1994 (11) TMI 401 - HC - VAT and Sales Tax

Petitioners not 'manufacturers' under tax law due to lack of own manufacturing units. Strict interpretation of exemption rules.

Emjak Industries Limited Versus Commercial Tax Officer and Others (and another case)

The court held that the petitioners did not qualify as 'manufacturers' under Section 5-B of the A.P. General Sales Tax Act, 1957, as they did not have ... - Issues Involved:1. Definition of 'Manufacturer' under Section 5-B of the A.P. General Sales Tax Act, 1957.2. Eligibility for concessional tax rate under Section 5-B.3. Requirement of owning a manufacturing unit within the State.Detailed Analysis:1. Definition of 'Manufacturer' under Section 5-B of the A.P. General Sales Tax Act, 1957:The primary issue in these writ petitions is whether the petitioners qualify as 'manufacturers' under Section 5-B of the A.P. General Sales Tax Act, 1957. The petitioners, who are registered dealers engaged in the business of manufacturing and selling biscuits, claimed the benefit of a lower tax rate on raw materials used in manufacturing. The petitioners entered into agreements with another company to manufacture biscuits using the raw materials supplied by them. The court examined the statutory definition of 'manufacturer' before and after the amendment by Act No. 4 of 1989. Prior to the amendment, Rule 3(gg) defined a 'manufacturer' as a person who purchases specified component parts for use in manufacturing specified goods. This rule was deleted after the amendment.2. Eligibility for Concessional Tax Rate under Section 5-B:Section 5-B, before its amendment, allowed a concessional tax rate of up to four percent on raw materials used for manufacturing goods within the State. The amendment removed the requirement for a State Government-published scheme and introduced a new procedure for registration and declarations. The petitioners contended that they should be considered manufacturers as they controlled the raw materials and the manufacturing process, even though the actual manufacturing was done by another company. The court noted that the statutory requirement under Section 5-B was that the dealer must have his manufacturing unit within the State to claim the concessional rate. The court emphasized that the petitioners did not have exclusive control over the manufacturing units and therefore did not meet the statutory requirement.3. Requirement of Owning a Manufacturing Unit within the State:The court examined whether the petitioners needed to own their manufacturing units within the State to qualify for the concessional tax rate. The court referred to the amended Section 5-B, which imposed a penalty on dealers who did not have their manufacturing units within the State but furnished declarations for concessional tax rates. The court also reviewed case law cited by the petitioners, including decisions from the Supreme Court, Orissa High Court, Allahabad High Court, and Bombay High Court. However, the court found these decisions inapplicable as they did not address the specific statutory requirement of 'having his manufacturing unit' within the State. The court concluded that the petitioners did not meet the requirement of having exclusive control over the manufacturing units and therefore were not entitled to the concessional tax rate under Section 5-B.Conclusion:The court held that the petitioners did not qualify as 'manufacturers' under Section 5-B of the A.P. General Sales Tax Act, 1957, as they did not have their own manufacturing units within the State. The court emphasized the need for strict interpretation of tax exemption provisions and dismissed both writ petitions without costs.