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Allahabad High Court · body

2006 DIGILAW 737 (ALL)

COMMISSIONER OF TRADE TAX v. OVJECT DE ART INDIA.

2006-03-09

RAJESH KUMAR

body2006
JUDGMENT RAJES KUMAR, J. - Present revision under section 11 of the U.P. Trade Tax Act, 1948 (hereinafter referred to as "the Act") is directed against the order of the Tribunal dated November 12, 1998 for the assessment year 1992-93. Short question involved in the present revision relates to the taxability of Replenishment Licences (hereinafter referred to as "REP licence") Dealer/opposite party (hereinafter referred to as "the dealer") was the manufacturer and had been issued REP licence by the Deputy Chief Controller of Import and Export, Moradabad. Dealer sold the said REP licence for a sale consideration of Rs. 51,01,041. The assessing authority had levied the tax on the sale consideration of REP licence treating it as unclassified item. Before the assessing authority, the dealer claimed that REP licence was not goods and the amount received was for the surrender of the said licence. First appeal filed by the dealer was rejected. Dealer filed second appeal before the Tribunal. The Tribunal allowed the appeal and deleted the tax levied on the sale consideration of REP licence. The Tribunal has held that REP licence was an unclassified goods, liable to tax at the point of manufacturer or importer and since the REP licence was issued by the Deputy Chief Controller of Importer and Exporter, Moradabad, dealer was neither manufacturer nor importer. Heard learned counsel for the parties. The learned Standing Counsel submitted that after the issue of licence by the Deputy Chief Controller of Import and Export, Moradabad, first sale was made by the dealer, therefore, dealer was the manufacturer of such REP licence within the definition of section 2(ee) of the Act. Sri Vikram Gulati, Advocate, filed Vakalatnama on behalf of the dealer but despite the case being listed number of times and the list is being revised, Sri Vikram Gulati, Advocate did not appear. Thus, Sri K. Saxena, Advocate, has been asked to assist the court as amicus Curiae. Sri K. Saxena, Advocate, submitted that there is no dispute that REP licence is goods as held by the apex court in the case of Vikas Sales Corporation v. Commissioner of Commercial Taxes reported in [1996] 102 STC 106; [1996] UPTC 1097. He submitted that REP licence was issued by the Deputy Chief Controller of Import and Export, Moradabad and was in the nature of permission, entitlement or order. It is never manufactured. He submitted that REP licence was issued by the Deputy Chief Controller of Import and Export, Moradabad and was in the nature of permission, entitlement or order. It is never manufactured. He submitted that the word "manufacture" is defined under section 2(e1) of the Act, which contemplates some treatment to the tangible goods while for the issue of licence, no such treatment is involved and, therefore, issue of such licence does not amount to "manufacture" as defined under section 2(e1) of the Act and thus, dealer cannot be held as manufacturer under section 2(ee) of the Act. Under the provisions of the U.P. Trade Tax Act, the sale of goods is liable to tax, subject to rates provided for under section 3A of the Act which runs as under : "3A. Rates of tax. - (1) Except as provided in section 3D, the tax payable by a dealer under this Act shall be levied, - (a) ... (b) ... (c) ... (c-1) ... (d) on the turnover in respect of goods specified in the Schedule, at such point and at such rate, not exceeding fifteen per cent, as the State Government may, by notification, declare, ... (e) on the turnover in respect of goods, other than those referred to in clauses (a), (b), (c), (c-1) and (d), at the point of sales by the manufacturer or importer at eight per cent : Provided that the State Government may, from time to time, by notification, modify the rate or point of tax on the turnover in respect of any such goods, with effect from such date as may be notified in that behalf, so, however, that the rate does not exceed eight per cent." From the above provisions, it would follow that the goods specified in the Schedule are liable to tax at such point and at such rate not exceeding 15 per cent as notified but those goods which are not included in any notification would be liable to tax at eight per cent at the point of sale by the manufacturer or importer as provided by under section 3A(1e) of the Act. It is important to note that REP licence/exim scrips were not specified in the Schedule during the year under consideration and therefore, sales thereof could be taxable only in the hands of the manufacturer or importer at eight per cent. It is important to note that REP licence/exim scrips were not specified in the Schedule during the year under consideration and therefore, sales thereof could be taxable only in the hands of the manufacturer or importer at eight per cent. In the present case, it is undisputed that the dealer was not an importer, inasmuch as, REP licence had been issued by the Deputy Controller of Import and Exports, Moradabad. Therefore, the only dispute was as to whether, in the facts and circumstance of the case, the dealer could be treated to be a manufacturer so as to subject to tax on the sale of REP licence. The term "manufacture" has been defined under section 2(e1) of the Act which reads as follows : "(e1) 'manufacture' means producing, making, mining, collecting, extracting, altering, ornamenting, finishing or otherwise processing, treating or adapting any goods; but does not include such manufacture or manufacturing processes as may be prescribed." The term "manufacturer" has been defined under section 2(ee) of the Act which runs as under : "(ee) 'manufacturer' in relation to any goods means the dealer who makes the first sale of such goods in the State after their manufacture and includes ..." The main dispute in the present case is therefore, whether the dealer can be treated to be a manufacturer. The case of the Revenue is that these REP licences were manufactured by the authority granting licence and the sale of such manufactured goods was made by the dealer and, therefore, it would be treated as the manufacturer and thus liable to tax at eight per cent. In the case of Vikas Sales Corporation v. Commissioner of Commercial Taxes [1996] 102 STC 106 (SC); [1996] UPTC 1097, REP licence has been considered by the apex court. The honourable Supreme Court observed that the Central Government had been issuing from time to time, what is called the import and export policy published in a from of a brochure. The import policy in vogue during the years concerned herein provided for issuance of what is called replenishment licences (for short "REP licences"). The objective behind the licence was to provide to the registered exporters, facility of importing essential inputs required for the manufacture of products exported. The essential idea was to encourage export and for that purpose import licences called REP licences were issued equal to prescribed percentage of the value of export. The objective behind the licence was to provide to the registered exporters, facility of importing essential inputs required for the manufacture of products exported. The essential idea was to encourage export and for that purpose import licences called REP licences were issued equal to prescribed percentage of the value of export. These licences were made freely transferable. It was provided that the transfer of such licences did not require any endorsement or permission from the licensing authority. It only required a letter from the transferor recording and evidencing the transfer. On that basis the transferee became due and lawful holder of the licence and could either import the goods permitted thereunder or sell it to another in turn. With effect from July 3, 1991 the name of the licence was changed to exim scrips (Export and Import Licences). The provisions governing exim scrips were broadly the same as those governing REP licences with certain minor variations, which were not relevant for the present purpose. After examining the definition of term "goods" under the Karnataka Sales Tax Act, 1957 as also Kerala General Sales Tax Act, 1963 (which is substantially same as under the U.P. Trade Tax Act), their Lordships observed that the goods meant all kinds of movable property excluding certain goods, which were specifically mentioned therein. Their Lordships then referred to the expression "property" given in various legal dictionaries and certain decisions and then observed that the word "property" is commonly used to denote everything which is subject of ownership, corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal; everything that has an exchangeable value or which goes to make-up wealth or estate. It extends to every species of valuable right and interest and includes real and personal property, easements, franchises and incorporeal hereditaments. Their Lordships further observed that the expression "movable property" is stated to include corporeal as well as incorporeal property, debts, contracts and other choses inaction are said to be chattels, no less than furniture or stock-in-trade. Similarly patents, copyrights and other rights in rem, which are not rights over land, are also included within the meaning of movable property. Their Lordships further observed that the expression "movable property" is stated to include corporeal as well as incorporeal property, debts, contracts and other choses inaction are said to be chattels, no less than furniture or stock-in-trade. Similarly patents, copyrights and other rights in rem, which are not rights over land, are also included within the meaning of movable property. After having examined the definition of the term "goods" and the expression "movable property" as also the provisions of Import and Export Policy of the Government of India (1990-93), their Lordships held the above provisions do establish that REP licences have their own value. They are bought and sold as such. The original licensee or the purchaser is not bound to import the goods permissible thereunder. He can simply sell it to another and that another to yet another person. In other words, these licences/exim scrips have an inherent value of their own and are traded as such. They are treated and dealt within the commercial world as merchandise as "goods". For all purposes and intents, it is goods. From the above observations of the honourable Supreme Court, it would appear distinctly that REP licences/exim scrips are goods and their sale would be liable to tax. The movable goods can broadly be categorised under two heads : (i) Corporeal, tangible or visible goods. (ii) Incorporeal, intangible or invisible goods. It is obvious that REP licences, even though, fall under the category of goods but they are incorporeal, intangible or invisible. The definition of the term "manufacture" applies only to corporeal, tangible and visible goods. The definition of the term "manufacture" as contained in section 2(e1) refers to various processes undertaken to bring in a new commodity. These processes can be performed only on tangible goods and not on intangible goods as will be demonstrated by the following decisions of the honourable Supreme Court and our own High Court. In the case of State of Maharashtra v. Shiv Datt & Sons reported in [1992] 84 STC 497, the honourable Supreme Court considered the definition of the term "manufacture" under section 2(17) of the Bombay Sales Tax Act, 1959 which is akin to the definition of the term "manufacture" under the U.P. Trade Tax Act and held as follows : "... The mere fact that the words used in definition of 'manufacture' are very wide should not lead us to so widely interpret them as to render the provision practically meaningless and so as to treat the goods sold as different merely because some slight additions or changes are made in the goods which are purchased before they are sold. It is true that under the section it is not necessary that there should be 'manufacture' in the sense that a new commodity has been brought into existence as would have been required, if that word is interpreted in its literal sense. But, at the same time, the section should be so interpreted to mean only of such of the various processes referred to in the definition and applied to the goods as are of such a character as to have an impact on the nature of the goods." In the case of B.P. Oil Mills Ltd. v. Sales Tax Tribunal reported in [1998] 111 STC 188; [1998] UPTC 1020, the honourable supreme Court observed as under : "The nature and extent of processing may vary from case to case; in one case the processing may be slight and in another it may be extensive : but with each process suffered, the commodity would experience a change ..." In the case of State of Maharashtra v. Mahalaxmi Stores reported in [2003] 129 STC 79; [2003] UPTC 453; [2002] STI 97, the honourable Supreme Court held crushing of boulders into small sizes known as gitti does not amount of manufacture within the definition of section 2(17) of the Bombay Sales Tax Act. In the case of S. R. Cannery, Allahabad v. Commissioner of Trade Tax reported in [2007] 10 VST 23; [2006] UPTC 710; [2006] 3 VAT Law Journal 8, this court after referring to a large number of cases on the subject held that the process of preservation and tinning does not amount to manufacture. It was farther held that every type of variation of the goods or finishing the goods would not amount to manufacture unless it results in emergence of new commercial commodity. From the perusal of the aforesaid cases it would appear that some process has to be carried out on a commodity to obtain a new manufactured commodity. In every case of manufacture there has to be some process whether slight or extensive. From the perusal of the aforesaid cases it would appear that some process has to be carried out on a commodity to obtain a new manufactured commodity. In every case of manufacture there has to be some process whether slight or extensive. This act of processing can be carried out only in tangible goods and not in respect of intangible goods; therefore, definition of the term "manufacture" given under section 2(e1) of the Act applies only to tangible goods and not to intangible goods. REP licences/exim scrips being intangible goods are incapable of being manufactured in the sense in which the term "manufacture" has been defined under the U.P. Trade Tax Act. Thus, the authority granting licence cannot be treated as manufacturer of licence. It may be mentioned here that the first notification in respect of patents, trade mark, import licence, export permit or licence of quota was issued by the State Government in exercise of powers under section 3A(1e) of the Act vide Notification No. ST-710, dated February 27, 1999 whereby sales of the aforesaid goods were made liable to tax at four per cent in the hands of importer or the person in whose name the licence/permit had been issued. The proviso under which this notification has been issued stated that the State Government may modify the rate or the point of tax while subjecting these goods to tax. Significantly the liability of tax under the aforesaid notification has not been fastened on the manufacturer of these permits and licences. This is so apparently because these permits and licences are not manufactured and there can be no manufacturer thereof. In fact, licences, or permits are issued or granted and not manufactured and, therefore, in the said notification the word "manufacturer" is significantly missing. It is also important to mention that the aforesaid notification has been issued under the same provisions, i.e., under section 3A(1e) under which the Revenue wants in the present case to levy tax on the dealer treating him to be a manufacturer. A subsequent notification is relevant to explain or to understand the intent of Legislature with regard to the person on which the tax is proposed to be levied. Pappu Sweets and Biscuits v. Commissioner of Trade Tax reported in [1998] 111 STC 425 (SC); [1998] UPTC 1086. A subsequent notification is relevant to explain or to understand the intent of Legislature with regard to the person on which the tax is proposed to be levied. Pappu Sweets and Biscuits v. Commissioner of Trade Tax reported in [1998] 111 STC 425 (SC); [1998] UPTC 1086. Even though, this notification was not available for the year under consideration, yet it throws sufficient light on the intent of the Legislature that in regard to licences and permits, the tax was exigible either on the importers or sale by permit holders to another person. During the year under consideration 1992-93, there was no notification on the subject and, therefore, tax could be levied only at the point of sale by manufacturer or importer. In the present case there being no importer or manufacturer, no liability of tax could be fastened on dealer. It is also very significant to point out the section 2 of the Act which contains various definition, including definition of the term "manufacturer", starts with the phase "in this Act unless there is anything repugnant in the subject or context". This phrase came up for consideration before this honourable court in the case of Commissioner of Sales Tax v. Maha Prabandhak, Jal Sansthan, Kanpur reported in [2000] UPTC 10001. After referring to several decisions of the honourable Supreme Court this court observed that the meaning to be ordinarily given is what is given in the definition clause but this is not inflexible and there may be sections in the Act where the meaning may have to be departed from on account of the subject or context in which the word has been used and that will be giving effect to the opening sentence in the definition section, namely, "unless there is anything repugnant in the subject or context". This court further held that no doubt under section 2(e1) manufacture would be complete if any of the process mentioned therein is undertaken but in view of the opening phrase in section 2 of the Act as aforesaid, the meaning of the word "manufacture" as given in section 2(e1) of the Act is to be restricted while interpreting the word "manufacture" occurring in section 3G(2) of the Act. In view of the aforesaid decisions also it would appear that the meaning of the word "manufacturer" has to be restricted and cannot be applied as such, if there is anything repugnant in the subject or context. Before parting with the case, the court would like to express thanks to Sri Kunwar Saxena for effective assistance in the matter. For the reasons stated above, revision fails and is accordingly, dismissed.