Full Judgment Text
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CASE NO.:
Appeal (civil) 8315 of 2001
PETITIONER:
Pondicherry State Cooperative Consumer Federation Ltd
RESPONDENT:
Union Territory of Pondicherry
DATE OF JUDGMENT: 13/11/2007
BENCH:
Ashok Bhan & V.S. Sirpurkar
JUDGMENT:
J U D G M E N T
CIVIL APPEAL No.8315 OF 2001
V.S. SIRPUKAR, J
1. The Judgment of the High Court denying the exemption from
payment of Sales Tax is under challenge in this appeal at the instance of
the Appellant Pondicherry State Cooperative Consumer Federation Ltd.
(for short "the Assessee"). Such exemption was granted by the Sales Tax
Appellate Tribunal at Pondicherry by allowing an appeal filed by the
Assessee. Prior to that the Assessee was assessed by the Assessing
Authority and on an appeal by the Assessee the taxable liability was
brought down to Rs.14,26,729.86 by the Appellate Commissioner. An
appeal was, thereafter, filed before the Tribunal which allowed the appeal
holding that the Assessee was covered by the G.O.Ms.No.15/74 dated
25.6.1974 and was as such exempted from paying the Sales Tax.
2. The Assessee is a Small Scale Industry certified as such by Director
of Industries, Government of Pondicherry by G.O. No.35/IND/88-89/A-5/A-
9 dated 19.5.1989. The said certificate specifically provided that the Unit
of the Assessee was exempted from payment of Sales Tax for five years
vide G.O.Ms.No.15/74/FIN (CT) dated 25.6.1974. It is obvious that
thereafter this tax holiday was extended from time to time. The Assessee
is also registered as a Small Industrial Unit and is certified as such by the
Director of Industries by his order dated 9.3.1989. The Assessee
purchases Palmolive Oil in bulk and packs the oil in small packages for the
purpose of selling in retail and this packing of Palmolive Oil is done in the
small industrial unit of the Assessee.
3. The Government of Pondicherry has issued a G.O. which we have
referred to earlier dated 25.6.1974 and vide that G.O., in exercise of
powers conferred by Sub-Section (3) of Section 19 of the Pondicherry
General Sales Tax Act, 1967 a general exemption is provided from
payment of Sales Tax on the turnover of the sales of goods
"manufactured" by (i) Small Scale Industries which went into production on
or after 6th November; and (ii) All industries other than small scale
industries which went into production on or after 1st April, 1971, as certified
by the Director of Industries, Pondicherry. There is no difficulty and it is an
accepted position that the appellant-assessee is covered by this G.O.
4. The Department, however, took the view that purchase of Palmolive
Oil and then re-packing the same could not amount to manufacture of
goods and as such the said G.O. could not be made applicable to the
Assessee’s case. It is in that view that the Assessment Orders were
passed. The Tribunal took the view that though in the strict legal sense the
Assessee’s activities could not be viewed as "manufacturing" yet since the
Director of Industries had exempted the Assessee from payment of Sales
Tax it had to be accepted as a valid legal document founded on the
authority of the Finance Department in terms of G.O.Ms.No.15/74 dated
25.6.1974. In that view the Tribunal allowed the appeal filed by the
Assessee. However, the High Court took the view that for being covered
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under G.O.Ms.No.15/74 dated 25.6.1974 it had to be proved by the
Assessee that it "manufactured" the goods since the said G.O. was
applicable to the industries manufacturing goods and the turnover relating
to such manufactured goods. The High Court further took the view that it
could not be said that there was any manufacturing process involved in the
Assessee’s Small Scale Industry and, therefore, held that no exemption
would be available to the Assessee. It is this judgment of the High Court
which is assailed before us.
5. Learned Senior Counsel Shri Venkatraman appearing for the
Appellant-Assessee submitted that this question was no more res integra
and was covered by the Judgment of this Court reported in Vadilal
Chemicals Ltd. vs. State of U.P. & Ors. [(2006) 6 SCC 292]. It was
pointed out that in that case an identical question fell for consideration
under the similar circumstances. There also, the question was: as to
whether the small scale industry which was engaged in bottling of
anhydrous ammonia could be said to be entitled to the exemption from
payment of Sales Tax on the ground that it was manufacturing such goods
since there was a general exemption offered by the Andhra Pradesh
Government by G.O.Ms.No.117 dated 17.3.1993 to the small scale
industry. There also it was found on inspection that the Assessee Industry
was allowed irregular tax exemption on the first sales of anhydrous
liquefied ammonia as it was found that the commodity that was purchased
and sold was one of the same and there was no new commodity that had
emerged and that the Assessee had only done bottling of ammonia. The
show cause notices were issued to the Assessee in that case suggesting
therein that the activity of bottling/packing of gases into unit containers
from bulk quantities was not recognized as "manufacture" even under the
Central Excise Act. In that view the question which fell for consideration
before this Court was as to whether under the circumstances the Assessee
could claim the exemption. This Court firstly held that the exemption
certificate was granted by the authorities after due consideration. It was
then noted that though the exemption was available on the products
"manufactured" in industrial units, the interpretation put forth by the
authorities on the word "manufacture" was incorrect. This Court took the
view that the authorities had based the interpretation of word
"manufacture" on the law relating to Excise and that it was erroneous to do
so. It was observed that in the State Sales Tax Act there was no provision
relating to "manufacture" and the concept was to be found only in the 1993
G.O. which had provided the exemption. The Court further took the view
that the exemption was granted with a view to give a fillip to the industry in
the State and also for the industrial units of the State. The Court,
therefore, took the view that a liberal interpretation of the term
"manufacture" should have been adopted by the State authorities, more
particularly, when the State authorities had granted the certificate of
eligibility after due consideration of the facts.
6. In our view the law laid down in this decision is applicable to the
present case on all fours. Here also the authorities had firstly certified the
Assessee’s industry to be Small Scale Industry and had then proceeded to
grant exemption to it from payment of Sales Tax on the goods
manufactured. The said certificate was not found to have been
erroneously issued and was very much in vogue when the show cause
notices came to be served on the assessee. The G.O. providing
exemption clearly suggested that such exemption was given in the public
interest. Therefore, it is obvious that the decision in Vadilal Chemical’s
case would be equally applicable as even in that case what the industry
did was to bottle the ammonia gas purchased in bulk. In the present case
it is Palmolive Oil which is purchased in bulk and is re-packed so as to
facilitate its sale in the retail market.
7. Shri T.L.V. Iyer, Senior Advocate appearing on behalf of the Union
Territory of Pondicherry, however, tried to suggest that the exemption from
payment of tax granted on 19.5.1989 was granted by the Director of
Industries and it was clear from that exemption that it was only on the
basis of the G.O.Ms.No.15/74 dated 25.6.1974. Our attention was invited
to the last lines of the aforementioned G.O. dated 19.5.1989. The last
portion is as under:
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"The unit is exempted from payment of sales tax for five years
vide G.O.Ms.No.15/74/FIN(CT) dated 25.6.1974."
On this the learned Senior Counsel argued that therefore, it had to be
proved that the goods were manufactured by the Assessee and in the
present case since the Palmolive Oil did not change its character on its
being re-packed by the Assessee, it could not be said that the assessee
had manufactured any goods. Learned counsel also urges that in the
absence of any definition of "manufactured goods" in the Sales Tax Act, we
would have to fall back upon either the dictionary meaning of the term or to
borrow it from the Central Excise Act. We are afraid, the contention cannot
be accepted in the wake of clear law laid down by this Court in Vadilal
Chemical’s case. We have already shown as to how the decision in that
case is applicable to the present situation. In that view we are of the clear
opinion that since in the present case the exemption was granted to all
small scale industrial units registered with the Director of Industries and
since the Assessee was recognized and certified as a small industrial unit,
engaged in the activity of re-packing of edible oil and further since the
exemption was granted with the open eyes to this particular industry, the
State cannot be allowed to run around and take a stance that the appellant-
assessee was not entitled to the exemption on the ground that it did not
manufacture any goods. We are in respectful agreement with the view
taken in Vadilal Chemical’s case which is more particularly reflected in
paras 19 and 20 of that decision where this Court observed as under:
"In this case the State Sales Tax Act contains no provision
relating to "manufacture". The concept only finds place in the
1993 GO issued by the Department of Commerce and
Industries. It appears from the context of the other provisions
of 1993 G.O. that the word "manufacture" had been used to
exclude dealers who merely purchased the goods and resold
the same on retail price. What the State Government wanted
was investment and industrial activity. It is in this background
that the 1993 GO must be interpreted (See CST v. Industrial
Coal Enterprises)\005\005.. The exemption was granted in terms
of 1993 GO, the thrust of which was to increase industrial
development in the State."
8. We respectfully agree with the aforesaid observations and would
chose to take the same view by accepting the contention of the appellant
that a liberal view of G.O. Ms.No.15/74 dated 25.6.1974 would have to be
taken. We accordingly allow the appeal, set aside the order passed by the
High Court and restore that of the Tribunal but without any order as to
costs.