1977 (7) TMI 68 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Inclusion of materials for research laboratories in the recognition certificate.
2. Inclusion of electrical goods for lighting the factory in the recognition certificate.

Detailed Analysis:

1. Inclusion of Materials for Research Laboratories in the Recognition Certificate:

The appellant sought the inclusion of various categories of goods required for use within the State in the manufacture of taxable goods for sale in a recognition certificate under Section 25 of the Bombay Sales Tax Act, 1959. The Sales Tax Officer (STO) granted the request for certain categories but rejected others, leading to a partial allowance by the Assistant Commissioner of Income Tax (Asstt. CIT) on appeal. The second appeal concerns the inclusion of materials for research laboratories.

The appellant argued that the research laboratory was not for pure research but aimed at developing and improving products and processes, import substitution, and product applications research. The research activities included developing new fibre variants, high-performance fibre, and modifications of plant and machinery to increase production efficiencies. The laboratory also focused on evolving materials to substitute imported articles and determining the suitability of Indian cotton and wool for blending with polyester fibre.

The Tribunal referenced the Supreme Court's decision in J.K. Cotton Spg. & Wvg. Co. Ltd. vs. The STO, Kanpur and Anr. (16 STC 563), which held that the expression "in the manufacture of goods" encompasses the entire process of converting raw materials into finished goods. It includes processes integrally connected with the ultimate production of goods, making commercial production expedient. The Tribunal concluded that the research activities of the appellant were directly related to the actual production of goods, making the materials for the research laboratory eligible for inclusion in the recognition certificate.

2. Inclusion of Electrical Goods for Lighting the Factory in the Recognition Certificate:

The appellant also sought the inclusion of electrical goods for lighting the factory, such as fluorescent tubes, bulbs, fans, and their spares. The Tribunal again referred to the Supreme Court's decision in J.K. Cotton Spg. & Wvg. Co. Ltd., which recognized that electrical equipment is commercially necessary for the manufacturing process. The Supreme Court had held that electrical lighting, humidifiers, exhaust fans, etc., were necessary to effectively carry on the manufacturing process.

Based on these observations, the Tribunal concluded that electrical goods for lighting the factory are also goods used in the manufacture of goods for sale. Therefore, these items should be included in the recognition certificate.

Conclusion:

The Tribunal set aside the impugned orders of the Asstt. CIT and the STO regarding the materials for the research laboratory and electrical goods for lighting the factory. The case was remanded to the STO for the inclusion of these items in the recognition certificate accordingly.