Case Note & Summary
The case arose from five writ petitions filed by Jagannath Cotton Company in the Orissa High Court claiming sales tax exemption under the Industrial Policy Resolutions of 1986 and 1989. The Government of Orissa had published the Industrial Policy Resolution to encourage industrialization, providing various sales tax concessions for new industries. The respondent assessee, located in Sambalpur (Zone-C), claimed exemption as a small scale industry on the ground that it obtained cotton from waste cotton, a process it contended amounted to manufacture. The sales tax authority denied the exemption, but the High Court allowed the writ petitions on two grounds: first, that the industrial policy resolution did not require a small scale industry to be engaged in manufacture or production of goods to claim exemption; and second, that the process of obtaining cotton from waste cotton did amount to manufacture. The Revenue appealed to the Supreme Court. The Supreme Court noted that the relevant provisions of the Orissa Sales Tax Act, including Entry 30(ff), appeared to provide exemption for products of small scale industries set up after April 1, 1986, but the High Court had not examined whether the statutory provisions were consistent with the Industrial Policy Resolution. The Court held that the High Court's first ground was untenable because a reading of the Industrial Policy Resolution showed that the incentives were meant only for units engaged in manufacture or production of goods. The policy used expressions such as 'raw material', 'finished products', and 'manufacturing units', indicating that new and different goods must emerge. Manufacture, in its ordinary connotation, signifies the emergence of new and different goods as understood in commercial circles. The Court also found that the exact process employed by the respondent was not set out in the counter-affidavit or in the High Court judgment, and therefore it could not decide whether the process amounted to manufacture without knowing the precise steps involved. The Court observed that there were numerous decisions under the Central Excise Act and State Sales Tax enactments dealing with similar questions, and the assessee's position in this case was converse to the usual argument that no new goods have come into existence. Accordingly, the Supreme Court allowed the appeals, set aside the High Court's common judgment, and remitted the matters to the High Court for a fresh decision in light of the observations made, with no order as to costs.
Headnote
A) Sales Tax - Exemption under Industrial Policy - Requirement of Manufacturing Activity - Industrial Policy Resolution, 1986 and Industrial Policy Resolution, 1989 - Sales tax concessions were intended only for units engaged in manufacture or production of goods; use of expressions like 'raw material', 'finished products', and 'manufacturing units' implies emergence of new goods - Held that High Court's view that industrial policy resolution does not require small scale industry to be engaged in manufacture or production is untenable; incentives are not meant for mere processing unless different goods emerge. B) Interpretation of 'Manufacture' - Meaning of Manufacture - Industrial Policy Resolution, 1986 and Industrial Policy Resolution, 1989 - Manufacture in ordinary connotation signifies emergence of new and different goods as understood in relevant commercial circles; the test is whether different goods emerge as a result of the process - Held that process of obtaining cotton from waste cotton must satisfy this test; exact process employed must be established. C) Sales Tax Law - Relationship between Industrial Policy and Statute - Orissa Sales Tax Act, Entry 30(ff) - High Court should have examined whether provisions of Orissa Sales Tax Act and notifications thereunder provide same exemption as Industrial Policy Resolution; if different, effect of difference must be considered - Held that before expressing final opinion, relevant statutory provisions must be ascertained. D) Judicial Review - Remand for Fresh Consideration - Lack of Material on Process - Orissa Sales Tax Act; Central Excise Act (precedents) - Counter-affidavit and High Court judgment did not disclose the exact process; decisions under Central Excise Act and State Sales Tax enactments may be relevant - Held that appeals allowed, High Court judgment set aside, matters remitted to High Court for fresh decision in light of observations made; no costs.
Issue of Consideration
Whether the respondent is entitled to benefit of exemption from sales tax under the Industrial Policy Resolutions of 1986 and 1989; whether the process of obtaining cotton from waste cotton amounts to manufacture/production; whether the High Court erred in allowing the writ petitions without examining the relevant provisions of the Orissa Sales Tax Act and the actual process employed
Final Decision
Appeals allowed, High Court's common judgment set aside, matters remitted to High Court for fresh decision in light of observations made; no costs.
Law Points
- Sales tax exemption under Industrial Policy Resolution is intended only for units engaged in manufacture or production of goods
- manufacture means emergence of new and different goods
- process must be examined to see if different goods emerge
- High Court must consider provisions of Orissa Sales Tax Act and notifications along with IPR
- exact process must be established before deciding manufacture
- burden on assessee to show process amounts to manufacture
