Turnover exemption for a small-scale unit survives where an outsourced preliminary process does not negate production by the assessee.

Rubber cess paid to the Rubber Board was treated as outside purchase turnover, so it was excluded from the taxable base. The exemption under S.R.O. No. 968 of 1980 was also available because the notification applied to goods produced and sold by a new small-scale industrial unit, and the Tribunal found that the outside mixing of carbon black was only a minor preliminary step that did not negate production by the assessee. The eligibility certificate was not in dispute, and no material displaced the factual finding supporting manufacture by the unit. On that basis, the turnover exemption and the exclusion of rubber cess were both sustained.

---

---

Issues: (i) Whether rubber cess paid to the Rubber Board was includible in the purchase turnover. (ii) Whether the assessee was entitled to sales tax exemption under S.R.O. No. 968 of 1980 as a unit producing and selling the goods.

Issue (i): Whether rubber cess paid to the Rubber Board was includible in the purchase turnover.

Analysis: The exclusion of rubber cess from taxable turnover was treated as governed by the binding legal position already settled by the Court. On that footing, the cess paid to the Rubber Board could not form part of the purchase turnover for the relevant period.

Conclusion: Rubber cess was not includible in the purchase turnover, in favour of the assessee.

Issue (ii): Whether the assessee was entitled to sales tax exemption under S.R.O. No. 968 of 1980 as a unit producing and selling the goods.

Analysis: The notification granted exemption to the turnover of sale of goods produced and sold by new small-scale industrial units, subject to prescribed conditions. The decisive question was whether the goods were "produced" by the unit when one preliminary process was carried out outside the unit. The Court accepted the Tribunal's factual finding that the outside mixing of carbon black with rubber was only a minor preliminary stage in the overall manufacture of tread rubber and did not negate production by the assessee. The genuineness of the eligibility certificate was not in dispute, and no material was shown to displace the Tribunal's factual conclusion.

Conclusion: The assessee satisfied the exemption conditions and was entitled to the benefit of the notification, in favour of the assessee.

Final Conclusion: The Revenue's challenge failed on both issues, and the exemption claim together with the exclusion of rubber cess from turnover was sustained.

Ratio Decidendi: For exemption under a notification covering goods "produced and sold" by a new industrial unit, a minor outsourced preliminary process does not destroy the character of production by the unit when the overall manufacture is substantially carried out by it.

---