TMI Blog1994 (11) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... da, sugar, fats, chemicals and packing materials and claims to utilise the same in the manufacture of biscuits. It had entered into an agreement with the 4th respondent, viz., M/s. Ampro Food Products (P) Limited, Hyderabad, on August 26, 1987, under which the 4th respondent agreed to manufacture biscuits with the raw materials supplied by the petitioner, according to the requirements of the petitioner as per the terms and conditions incorporated in the agreement. Section 5-B of the Act before it was amended by Act No. 4 of 1989 with effect from January 21, 1989, was in the following terms: "5-B. Levy of concessional tax in respect of component parts, etc.(1) Notwithstanding anything in this Act, every dealer shall pay, in respect of any sale of goods specified in a scheme published by the State Government by notification to another for use by the latter as raw material, component part, subassembly part, intermediate part, consumables and packing material of any other goods specified in the said scheme, which he intends to manufacture inside the State for sale in the State or in the course of inter-State trade or commerce, a tax, at such rate not exceeding four paise in the rupee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the dealers from whom the raw materials were purchased by them at the concessional rate of tax laid down in section 5-B of the Act. The declaration, which the purchasing dealer was required to issue, was prescribed in form G and, on the strength of the declaration, after verifying the same, the assessing authority used to issue certificate in form H for claiming the concessional rate of tax. It is not in dispute that prior to January 21, 1989, the petitioners were getting the benefit of lower rate of tax under section 5-B, as it stood then; their declarations were accepted and certificates were issued to them. Section 5-B was amended by Ordinance 2 of 1989, which was replaced subsequently by Act No. 4 of 1989 with effect from January 21, 1989. After the amendment, section 5-B reads: "Levy of concessional tax in respect of certain goods.-(1) Notwithstanding anything in this Act, every dealer shall pay, in respect of any sale of goods to another dealer for use by the latter as raw material, component part, sub-assembly part, intermediate part, consumables and packing material of any other goods which he intends to manufacture inside the State, a tax at the rate of four paise i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture: (2) The assessing authority receiving the application shall, if he is satisfied after making such enquiry as he considers necessary that the application is bona fide and the particulars contained therein are correct and complete, register the manufacturer and shall issue a certificate to the manufacturer in form G2 within 30 days from the date of application. Where the manufacturer has more than one place of manufacture a copy of such certificate for every place of manufacture within the State shall be issued. (3) Where the assessing authority is satisfied that the application is not bona fide and the particulars contained therein are not correct and complete, he may reject the application for reasons to be recorded in writing after giving an opportunity of making a representation against the rejection. (4) No registration issued shall be sold or transferred. (5) Where a dealer desires a certificate of registration issued under these rules be amended, he shall submit an application for this purpose to the assessing authority setting out the specific matters in respect of which he desires such amendments and the reasons therefor together with the certificate of regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaration in form G and also submit an application in form G1 to the assessing authority for registration as a "manufacturer". After verifying the particulars contained in forms G and G1, the assessing authority issues to the manufacturer a certificate in form G2, which enables him to pay the tax at the concessional rate in respect of the purchases of raw materials utilised by him in the manufacture of finished goods within the State. The petitioner made an application to the assessing authority-Commercial Tax Officer, Company Circle, Abids Division, Hyderabad-respondent No. 1, on September 22, 1989, bringing to his notice that it purchases raw materials such as maida, sugar, fats, chemicals and packing materials, utilises the same for the manufacture of biscuits under the brand name "Ampro", it entered into an agreement with the 4th respondent for the manufacture of the biscuits, the latter was not availing of the concessional rate of tax under section 5-B of the Act, and requested for issue of the required registration certificate. A show cause notice was issued by the 1st respondent on November 7, 1989, informing the petitioner that since it did not have its own manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ials made available to the 4th respondent for making the biscuits and the manufacture of biscuits by the 4th respondent is according to the specifications laid down by the petitioner. When the petitioner has full control over the product, it is unrealistic to say that it is not a "manufacturer ". The requirement of the petitioner having its manufacturing unit under section 5-B(2)(i) of the Act should not be literally construed. It is enough if the petitioner happens to be a manufacturer; it is immaterial whether the finished product is manufactured in the unit belonging to the petitioner or got manufactured by it in some other unit. Sri Ravi, learned counsel for the petitioner in W.P. No. 17523 of 1990, while supplementing the arguments of Sri Manohar, urges that the ostensible objectives for enacting section 5-B are for making the best use of the raw materials available in the State and for providing incentive for entrepreneurs to set up manufacturing units in the State which in turn would enhance the industrial wealth of the State and secure employment to the residents of the State. As these objectives have been admitted in the counter-affidavit filed by the respondents, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ads: "the processor shall at all times enjoy the rights of manufacturing biscuits for others, including themselves, subject always to the condition that Emjak's requirements shall be met first". (Emphasis* added). The agreement does not vest exclusive control in the petitioner in respect of the unit belonging to the 4th respondent in which the biscuits are manufactured. Same is the case with the petitioner in W.P. No. 17523 of 1990. As already noticed, the statutory requirement under section 5-B is that, in order to claim the concessional rate of tax, the dealer must have his manufacturing unit within the State. If any dealer not having such manufacturing unit furnishes a declaration under the proviso to sub-section (1) of section 5-B of the Act, he is liable to penalty under sub-section (2) which lays down that the assessing authority may impose upon the dealer by way of penalty, after affording him a reasonable opportunity of being heard, a sum which shall not be less than three times but which may extend to five times the amount of tax leviable on the sale of such goods so purchased. We shall now advert to the decisional law relied upon by the counsel for the petitioners. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isans for converting gold into ornaments, and then sell the ornaments to consumers showing, in their bills, the value of the gold and the cost of manufacture separately. Because of the nature of the business transacted by the petitioners therein and the context in which the expression "manufacturer" occurred in the notification issued by the Orissa Government, the Orissa High Court held that the petitioners were entitled to the benefit of exemption. It was held that the expression "manufacturer" occurring in the exemption clause meant the first owner of the finished product for whom it is made, either by his paid employees or even by independent artisans on receipt of raw materials and labour charges from him. The reasoning of the Orissa High Court was followed by the Allahabad High Court in Bulbu Prasad Amarnath v. Commissioner of Sales Tax [1964] 15 STC 46 in which one of the points considered was, whether the assessees therein were manufacturers of linseed oil and so were liable to tax as such on their sales of linseed oil. Admittedly, the assessees had no oil mill; but they used to pay the owner of the mill his charges for crushing the oil-seeds into oil, brought the same to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and the products manufactured were of the quality prescribed by the assessee. The risk for the entire operation was that of the assessee. In view of this, we fail to see how it can be said that it was not the assessee but Pharmed which manufactured the said drugs and pharmaceuticals, the goods in question............". In Palghat Oil Mills v. State of Kerala [1987] 65 STC 169 (Ker), a notification issued by the Government of Kerala, by which the rate of tax payable by an oil miller under the Kerala General Sales Tax Act, in respect of purchases of coconut oil and coconut oil cake "in his mill" for sale, is reduced from 3 per cent to 2 per cent, fell for consideration. Construing the words "his mill" in the context of the notification issued on April 1, 1969 and laying emphasis on the exclusive control aspect rather than the aspect of title to the mill, the Kerala High Court held that: "2. The words 'his mill' in the context of the two notifications, in our view, refer to a mill solely operated by the assessee. The assessee must be in such control of the mill as to be its sole operator. His control may be by virtue of his full or limited ownership or other rights in the mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court had distinguished the decision of the Allahabad High Court in Bulbu Prasad Amarnath v. Commissioner of Sales Tax [1964] 15 STC 46 and the Bombay High Court in Commissioner of Income-tax v. Neo Pharma Private Ltd. [1982] 137 ITR 879 had distinguished the decision of the Madras High Court. In interpreting the specific language employed in section 5-B of the Act, which requires that in order to claim the benefit of concessional rate of tax the dealer should have his manufacturing unit within the State, the decisions of the Orissa, Bombay and Allahabad High Courts, relied upon by the petitioners, are of no relevance after the deletion with effect from January 21, 1989, of rule 3(gg) of the A.P. General Sales Tax Rules which defined the expression "manufacturer". None of these decisions deal with the question as to what is meant by the words "having his manufacturing unit". A plain meaning of these words, in the context in which they occur, is that a person in order to claim the benefit of section 5-B, must have a manufacturing unit either of his own or over which he has exclusive control. With respect, we agree with the view of the Kerala High Court in Palghat Oil Mills v ..... X X X X Extracts X X X X X X X X Extracts X X X X
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