Judgment

B.P. JEEVAN REDDY, J.

(1) LEAVE granted.

(2) THE appeals are preferred against a common judgment of the orissa High court in five writ petitions. All the five writ petitions were filed by the respondent herein, Jagannath Cotton Company, wherein the question is whether the respondent is entitled to the benefit of exemption from sales tax under the Industrial Policy Resolutions of 1986 as well as of 1989. It also involves the question whether the process undertaken by the respondent, applying which he obtains cotton from waste cotton, can be called manufacturing activity.

(3) WITH a view to encourage the industrialisation of the State, the government of orissa published the Industrial Policy Resolution (dated 13/5/1986 in the Gazette of 11/6/1986. It provided several incentives to those establishing new industries in the State and also those who expanded their existing capacities. Inter alia, it provided for certain concessions in the matter of sales tax. In the case of village, cottage and small-scale industries, exemption from tax was provided on the purchase of raw material as well as the sale of finished product whereas in the case of new medium and large- scale industrial units, the facility of deferment of payment of sales tax for a a particular period was provided. The State was divided into three zones having regard to their level of industrialisation. Zone A which was supposed to be the least industrialised area provided more incentives than Zones B and C. District Sambhalpur, wherein the respondent-industry is located, falls in Zone C. The provisions of orissa Sales Tax Act also appear to have been amended in tune with the said policy resolution as would be evident from Entry 30(ff) referred to in the counter filed by the respondent in this court - but this is one of the aspects requiring clarification. Entry 30(ff) seems to provide exemption from sales tax of the products of a small-scale industry set up on or after 1/4/1986 and starting commercial production thereafter inside the State subject to certain further conditions.

(4) THE High court has allowed the writ petitions on two grounds, viz., (1 that the industrial policy resolution does not require that for obtaining the benefit of exemption of sales tax, a small-scale industry should necessarily be engaged in the manufacture or production of goods and (2) that the process adopted by the respondent by which he obtains cotton from waste cotton does amount to manufacture. So far as the first ground given by the High Court is concerned, we find it difficult to accept. A reading of the Industrial Policy Resolution (IPR) of 1986 as well as of 1989 clearly shows that several concessions at substantial cost to public exchequer were provided only with a view to accelerate the pace of industrialisation in the State. Para 3 of the IPR states,

"THEREFORE, the major thrust should be on development of sophisticated industries including electronics, upgradation of technology, modernisation of the existing units and development of functional (?) industrial areas in the fields of electronics and computers, electrical and domestic appliances, plastic and pomers, leather, textiles, ceramics, chemicals, drugs and pharmaceutical industries."

Even the provisions of the IPR relating to sales tax concessions bear out the said object. The relevant provisions read thus:

"(A) Concessions relating to sales tax.- (i) Exemption of sales tax on raw materials.- All new village, cottage and small industries will be exempted from sales tax on purchase of spare parts of machinery, raw materials and packing materials for a period of 5 years from the date of their commercial production. All new medium and large industries will be eligible for similar facility for 3 years in Zones B and C and for 5 years in Zone A. (ii) Exemption of sales tax on finished products.- (a) Products of all existing and new Khadi, village cottage industries and Hand