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2015 DIGILAW 440 (GUJ)

State of Gujarat v. Shyam Industries

2015-04-16

M.R.SHAH, S.H.VORA

body2015
JUDGMENT M.R. Shah, J. 1. As common question of law and facts arises in this group of appeals and as such, the appeals arising out of the impugned common judgment and order passed by the learned Gujarat Value Added Tax Tribunal, Ahmedabad (hereinafter referred to as the 'Tribunal') and as the dispute is with respect to same dealer (except in case of Tax Appeal No. 233 of 2015) but with respect to different assessment years, all these appeals are decided and disposed of by this common judgment and order. 2. Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Tribunal passed in the respective second appeals by which, the learned Tribunal has allowed the respective appeals being Second Appeal Nos. 65 of 2013, 980 of 2013, 981 of 2013, 67 of 2013, 114 of 2013 and 115 of 2013 by holding that the process undertaken by the dealer on Natural Sesame Seeds (hereinafter referred to as 'NSS') converting them into Huld Sesame (hereinafter referred to as 'HS') is the process of 'manufacture' and hence, the dealer is entitled to input tax credit paid on purchases of fuel, machinery parts, packing material and other consumable and processing material, if any and consequently, deleting levy of penalty and charging of interest on additional dues, the common appellant - State of Gujarat has preferred the present tax appeals with the following proposed questions of law:- "(1) Whether the Hon'ble Tribunal has erred in adjudicating issues on merits instead of restricting itself to the issue of pre-deposit? (2) Whether the Hon'ble Tribunal in the facts and circumstances has erred in law and in facts in holding that the process undertaken by the dealer is "manufacture" as per Section 2(14) of the act? (3) Whether the Hon'ble Tribunal has erred in deleting levy of penalty u/s. 34(12) of the Act and also erred in deleting levy of interest?" 3. (3) Whether the Hon'ble Tribunal has erred in deleting levy of penalty u/s. 34(12) of the Act and also erred in deleting levy of interest?" 3. Considering the fact that in some of the appeals before the learned Tribunal, the appeals were against the final order passed by the first Appellate Authority and, therefore, in some of the appeals, though the order passed by the first Appellate Authority dismissing the appeals were on non-deposit of pre-deposit, the learned Tribunal has decided the appeals on merits along with the other second appeals which were arising out of the final decision on merits by the first Appellate Authority, Ms. Vacha Desai, learned A.G.P. appearing on behalf of the appellant does not press the proposed question No. 1 and has made submissions on merits "whether the process of converting NSS to HS can be said to be the process of 'manufacture' or not and thereby, the dealer would be entitled to the input tax credit or not?" 4. The facts leading to the present appeals in nutshell are as under. For the sake of convenience, the facts in the case of dealer - M/s. Shyam Industries are considered which are as under:- 4.1. That, in all these cases but with respect to different assessment years, the Assessing Officer passed the reassessment order denying the input tax credit to the dealer by observing that the process undertaken by the dealer from converting NSS to HS cannot be said to be the process of 'manufacture' and, therefore, the dealer is not entitled to the input tax credit on the purchases of fuel, machinery parts and packing material and other consumable material and the processing material, if any. The Assessing Officer also levied the penalty and charged interest on additional dues. 4.2. That, feeling aggrieved and dissatisfied with the reassessment orders passed by the Assessing Officer, the dealer preferred appeals before the first Appellate Authority. The first Appellate Authority dismissed some of the appeals on non-deposit of the amount of pre-deposit. However, the first Appellate Authority decided the appeals on merits and confirmed the reassessment orders passed by the Assessing Officer by holding that the process, while converting the NSS to HS cannot be said to be process of 'manufacture' and, therefore, the dealer is not entitled to the input tax credit. 4.3. However, the first Appellate Authority decided the appeals on merits and confirmed the reassessment orders passed by the Assessing Officer by holding that the process, while converting the NSS to HS cannot be said to be process of 'manufacture' and, therefore, the dealer is not entitled to the input tax credit. 4.3. Feeling aggrieved and dissatisfied with the respective orders passed by the first Appellate Authority dismissing the appeals on merits (in some of the appeals) and dismissing the appeals on non-deposit of pre-deposit (in some of the appeals), the dealer preferred the appeals before the learned Tribunal being Second Appeal Nos. 65 of 2013, 980 of 2013, 981 of 2013, 67 of 2013, 114 of 2013 and 115 of 2013. 4.4. That, by impugned common judgment and order and relying upon the decision of the Division Bench of this Court in the case of Laxmi Oil Mills Ltd. v. Commissioner of Sales Tax, Ahmedabad reported in (1994) Vol.92 STC 174, the learned Tribunal has allowed all the aforesaid appeals and has held that the process undertaken by the dealer while converting the NSS to HS, can be said to be the process of manufacture and, therefore, the dealer is entitled to the input tax credit, as claimed. Consequently, the learned Tribunal has quashed and set aside the penalty levied and charging of interest on the additional dues. Similar is in the case of M/s. Keshav Till Factory (Second Appeal No. 65 of 2013) but with respect to the different product. 4.5. Feeling aggrieved and dissatisfied with the impugned common judgment and order passed by the learned Tribunal, the State has preferred the present tax appeals with the aforesaid proposed substantial questions of law. 5. Ms. Vacha Desai, learned A.G.P. appearing on behalf of the State has vehemently submitted that the learned Tribunal has materially erred in considering that the process undertaken by the dealer while converting NSS to HS is the process of 'manufacture' and thereby, the dealer is entitled to the input tax credit. 5.1. It is vehemently submitted by Ms. Desai, learned A.G.P. appearing on behalf of the State that the learned Tribunal has not properly appreciated the definition of word 'manufacture' contained in Section 2(14) of the Gujarat Value Added Tax Act (hereinafter referred to as the 'Act'). 5.2. 5.1. It is vehemently submitted by Ms. Desai, learned A.G.P. appearing on behalf of the State that the learned Tribunal has not properly appreciated the definition of word 'manufacture' contained in Section 2(14) of the Gujarat Value Added Tax Act (hereinafter referred to as the 'Act'). 5.2. It is submitted that the learned Tribunal has materially erred in not properly appreciating the ratio of the decision of the Division Bench of this Court in the case of Laxmi Oil Mills Ltd. (supra). It is submitted that in the facts of the present case the learned Tribunal has materially erred in applying the decision of the Division Bench of this Court in the case of Laxmi Oil Mills Ltd. (supra). 5.3. It is submitted that even in the decision in the case of Laxmi Oil Mills Ltd. (supra), the Division Bench of this Court has observed that every process cannot be considered to be process of manufacture. It is submitted that as observed and held by the Division Bench of this Court in the said decision, the process varies from product to product and every process cannot be said to be process of 'manufacture' within the meaning of Section 2(14) of the Gujarat Sales Tax Act (hereinafter referred to as 'GST Act'). 5.4. It is submitted that in the present case, the process undertaken by the dealer is cleaning, drying and brushing with chemicals and removing of upper layer only and, therefore, the said process cannot be said to be process of 'manufacture'. It is submitted that only by use of chemical while cleaning, drying and brushing, there is no new product manufactured and the seeds would remain seeds. It is submitted that, therefore, the aforesaid process undertaken by the dealer cannot be said to be within four corners of definition of 'manufacture' as provided under Section 2(14) of the Act. 5.5. Ms. Vacha Desai, learned A.G.P. appearing on behalf of the State has submitted that even preparing the butter from the cream or ghee from butter is not considered to be 'manufacture'. Ms. 5.5. Ms. Vacha Desai, learned A.G.P. appearing on behalf of the State has submitted that even preparing the butter from the cream or ghee from butter is not considered to be 'manufacture'. Ms. Desai, learned A.G.P. has heavily relied upon the decision of the Division Bench of this Court in the case of Polson Model Dairy v. State of Gujarat reported in (1993) Vol.91 587 in support of her submission that the process undertaken by the dealer in the present case while converting the NSS to HS, will not fall within the definition of 'manufacture' as provided under Section 2(14) of the Act. 5.6. Ms. Desai, learned A.G.P. has also relied upon the decision of the Hon'ble Supreme Court in the case of State of Maharashtra v. Shiv Datt and Sons reported in (1992) Vol.84 STC 497 in support of her submission that every process does not amount to manufacture. It is submitted that in the aforesaid decision, the Hon'ble Supreme Court has specifically observed and held that the every process with reference to the goods purchased shall not fall within the definition of manufacture. It is submitted that as observed by the Hon'ble Supreme Court in the said decision, whether goods after process substantially remains the same, such a process shall not come within the definition of 'manufacture'. Making the above submissions and relying upon the above decisions, it is requested to admit/allow the present tax appeals. 6. Heard Ms. Desai, learned A.G.P. appearing on behalf of the State at length. We have also considered the impugned common judgment and order passed by the learned Tribunal as well as the orders passed by the Assessing Officer as well as the first Appellate Authority. 7. The short question which is posed for consideration of this Court is whether the process undertaken by the dealer while converting Natural Sesame Seeds (NSS) to Huld Sesame (HS) can be said to be the process of 'manufacture' and will tantamount the 'manufacture' within the definition of Section 2(14) of the Act and consequently, the dealer on such process shall be entitled to the input tax credit or not? 8. To appreciate the aforesaid question, the process which is undertaken by the dealer while converting the NSS to HS is required to be considered. 8. To appreciate the aforesaid question, the process which is undertaken by the dealer while converting the NSS to HS is required to be considered. From the order passed by the Assessing Officer as well as the first Appellate Authority and even from the impugned common judgment and order passed by the learned Tribunal, it appears that while converting the NSS to HS, the dealer was required to undertake the process of cleaning, drying and brushing with chemicals and removing the upper layer of NSS. That after the purchase of NSS, the following process is being undertaken by the dealer to convert the NSS to HS:- "(i) After purchase of the NSS the same are dropped in a machine where the NSS are cleaned and the NSS are mechanically cleaned wherein dust is cleaned form the surface of the NSS. (ii) Thereafter, grading of the NSS is done according to the requirement specified by the foreign buyer. The said grading depends upon the shape and size of the NSS. (iii) Thereafter, the NSS are washed with the help of caustic soda. After washing, the minor dust particles which possibly would have remained come on the surface of the NSS. (iv) The entire above process is done mechanically in and with the help of machines. (v) After washing with caustic soda, the NSS enter the process of drying. The NSS are dried with the help of blower machine and to blow the heat, the machine utilizes LPG. Upon blowing the NSS become dry. (vi) After the NSS are dried, the upper layer (fotri) is removed from the NSS and the NSS are converted into Huld Sesame (HS). The HS is different from the original NSS in its quality as well as uses. (vii) After the production of HS from NSS, HS are packed in the packing as per the Export norms and ultimately exported." 9. Thus, after undertaking the aforesaid process, the product NSS will be converted into altogether a new product named Huld Sesame. Thus, not only the form will be changed but the NSS initially which was not eatable, would now become eatable and marketable. Thus, after undertaking the aforesaid process, the product NSS will be converted into altogether a new product named Huld Sesame. Thus, not only the form will be changed but the NSS initially which was not eatable, would now become eatable and marketable. In light of the above process, the controversy in the present appeals is whether the aforesaid process undertaken by the dealer can be said to be the process for 'manufacture' within the definition of Section 2(14) of the Act or not is to be considered. 10. Identical question came to be considered by the Division Bench of this Court in the case of Laxmi Oil Mills Ltd. (supra) which has been relied upon by the learned Tribunal while passing the impugned common judgment and order. In the case before the Division Bench of this Court, the Division Bench was considering the definition of 'manufacture' defined under Section 2(16) of the GST Act and Rule (3) of the Gujarat Sales Tax Rules, 1970 (hereinafter referred to as the 'Rules'). In the said decision, it has observed by the Division Bench of this Court that wider meaning is given to the word "manufacture". It is further observed that the definition of "manufacture" is very wide and includes several activities such as extracting, collecting, altering, ornamenting, finishing or otherwise processing. It is further observed that it also excludes several processing activities as mentioned in Rule 3. It is observed that, therefore, the ordinary meaning of the word "manufacture" would be of no relevance and the statutory meaning given to the word "manufacture" under sub-section (16) of section 2 is required to be considered in each case. In the said decision, the Division Bench of this Court also considered the meaning of the word "processing". In the said decision, the Division Bench of this Court considered the decision of the Hon'ble Supreme Court in the case of Chowgule & Co. Pvt. Ltd. v. Union of India reported in [1981] 47 STC 124 (SC) : AIR 1981 SC 1014 and the decision of the Hon'ble Supreme Court in the case of Collector of Central Excise v. Rajasthan State Chemical Works reported in AIR 1991 SC 2222 . Pvt. Ltd. v. Union of India reported in [1981] 47 STC 124 (SC) : AIR 1981 SC 1014 and the decision of the Hon'ble Supreme Court in the case of Collector of Central Excise v. Rajasthan State Chemical Works reported in AIR 1991 SC 2222 . After considering the above, it is observed that in determining what constitutes "manufacture" no hard and fast rule can be applied and each case must be determined on its own facts having regard to the context in which the term is used in the provision under consideration. It is further observed that (i) whenever a commodity undergoes a change as a result of some operation performed on it and in regard to it, such operation would amount to processing of the commodity; (ii) each step towards production would be a process in relation to the "manufacture"; (iii) that the natural meaning of the word "process" is a mode of treatment of certain materials in order to produce a good result, a species of activity performed on the subject matter in order to transform or reduce it to a certain stage. It is further observed that what is necessary in order to characterise an operation as "processing" is that the commodity must, as result of the operation, experience some change. 11. Now, applying the law laid down by the Division Bench of this Court in the case of Laxmi Oil Mills Ltd. (supra) to the facts of the case on hand and the process undertaken by the dealer to convert the NSS to HS referred to hereinabove, the process undertaken by the dealer can be said to be process of 'manufacture' within the meaning of Section 2(14) of the Act and, therefore, as such, no error has been committed by the learned Tribunal in holding that the process undertaken by the dealer to convert the NSS to HS can be said to be the process of 'manufacture' within the meaning of Section 2(14)of the Act and consequently, the dealer would be entitled to the input tax credit. As observed hereinabove, as such, by the process undertaken by the dealer, seeds which was initially not marketable and eatable, would become eatable and marketable and, therefore, there will be change in the form. 12. As observed hereinabove, as such, by the process undertaken by the dealer, seeds which was initially not marketable and eatable, would become eatable and marketable and, therefore, there will be change in the form. 12. Now, so far as the reliance placed upon the decision of the Hon'ble Supreme Court in the case of Shiv Datt and Sons (supra) by Ms. Desai, learned A.G.P. appearing on behalf of the State is concerned, on considering the aforesaid decision and the process undertaken by the dealer, we are of the opinion that the said decision would not be applicable to the facts of the case on hand and/or the same shall not be of any assistance to the appellant. In the case before the Hon'ble Supreme Court considering the process undertaken, the Hon'ble Supreme Court opined that the process of removing the electrolyte and plates from the batteries cannot be said to be the process of 'manufacture' and will not come within the definition of the 'manufacture'. While holding so, the Hon'ble Supreme Court has specifically observed that the electrolyte was there earlier and its removal is only for the purpose already mentioned and the plates had also been charged earlier. Nothing was done to the goods afresh which had not been already done. To the aforesaid, the Hon'ble Supreme Court observed that it is very difficult to say, in such situation, that the process applied is a process contemplated by the definition of manufacture under Section 2(17) of the Act. 12.1. Similarly, even the decision of the Division Bench of this Court in the case of Polson Model Dairy (supra) also shall not be applicable to the facts of the case on hand. In the case before the Division Bench of this Court, on considering the Rule 3 of the Rules by which, the certain process enumerated and mentioned in Rule 3 of the Rules were excluded for the purpose of Clause (16) of Section 2 of the Act i.e. definition of 'manufacture', it was held that preparing the butter out of cream cannot be said to be the process of 'manufacture'. Under the circumstances, the said decision also shall not be applicable to the facts of the case on hand. 13. In view of the above and for the reasons stated above, we see no reason to interfere with the impugned common judgment and order passed by the learned Tribunal. Under the circumstances, the said decision also shall not be applicable to the facts of the case on hand. 13. In view of the above and for the reasons stated above, we see no reason to interfere with the impugned common judgment and order passed by the learned Tribunal. We are in complete agreement with the view taken by the learned Tribunal. No substantial question of law arises in the present tax appeals. 14. Under the circumstances, all these appeals deserve to be dismissed and are accordingly dismissed. In view of the dismissal of the appeals, all the respective OJCAs deserve to be dismissed and are accordingly dismissed.