Bihar Finance Act - Exemption from payment of sales tax on purchase of raw materials directly used for manufacturing finished goods: definition of 'Manufacture' is wide enough to cover production, extracting, altering, finishing or otherwise processing of the raw materials: Supreme Court
By TIOL News Service
NEW DELHI, APR 20, 2014: THE State of Bihar has introduced Industrial Incentive Policy, 1993, where a provision is made to grant sales tax exemption on purchase of raw materials for certain industries enumerated in Annexure V( 2) of the said policy on the condition, that, the raw materials are directly used for manufacturing finished goods. One of the units mentioned in Annexure V is iron and steel based industry.
To avail the benefit, the appellant-industry had approached the Deputy Commissioner of Commercial Taxes, Dhanbad Circle, Dhanbad for the grant of exemption inter alia for three commodities (1) pencil ingots, (2) sheets (3) agricultural and household implements. The Deputy Commissioner after considering the application so filed by the appellant had issued a certificate in form B-1, dated 30.04.1997. In the said certificate it is clearly stated that the raw materials that are exempted from sales tax are "all types of iron and steel material (including defective cutting and rejects).
The Joint Commissioner of Commercial Taxes being of the opinion that the Deputy Commissioner of Commercial Taxes was not justified in granting the exemption certificate dated 30.04.1997, had initiated suo moto proceedings under the Act, by issuing a show cause notice to the appellant, inter alia, directing the appellant to show cause as to why the certificate issued by the Deputy Commissioner of Commercial Taxes should not be revoked.
After receipt of the reply by the appellant, the Joint Commissioner of Commercial Taxes ( Admn .) by his order dated 15.04.1998 had remanded the matter back to the Deputy Commissioner of Commercial Taxes with a direction to hold a fresh enquiry and pass appropriate orders in the light of certain observations made by him in the course of the order.
Aggrieved by the remand order so passed by the Joint Commissioner of Commercial Taxes, the appellant had approached the High Court of Patna, Ranchi in Writ Petition No. 1887 of 1998. The Writ Court after considering the material on record has come to the conclusion that the Joint Commissioner of Commissioner Taxes ( Admn .) has not committed any error whatsoever which would call for interference under Article 226 and 227 of the Constitution of India. Thereafter the appellant had filed the review petition before the High Court which was also dismissed.
Against the orders passed by the Writ Court the appellant had approached this Court by way of the special leave petition. This Court also dismissed the aforesaid special leave petition.
In the interregnum the Commercial Tax officer, Dhanbad had inspected the business premises of the appellant industry and had furnished his report to the Deputy Commissioner of Commercial Taxes, Dhanbad .
After receipt of the aforesaid report and after considering the case pleaded by the appellant, the Deputy Commissioner of Commercial Taxes has come to the conclusion that the appellant did not manufacture any article from the raw materials and therefore, not entitled for exemption under the Notification dated 04.04.1994. The order so passed by the Deputy Commissioner of Commercial Taxes was confirmed by the Commissioner of Commercial Taxes in Revision filed by the appellant .
Aggrieved by the aforesaid orders the appellant had approached the Writ Court once over again in Writ Petition No. 4646 of 2002. The High Court has rejected the petition and has confirmed the orders passed by the Deputy Commissioner of Commercial Taxes and the Commissioner of Commercial Taxes and these orders are called in question before the Supreme Court.
The Supreme Court observed,
"This view of the Deputy Commissioner of Commercial Taxes is not correct for the reason that the definition of 'Manufacture' that finds a place in the Act is wide enough to cover production, making, extracting, altering, ornamenting, finishing or otherwise processing of the raw material. In the instant case as we have noticed that the raw material that is purchased by the appellant is a steel scrap and what is produced with the steel scrap are agricultural implements and the household articles. Therefore, the activity of the appellant would certainly fit into the definition of 'Manufacture' to qualify for the grant of exemption under the notification.
This court in the case of Sonebhadra Fuels vs. Comm. Trade Tax,- 2006-TIOL-89-SC-CT, relying on the decision of this court in B.P . Mills Ltd vs. Sales Tax Tribunal, 1998 6 SCC 577 , held that the definition of 'manufacture' in Uttar Pradesh Trade Tax Act, 1948 is very wide to include processing, treating or adapting any goods and therefore it held that even if the processing of coal to make coal briquettes, did not amount to a different commercial commodity, even though it did, it would still amount to "manufacture" as it is processing, treating or adapting coal to make coal briquettes which are altogether different in shape, size, moisture and characteristics. In view of the above, we are of the considered opinion that the revisional authority and the High Court was not justified in rejecting the request of the appellant for grant of exemption under Notification dated 04.04.1994."
In the result, the appeal is allowed and the impugned judgment and order is set aside.
The Supreme Court directed the Department to furnish an appropriate exemption certificate to the appellant to claim the benefit under Notification dated 04.04.1994 as early as possible at any rate within two months.
(See 2014-TIOL-43-SC-CT)
