High Court · 2012

This petition was directed to be heard along with W.P.(C) No.3854 of 200 4. 8, which is identical to the present petition. In W.P.(C) No.3854 of 2008, consi dering the submission made in the writ petition, notice was issued on 5.9.2008 a nd operation of the impugned order was stayed. However, no reply has been filed. Reply has been filed in W.P.(C) No.1070 of 2009 stating that the Concession Sch eme was applicable on purchase of raw materials within the State and also on sal e of finished products manufactured in eligible units subject to the condition t hat the unit in question was engaged in ’manufacturing’. The Hon’ble Supreme Cou rt in State of Maharashtra -Vs. Mahalaxmi Stores (2003) 1 SCC 70 observed that c rushing of boulders into smaller size stones did not amount to ’manufacturing’ a s no new commercial commodity comes into existence. In view of law laid down in the said judgment, the petitioner was not eligible for the eligibility certifica te and to get tax exemption. This stand is sought to be adopted in response to a ll the petitions.

5. We have heard learned counsel for the parties.

6. Question for consideration is - whether activity of crushing of boulders into smaller sizes of stones amounts to ’manufacturing’ and, if not, whether th e sales tax exemption already granted could be withdrawn? The very same question came up for consideration in Mahalaxmi Stores (su 7. pra) in the context of question referred to the High Court by the Sales Tax Trib unal under the provisions of Bombay Sales Tax Act, 1959, i.e.:- (cid:28)Whether on the facts and circumstances of the case and on a true and correct in terpretation of the provision of Section 2(17) of the Bombay Sales Tax Act, was the Tribunal justified in holding that crushing of boulders resulting in mental of different sizes ordinarily known as ’gitti’ does not amount to manufacture ? (cid:29) The High Court answered the question in favour of the assessee by holdin 8. g that no manufacturing was involved and, therefore, assessee was not liable to pay tax on the smaller sizes of stone after crushing as the said item was not di stinct item. Upholding the view, the Hon’ble Supreme Court held - From a perusal of the definition, extracted above, it is clear that the (cid:28)5. processes of producing, making, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting of any goods fall within the meaning of the term ’manufacture’. But it may be pointed out that every type of variatio n of the goods or finishing of goods would not amount to manufacture unless it r esults in emergence of a new commercial commodity. In the instant case, the very nature of the activity does not results in manufacture because no new commercia l commodity comes into existence. (cid:29)

9. Since the question arising in the present case is identical, the view ta ken by the Hon’ble Supreme Court in the aforesaid judgment has to be as treated binding in this case.

10. However, learned counsel for the petitioners relied upon several judgmen ts to submit that when there is a change in user by applying a process, it can b e held that ’manufacturing’ is involved. In Kores India Ltd., Chennai -Vs.- Com missioner of Central Excise, Chennai (2005) 1 SCC 385 cutting of typewriter/tele x ribbons into jumbo rolls into different sizes was held to involve ’manufacturi ng’. In Income Tax Officer, Udaipur -Vs.- Arihant Tiles and Marbles Private Limi ted (2010) 2 SCC 699 conversion of raw marble blocks into final product of polis hed marble slabs was held to involve ’manufacturing’. In Brakes India Ltd. Vs. S updt. Of Central Excise and others (1997) 10 SCC 717 application of character or use test was held to be permissible to determine whether ’manufacturing’ was in volved. In a judgment of this Court in M/s Data Plus Info Channel -Vs.- The Stat e of Assam and others in W.P.(C) No.4196 of 2010 decided on 17.9.2012 cutting of paper from paper roll etc. was held to involve ’manufacturing’.

11. The question whether a process amount to ’manufacturing’ has been dealt with in several judgments including in Ujagar Prints (II) VS. Union of India (19 89 3 SCC 488. While the principle for determining whether a process amount to ’m anufacturing’ or not, is well known, namely when a distinct and new article emer ges as a result of the process, it can be held that manufacturing is involved. T here are border line cases where either conclusion can be reached. The Hon’ble S upreme Court observed in the said case:- The prevalent and generally accepted test to ascertain that there is (cid:28)ma (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)

12. In the present case, the question being covered by the judgment of Hon’b le Supreme Court on the same item, it is not open to this Court to examine the m atter any further and we have to hold that crushing of boulders into different s izes of stone did not involve any ’manufacturing’. No doubt a Division Bench of this Court in Commissioner of Income Tax V 13. s. R.C. Construction (1996) 222 ITR 658 (Gau), has held that making of chips fro m big boulders amount to ’manufacturing’, but the said judgment cannot any longe r be held to be holding the field in view of direct decision of the Hon’ble Supr eme Court in Mahalaxmi Stores (supra) to the contrary.

14. Next question is whether it is open to the Department to cancel the elig ibility certificate already granted even if the same was given on erroneous unde rstanding that conversion of stones into chips amounts to ’manufacturing’. Learn ed counsel for the petitioners submit that in view of judgments of the Hon’ble S upreme Court in Vadilal Chemicals Ltd. Vs. State of A.P. and others (2005) 6 SCC 292 and Pondicherry State Cooperative Consumer Federation Limited -Vs.- Union T erritory of Pondicherry, (2008) 1 SCC 206 and of this Court in W.P.(C) No.1683 o f 2010 (M/s Jai Chemical Industries -Vs. State of Assam and others) decided on 30.8.2012 and in W.P.(C) No.2603 of 2011 (Sunil Kumar Taparia -Vs.- State of Ass am and others) decided on 23.8.2012 it was not permissible to cancel the eligibi lity certificate already granted in absence of any fraud or misrepresentation by the petitioners when the issue was debatable.

15. No doubt legal position put forward by learned counsel for the petitione r is unexceptional, but in the present case, it cannot be held that the issue wa s debatable even at the time when eligibility certificate was granted which admi ttedly was after the judgment of the Hon’ble Supreme Court in Mahalaxmi Stores ( supra). We, thus, are unable to hold that proposed cancellation of eligibility c ertificate is based on mere change of opinion on a debatable issue. The Revenue authority in the present case is proceeding on the basis of a binding legal prec edent and not merely on its own opinion. There can be estoppel against law. Even if eligibility certificate was issued, the Revenue authority can certainly act on established legal position. In view of above, we are unable to interfere with the impugned action. H 16. owever, having regard to the facts and circumstances of the case, when the Depar tment itself was under the impression that ’manufacturing’ activity was involved in the process and had taken a conscious decision to grant exemption on which t he petitioners acted upon, we direct that benefit already extended till date wil l not be liable to be withdrawn. Action of respondents for future stands upheld.

17. All the petitions will stand disposed of accordingly.