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2016 (1) TMI 869 - MADRAS HIGH COURT

2016 (1) TMI 869 - MADRAS HIGH COURT - [2016] 91 VST 278 (Mad) - Input Tax Credit on the capital goods - crushing of stone is manufacturing activity or not. - TNGST - for the purpose of quarrying operations, crushing plants, excavators and front end loaders and its spare parts and accessories are purchased within the State as well as from other States against Form C under the Central Sales Tax Act, 1956. - Held that:- the crusher machine cannot be treated as capital goods - this Court is not inc .....

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ying penalty, have been challenged in these Writ Petitions. 2. The case of the Petitioner is as follows:- a. The Petitioner is a registered dealer under the Tamil Nadu General Sales Tax Act, 1959 and is engaged in the business of construction activities. The Petitioner was granted quarry lease for a period of 10 years by proceedings dated 22.02.2008 for an extent of 5.00 hectares, which is a Government poramboke land, in SF.No.102/6 (Part) of Gajjelnaickenpatty Village, Salem Taluk and an indent .....

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loaders and its spare parts and accessories are purchased within the State as well as from other States against Form C under the Central Sales Tax Act, 1956. However, the Input Tax Credit was availed only on the capital goods, parts and accessories purchased from the local registered dealers. The Petitioner availed Input Tax Credit on the capital goods, namely 'excavator' and 'front end loaders at 50% and availed full Input Tax Credit on the parts and accessories. The Petitioner wa .....

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tice dated 4.9.2014, proposing to reverse the Input Tax Credit, to which the Petitioner submitted an objection dated 22.09.2014. Since the Petitioner was denied of personal hearing, the Petitioner filed WP.Nos.28322 to 28324 of 2014, wherein it was directed to consider the objections in the light of definitions under Section 2(27) with regard to 'manufacture' and capital goods as defined under Section 2(11), after affording an opportunity. Thereafter, the Petitioner appeared and filed ad .....

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ut Tax Credit on the capital goods and its spare parts is contrary to law and that utilizing excavators and front end loaders for the purpose of excavation and processing to make the rocks adaptable for use as jelly, chakkai, etc. would amount to 'manufacture' as defined under Section 2(27) of the Act and that when the certificate of registration in form B issued to the Petitioner under Section 8(3)(b) of the Central Sales Tax Act, 1956 to purchase capital goods against form C for the .....

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he Petitioner also relied upon the judgments reported in 1956 7 STC 626 (The State of Bihar Vs. Chrestien Mica Industries Ltd), 1957 8 STC 294 (G.R.Kulkarni Vs. The State), 1961 12 STC 150 SC (Chrestien Mica Industries Ltd Vs. The State of Bihar), 1980 6 ELT 343 SC (Deputy Commissioner of Sales Tax (Law), Ernakulam Vs PIO Food Packers) ,1990 79 STC 149 (Kher Stone Crusher Vs. General Manager, District Industsries Centre, Jabalpur), 1992 87 STC 339 (State of Tamil Nadu Vs. O.P.Aliyar), 2000 118 S .....

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re, as no new different and distinct commodity emerges by the process of crushing and that crushing of boulders into smaller size of stones is mere reducing the size and would not amount to manufacture and therefore, Input Tax Credit on the purchases of JCB spares, excavator spares and earth moving equipments as capital goods shall not be availed, inasmuch as, as per Section 19(7) and 19(7)(b) of the Tamil Nadu Value Added Tax Act, 2006, the dealer is not eligible for Input Tax Credit on the pur .....

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raised by the Petitioner is only a question of fact and therefore, this writ petition is not maintainable. 5. This court heard and considered the submissions made by the learned counsel on either side and also perused the materials placed on record. 6. The Petitioner has claimed ITC on the purchase of crushing plants , excavators and front end loaders and its spares, which according to the Petitioner, are used in the mining activity, for which he has been granted a licence. The spares and capita .....

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ng, finishing, assembling or otherwise processing, treating or adapting any goods and includes any process of goods which brings into existence a commercially different and distinct commodity but does not include any activity as may be notified by the Government. 8. It is also relevant to refer to Section 2 (11) of the TNVAT Act, which deals with Capital Goods, as under:- Section 2(11):- Capital Goods means, - (a) plant, machinery, equipment, apparatus, tools, appliances or electrical installati .....

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the purpose of manufacture, processing, packing or storing of goods in the course of business excluding civil structures and such goods as may be notified by the Government; 9. It is evident from Section 2 (11) that there is only a generalisation of machineries and its spares. It does not name the goods. The definition only specifies that the goods, which are used for the purpose of manufacture, can be categorized as capital goods. The tax paid for the purchase of capital goods used in manufact .....

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crushing the boulders into Blue Jelly for sale. 10. The following judgments have been relied upon by the learned counsel for the Petitioner in support of his contentions. 11. In 1956 7 STC 626 (The State of Bihar Vs. Chrestien Mica Industries Ltd), it has been held as under:- As I have already said, the word 'manufacture' in Section 2(g) in its context means that something is brought into existence which is different from that originally existing, in the sense that the thing produced is .....

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lly met. In 1955-6 STC 30 (C), there is a reference to the fashioning of timber into logs for the purposes of sale, and Bhutt J., who decided the case, held that it is a manufacturing process. It is contended that on a parity of reasoning the chopping of wood into fuel would be a manufacturing process. Perhaps, that is an extreme example, and we are not called upon to pronounce upon it; but the making of metal for the purposes of ballast and road is a well known trade and occupation and is a ver .....

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also the slate blocks which were won were merely split into sheets with the use of a hammer and chisel or wedges. The entire process was manual. We do not see any distinction between the fashioning of slate from a block and the fashioning of a graded size metal from a big block or boulder of stone. The essential condition is the same, viz., that there is an expenditure of some skill in fashioning an object of a different size and shape, ready for a commercial deal. In the present case, the man .....

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ady stated above, the definition does no more than bring out the essential meaning of the word 'manufacture' as used in the Act. 13. In 1961 12 STC 150 SC (Chrestien Mica Industries Ltd Vs. The State of Bihar), it has been held thus:- Mica is found imbedded in the pegmatite vein in the form of what are known as 'books of mica'. These are crystals of mica and comprise the mineral in its crude form. They may vary in size from a few cubic inches to big blocks, measuring two to three .....

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ckle dressing department; it is claimed that this involves less waste. After sickle dressing the mica goes to the grading dept, where the mica is graded accoding to size. Finally the mica passes to the sorting department, which is the most important stage. The principal qualities upon which sorting depends are clearness, hardness, flatness, colour and the size and number of 'air' inclusions and 'vegetable' and mineral stains. The different degrees of these qualities are not capab .....

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nto two thinner blocks and removing a defective film between them, may raise the quality of the resultant blocks and make a big increase in the selling value of the mica. On the other hand, a mistake in judgement on his part will affect the weight, and therefore, the value of the mica which can be sold as block. After sorting stage the mica is in three forms, block mica, chillas and waste, block mica is the dressed, graded and qualified product, varying in thickness from eight to thirty mils. Th .....

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ct, but according to the Oxford English Dictionary, 'production' means amongst other things that which is produced, a thing that results from any action, process or effort, a product; a product of human activity or effort. It is obvious that what is described in the report above quoted would fall within the dictionary meaning of the word 'production'. It is unnecessary to decide what the word 'manufacture' means. As what was sold was mica produced in Bihar by the appellan .....

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eezing a chicken is certainly a change in the commodity. But it is no more drastic change than the change which takes place in milk from pasturising, homogenizing, adding vitamin concentrates, standardising and bottling." It was also observed: ".................. there is hardly less difference between cotton in the field and cotton at the gin or in the bale or between cotton seed in the field and cotton seed at the gin, than between a chicken in the pen and one that is dressed. The gi .....

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be transformation; a new and different article must emerge, having a distinctive name, character or use." And further: "At some point, processing and manufacturing will merge. But where the commodity retains a continuing substantial identity through the processing stage, we cannot say that it has been "manufactured". The comment applies fully in the case before us. Although a degree of processing is involved in preparing pineapple slices from the original fruit, the commodity .....

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an employed to contain it. It is not as if the higher price is claimed because it is a different commercial commodity. It is said that pineapple slices appeal to a different sector of the trade and that when a customer asks for a can of pineapple slices he has in mind something very different from fresh pineapple fruit. Here again, the distinction in the mind of the consumer arises not from any difference in the essential identity of the two, but is derived from the mere form in which the fruit .....

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er goods for purposes other than sale. 8. In the result, we hold that when pineapple fruit is processed into pineapple slices for the purpose of being sold in sealed cans there is no consumption of the original pineapple fruit for the purpose of manufacture. The case does not fall within s. 5-A(1)(a) of the Kerala General Sales Tax Act. The High Court is right in the view taken by it. 15. In 1990 79 STC 149 FB (MP) (Kher Stone Crusher Vs. General Manager, District Industsries Centre, Jabalpur), .....

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ion of the American Supreme Court is stated to be the following : "Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary.........There must be transformation; a new and different article must emerge, 'having a distinctive name, character or use'." Applying the above test laid down by the Supreme Court to the case in hand, we have no difficulty in .....

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any manufacturing activity and could not claim the eligibility certificate for sales tax exemption 16. In 1992 87 STC 339 (State of Tamil Nadu Vs. O.P.Aliyar), it has been held as under:- 2. A question arose whether the blue metal jelly obtained by conversion of the bigger stone boulders into smaller stones of varying sizes would be subjected to purchase tax under section 7A of the Tamil Nadu General Sales Tax Act or not. The assessee-respondent was subjected to such a tax, on a reading in sect .....

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igger stone boulders into smaller stones of varying sizes is not a manufacture through which blue metal jelly is obtained. The Tribunal has referred to a decision in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes) v. Pio Food Packers [1978] 41 STC 364 (Ker) and other authorities on the subject. Corpus Juris Secundum, volume 55, at page 685, explained the term "manufacture" thus: "In determining whether an activity is or is not a manufacture, or whether a process o .....

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ect of considerable discussion and the courts have experienced some difficulty in determining what constitutes a new and different article." Ismail, C.J. and M. A. Sathar Sayeed, J. were faced with a similar contention in State of Tamil Nadu v. Subbaraj and Co. [1981] 47 STC 30 (Mad.) where the assessee bought raw bones and converted them into crushed bones by a process of braking the bones in a disintegrator into pieces of 3/8" and 5/8" bones, and obtained in that process bone gr .....

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of the Act uses the words : "7-A(1). Every dealer who in the course of his business purchases from a registered dealer or from any other person, any goods (the sale or purchase of which is liable to tax under this Act) in circumstances in which no tax is payable under section 3, 4 or 5, as the case may be, and either, (a) consumes such goods in the manufacture of other goods for sale or otherwise; or ................ shall pay tax on the turnover relating to the purchase aforesaid at the ra .....

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eyond the State or any despatch outside the State. We are of the opinion that the Tribunal has correctly understood the law and rightly held that all the ingredients of section 7-A are not satisfied in the case of blue metal jelly obtained in the process of crushing of stone boulders and conversion into smaller stones of varying sizes. There is no merit in this tax case. It is accordingly dismissed. There will be no order as to costs. 17. In 2000 118 STC 287 SC (Commissioner of Sales Tax, UP Vs. .....

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commodities emerge or come into existence, they become separately, taxable goods for purposes of sales tax. Where commercial goods, without change of their identity as such goods, are merely subjected to some processing or finishing, they may remain commercially the same goods which cannot be taxed again, in a series of sales, so long as they retain their identity as goods of a particular type. We are fortified in this view by the decision in State of Tamil Nadu v. Pyare Lal Malhotra, [1978] 2 .....

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taka, (1983) 49 STC 110, turned on the concept of consumption of goods for the purpose of bringing into existence new goods. In that case the Court was not concerned with an entry of the nature with which we are concerned in the present case. Where the dealer had brought into existence new commercial goods by consuming the builders to bring out small pieces of stone, it was held that such activity attracted purchase tax. In the present case, however, stone, as such, and gitti and articles of sto .....

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w taken by the majority of the Tribunal and affirmed by the High Court stands to reason. We are, therefore, not inclined to interfere with the same. 18. In 2004 271 ITR 331 (Commissioner of Income Tax Vs. Sesa Goa Ltd), it has been held as under:- It has also been held by this Court in CIT v. N.C. Budhaiaja & Co. and Anr. (1993) 204 ITR 412 (SC) that the word "production" is much wider than the word "manufacture". It was said : "The word 'production' has a wi .....

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nufacture of goods." It is, therefore, not necessary, as has been sought to be contended by learned counsel for the Revenue, that the mined ore must be a commercially new product. The decisions and other authorities on the definition of the word "ore", as cited by the appellant, are irrelevant. Learned counsel appearing on behalf of the assessee, correctly submitted that the other provisions of the Act, particularly Section 33(1)(b)(B) r/w item No. 3 of the Fifth Schedule to the A .....

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(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of Section 32A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to "manufacture" is left open. The civil appeal is, accordingly, dismissed but without any order as to costs. 19. Upon careful consideration of the ratios laid down in the above judgments, this court is of the view that the above judgments do not support the case of the Petitioner. The ju .....

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product is evolved and accepted the version of the assesse even when preservatives were added. As rightly rejected by the 1st respondent, no such process is also involved in the present case. 20. In so far as the Judgments reported in 1957 8 STC 294 and 1990 79 STC 1498 are concerned, though the definition of the term manufacture is wide under Section 2(j) of the MPGST Act, there is a difference in the definition of the term under the TNVAT Act. The commodity must not only be different, but i .....

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nt reported in 2000 118 STC 287 SC, the Apex Court after discussing the term 'manufacture' has held that boulders broken into stones of smaller size or gittis as still stones. The relevant portion is extracted below:- The purpose of sales tax is to levy tax on sale of goods of each variety and not the sale of the substance out of which they may have been made. As soon as separate commercial commodities emerge or come into existence, they become separately, taxable goods for purposes of s .....

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entifiable with the stone boulders, which have been bought by the dealer. 21. In the present case, however, stone, as such, and gitti and articles of stones are all of similar nature though by size they may be different. Even if gitti, kankar, stone-ballast, etc. may all be looked upon as separate in commercial character from stone boulders offered for sale in the market, yet it cannot be presumed that Entry 40 of the notification is intended to describe the same as not stone at all. In fact the .....

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come to the aid of the Petitioner because as held by the Apex Court, production necessarily does not imply the emergence of a commercially new product. The commodity dealt therein was mining ore and Production is different from manufacture. In fact the Apex Court has left open the issue as to whether the activity of mining of ore would amount to manufacture or not. It was a case arising out of appeal against the order of the ITAT after the fact finding authorities had given their verdict. 23. T .....

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e. 24. It is pertinent to mention here that this is the second round of litigation. Of course, under certain circumstances where the earlier direction is not followed or when there is violations of principles of natural justice or when there is a pure question of law, the Petitioner can move a writ petition. But, this is not one of such occasions. Earlier, when no personal hearing was granted, this Court quashed the revision orders and directed the 1strespondent to grant personal hearing and pas .....

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ner has claimed to have substantiated its claim by producing documentary evidence, no such documents were submitted. Therefore, it would only be appropriate for the Petitioner to approach the appellate authority where the factual aspects can be gone into. 25. The learned counsel for the Petitioner has relied upon the judgment in 2001 122 STC 594 SC, on the maintainability of the writ petition to contend that the availability of the alternative remedy is not a bar. In the said judgement, it has b .....

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ons of the Act would have to be complied with, but the availability of the writ jurisdiction should dispel any doubt which a citizen has against a high handed or palpable illegal order which may be passed by the assessing authority. 5. For the aforesaid reasons, these appeals are allowed and the judgement of the High Court is set aside. 26. There is no quarrel over the well settled principle that availability of an alternative remedy is not a bar. Also when the order is illegal, this court can c .....

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Under, these circumstances, this Court is of the view, that the proper recourse for the Petitioner is only to approach the appellate authority. 27. The Division Bench of this Court, in the judgment reported in 2015-16 TNCTJ 106 (DB) (Salem Tollways Limited Vs. The Assistant Commissioner (C.T), negated an identical plea and held that the crusher machine cannot be treated as capital goods in the following paragraphs:- 4. The Appellate Authority after considering the grounds of appeal and taking n .....

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nate expression means producing, making, extracting, altering, ornamenting, finishing, assembling or otherwise processing, treating or adapting any goods and includes any process of goods which brings into existence a commercially different and distinct commodity but does not include any activity as may be notified by the Government. It is settled principles of law that the general prevalent test is whether the article produced is regarded in the trade, by those who deal in it, as distinct in id .....

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(1992) reported in 87 STC 339(Mad) it was held that "when blue metal jelly obtained in the process of crushing of stone boulders and converted in to smaller stones of varying sizes, there is no manufacturing process involved". Following this principles, the contention of the appellants that there is manufacturing activity at the hands of the purchasers of the machinery sold by the appellants, is not acceptable. Section 2(11) defines capital goods, as the plant and machinery used for m .....

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ion of principles of natural justice or arbitrariness in the proceedings. The issue raised by the petitioner is a question of fact. It has to be finally decided by the Tribunal and the statute provides for the same. Whatever point that has been addressed by the petitioner before the Original Authority and First Appellate Authority, has been considered by the Authority and a decision has been rendered on the merits of the case. It is, therefore, for the petitioner to pursue the next form by way o .....

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