document, rather, it is persuaded by the reasoning already given - also the observation in the order of the Tribunal that by depositing the entry tax the revisionist had admitted its liability in this regard, is misconceived, especially as there can be no estoppel against law, considering the fact that the Notification dated 18.2.2003 had been issued under section 4- B of the Act 2000 and had the force of law. It is held that the revisionist is a manufacturer of C.N.G. and P.N.G. and consequently it is entitled to the benefit of notification dated 18.2.2003 - revision allowed.

Summary

Issues Involved:
1. Whether the revisionist is a manufacturer of Compressed Natural Gas (C.N.G.) and Piped Natural Gas (P.N.G.) under the U.P. Tax on Entry of Goods Act, 2000 and the U.P. Trade Tax Act, 1948.
2. Eligibility for exemption from entry tax on capital goods or machinery used in manufacturing C.N.G. and P.N.G. under the Notification dated 18.2.2003.
3. The validity of the Tribunal and First Appellate Authority's decisions regarding the nature of C.N.G. and P.N.G. as manufactured goods.
4. Entitlement to a refund of entry tax paid by the revisionist.

Detailed Analysis:

1. Whether the revisionist is a manufacturer of C.N.G. and P.N.G.:
The court examined whether the revisionist qualifies as a manufacturer under section 2 of the U.P. Tax on Entry of Goods Act, 2000, read with sections 2(ee) and 2(e-1) of the U.P. Trade Tax Act, 1948. The revisionist argued that the process of compressing natural gas to produce C.N.G. and P.N.G. does not involve any chemical or physical change, thus should not be considered manufacturing. However, the Additional Commissioner determined that the revisionist is indeed a manufacturer of C.N.G. and P.N.G. The court noted that the definition of "manufacture" in section 2(e-1) of the Act 1948 is broad, including "making," "processing," "treating," or "adapting" any goods. The Supreme Court's interpretation in Kumar Motors Bareilly v. Commissioner of Sales Tax, U.P. affirmed that manufacturing includes activities that do not necessarily result in a commercially different item. Therefore, the court concluded that the revisionist is a manufacturer of C.N.G. and P.N.G.

2. Eligibility for exemption from entry tax:
The Notification dated 18.2.2003 exempts manufacturing dealers from entry tax on capital goods, plant, machinery, and spare parts brought into the local area for manufacturing. The court found that the revisionist imported machinery from outside the State for manufacturing C.N.G. and P.N.G. Given the broad definition of "manufacture" under section 2(e-1) of the Act 1948, the court held that the revisionist's activities qualify as manufacturing, making them eligible for the exemption.

3. Validity of Tribunal and First Appellate Authority's decisions:
The Tribunal and First Appellate Authority ruled that C.N.G. and P.N.G. are not different from natural gas and thus do not involve manufacturing. The court disagreed, emphasizing the wide definition of "manufacture" under section 2(e-1) of the Act 1948, which includes processing and adapting goods. The court criticized the Tribunal for relying on the definition of natural gas under the Petroleum and Natural Gas Laboratories Board Act, 2006, and concluded that compressing natural gas into C.N.G. and P.N.G. involves manufacturing, creating commercially distinct products.

4. Entitlement to refund of entry tax:
The court noted that the revisionist paid the entry tax to avoid complications but later disputed the liability based on the Notification dated 18.2.2003. The court held that the revisionist is entitled to a refund of the entry tax paid, with bank interest, as there can be no estoppel against law.

Conclusion:
The court quashed the judgments of the Tribunal and the First Appellate Authority, holding that the revisionist is a manufacturer of C.N.G. and P.N.G. and entitled to the exemption from entry tax under the Notification dated 18.2.2003. The revisionist is also entitled to a refund of the entry tax paid, with bank interest. Both revisions were allowed.