TMI Blog2016 (12) TMI 696X X X X Extracts X X X X X X X X Extracts X X X X ..... y for testing at pre-manufacturing and post-manufacturing stage. The question is, therefore, answered in favour of the assessee and against the Revenue. ‘Product Information Literature’ - Held that: - The ‘Product Information Literature” which is mandatorily required under the provisions of the Drugs and Cosmetics Act, 1945 and unless and until such information mentioned in the “Production Information Literature” is provided, the final product/drug cannot be sold. For the reasons stated above, it is to be held consumable stores and therefore, raw material as defined under Section 2(19) of the VAT Act and therefore, being the raw material used in manufacture of taxable goods i.e. in the present case the drugs, the assessee shall be entitled to the Input Tax Credit on such “Product Information Literature”. It is answered in favour of the assessee and against the Revenue and it is held that on such “Product Information Literature” giving the information as required under the provisions of the Drugs and Cosmetics Act, 1945 and to be pasted on the box containing the drug, the assessee is entitled to the Input Tax Credit. Appeal allowed - decided in favor of appellant-assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dulged in the manufacture and sale of drugs and medicines. The assessee is also having laboratory unit for testing, research and development of the raw material and finished product of drugs and medicine at pre manufacturing stage and post manufacturing stage. The assessee claimed the Input Tax Credit under Section 11 of the VAT Act on he material / equipment used in the laboratory testing such as glassware / glass tube, raw material, chemical etc. contending inter alia that the testing is part of the manufacturing process and as per the relevant provisions of the Drugs and Cosmetics Rules, 1945 (hereinafter referred to as Rules, 1945 ) without such testing at pre manufacturing stage and post manufacturing stage, final product of drugs and medicines cannot be sold in the market. Therefore, the assessee submitted the determination application to the Joint Charity Commissioner of Commercial Tax (Legal), State of Gujarat, Ahmedabad and requested to determine whether on such glassware glass tube raw material, chemical etc. used in laboratory, testing in the laboratory unit, the assessee is entitled to the Input Tax Credit or not? That before the Joint Commissioner it was the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratory for testing raw and finished materials, the assessee is not entitled to Input Tax Credit under the provisions of the VAT Act, the assessee has preferred the present Tax Appeal No.1464/2008 for determination of the following substantial question of law. Whether on the facts and in the circumstances of the case, Gujarat Value Added Tax Tribunal was justified in law in holding that Laboratory Stores purchased by the appellant was not eligible for Inputs Tax Credit under the provisions of Section 11(3)(a)(vi) of the Gujarat Value Added Tax Act, 2003? [4.0] That assessee also approached the Joint Commissioner of Commercial Tax (Legal) for determination order whether the literature used for Cepime Injection i.e. Product Information Literature, the assessee is entitled to Input Tax Credit or not. It was the case on behalf of the assessee that under the Rules, 1945, full details of the drugs were required to be given and for that purpose literature was printed and put inside the box containing the drug which was part of packing material. It was submitted that in the said literature there is nothing more than what is required under Rule 96 of the Rules, 1945. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Appeal No.1318/2008 for determination of the following substantial question of law. Whether on the facts and in the circumstances of the case, Gujarat Value Added Tax Tribunal was justified in law in holding that Product Information Literature purchased by the appellant was not eligible for Inputs Tax Credit under the provisions of Section 11(3)(a)(vi) of the Gujarat Value Added Tax Act, 2003? Tax Appeal No.1464/2008 [5.0] Shri S.N. Soparkar, learned Senior Advocate appearing on behalf of the appellant assessee has vehemently submitted that the laboratory stores would find part of raw material used for manufacture of the final product and hence, the assessee would be entitled to Input Tax Credit on the same under Section 11(3)(vi) of the VAT Act. [5.1] It is vehemently submitted by Shri Soparkar, learned Counsel appearing on behalf of the assessee that according to Clause VI sub section (3) of section 11 of the VAT Act, the Input Tax Credit can be claimed with respect to (1) raw material used in manufacturing of taxable goods; (2) packaging of the goods so manufactured. [5.2] It is submitted that the term raw material is defined under sub Section (19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel appearing on behalf of the assessee that even the goods that are used for the purpose of making the goods available for actual physical marketing are also considered as goods used in manufacturing. In support of his above submission, he has relied upon one another decision in the case of Commissioner of Sales Tax vs. Vadilal Dairy Frozen Food Industriesreported in 44 SJT 48. Making above submissions, it is submitted that the assessee is entitled to the Input Tax Credit on the laboratory stores consumed by the assessee for the purpose of testing manufactured product used in the laboratory. Making above submissions it is requested to answer the question in favour of the assessee and against the revenue. [6.0] Shri Hardik Vora, learned AGP on behalf of the Revenue has vehemently submitted that the laboratory stores are not goods used as ingredient in the manufacture of other goods or processing materials or consumable stores and therefore, the same cannot be included in the raw materials as defined under sub section (19) of section 2 of the VAT Act and therefore, not entitled to the Input Tax Credit under Section 11 of the VAT Act. It is submitted that therefore t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facture, the assessee is entitled to the Input Tax Credit under Section 11(3)(vi) of the VAT Act. [7.3] In the alternative it is submitted by Shri Soparkar, learned Counsel appearing on behalf of the assessee that even if it is assumed for the sake of argument that the Product Information Literature does not fall within the ambit of Packaging Material as provided under sub section (19) of section 2 of the VAT Act, then in such an event it will fall within the ambit of consumable store as provided in sub section (19) of section 2, since, Product Information Literature would be consumed by the end user of the product. [7.4] It is submitted that such Product Information Literature is mandatory requirement under the provisions of the Rules, 1945 and unless and until such information contained in the literature is not provided, the final manufactured product / drug is not marketable as it cannot be sold without the same. It is submitted that in the present case the information is such a big that it cannot be printed on the package and therefore, such information is provided in the form of separate literature and the same is placed in the package / box along with the drug. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory unit maintained and owned by the assessee. [9.1] It is the case on behalf of the assessee that the assessee who is a pharmaceutical company and manufacturing drugs and medicines. That for the purpose of testing of the raw material at pre manufacturing stage and testing of the final product at post manufacturing stage, they have established a laboratory unit. It is the case on behalf of the assessee that for testing at pre manufacturing stage and post manufacturing stage, laboratory stores / goods such as glassware / glass tube, raw material, chemical etc. are required to be used in the process of testing. It is the case on behalf of the assessee that such a testing at pre manufacturing stage and post manufacturing stage is the statutory requirement under Rule 22.4 of the Rules, 1945. It is the case on behalf of the assessee that unless and until such a testing is made as required under Rule 22.4 of the Rules, 1945, the final manufactured drug and/or medicine cannot be sold. The aforesaid is not disputed and as such cannot be disputed by the Revenue more particularly considering Rule 22.4 of the Rules, 1945. Even the learned Tribunal in the impugned judgment and order has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the VAT Act. [9.3] The next question which is posed for consideration of this Court is whether such raw materials (in the present case consumable stores) can be said to be used in manufacturing as contained in section 11(3) (vi) of the VAT Act? While considering the aforesaid question few decisions of the Hon ble Supreme Court are required to be referred to and considered. [9.3.1] In the case of J.K. Cotton (Supra), it is held by the Hon ble Supreme Court that if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacturer may, even if theoretically possible, by commercially inexpedient, goods intended for use in the process or activity will qualify for special treatment. In the case before the Hon ble Supreme Court the assessee was a company manufacturing cotton textiles, tiles and other commodities. Before the Hon ble Supreme Court the question was whether the drawing instrument, photographic material etc. whether can be said to be used in the manufacture or processing of the goods or sale or not? The Sales Tax Officer excluded the drawing and photographic materials while considering the ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expressly made admissible for specification. Drawing and photographic materials falling within the description of goods intended for use as equipment in the process of designing which is directly related to the actual production of goods and without which commercial production would be inexpedient must be regarded as goods intended for use in the manufacture of goods . [9.3.2] Identical question came to be considered by the Division Bench of this Court in the case of Surgichem (Supra). In the said decision the Division Bench has observed that anything that goes into product to make it marketable, it becomes part and parcel of that produce or article. In the said decision it is observed that in order that a commodity can be said to be goods it should become marketable and unless an article becomes marketable, it may not be labeled as goods. In the case before the Division Bench the dealer was manufacturing plaster tapes. During the course of assessment proceedings the assessee was granted set off in respect of the tax paid by it for the purchase of plastic goods used in manufacture of adhesive plaster tapes. The Assistant Commissioner of Sales Tax took the matter in suo moto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aring for the assessee urged that the Tribunal committed an error of law in ascribing a very limited meaning to the term in the manufacture of taxable goods for sale prescribed by the legislature in section 13(1)(B) for entitling a manufacturer to purchase raw or processing materials or consumable stores with that end in view, tax free, on furnishing a certificate under section 13(1)(B). In the submission of the learned Advocate, it would not have been commercially possible for the assessee to manufacture taxable goods for sale without the use of the articles in question and that it is not necessary that such articles should necessarily be required strictly for the purpose of producing a finished product. On the other hand, on behalf of the revenue, this contention was sought to be repelled by urging that the legislative intent has been clearly evinced in section 13(1)(B) that all those articles, which are more or less in the nature of packing materials, cannot be purchased by a manufacturer since they are neither raw materials nor processing materials nor consumable goods and this intent is clearly manifest if the comparison is made with the corresponding provision con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticles and called upon the assessee company to surrender the certificate for making necessary amendments. The assessee company, therefore, moved the High Court of Allahabad for necessary writ, order or direction for quashing the order of the Sales Tax Officer. At the time of hearing before the High Court the assessee company did not press its claimed so far as the articles of iron, steel and coal were concerned but for the remaining articles it was contended that the same were covered by section 8(3)(b) of the Central Sales Tax Act read with rule 13 framed under section 13 of the Act. The High Court did not agree with the claim of the assessee company since the articles in question were not comprehended in the expression in the manufacture or processing of goods for sale within the meaning of section 8(3)(b) read with rule 13. The assessee company, therefore, carried the matter before the Supreme Court. Sub section (1) of section 8 of the Central Sales Tax Act provided for the rates of tax to be paid on the turnover by a dealer selling in the course of inter State trade or commerce to a registered dealer goods of the description mentioned in sub section (3). Clause (b) of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually needed for 'turning out or the creation of goods'. In our judgment, if a process or activity is so integrally related to the ultimate manufacture of goods so that without that process or activity manufacture may, even if theoretically possible, be commercially inexpedient, goods intended for use in the process or activity as specified in rule 13 will qualify for special treatment. This is not to say that every category of goods 'in connection with' manufacture of, or 'in relation to' manufacture, or which facilitates the conduct of the business of manufacture will be included within rule 13. Attention in this connection may be invite to a judgment of this court in which it was held that vehicles used by a company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within rule 13, even if the vehicles were used merely for removing ore from the mine to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories requires for the effective operation of those vehicles were also held to fall within rule 13. See Indian Copper Corporation Ltd. v. Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted meaning since they are used along with the word raw or processing materials in section 13(1) (B). In the ultimate analysis, the relevant question is : are the articles in question the prescribed articles required in the manufacture of taxable goods for sale ? In other word, are they consumable stores of materials required in a process or activity which is integrally connected with the manufacturing activity and without which the activity of manufacture may be commercially inexpedient ? The answer, in our opinion, is that the article in question in this reference, namely, kathi (twine), is part of such consumable stores which would be necessarily required in the activity of marketing the goods which is essentially connected with the larger activity of manufacture. We do not want to say that all the articles or materials which may facilitate the business of manufacture would be such consumable goods as entitled to be purchased tax free. The ornamental packing of an article for tying carton or boxes in which the manufactured goods are packed so as to make them attractive in the market cannot ex facie claim such exemption provided in section 13(1)(B) since they are also the arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods are not prohibited goods and that the goods were purchased or used as raw material or processing material or as consumable stores in the manufacture of taxable goods. Therefore, what we are required to consider is as to whether the goods mentioned in the question have been used by the dealer in manufacture of the taxable goods. We would consider the goods separately. (1) Name plates : Unless the name plates are fixed on the ultimate product, the product would not be marketed. Therefore it has got to he held that name plates are the goods used by a manufacturer in the manufacture of taxable goods in question. This question is concluded by the Supreme Court in favour of the assessee in the case of Collector of Central Excise v. Jay Engineering Works Ltd. reported in [1989] 75 STC 313. It was a case of fan. However, the principle laid down by the Supreme Court would apply even in relation to oil engine also. In view of this settled legal position, as far as this item is concerned, the question is required to be answered in the affirmative in favour of the assessee and against the Revenue. (2) Wooden strips, cellacglue, hosepipes, hardware, packing material and timber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expression consumable stores occurring in section 13(1)(B) of the Act. While determining this question, the Tribunal has followed the principles laid down by this Court in the case of Vasuki Carborundum Works [1979] 43 STC 294. As indicated hereinabove, this Court has followed the decisions of the Supreme Court in the case of Indian Copper Corporation Ltd. [1965] 16 STC 259 and J.K. Cotton Spinning Weaving Mills Co. Ltd [1965] 16 STC 563. Therefore we need not reiterate the principles laid down by the Supreme Court and followed by this High Court. We proceed to determine as to whether any error is committed by the Tribunal while applying the principles in relation to specific item. 14. Except in the case of ghan and hammer , we do not find that any error is committed by the Tribunal while considering the other items as consumable stores . As far as ghan and hammer are concerned, it is difficult to conceive that they can ever be said to be consumable stores. When oil engine is manufactured, ghan and hammer are being used in the process of manufacture of oil engine. They are certainly not raw materials or processing materials. Neither ghan nor hammer is ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing drug. It is the case on behalf of the assessee that in the present case as the particulars which are required to be printed are such that which cannot be printed on the box and/or small piece of paper and therefore, such a literature is printed on a separate paper and put inside box containing the drug. According to the assessee the literature / pamphlet / Product Information Literature packed along with drug can be said to be packaging material as the same can be said to be paper labels as contained in the notification issued by the Government dated 29.03.2006. Therefore, it is the case on behalf of the assessee that such Product Information Literature is paper label and therefore, it can be said to be packing material and therefore, it will fall within the definition of raw material contained in Section 2(19) of the VAT Act. However, it cannot be said that such Product Information Literature can be said to have been used in packaging of the goods. Considering Section 2(19) of the VAT Act, as observed hereinabove raw materials means goods used as ingredient in the manufacture of other goods and includes processing materials, consumable stores and material used ..... X X X X Extracts X X X X X X X X Extracts X X X X
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