2003 (3) TMI 677 - HC - VAT and Sales Tax

Appellants' Product Not Manufactured, Invalid Certificates, Exemption for Bottles, Competent Authority Verification

Teejan Beverages Ltd. Versus State of Kerala and others

The court concluded that the appellants' product did not qualify as a manufactured product under the definition provided in Notification S.R.O. No. 1729 ... - Issues Involved:1. Eligibility for exemption from payment of sales tax under Notification S.R.O. No. 1729 of 1993 for the product 'mineral water' or 'packaged drinking water.'2. Whether the process employed by the appellants constitutes 'manufacture' under the definition provided in the Notification S.R.O. No. 1729 of 1993.3. Validity of the eligibility certificates issued to some appellants and their subsequent cancellation.4. Entitlement to exemption for the turnover of bottles manufactured by the appellants for filling with drinking water.Detailed Analysis:1. Eligibility for Exemption from Sales Tax:The appellants, comprising various small-scale industrial units, claimed exemption from sales tax under Notification S.R.O. No. 1729 of 1993 for their product 'mineral water' or 'packaged drinking water.' They argued that their product qualified for exemption as it was a manufactured product. The District Level Committee initially granted eligibility certificates to some appellants, which were later challenged and in some cases, cancelled.2. Definition of 'Manufacture':The core issue was whether the appellants' process of purifying ground water to produce 'mineral water' or 'packaged drinking water' constituted 'manufacture' as defined in the notification. The definition in Clause 11(ii) of the Notification S.R.O. No. 1729 of 1993 specifies that 'manufacture' means the use of raw materials to produce goods commercially different from the raw materials used. It excludes mere packing, polishing, cleaning, grading, drying, blending, or mixing different varieties of the same goods, among other processes.The court examined the detailed processes employed by the appellants, such as sedimentation, chlorination, filtration, and ozonation, and concluded that these processes did not transform the ground water into a commercially distinct product. Despite the processes, the end product remained essentially the same as the raw material-water. The court referenced several Supreme Court decisions, including Pio Food Packers and Jagannath Cotton Company, which established that mere processing does not constitute manufacture unless it results in a new and distinct commodity.3. Validity of Eligibility Certificates:The court addressed the validity of eligibility certificates issued to some appellants. In W.A. No. 1075 of 2002, the eligibility certificate was not cancelled, while in W.A. No. 1089 of 2002, the certificate was cancelled based on a government circular clarifying that purifying water and filling it into bottles did not amount to manufacture. The court held that eligibility certificates obtained through misrepresentation or issued without jurisdiction are invalid. The appellants' product, labeled as 'mineral water,' did not meet the standards for mineral water under the Prevention of Food Adulteration Rules, indicating misrepresentation.4. Exemption for Turnover of Bottles:The appellants contended that they manufactured bottles for filling with drinking water and should be exempt from sales tax on the turnover of these bottles. The learned single Judge rejected this claim, considering the bottles as packing material. However, the court held that if the bottles were indeed manufactured by the appellants, they could claim exemption for the turnover of these bottles under the notification. The competent authority was directed to consider this claim and pass appropriate orders.Conclusion:The court concluded that the appellants' product did not qualify as a manufactured product under the definition provided in Notification S.R.O. No. 1729 of 1993. The eligibility certificates obtained through misrepresentation were invalid. The appellants could claim exemption for the turnover of bottles manufactured by them, subject to verification by the competent authority. The appeals were disposed of accordingly.