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Madhya Pradesh High Court · body

2003 DIGILAW 1319 (MP)

Manoj Surgical Industries Ltd. v. State of M. P.

2003-12-04

A.M.SAPRE

body2003
Judgment ( 1. ) BY filing this writ, under Articles 226 and 227 of the Constitution of India the petitioner seeks quashing of an order, dated September 30, 2002 (annexure P-1), passed by State (State Level Committee ). Facts in brief are these. ( 2. ) PETITIONER is a public limited company registered as such under the provisions of Companies Act, 1956. The petitioner is engaged in the business of manufacture and sale of various surgical and medical instruments, namely, "hypodermic disposable syringes and needles". It is the case of petitioner that they purchase the raw needles in bulk from the market and then these raw needles are subjected to sterilisation process by use of chemicals in their processing plant. It is only after this process of sterilisation is undertaken by the petitioner in respect of those raw needles in their processing plant, they become a "sterilised needle" and emerge as drug under the Drugs and Cosmetics Act, 1940 for being sold in open market as what is popularly known as "sterilised needles". It is stated by the petitioner that they have established their industrial unit (sterilisation processing plant) in Pithampur (M. P.) by investing nearly Rs. 70 lacs for this purpose. ( 3. ) THE petitioner is a dealer under the provisions of the Madhya Pradesh General Sales Tax Act, 1958 (since repealed and repealed by Madhya Pradesh Commercial Tax Act, 1994) as also under Central Sales Tax Act, 1956. In order to claim exemption from payment of sales tax on this item, i. e. , sterilised needle, in terms of exemption notification issued under Section 12 of the Madhya Pradesh General Sales Tax Act, 1958 read with Section 8 of the Central Sales Tax Act, 1956 the petitioner applied for exemption to the concerned authority (State Level Committee ). It was the case of petitioner that the process of sterilisation of needle as referred supra, satisfies the requirement of word manufacture as defined under Section 2 (o) of Madhya Pradesh Commercial Tax Act, 1994 read with requirement of exemption notification applicable to the petitioners case and hence, entitled to claim the benefit of exemption from payment of sales tax on the above said item. The State Level Committee (S. L. C.) considered the case of petitioner in its meeting held on November 4, 1999 and rejected the claim of the petitioner. The State Level Committee (S. L. C.) considered the case of petitioner in its meeting held on November 4, 1999 and rejected the claim of the petitioner. It was, inter alia, held that petitioner does not really manufacture the needles nor they have proposed any expansion in its production of these needles. The decision was accordingly communicated to the petitioner by letter, dated January 5, 2000 (annexure P-2 ). The petitioner felt aggrieved of such rejection filed appeal to appellate authority as per the rules framed for filing appeal questioning the legality and correctness of the aforesaid order of S. L. C. By order, dated August 11, 2000 (annexure P-14), the appellate authority allowed the appeal. Placing reliance on the decision of the Supreme Court rendered in the case of Ashirwad Ispat Udyog v. State Level Committee [1999] 112 STC 207, the appellate authority was of the view that the definition of word "manufacture" cannot be given restricted meaning so as to deny the benefit of exemption to the petitioners unit. It was held that the process of sterilisation of needle has to be included as falls within the meaning of the word manufacture so as to entitle the petitioner to claim its benefit from non-payment of sales tax in terms of exemption notification. It was accordingly, directed that department should get itself satisfied as to whether petitioner has actually engaged themselves in the manufacturing activity of sterilisation of needle as contended by them and whether what is being sold by the petitioner in the market is sterilised needle or raw needle? In other words, the appellate authority while accepting the plea of petitioner that process of sterilisation of needle does amount to manufacture thereby entitling them to claim exemption from payment of sales tax, directed the State authorities to verify as a fact by making a spot inspection as to whether such process is being undertaken by the petitioner in their unit, or not? Accordingly, the departmental authorities on May 29, 2002 made the spot inspection of the petitioners unit (report is filed on October 15, 2003 by State ). However, by impugned order, dated September 30, 2002 (annexure P-1), the S. L. C. declined to grant exemption to the petitioner saying that even after undergoing the process of sterilisation, there does not appear to be any potential increase in the pricing of the sterilised needle. However, by impugned order, dated September 30, 2002 (annexure P-1), the S. L. C. declined to grant exemption to the petitioner saying that even after undergoing the process of sterilisation, there does not appear to be any potential increase in the pricing of the sterilised needle. In other words, the main reason that led to declining the benefit of exemption to the petitioner was that there is a marginal difference in pricing of raw needle and sterilised one and hence, no case for exemption is made out. It is against this rejection of the case, the petitioner has felt aggrieved and come up in writ. The State was noticed. Reply is filed alongwith the inspection report. ( 4. ) HEARD Shri B. L. Pavecha, learned senior counsel with Shri Sunil Jain for petitioner and Shri Prakash Verma, learned Government Advocate for respondent-State. ( 5. ) HAVING heard learned Counsel for the parties and having perused record of the case, I am inclined to allow the writ and quash the impugned order, dated September 30, 2002 (annexure P-1 ). ( 6. ) IN my considered view, the reasoning that led to rejection of petitioners case or I may say which was made the basis for rejection is not legally sustainable. It is not in dispute and rather it is found as a fact (inspection note) that petitioner has set up the processing plant for sterilising the raw needle and that it does undertake this process on regular basis. Once, this fact is found in favour of petitioner, a case for grant of exemption was made out. In order to grant exemption what was required to be verified and indeed as rightly directed by the appellate forum (order dated August 11, 2000, annexure P-14) was whether petitioner has infact set up a processing plant for sterilisation of needle and if so, whether sterilisation process is being undertaken in the said plant or not ? As observed supra, it was found as a fact that petitioner has not only set up the processing unit but has also undertaken the sterilisation process for converting the raw needle into a sterilised one. ( 7. As observed supra, it was found as a fact that petitioner has not only set up the processing unit but has also undertaken the sterilisation process for converting the raw needle into a sterilised one. ( 7. ) WHAT should be the selling price of such sterilised needle in commercial market and whether it should be sold for much higher price or lower price as compared to raw needle, is not the decisive test for deciding grant of exemption. In other words, it should not be a criteria so as to deny the benefit of exemption to the petitioner at least in the facts of this case. It is much more so because the exemption notification does not provide for such criteria to be taken note of while considering the grant of exemption. As a matter of fact, it is a case which is bound to vary from manufacturer to manufacturer, because the pricing factor depends upon several commercial elements. One manufacturer may decide to sell their sterilised needle for one rupee in market whereas, other, i. e. , their competitors may sell it for less or more. This cannot be, therefore, a decisive test in determining the question whether petitioner is entitled for grant of sales tax exemption on the sterilised needle, or not ? ( 8. ) AS observed supra, position would have been different, if it had been found in inspection of petitioners unit that no processing plant or machinery existed on the spot. In other words, if the finding on inspection had been that no processing activity was installed by the petitioner, then in such event, the State was justified in declining the benefit of sales tax exemption to the petitioner. It is for the simple reason that when there was no plant found on the spot which could be used for processing raw needles into sterilised one then there arise no case for granting any exemption. Such is not the finding of inspection team in their report, referred supra. ( 9. ) IN my considered opinion, therefore, once it was found as a fact that petitioner has established a processing plant and has produced sterilised needle in the plant, they were entitled to claim the benefit of exemption notification from payment of sales tax on the said needles. In other words, the exemption could not have been denied to them on these facts found. In other words, the exemption could not have been denied to them on these facts found. This Court, thus, cannot subscribe to the reasoning assigned by S. L. C. that led to rejection of petitioners case. ( 10. ) A right to claim exemption arises on satisfying the requirement of exemption notification. In other words, once any dealer is able to satisfy the authorities that they have fulfilled the requirements of the exemption notification which enable them to claim exemption, the State cannot then deny the exemption on any ipse dixit. The object of granting exemption is aimed to provide incentive to the entrepreneur and hence, its benefit must be extended to the entrepreneurs as far as possible. ( 11. ) ACCORDINGLY and in view of aforesaid discussion, the petition succeeds and is hereby allowed. Impugned order, dated September 30, 2002, passed by S. L. C. (annexure P-1) is quashed by writ of certiorari. A writ of mandamus is issued against the respondents to issue sales tax exemption certificate in favour of petitioner for the period to which they are eligible as per the notifications in respect of the item specified in their application. Let this be done within three months.