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TMI Blog2004 (11) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... d manufacture , unless defined by the concerned statute, shall be taken to mean the process through which an altogether new product from the point of utility, marketability and commercial value is brought about. Mere change of form by itself, cannot be treated as process of manufacturing. In the instant case, it is not in dispute that the petitioners purchased, oxygen or carbon dioxide, as the case may be, in its liquid form, converted the same into gaseous form, filled it in cylinders, and supplied the same to the customers. The said gases are converted into liquid form by the original manufacturers only for the purpose of effective and safe transport to the bulk customers, such as the petitioners. The gases in their liquid form are, in no way different, when they are converted into gaseous form. The chemical properties and other characteristics of both are the same. In fact, before transformation into liquid form, it is in gaseous state only. In highly compressed state, and at a very low temperature, the gas assumes liquid form. Huge volumes of gas can be transported or preserved in a relatively smaller container in liquid form. It is true that the conversion of gas from the liqu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a view to encourage the establishment of industries in this State, the Government of A.P., issued G.O. Ms. No. 108, Industries Commerce (IP) Department, dated May 20, 1996, providing for various incentives, for new industrial units, under the scheme known as Target-2000 (for short, the scheme ). The incentives were made available only to those units, which are established outside the limits of Municipal Corporations of Hyderabad, Vijayawada and Visakhapatnam. The incentives included 20 per cent of the fixed capital investment subsidy, subject to a limit of Rs. 20 lakhs, deferment/tax holiday on sales tax, limited to 135 per cent of the fixed capital investment, spread over a period of 14 years, etc. The Schedule contained a list of 58 items of industries, which are ineligible for the incentives. 4. The petitioner in W.P. No. 22680 of 2000, established a carbon dioxide bottling unit, in Kurnool district, with an investment of Rs. 18.66 lakhs. It was issued final eligibility certificate on May 22, 1997, in terms of the scheme. Its final eligibility was fixed at Rs. 25,19,100. The nature of activity undertaken by it, comprises of purchasing carbon dioxide in its liquid form, converti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22680 of 2000. The gist of their arguments is that the industries established by the petitioners were found to be eligible, to be extended the incentives, so much so, the final eligibility certificate were issued to them. They contend that the plea taken by the respondents, that no manufacturing activity takes place in the process of bottling of gases, cannot be sustained. According to them, the gas purchased by the petitioners, be it oxygen or carbon dioxide, in its liquid form, is different from the end-products, supplied by them. They submit that for all practical purposes, the liquid gas constitutes the raw material, or at least an input, and through the process of manufacturing, it is converted into a marketable commodity in gaseous form. It is also their case that as long as the industries established by the petitioners, are not included in the annexure to G.O. Ms. No. 108, it is not open to the respondents, to snap the benefits conferred upon the petitioners, in terms of the scheme. They contend that the judgment in SHV Energy South East Ltd. [2004] 136 STC 100 (AP); (2003) 36 APSTJ 37 is distinguishable, for the reason that the nature of activity in that case, was mostly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the hierarchy, followed it up, by making the demands on the grounds that the incentives granted to such industries stood cancelled. The question that falls for consideration in these writ petitions is as to whether the activity undertaken by the petitioners amounts to, or constitutes, manufacturing. 12. The word manufacture becomes significant in the context of the extension of benefits under the scheme, because of the fact that note (a) appended to the G.O., makes it clear that the exemption is only on products manufactured in the new industrial units. It is beneficial to extract the clauses that provided for the incentives and the relevant note. They read as under: (6) The following are the incentives under this 'Target-2000': (6.01) All new industrial units, whether large, medium or small other than those listed in the annexure, to be located anywhere in the State of Andhra Pradesh, except within the Municipal Corporation areas of Hyderabad, Vijayawada and Visakhapatnam, and going into commercial production on or after November 15, 1995 are eligible for the following incentives. (6.02) Investment subsidy: 20 per cent of the fixed capital investment but not exceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rule cannot be availed of to obtain the relief. 15. The taxability of the commodity in such cases would not at all be in doubt. The endeavour would be only to ascertain the extent to which the Legislature or the Government, as the case may be, intended to relax the provisions. In this process, apart from the words used in the relevant clauses, the ultimate object in providing the incentive or relaxation, becomes relevant, and the same has to be gathered from an overall conspectus of the scheme. 16. The word manufacture is not defined either under G.O. Ms. No. 108 or under the Act. This word, however, has been the subject-matter of interpretation by various judgments rendered by the Supreme Court as well as this Court. Manufacture in the context of industry and trade, contemplates, bringing about a new product, from out of various substances, known as raw materials or inputs. Depending upon the nature of products, the process of manufacturing may be long and complicated, or short and simple. The best way to discern as to whether an act of manufacturing has taken place, is to verify the change that the inputs or raw materials have undergone in becoming the end-product. If the end- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the raw material. The Tribunal as well as the High Court accepted that contention. The Supreme Court explained the word manufacture as under: The word 'manufacture' has not been defined in the Act. In the absence of a definition of the word 'manufacture' it has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand, labour or machines. If the change made in the article results in a new and different article then it would amount to a manufacturing activity. The conversion of coffee seeds into coffee beans was held to be a manufacturing activity, and it was observed: If a commercially different article or commodity results after processing, then it would be a manufacturing activity. 19. Another case relied upon by the parties is Ashirwad Ispat Udyog v. State Level Committee [1999] 112 STC 207 (SC); (1998) 8 SCC 85. It did not relate to grant of incentives, and was about the very taxability of the product. Much depended on the fact whether the dealer has undertaken the process of manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ean producing, making, mining, collecting, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods. The definition also provided that it does not include such manufactures or manufacturing processes, as may be prescribed. On the basis of the wide terms used in the definition, the Supreme Court held that processing and refining of crude oil amounts to manufacturing, and thereby held the appellant liable to pay the tax. 22. From the above discussion, it is evident that the word manufacture , unless defined by the concerned statute, shall be taken to mean the process through which an altogether new product from the point of utility, marketability and commercial value is brought about. Mere change of form by itself, cannot be treated as process of manufacturing. 23. In the instant case, it is not in dispute that the petitioners purchased, oxygen or carbon dioxide, as the case may be, in its liquid form, converted the same into gaseous form, filled it in cylinders, and supplied the same to the customers. The said gases are converted into liquid form by the original manufacturers only for the purpose of effective and safe transport to the bulk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll-settled principle that 'a person who claims exemption has to establish his case. The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee assuming that the said principle is good and sound does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State. This is for the reason, viz., each such exception/exemption increases the tax burden on other members of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it. The notification granting exemption has to be interpreted in the light of the words employed by it and not on any other basis'. Accordingly, the division Bench negatived the claim of the petitioners that their activity involves manufacture. 25. In Surya Mineral Waters' case [2005] 139 STC 348 another division Bench of this Court dealt with the withdrawal of incentives, in G.O. Ms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er therein amounted to manufacture. 27. In that view of the matter, the judgment in Surya Mineral Waters' case [2005] 139 STC 348 (AP), cannot be said to be an authority for the proposition that purchase and sale of carbon dioxide/ oxygen by the petitioners involves the process of manufacturing, and that units undertaking such activity are entitled for the incentive of tax holiday under G.O. Ms. No. 108, dated May 20, 1996. Even if the principle of Surya Mineral Waters' case [2005] 139 STC 348 (AP) as to the entries in the Schedule to the Act is applied, still the petitioners are not entitled to the benefits as all kinds of gases whether in compressed, liquefied or solidified or in other form falls under same entry 23 of Schedule VI to the Act. The judgment in SHV Energy South East Ltd. [2004] 136 STC 100 (AP) represents the correct law on the subject. 28. Strictly speaking, with the above finding and observation, the reference to the Full Bench stands answered. However, learned counsel for the parties have addressed arguments on the other subsidiary aspects also, namely, the effect of withdrawal of the incentive and the liability of the petitioners to pay the demanded tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity, warranting abrogation of the liability of Government under the principle of promissory estoppel. Reference was made to the judgment in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 44 STC 42 (SC); (1979) 2 SCC 409. On facts, it was held that there existed any supervening public equity, public equity, which made the principle of equitable estoppel inapplicable. In other words, if such equity does not exist, the principle of equitable estoppel can be applied against the State. Except the change in mind of the authorities or a belated realisation of the true purport of the scheme, no supervening public equity is pleaded by the respondents in the present case. 33. In Pawan Alloys Casting Pvt. Ltd.'s case (1997) 7 SCC 251, the Supreme Court held as under: If the State or a statutory authority or an executive authority of the State or its limb like the State Electricity Board covered by article 12 functioning on behalf of the State in exercise of its legally permissible powers, has held out any promise to a party, who relying on the same has changed its position not necessarily to its detriment, and if this promise does not offend any provision of la ..... X X X X Extracts X X X X X X X X Extracts X X X X
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