2018 (11) TMI 807 - HC - VAT and Sales Tax

Activity amounting to manufacture or not - lacquering of hardware and locks - U.P. Trade Tax Act, 1948 - Held that - The correct and the only test is to be applied that laid down by the Supreme Court in the case of Sonebhadra Fuels Vs. Commissioner of Trade Tax, U.P. 2006 (8) TMI 304 - SUPREME COURT OF INDIA . Applying that test, even according to the assessee s own case, it has been stated, by under going the process of lacquering, the goods namely hardware and locks became differently marketable and in fact, it was assessee s own case that different quality of lacquering imparted different price to the same goods. In any case, as a process of treating or finishing the goods, lacquering by very nature, as discussed by the Tribunal would be covered by the term finishing and treating or otherwise processing the goods - thus, the process is amounting to manufacture - decided against assessee and in favor of Revenue. Whether, the finding recorded by the Tribunal that the assessee had engaged in lacquering activity, on its own account, is based on any material and evidence? - Held that - Though the assessing authority had made an observation to the effect that the one of the partner of the assessee s firm had admitted to have engaged in the activity of lacquering of goods, neither such statement has been extracted nor its substance considered by the Tribunal. On the other hand, before the Tribunal, the assessee appears to have taken categorical stand that he had not engaged in the activity of lacquering of goods and had denied existence of raw material, equipment and workmen to engage in such activity - The Tribunal had noted the case set up by the assessee but did not deal with it while recording its finding. A specific finding on this issue was necessary to be recorded to determine whether the assessee was the manufacturer of the goods - the order of the Tribunal to the extent it holds that the assessee was engaged in activity of manufacturing/lacquering is set aside and the matter is remitted to the Tribunal to pass a fresh order strictly on the basis of evidence led before it. Revision disposed off.

Summary

Issues:
1. Whether lacquering of hardware and locks amounts to manufacture for the purpose of U.P. Trade Tax Act, 1948?
2. Whether the finding of the Tribunal regarding the engagement of the assessee in lacquering activity is based on sufficient material and evidence?

Analysis:

Issue 1:
The assessee, a trader in hardware and locks, purchased goods from unregistered dealers, which were then lacquered and polished by the sellers before being bought by the assessee. The assessing officer imposed tax liability on the assessee, considering the lacquering process as manufacturing activity under Section 2(e-1) of the U.P. Trade Tax Act, 1948. The assessee argued that lacquering did not create a new commodity, citing a Supreme Court case on galvanization. However, the Standing Counsel contended that the Act's definition of manufacture is broad and includes processing or treating goods. Referring to another Supreme Court case on coal products, it was highlighted that even if goods do not change commercially, the activity may still be considered manufacturing. The Court held that the test for manufacture is not the creation of a new commodity but whether the goods become differently marketable, ruling in favor of the revenue.

Issue 2:
The Tribunal concluded that the assessee engaged in lacquering based on a partner's alleged admission. The assessee denied this, stating no involvement in the process and lack of evidence. The Court found that the Tribunal did not adequately address the conflicting claims and lacked a specific finding on whether the assessee was the manufacturer. As a result, the Tribunal's decision regarding the assessee's engagement in manufacturing/lacquering was set aside, and the matter was remitted for a fresh order based on the evidence presented. The Court emphasized the need for a clear determination on this issue for a fair decision.

In conclusion, the High Court's judgment clarified the interpretation of manufacturing activity under the U.P. Trade Tax Act, emphasizing the broad scope of the definition and the importance of evidence in determining the assessee's liability. The decision highlighted the necessity of a thorough examination of facts and proper consideration of conflicting claims for a just outcome in tax assessment cases.