1996 Supreme(MP) 500

A.K. Mathur, S.K. Kulshrestha, JJ.
K. P. ENTERPRISES
Versus
DIVISIONAL DEPUTY COMMISSIONER OF SALES TAX, RAIPUR AND OTHERS.
M.P. No. 1137 of 1991
Decided On: Decided On : 13-05-1996

The processing of iron and steel scrap by the petitioner did not amount to manufacturing or processing within the meaning of the notification granting exemption from sales tax to manufacturing/processing industries.

Headnote:

SALES TAX - EXEMPTION - MANUFACTURING - PROCESSING - IRON AND STEEL - WHETHER PROCESSING OF IRON AND STEEL SCRAP AMOUNTS TO MANUFACTURING - NOTIFICATION GRANTING EXEMPTION FROM SALES TAX TO MANUFACTURING/PROCESSING INDUSTRIES - INTERPRETATION.

Fact of the Case:

The petitioner, a small-scale industry, set up a unit for manufacturing and processing iron and steel materials from scrap and other materials. It applied for and obtained registration certificates under the Madhya Pradesh General Sales Tax Act, 1958 (the Act of 1958) and the Central Sales Tax Act, 1956 (the Central Act), which specified the nature of manufacturing and production work to be done and the raw materials required therefor. The petitioner also applied for and obtained a recognition certificate and an eligibility certificate for exemption from tax under the Act of 1958 and the Central Act. The eligibility certificate granted exemption to the petitioner from payment of tax for the period from April 19, 1990 to April 18, 1993 under a notification dated October 16, 1986, which granted exemption from payment of tax to a class of registered dealers who have established eligible industrial units in the State of Madhya Pradesh and who hold an eligibility certificate issued by the authorized officers. The Sales Tax Officer served two notices on the petitioner, one proposing to delete the raw materials specified in the registration certificate retrospectively from April 11, 1990, and the other proposing to delete such raw materials from the recognition certificate retrospectively from April 24, 1990. The petitioner challenged the notices by filing a writ petition. The Director of Industries, Tax Benefit Section, Directorate of Industries, Madhya Pradesh, issued a notice directing the petitioner to appear before the State Level Committee to show cause why the eligibility certificate of the petitioner should not be cancelled from the date of issue. The State Level Committee cancelled the eligibility certificate with effect from April 19, 1990, holding that the petitioner was not carrying on the work of manufacture and hence was not entitled to the eligibility certificate. The Deputy Commissioner of Sales Tax also issued a notice proposing to delete the word "manufacturing" and the raw materials specified therein from the sales tax registration certificate. The petitioner challenged these orders by filing the present writ petition.

Finding of the Court:

The court held that the processing of iron and steel scrap by the petitioner did not amount to manufacturing or processing within the meaning of the notification granting exemption from sales tax to manufacturing/processing industries. The court observed that the petitioner purchased iron scraps and cut them into various shapes according to the requirement of the customers, but this did not change the basic character of the iron scraps. The court further held that the exemption notification had to be strictly construed and that the petitioner had not brought itself squarely within the ambit of the notification. The court also held that the withdrawal of the eligibility certificate could not be given retrospective effect, and that the petitioner was entitled to the relief to the extent that the effectivity of the withdrawal of the eligibility certificate would be from the date of the order and not from a retrospective date.

Issues: 1. Whether the processing of iron and steel scrap by the petitioner amounted to manufacturing or processing within the meaning of the notification granting exemption from sales tax to manufacturing/processing industries? 2. Whether the exemption notification had to be strictly construed? 3. Whether the petitioner had brought itself squarely within the ambit of the notification? 4. Whether the withdrawal of the eligibility certificate could be given retrospective effect?

Ratio Decidendi: 1. The processing of iron and steel scrap by the petitioner did not amount to manufacturing or processing within the meaning of the notification granting exemption from sales tax to manufacturing/processing industries because the petitioner purchased iron scraps and cut them into various shapes according to the requirement of the customers, but this did not change the basic character of the iron scraps. 2. The exemption notification had to be strictly construed because it was a case of exemption from duty and there was no question of any liberal construction to extend the term and the scope of the exemption notification. 3. The petitioner had not brought itself squarely within the ambit of the notification because it had not shown that the processing of iron and steel scrap amounted to manufacturing or processing within the meaning of the notification. 4. The withdrawal of the eligibility certificate could not be given retrospective effect because it would amount to causing greater hardship to the assessee who had acted upon the eligibility certificate issued by the competent authority.

Final Decision: The writ petition was dismissed except that the effectivity of the withdrawal of the eligibility certificate was to be from the date of the order and not from a retrospective date.