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2010 DIGILAW 215 (ALL)

K. R. B. L. LIMITED v. COMMISSIONER OF TRADE TAX

2010-01-18

BHARATI SAPRU

body2010
JUDGMENT MS. BHARATI SAPRU, J. - Heard learned counsel for the assessee and learned standing counsel, Sri B. K. Pandey for the respondent - State. This revision has been filed by the assessee under section 11 of the U.P. Trade Tax Act, 1948 being aggrieved by the order of the Tribunal dated October 5, 2006 for the assessment year 2002-03. The questions of law referred to are hereunder : (1) Whether in view of the finding of fact recorded by the assessing authority which has been confirmed by the Tribunal that entire basmati rice manufactured by the applicant, for which recognition certificate was granted, have been sold in the course of export and rice so manufactured has not been sold otherwise, the Tribunal was not justified in confirming imposition of tax on the purchase of paddy alleged to have been used in obtaining broken rice during process of manufacture of rice sold within the State of U.P. in the course of inter-State sale ? (2) Whether in view of the facts that entire rice manufactured out of paddy having admittedly been sold in the course of export, no tax can be legally imposed on the purchase merely because some waste product and by-products obtained during the process of manufacture of rice, have been sold either in the State of U.P. or in the inter-State trade and commerce ? (3) Whether no rice mill is established for manufacture of by-products which included broken rice, etc., and the recognition certificate having also not been granted for manufacture of by-products, namely, broken rice, the Tribunal was not justified in confirming imposition of tax on the alleged purchases of paddy which is said have been sold in connection of the broken rice obtained during manufacturing process of rice ? The facts of the case are that the assessee is a public limited company, which is engaged in the manufacture of basmati rice. The assessee has been granted a recognition certificate under section 4B(2) of the U.P. Trade Tax Act. The assessee is claiming the benefit of Notification No. 289 dated February 12, 1999, which has been issued by the State under section 4B(2) of the U.P. Trade Tax Act. The assessee has been granted a recognition certificate under section 4B(2) of the U.P. Trade Tax Act. The assessee is claiming the benefit of Notification No. 289 dated February 12, 1999, which has been issued by the State under section 4B(2) of the U.P. Trade Tax Act. The notification provides that no tax shall be payable either on the purchase of raw material or on the sale of finished goods, i.e., the notified goods if the same are being exported outside the country. The assessing authority while examining the matter has recorded that the entire rice, i.e., the notified goods which were manufactured by the assessee were exported outside India, however, the assessing authority has come to the conclusion that 4.75 per cent of the rice manufactured came out in the shape of broken rice and, therefore, it could not be exported and as this per cent of the rice was not exported. The assessee was liable to pay tax on the raw material, i.e., paddy to the extent of the broken rice which emerged during the process of manufacture to a repeat in this case 4.75 per cent. Aggrieved by the assessment order dated February 8, 2005 the assessee filed an appeal under section 9 of the U.P. Trade Tax Act. The appeal of the assessee was dismissed on August 31, 2005 adopting the same view. Aggrieved by the order passed by the first appellate authority dated August 31, 2005 the assessee filed a second appeal under section 10 of the Act. The Tribunal by its order dated October 5, 2006 reiterated the view adopted by the first two authorities saying that the assessee was liable to pay taxes on the purchase of raw material, i.e., paddy to the extent of 4.75 per cent. The learned counsel for the assessee has argued that the authorities below have failed to apply the notification dated February 12, 1999 properly in the case of the assessee. The learned counsel's argument is that the assessee is a manufacturer of basmati rice, which is a notified product and had obtained the registration for the manufacture of rice. The object of the assessee was to manufacture rice and not broken rice, which simply emerges during the process of manufacture and can be termed as a by-product. The learned counsel's argument is that the assessee is a manufacturer of basmati rice, which is a notified product and had obtained the registration for the manufacture of rice. The object of the assessee was to manufacture rice and not broken rice, which simply emerges during the process of manufacture and can be termed as a by-product. It is the argument of learned counsel for the assessee that it was granted a recognition certificate under section 4B of the Act for manufacturing a final product. The emergence of the by-product during the course of manufacture cannot be held to be a violation of section 4B of the Act. The learned counsel has referred to the provisions made in the notification itself, which have granted exemption to raw materials for manufacture of items notified which are exported outside India. The learned standing counsel has argued that the benefit of the notification dated February 12, 1999 has been given to the assessee for the percentage of rice exported outside India and for the broken rice a charge is liable to be made on the raw material, which was consumed in the production of the broken rice. I have heard learned counsels, on both sides and I have also perused the material on record as well as the notification dated February 12, 1999. From a perusal of the notification it appears that an exemption has been granted to notified goods on the purchase of raw materials. In the present case, the raw material purchased by the manufacturer was paddy, clearly the intent in the notification was to grant an exemption to raw materials used for manufacture of the notified goods and, therefore, it cannot be said that the paddy which was used during the manufacture of these notified goods was used separately for the broken rice which emerged during the process of manufacture. The learned counsel for the assessee is justified in saying that no raw material was ever purchased for the manufacture of any waste product or any by-product. The assessee has established its unit for the manufacture of rice and has used its entire raw material for the manufacture of rice. A small percentage of the raw material used has emerged as a waste product or as by-product in the shape of broken rice. The assessee has established its unit for the manufacture of rice and has used its entire raw material for the manufacture of rice. A small percentage of the raw material used has emerged as a waste product or as by-product in the shape of broken rice. His argument that the intention is to exempt raw material is correct especially in view of the fact that it is to be noticed from the order of assessment that the assessee has been taxed separately on the broken rice. Having heard learned counsels of both sides, I am of the opinion that while it is open to the tax Department to tax the assessee on the sale of broken rice either in U.P. or outside U.P. the intention under the notification is clear. The exemption has been granted, the raw materials used and therefore, in this case the imposition of tax on the purchase of paddy to the extent of 4.75 per cent is bad and not justified and it is set aside by this court. The questions referred to are answered in favour of the assessee and against the Department. This revision is allowed.