Sales tax exemption for industrial units applies only to manufacture or production of distinct goods; remand ordered for fresh factual review.

Sales tax exemption under the Industrial Policy Resolution was held to be confined to new small-scale units engaged in manufacture or production of distinct goods, because the scheme targeted industrialisation through manufacturing activity rather than mere processing. The Court further noted that whether cotton derived from waste cotton amounted to manufacture depended on the actual process and on whether a new and different product emerged, but the existing material was insufficient to decide that question. As the High Court had not examined the relevant sales tax provisions, rules and notifications, and the factual basis was incomplete, the matters were remitted for fresh consideration.

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Issues: (i) Whether the sales tax exemption under the Industrial Policy Resolution for new small-scale industries was confined to units engaged in manufacture or production of goods. (ii) Whether the process by which cotton was obtained from waste cotton amounted to manufacture. (iii) Whether the matter required remand for consideration of the relevant statutory provisions and factual material.

Issue (i): Whether the sales tax exemption under the Industrial Policy Resolution for new small-scale industries was confined to units engaged in manufacture or production of goods.

Analysis: The incentive scheme was framed to accelerate industrialisation and to extend concessions to manufacturing units. The language of the policy, including references to raw materials, finished products, and manufacturing units, showed that the concessions were intended for industries producing distinct goods and not for units merely carrying on processing where the goods remained essentially the same. The test was whether different goods emerged as a result of the activity.

Conclusion: The exemption was confined to units engaged in manufacture or production of goods, and the broader view taken by the High Court was incorrect.

Issue (ii): Whether the process by which cotton was obtained from waste cotton amounted to manufacture.

Analysis: The record did not disclose the precise process adopted by the respondent. The material before the Court was insufficient to determine whether the activity brought into existence a new and different product, which is the governing test for manufacture or production. The question could not be answered satisfactorily without a clearer factual foundation.

Conclusion: No final finding could be recorded on manufacture on the existing material.

Issue (iii): Whether the matter required remand for consideration of the relevant statutory provisions and factual material.

Analysis: The High Court proceeded on the assumption that the policy resolution alone was sufficient, without examining the relevant provisions of the sales tax enactment, rules, and notifications, and without adequate material on the process undertaken. A fresh consideration was necessary in light of both the policy and the statutory framework.

Conclusion: The matters were required to be remitted to the High Court for fresh decision.

Final Conclusion: The appeals succeeded, the High Court's judgment was set aside, and the matters were sent back for reconsideration on a fuller factual and legal basis.

Ratio Decidendi: Sales tax incentives framed to promote industrialisation are available only where the activity results in manufacture or production of distinct goods, and whether a process constitutes manufacture depends on the emergence of a new and different product on the facts proved.

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