Exemption notification for machinery and form Z use condition: integral crusher parts qualified, but diversion to another unit triggered purchase tax.
An exemption notification for a certified manufacturer was construed liberally for a new industry, and an integral component of crushing equipment was treated as machinery because it performed an essential, interdependent function in the manufacturing process; the beaters therefore qualified for tax exemption. The same notification, however, required goods purchased against form Z to be used within the State in the manufacture of goods for sale by the certified manufacturer. Where sand produced at one unit was transferred for use in another unit rather than sold by the certified manufacturer, that condition was breached and purchase tax under section 50 remained payable.
Issues: (i) Whether beaters purchased by a certified manufacturer under entry 53 of the exemption notification could be treated as machinery for the purpose of tax exemption. (ii) Whether use of sand manufactured at the Pali factory as raw material in the manufacture of glass at Vallabh Vidyanagar constituted breach of the declaration in form Z so as to attract purchase tax under section 50.
Issue (i): Whether beaters purchased by a certified manufacturer under entry 53 of the exemption notification could be treated as machinery for the purpose of tax exemption.
Analysis: Entry 53 exempted purchases of raw materials, processing materials, machinery, or packing materials by a certified manufacturer subject to the conditions in form Z. The expression "machinery" was held to require a liberal construction in the context of an exemption granted to encourage new industry. A component or integral part of a crusher, though not a complete machine by itself, could still be regarded as machinery where it performs an essential and interdependent function in the manufacturing process. The beaters were the most integral part of the crushing apparatus and were used to hammer quartz stones into sand.
Conclusion: The beaters were machinery and the assessee was entitled to exemption on that count.
Issue (ii): Whether use of sand manufactured at the Pali factory as raw material in the manufacture of glass at Vallabh Vidyanagar constituted breach of the declaration in form Z so as to attract purchase tax under section 50.
Analysis: The exemption was available only if the goods purchased against form Z were used within the State in the manufacture of goods for sale by the certified manufacturer. The assessee did not sell the sand manufactured at Pali but transferred part of it to the parent unit for use in manufacturing glass. That use did not satisfy the recital that the goods purchased would be used in the manufacture of goods for sale by the certified manufacturer itself. Breach of the condition attached to the exemption attracted liability under section 50.
Conclusion: The declaration in form Z was breached and purchase tax was rightly levied on that count.
Final Conclusion: The reference was answered by upholding the assessee's claim that beaters were machinery, while sustaining the levy of purchase tax for breach of the form Z condition relating to use of the manufactured goods for sale.
Ratio Decidendi: In construing an exemption notification for a new industry, an integral and essential component of manufacturing equipment may qualify as machinery, but exemption conditioned on use of the goods in manufacturing goods for sale is lost when the manufactured product is diverted for use in another unit rather than sold by the certified manufacturer.
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