High Court
Case Details
WP(C) 12/2009 B E F O R E HON’BLE MR. JUSTICE A.K.GOEL,THE CHIEF JUSTICE THE HON’BLE MR. JUSTICE N. KOTISWAR SINGH (A.K.Goel, CJ) This petition seeks quashing of order dated 30.09.2008 passed by the Commissione r of Taxes, Assam on an application by the N.E. Packaged Drinking Water Manufac turer’s Association seeking determination of the question whether transformation of non-commercial underground raw water into packaged drinking water amounted t o ’manufacture’ as defined under Section 2(30) of the Assam Value Added Tax Act, 2003.
Facts
The Commissioner, relying upon judgment of the Kerala High Court in Teejan Bever ages Ltd. vs. State of Kerala, (2003) 131 STC 538, held that no manufacturing wa s involved. We have heard learned counsel for the parties. Learned counsel for the petitioner submits that the processing of raw water into drinking water involves manufacturing process. He has relied upon Process Flow Chart. He also submitted that drinking water is a distinct commodity than raw wa ter and considering this aspect members of the petitioner association have been granted eligibility certificate by the Director of Industries and Commerce, for claiming incentives including sales tax exemption under the Industrial Policy wh ich itself shows that the State has treated the process to be manufacturing. Onc e eligibility certificates were issued, the same could not be cancelled unless t here is violations of the conditions for exemption, merely on change of opinion on a debatable issue as held by this Court in judgment dated 23.08.2012 in WP(C) No.2603 of 2011 (Sunil Kumar Taparia vs. The State of Assam and others). Relian ce has also been placed on judgment of the Hon’ble Supreme Court Income Tax Offi cer vs. Arihant Tiles and Marbles Pvt. Ltd., (2010) 2 SCC 699 and the Madras Hig h Court in Commissioner of Income Tax vs. Vinbros & Co., (2009) 177 TAXMAN 217 ( Madras). Opposing the above submission, learned Additional Advocate General for the State of Assam supports the impugned order and submitted that mere processing the raw water into drinking water did not involve any manufacture as the water continue s to be water as held by the Kerala High Court in Teejan Beverages Ltd. (supra). He also placed reliance on judgment of this Court in Deepak Kumar Poddar vs. T he State of Assam and others, (2010) 6 GLR 835, para 16 & 17. He further submits that industrial policies were meant to encourage industrialization involving ma nufacture of goods. The word ’manufacture’ has been defined under Section 2(22) of the Assam General Sales Tax Act, 1993 and Section 2(3) of the Assam Value Add ed Tax Act. Processing of raw water into drinking water was not covered within t he concept of ’manufacture’ as defined under the Assam law. Cancellation of enti tlement certificates was not proposed only on the basis of change of opinion on a debatable issue but on account of suppression of material facts and on the bas is of binding law on the point. We have given due consideration to the submissions advanced. The question for consideration is whether processing of raw water into drinking water amounts to ’manufacture’ under Section 2(30) of the Assam Value Added Tax Act, 2003 and under Section 2(22) of the Assam General Sales Tax Act, 1993. In o ur view, answer has to be in the negative. The process undertaken by the petitioner is claimed to be as follows :- PROCESS FLOW CHART RAW WATER CHECK POINT SEDIMENTATION TANK-1 The definition of manufacture under Section 2(22) of the Assam General Sales Tax Act, 1993 is as under : (cid:28)2.(22) (cid:28)manufacture (cid:29) with all its grammatical variations and cognate expression s, means producing, making, extracting, altering, ornamenting, blending, finishi ng or otherwise processing, treating or adapting any goods; but does not include a works-contract or such manufacturers or manufacturing processes as maybe pres The prevalent and generally accepted test to ascertain that there is (cid:28)ma cribed (cid:29). The question whether a process amount to ’manufacturing’ has been dealt with in several judgments including in Ujagar Prints (II) VS. Union of India (1989) 3 SC C 488. While the principle for determining whether a process amount to ’manufact uring’ or not, is well known, namely when a distinct and new article emerges as a result of the process, it can be held that manufacturing is involved, there ar e border line cases where either conclusion can be reached. Only such processes amount to manufacture as have impact on identity, nature and character of goods and not every process which may bring about some change in quality. The Hon’ble Supreme Court observed in the said case:- (cid:28)42. nufacture (cid:29) is whether the change or the series of changes brought about by the a pplication of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their application in individual cases. There might be borderline cases where either conclusion with equal justi fication be reached. Insistence on any sharp or intrinsic distinction between (cid:28)p rocessing (cid:29) and (cid:28)manufacture (cid:29), we are afraid, results in an oversimplification of both and tends to blur their interdependence in cases such as the present one. The correctness of the view in the Empire Industries case cannot be tested in th e light of material - in the form of affidavit expressing the opinion of persons said to be engaged in or connected with the textile trade as to the commercial identity of the commodities before and after the processing - placed before the court in a subsequent case. These opinions are, of course, relevant and would be amongst the various factors to be taken into account in deciding the question. (cid:29) Coming to the present case, it is seen that though the raw water is subjected to the process of purification, it continues to be water. Its character and use re mains the same though quality has been improved. It cannot, thus, be held that a new and distinct commercial commodity has emerged on account of the process und ertaken. The matter was considered by the Kerala High Court in the light of judgment of t he Hon’ble Supreme Court in Tungabhandra Industries Ltd.’s case, (1960) 11 STC 827 as follows : (cid:28) &. Ground water which is taken and used by the appellants as raw material for t heir finished product, viz. mineral water/packaged drinking water can be used fo r all purposes for which the so called mineral water is used. Similarly the so c alled mineral water can be used for all the purposes for which the ground water can be used. What is done by the appellants is to employ various processes descr ibed by them to bring the commodity more acceptable to a section of people for d rinking purposes. According to us, notwithstanding the various processes employe d by the appellants in converting the ground water it continues its identity as water, its character and use also remain the same though the quality of the said water has been raised to a certain level which is more acceptable to a section of people. Applying the principles laid down by the Supreme Court in the various decisions discussed above, and in the light of the definition of the word (cid:28)manu facture (cid:29) used in the notification mineral water/packaged drinking water produced by the appellants in their units has to be treated as substantially the same as ground water. In other words it cannot be said that a new and distinct commerci al commodity has emerged by the employment of various processes described by the m on the ground water. In these circumstances, going by the meaning of the word (cid:28)manufacture (cid:29) as noted in the various decisions of the Supreme Court and other c ourts and by the definition of the same used in the notification the raw materia l, viz., the ground water even after the various processes undertaken by them ha s continued to be water with the same characteristic or use. The decision of the Constitution Bench of the Supreme Court in Tungabhandra Industries Ltd.’s case (1960) 11 STC 827 and the decision of the Bombay High Court in Oil Processors P rivate Limited case, (1998) 108 STC 44 mentioned above squarely apply. (cid:29) We are in respectful agreement with the above observations. Considering an identical definition in the Bombay Sales Tax Act in the context o f breaking of big stones into small stones and holding the same not to amount to manufacturing merely because small pieces of stones had different user or diffe rent commercial goods, the Hon’ble Supreme Court in State of Maharashtra -vs- Ma halaxmi Stores, (2003) 1 SCC 70 held : (cid:28)5. From a perusal of the definition, extracted above, it is clear that the proc esses of producing, making, extracting, altering, ornamenting, finishing or othe rwise processing, treating or adapting of any goods fall within the meaning of t he term (cid:28)manufacture (cid:29). But it may be pointed out that every type of variation of the goods or finishing of goods would not amount to manufacture unless it resul ts in emergence of a new commercial commodity. In the instant case, the very nat ure of the activity does not result in manufacture because no new commercial com modity comes into existence. (cid:29) Similar view was also taken in State of Maharashtra -vs- M/s Shiv Datt & Sons & Ors., (1993) Supp. 1 SCC 222, as follows : (cid:28)10. .......................It is true that under the section it is not necessar y that there should be ’manufacturer’ in the sense that a new commodity has been brought into existence as would have been required if that word is interpreted in its literal sense. But, at the same time, the section should be so interprete d to mean only such of the various processes referred to in the definition and a pplied to the goods as are of such a character as to have an impact on the natur e of the goods ........... (cid:29) From the above discussions it would be clear that the true purport and m
Legal Reasoning
The matter was also considered by this Court in Deepak Kumar Poddar (supra) wher ein it was held, in the context of conversion of raw mustard oil into filtered m ustard oil that no manufacturing was involved and it was concluded : (cid:28)16. eaning of the wide definition of ’manufacture’ as contained in the Assam Act is that the expression ’manufacture’ with all its connotations under the definition would require the final product to be noticeably different from the basic inpu t though both i.e. the input and the final product may have some similar feature s. Production of a new commodity or a distinctly different commodity having a s eparate identity is the requirement of the dictionary meaning of the word ’manuf acture’ which can have no application in the teeth of the exercise of legislati ve exercise resulting in the enactment of Section 2(22) of the Act. The aforesai d ratio of the law, if applied to the facts of the present case, cannot bring th e activity carried out in the petitioner’s unit within the meaning of the defini tion of ’manufacture’ contained in Section 2(22) of the Act. The end product - ’ mustard oil’ is fundamentally the same as the raw material/ input used i.e. raw mustard oil, inasmuch as, it is only the impurities in the raw mustard oil which is removed by a process of filtration. (cid:29) In the light of the above observations, the impugned order cannot be hel d to be erroneous. As regards judgments relied upon on behalf of the petitioner, it is not disputed that the parameters for determining which process amounts to manufactur e are well-known , namely, when change or series of changes brought about by ap plication of various processes take the commodity to the point where commerciall y it can no longer be known as original but instead known as distinct and new ar ticle. Application of this principle to individual fact situations may vary havi ng regard to the nature of goods and the processes involved. The judgments reli ed upon on behalf of the petitioner are not in relation to the process of purify ing raw water into drinking water. The same are on different fact situations. Ev ery process which may bring about some change cannot be treated to be manufactur ing. The identity of the original commodity must be lost and instead a new ident ity must merge. This distinguished the judgments relied upon by the petitioner. Moreover, judgments relied upon by the Revenue are directly and close to the iss ue in the context of goods involved. We, thus, upheld the stand of the Revenue. As regards the submission that eligibility certificate once granted cann ot be cancelled on a mere change of opinion, the applicability of such principle has yet to be gone into. Whether it is a case of mere change of opinion on a de batable issue or a case of mis-statement or error of application of binding law has to be gone into by the concerned authority. If it is held that it was not a case of mere change of opinion on a debatable issue but the case of wrong grant of eligibility certificate either on account of mis-statement or on account of i gnoring the settled law, the appropriate authority may take a decision according ly in accordance with law.
Decision
We, thus, do not find any ground to interfere with the impugned order. The writ petition is dismissed.