Manufacture under sales tax exemption scheme upheld for washed coal; cancellation failed for breach of notice and statutory limits

A writ petition by a company and its director was maintainable where State action allegedly arbitrarily denied and cancelled sales tax exemption, and the director's Article 19(1)(g) interests were affected. Conversion of raw coal into washed clean coal was treated as manufacture under the Assam General Sales Tax Act definition applied to the 1995 Scheme, because screening, washing and removal of impurities produced a commercially distinct product; the eligibility certificate was therefore not void ab initio. Cancellation of that certificate was unsustainable because the orders relied on grounds beyond the show-cause notice and beyond the Scheme's permitted cancellation grounds, contrary to statutory procedure and natural justice.

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Issues: (i) Whether a writ petition by a company and its director challenging denial and cancellation of sales tax exemption was maintainable. (ii) Whether conversion of raw coal into washed clean coal amounted to "manufacture" within the meaning of the Assam General Sales Tax Act, 1993, so as to justify grant of eligibility certificate and exemption under the 1995 Scheme. (iii) Whether cancellation of the eligibility certificate was valid when the grounds in the impugned orders went beyond the show-cause notice and the statutory grounds for cancellation.

Issue (i): Whether a writ petition by a company and its director challenging denial and cancellation of sales tax exemption was maintainable.

Analysis: A company cannot claim the fundamental right under Article 19(1)(g), but it remains a person for the purpose of Articles 14 and 21. A citizen-director whose rights under Article 19(1)(g) are affected may invoke writ jurisdiction. If the State action is arbitrary and results in denial of exemption otherwise available under the Scheme, the challenge lies within Article 226.

Conclusion: The writ petition was maintainable.

Issue (ii): Whether conversion of raw coal into washed clean coal amounted to "manufacture" within the meaning of the Assam General Sales Tax Act, 1993, so as to justify grant of eligibility certificate and exemption under the 1995 Scheme.

Analysis: The 1995 Scheme linked Central sales tax exemption to the same eligible industrial units covered by Part I of the Scheme. The term "manufacture" was defined in section 2(22) of the Assam General Sales Tax Act, 1993, and that definition governed the Scheme. A manufacturing process need not be mechanised, and the existence of plant and machinery is not a condition precedent. Applying the statutory definition and the nature of the process of screening, washing and removing ash and impurities, washed clean coal was held to be a manufactured product distinct in commercial identity from raw coal.

Conclusion: Conversion of raw coal into washed clean coal amounted to manufacture, and the eligibility certificate was not void ab initio.

Issue (iii): Whether cancellation of the eligibility certificate was valid when the grounds in the impugned orders went beyond the show-cause notice and the statutory grounds for cancellation.

Analysis: Part III of the Scheme permitted cancellation only on specified grounds after notice and opportunity of hearing. The cancellation orders relied on several grounds not mentioned in the show-cause notice, and the validity of an administrative order must be tested on the reasons contained in the order itself. New grounds could not be added later by affidavit. Since the statutory procedure and natural justice were not followed, the cancellation was arbitrary and beyond jurisdiction.

Conclusion: The cancellation of the eligibility certificate was unsustainable.

Final Conclusion: The impugned cancellation orders were set aside, and the petitioners retained the benefit of the eligibility certificate and the consequential exemption.

Ratio Decidendi: Where a fiscal exemption scheme defines manufacture broadly, a process that statutorily falls within that definition qualifies as manufacture even without a new commercial commodity or mechanised plant, and cancellation of the benefit must strictly conform to the statutory grounds and the notice given, failing which it is invalid for breach of natural justice and excess of power.

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