High Court · 2012

Shri Sanjay Lohiya, IAS Comissioner of Taxes, Assam, Dispur, Guwahati. The Director of Industries & Commerce, Assam, Udhyog Bhawan, Guwahati-21. Application for grant of E.C. of M/s Dataplus info Channel, Tarun Nagar, Ghy-5 under Expansion Programme. DICC’s Memo No.DICC/KMRP/US/EC-03/(EXPN) /587/05/786-89 dtd.23.04.2008 With reference to the above, it is informed that an enquiry on the matte r was caused through our concerned Asstt. Commissioner of Taxes, Guwahati Unit-’ C’. It is seen, from the enquiry report, that:- (1) The dealer’s activity essentially seems to be cutting paper from paper r oll, perforating the cut paper and pasting carbon sheet alongwith, for use as co mputer and fax stationary. Paper cutting from roll paper was in the negative lis t in the Assam Industries (Sales Tax Concession) Scheme, 1997 and hence, consequ entially also in the Tax Remission Scheme, 2005. (2) Apart from above, the entire activity of obtaining Computer and fax stat ionery through the minor processing undertaken by the applicant does not amount to manufacture in the true sense of the term. Hence, it appears that the industrial unit is not eligible for Sales Tax Concession. Yours faithfully, Commissioner of Taxes, Assam, Dispur, Guwahati-6 (cid:29) Sd/- The petitioner has challenged the aforesaid decision of the authorities by stati ng that since the petitioner was earlier found eligible for claiming sales tax e xemption under the Assam Industries (Sales Tax Concessions) Scheme, 1997 for man ufacturing computer stationery, the decision of the authorities that the industr ial unit of the petitioner is not eligible for sales tax exemption as it was not engaged in manufacture in the true sense of the term, is not sustainable. [8] It is the contention of the petitioner that the negative list me ntioned in the Assam Industries (Tax Remission) Scheme, 2005 was specifically li mited to those which are mentioned therein and the same cannot be allowed to be expanded by way of inference to include other industries within the negative lis t. It is the case of the petitioner that the industrial unit of the petitioner i s undertaking manufacturing activity of (cid:28)Computer Stationery (cid:29) which cannot be sa id to be an industrial unit engaged in the activity of (cid:28)paper cutting from roll paper (cid:29) as alleged by the authorities. It is the case of the petitioner that for the purpose of manufacturing of comput er stationery, raw materials like paper reels of different sizes, GSM, color, an d quality, different sizes one-time carbon, ink, other printing materials, carto on, wrapper, polybag, etc. and other packing goods are used. According to the petitioner, for production of computer stationery, certain mech anical processes are involved in which the following machineries are required to complete the process. i) ii) iii) iv) v) vi) Duplex Type Slitter Machine. Rotary Blank Master Machine Plate Exposing Machine Rotary Paper Converter and Printing Machine Multi-Part Collector Machine with Printing facility Collector Machine for 5 part Paper with Numbering Facility Shrink Pack Machine vii) viii)Strapping machine ix) Strapping machine According to the petitioner, the following processes are involved to get the end products of computer stationery. The raw paper reels in different sizes, quality, colour, GSM are print r i) e-sized by the Duplex Slitter machine (if required). ii) The ready resized papers are subjected to side punching, horizontal, ver tical perforation, zik-zak folding, numbering, logo or any other printing, if re quired. iii) The ready zik-zak pack is then implanted with one time carbon roll for Mult ipart Paper, from 1+1 to 1+4 part by the Collector Machine. iv) After that the packets are wrapped in paper sheets and then sh rink packed through Shrink Pack Machine to protect them from humidity. v) printing. These are then packed by Strapping Machine for dispatch after necessary [9] Therefore, according to the petitioner, the process of manufactu ring computer stationery is undertaken through a series of mechanical processes complying with certain specifications and is not merely a simple paper cutting p rocess from roll paper. It involves several stages to complete the process to pr oduce the final product and is not merely mechanically cutting the paper roll in to the required size. It was also submitted that the characteristics of the finished p roducts are different from the raw materials and there is change in the shape an d size also. It was also contended that there is a value addition on the raw materials proces sed to get the finished products. It is, therefore, the contention of the petitioner that even though paper is use d as one of the raw materials, the process involved in bringing out the final pr oduct of computer stationery comprises of several processing activities along wi th the input of raw materials like carbon paper, producing a new product and thu s would qualify within the definition of (cid:28)manufacture (cid:29) u/s 2(30) of the Assam Va lue Added Tax Act, 2003. Therefore, the crux of the issue involved in the present writ pe tition, is whether manufacturing of computer stationery as claimed by the petiti oner, would amount to (cid:28)manufacture (cid:29) as defined u/s 2(30) of the Assam Value Adde d Tax Act, 2003, without being included under the negative list/entry of (cid:28)paper cutting from roll paper (cid:29), so as to entitle the petitioner tax exemption. Section 2(30) of the Assam Value Added Tax Act, 2003 which provi [10] des an inclusive definition of the expression, (cid:28)manufacture (cid:29) is as follows. Sec. 2(30). (cid:28)manufacture (cid:29) includes any activity that brings out a change in an a rticle or articles as a result of some process, treatment, labour and results in transformation into a new and different article so understood in commercial par lance having a distinct name, character use, but does not include activity of ma nufacture as may be prescribed. From the aforesaid definition, any activity, to qualify as (cid:28)manu [11] facture (cid:29), the following attributes must be discernible in it : (i) (ii) (iii) (iv) It brings out a change in the article. Some processes, treatment, labour must be involved. It results in transformation into a new and different article. Carries a distinct name, character, use in commercial parlance. [12] However, before we proceed to examine whether the activity ca rried out by the petitioner firm amounts to manufacture as per the definition pr ovided under the Act, we may also examine as to what is (cid:28)manufacture (cid:29) as underst ood in the legal parlance, for which we may refer to some of the Supreme Court d ecisions. One such landmark decision dealing with the expression (cid:28)manufact [13] ure (cid:29) with reference to taxation law was rendered by the Hon’ble Supreme Court in Empire Industries Ltd. v. Union of India, (1985) 3 SCC 314, wherein it held tha t, (cid:28)33. It may be noted that the taxable event in the context of Sales Tax law is (cid:28) sale (cid:29). The taxable event under the excise law is (cid:28)manufacture (cid:29). The moment there is transformation into a new commodity commercially known as a distinct and sep arate commodity having its own character, use and name, whether be it the result of one process or several processes (cid:28)manufacture (cid:29) takes place and liability to duty is attracted. Though in the facts of that case perhaps it was not necessary and as such the attention of the Court was not drawn to the definition of the t erm (cid:28)manufacture (cid:29) under Section 2(f) of the Central Excise Act nor was the Tarif f Item I-B placed before the Court. 34. This decision was referred to and followed in the case of Chowgule & Co. Pvt . Ltd. v. Union of India13. Whatever may be the operation, it is the effect of t he operation on the commodity that is material for the purpose of determining wh ether the operation constitutes such a process which will be part of (cid:28)manufactur e (cid:29). Any process or processes creating something else having a distinctive name, character and use would be manufacture.

41. It may, however, be pointed out that when Darling, J. dealt with the exampl e of a carpenter, the learned Judge thought it was right that it could not be sa id that when ’box (cid:29) is prepared that the carpenter was manufacturing ’wood’ but t ransforming (cid:28)wood (cid:29) into (cid:28)box (cid:29) would certainly be manufacturing (cid:28)boxes (cid:29). It is we ll settled that one cannot absolutely make a thing by hand in the sense that nob ody can create matter by hand, it is the transformation of a matter into somethi ng else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view is a question depend ing upon the facts and circumstances of the case. Plain wood is certainly differ ent from (cid:28)box (cid:29) made of wood. Ridley, J. it may be pointed out, disagreed with th e view and observed at p. 362 of the report that where any process of art is use d upon some substance, it is (cid:28)manufactured (cid:29). He observed as follows: (cid:28)To say that a person does not ’manufacture’ a thing because it has the same nam e after the process has been passed upon it as it had before seems to me - but I suppose I am wrong - to be simply a question of words. If there had happened to be another word for saccharin of the strength of 550, different from saccharin of the strength of 330, it would almost - I will not say quite - follow from the reasoning of my learned brothers that this would have been a manufacture. I can not think that that is so. Take the case of the manufacture of steel; and let it be steel before it goes into works: apply some process to it and it becomes a p articular sort of steel. But it is steel both before and after, although steel o f different qualities. Is not that the manufacture of steel? I should have thoug ht so. Take the manufacture of wool, it is wool when it is on the sheep’s back; it is wool when it has passed through the process of sorting and picking which i t has to go through in the mill. Is not that the manufacture of wool? I should h ave thought it most certainly was, although the name ’wool’ is applied to it bot h before the process begins and after it has ended. (cid:29)

43. In that view of the matter etymologically the word (cid:28)manufacture (cid:29) properly co nstrued would doubtless cover the transformation. In support of the question whe ther actually there is manufacture or not various documents were attempted to be utilised at the hearing of the application before us. Most of these pieces of e vidence cannot be admitted at this stage but indisputably in the Indian Standard Glossary of Terms which deals with various expressions, (cid:28)Bleached Fabric (cid:29) has b een defined as a fabric which has undergone bleaching treatment and is treated b y the Indian Standards Institution as something different from fabric which has not undergone the bleaching operations. Different standards are set out by the s ame and the views of the Indian Standards Institution can be looked into by the Court with certain amount of credibility. See in this connection Union of India v. Delhi Cloth & General Mills4. So far as other evidence is concerned, as menti oned hereinbefore, it may not be safe to deal with the same as these were produc ed at a very late stage and all the materials are not on the record. (cid:29) 13: (1981) 1 SCC 653 : 1981 SCC(Tax) 51 4: 1963 Supp 1 SCR 586 : AIR 1963 SC 791 [14] As the aforesaid decision was doubted in some other subsequent c ases, a Five Judges Bench of the Supreme Court in Ujagar Prints (II) v. Union o f India, (1989) 3 SCC 488, after examining the relevant laws in this regard, rei terated the aforesaid principles and held as below. (cid:28)42. The prevalent and generally accepted test to ascertain that there is (cid:28)manuf acture (cid:29) is whether the change or the series of changes brought about by the appl ication 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 pr inciples are clear. But difficulties arise in their application in individual ca ses. There might be borderline cases where either conclusion with equal justific ation be reached. Insistence on any sharp or intrinsic distinction between (cid:28)proc essing (cid:29) and (cid:28)manufacture (cid:29), we are afraid, results in an oversimplification of bo th and tends to blur their interdependence in cases such as the present one. The correctness of the view in the Empire Industries case1 cannot be tested in the light of material - in the form of affidavit expressing the opinion of persons s aid to be engaged in or connected with the textile trade as to the commercial id entity of the commodities before and after the processing - placed before the co urt in a subsequent case. These opinions are, of course, relevant and would be a mongst the various factors to be taken into account in deciding the question. 43. On a consideration of the matter, we are persuaded to think that the view ta ken in the Empire Industries case1 that (cid:28)grey fabric (cid:29) after they undergo the var ious processes of bleaching, dyeing, sizing, printing, finishing etc. emerges as a commercially different commodity with its own price structure, custom and oth er commercial incidents and that there was in that sense a (cid:28)manufacture (cid:29) within the meaning of Section 2(f), even as unamended, is an eminently plausible view a nd is not shown to suffer from any fallacy. Indeed, on this point the Referring Bench did not disagree or have any reservations either. It is to be noticed that if the amending law is valid, this aspect becomes academic. (cid:29) 1: (1985) 3 SCC 314 [15] The aforesaid principles to hold any activity to be manufacture has been consistently followed in the subsequent decisions of the Supreme Court viz., in CCE v. Rajasthan State Chemical Works, (1991) 4 SCC 473 where it was he ld as follows : (cid:28)11. Clause (f) gives an inclusive definition of the term ’manufacture’. Accordi ng to the dictionary, the term ’manufacture’ means a process which results in an alteration or change in the goods which are subjected to the process of manufac turing leading to the production of a commercially new article. In determining w hat constitutes ’manufacture’ no hard and fast rule can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration.

12. Manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Natura lly, manufacture is the end result of one or more processes through which the or iginal commodities are made to pass. The nature and extent of processing may var y from one class to another. There may be several stages of processing, a differ ent kind of processing at each stage. With each process suffered the original co mmodity experiences a change. Whenever a commodity undergoes a change as a resul t of some operation performed on it or in regard to it, such operation would amo unt to processing of the commodity. But it is only when the change or a series o f changes takes the commodity to the point where commercially it can no longer b e regarded as the original commodity but instead is recognised as a new and dist inct article that a manufacture can be said to take place. (cid:29) [16] It was further explained by the Hon’ble Supreme Court in Brakes India Ltd. v. Supdt. of Central Excise, (1997) 10 SCC 717 that if by a process, a change is effected in a product, which was not there previously, and which cha nge facilitates the utility of the product for which it is meant, then the proce ss is not a simple process, but a process incidental or ancillary to the complet ion of a manufactured product. Dealing with carbon less or self copy paper used in computer pri [17] nting, the Hon’ble Supreme Court in the case of Commissioner of Central Excise, Meerut-II v. Sundstrand Forms Private Limited, (2011) 9 SCC 470, held that : (cid:28)6. There is also no dispute with regard to the fact that the carbonless paper o r self-copy paper emerges at the intermediate stage and has its own life but the same could be further used in the manufacture of stationery in continuous proce ss. There is also no dispute with regard to the fact that the carbonless paper i s a well-known marketable commodity as is evident from the process of manufactur ing. The carbonless paper or other paper cannot be treated as the computer stati onery unless it is subjected to the second stage of processing i.e. the process of perforation, punching and fan-folding, etc. Therefore, in common trade parlan ce the computer stationery is processed through various modes of processing as i ndicated hereinbefore. (cid:29) From the above decisions of the Hon’ble Supreme Court, the most [18] important attribute of any activity to be considered as manufacture is that by v irtue of the process or processes involved in the said activity, the original ma terial/commodity undergoes transformation to another commodity which acquires a distinct character, uses, and name with commercial identity. The moment there is transformation into a new commodity commercially known as a distinct and separa te commodity having its own character, use and name, whether be it the result of one process or several processes (cid:28)manufacture (cid:29) takes place. It is also evident that the transformation of the said commodity may involve one or several process es. What is important is that the new product must after the process must acquir e a distinct character, use for the same and have a commercially known identity. [19] In the present case, it is the contention of the petitioner that computer stationery is a result of certain mechanical processes involving machi nes by way of cutting, punching and horizontal, vertical perforation, zig-zag fo lding, numbering, etc. and also implanting the papers with carbon roll to make it a multipart paper. Therefore, the fact that the aforesaid activity involves s ome processes, cannot be doubted and has also been admitted by the authorities. The case of the authorities, however, as can be seen from the letter dated 27.01 .2009 issued by the Commissioner of Taxes, Assam is that, even though the activi ty of making paper and fax stationary involves minor processing, it does not am ount to manufacture in the true sense of the term. Therefore, the deciding facto r in the case would be as to whether by the aforesaid admitted process, the ori ginal commodity had been transformed into a new and different article which is u nderstood in the commercial parlance having a distinct character, uses and name . [20] It is seen that for production of computer stationery the raw ma terials used are paper rolls and carbon rolls. In order to qualify any product a s computer stationary, the said product must be perforated on both sides/edges o f the paper and must also be foldable. Such perforation must be of certain speci fications so that such paper can be fed into the computer printers and if it is a continuous paper, such paper must be horizontally perforated so that the conti nuous paper can be folded and torn off. Therefore, unless such paper is subjecte d to such perforation with certain specifications, the same cannot be used as co mputer stationery. In the case of Commissioner of Central Excise, Meerut-II (supra) [21] , the Hon’ble Supreme Court also held that the a paper cannot be treated as a co mputer stationery unless it is subjected to the process of perforation, punching and fan-folding, etc. and in common trade parlance, a computer stationary is pr ocessed through various methods of processing. In the said case, the Hon’ble Supreme Court was considering the computer stationery of carbonless paper. In the present case, from the records, it is seen that the petit [22] ioner was engaged in the manufacturing of computer stationery with carbon. The c arbon papers are attached to the plain papers and thereafter perforated with nec essary specifications and the end products are papers with carbon for the use by the computer. The carbon element, which is another raw material for production of the computer stationery becomes an integral part of the product which when pr operly implanted to the normal paper becomes an identifiable distinct product to be used only for the purpose of computer printing and known in the commercial p arlance as computer stationery. While ordinary paper may be also used for comput er printing, computer stationery having distinct characters as stated above is u sed only for computer printing. [23] As can be seen from the above decision of the Hon’ble Supreme Co urt in Commissioner of Central Excise, Meerut-II (supra), the computer stationer y carries a distinct identify in the common trade parlance. Having considered th e facts in the light of the decisions of the Supreme Court as discussed above, t his Court is of the view that the activity undertaken by the petitioner is of (cid:28)m anufacturing (cid:29) of computer stationery and the aforesaid activity of the petitione r’s firm is covered under the definition of (cid:28)manufacture (cid:29) provided under the Ass am VAT Act and will not come within the negative list. It was the stand of the authorities that the dealer’s activity e ssentially is of cutting paper from the paper roll, perforating the cut paper an d pasting carbon sheets on for use for computer and fax and since the (cid:28)paper cut ting from roll paper (cid:29) was in the negative list of the Assam Industries (Sales Ta x Concession) Scheme, 1997, the petitioner was not entitled to the concession cl aimed. The authorities seem to be taking the view that the aforesaid processing does not amount to manufacture as it involves only cutting of papers to certain size, perforating and pasting of carbon sheets. The aforesaid stand of the autho rities, however, cannot be accepted in view of fact that the end product i.e. th e computer stationery as a result of the pasting of carbon on the paper which is perforated with certain specifications possesses a distinct character. The new form cannot be simply considered paper or carbon sheet. The new identity is an a malgamated and integrated new product consisting of paper and carbon pasted toge ther and perforated with certain specifications which can be used only for the p urpose of computer and such product acquires a distinct character and is known i n the common trade parlance as computer stationery. It may be also noted that the Commissioner of Taxes while passin g the impugned order dated 29.1.2009 did not consider at all the fact that compu ter stationery has a distinct character with an identity under the common trade parlance as observed by the Supreme Court in Commissioner of Central Excise, Mee rut-II (supra). Therefore, this Court is of the view that the activity of the pe titioner, involving certain processes with the aid of machines by integrating pl ain paper with carbon and which is perforated under certain specifications, and known in the common trade parlance as a computer stationery, would qualify as a manufacturing process. The process applied results into transformation of the tw o commodities of paper and carbon used as raw materials to an integrated and non -separable product assuming an identity of a different article or commodity know n as computer stationery in the common trade parlance. [24] In view of the above findings, this writ petition is allowed. Th e respondents are directed to treat the activity of the petitioner’s firm in pro ducing computer stationery as (cid:28)manufacture (cid:29) within the meaning of section 2(30) of the Assam Value Added Tax Act, 2003. Accordingly, the impugned order dated 27 .01.2009 passed by the Commissioner of Taxes, Assam in Annexure-X to the writ pe tition is set aside and the respondents are directed to take necessary conseque ntial actions including recalling the certificate of public demand dated 14.7.20 10 (Annexure-XII series), notices issued under the Bengal Public Demand Recover y Act, 1913 dated 15.6.2010 (Annexure-XIII series) and the letter bearing No.768 1 dated 8.2.2010 issued by the Superintendent of Taxes, Unit-C, Guwahati (Annexu re-VII) and direct the respondents to pass appropriate orders as regards the pet itioner’s claim for Eligibility and Entitlement Certificate under the Assam Indu stries (Tax Remission) Scheme, 2005 in the light of the above findings, in accor dance with law. However, considering the facts and circumstances of the case, th e parties will bear their own costs.