2015 (1) TMI 132 - HC - VAT and Sales Tax

Water purification not manufacturing under tax laws; Cancellation of certificates requires valid reasons.

The court held that processing raw water into drinking water does not amount to 'manufacture' under the Assam Value Added Tax Act, 2003, and the Assam ... Process amounts to manufacture or not - Whether transformation of noncommercial underground raw water into packaged drinking water amounted to 'manufacture' as defined u/s 2(30) of the Assam Value Added Tax Act, 2003 and u/s 2(22) of the Assam General Sales Tax Act, 1993 or not – Held that:- Following the decision in Ujagar Prints v. Union of India [1989 (1) TMI 122 - SUPREME Court] -while the principle for determining whether a process amounts to 'manufacturing' or not, is well-known, namely, when a distinct and new article emerges as a result of the process, it can be held that manufacturing is involved, there are border line cases where either conclusion can be reached - only such processes amount to manufacture as have impact on identity, nature and character of goods and not every process which may bring about some change in quality. The prevalent and generally accepted test to ascertain that there is 'manufacture' is whether the change or the series of changes brought about by the application of processes take the commodity to the point where, commercially, it can no longer be regarded as the original commodity but is, instead, recognised as a distinct and new article that has emerged as a result of the processes - The principles are clear - But difficulties arise in their application in individual cases - There might be borderline cases where either conclusion with equal justification be reached - Insistence on any sharp or intrinsic distinction between 'processing' and 'manufacture'- though the raw water is subjected to the process of purification, it continues to be water - Its character and use remains the same though quality has been improved - It cannot be held that a new and distinct commercial commodity has emerged on account of the process undertaken - every process which may bring about some change cannot be treated to be manufacturing - The identity of the original commodity must be lost and instead a new identity must merge – thus, there is no ground to interfere in the order - Decided against petitioner. Issues Involved:1. Whether the transformation of noncommercial underground raw water into packaged drinking water amounts to 'manufacture' under section 2(30) of the Assam Value Added Tax Act, 2003 and section 2(22) of the Assam General Sales Tax Act, 1993.2. Whether the eligibility certificate granted for claiming incentives, including sales tax exemption, can be canceled based on a change of opinion on a debatable issue.Detailed Analysis:Issue 1: Definition of 'Manufacture'The core issue was whether processing raw water into packaged drinking water constitutes 'manufacture' under the relevant sections of the Assam Value Added Tax Act, 2003, and the Assam General Sales Tax Act, 1993.- Petitioner's Argument: The petitioner argued that the processing of raw water into drinking water involves a manufacturing process, as evidenced by a process flow chart. They contended that drinking water is a distinct commodity from raw water. They also pointed out that the State had treated the process as manufacturing by granting eligibility certificates for claiming incentives, including sales tax exemptions, under the industrial policy.- Respondent's Argument: The respondents, represented by the Additional Advocate-General, argued that merely processing raw water into drinking water does not constitute manufacturing, as the water remains fundamentally the same. They cited the Kerala High Court's judgment in Teejan Beverages Ltd. v. State of Kerala and the Gauhati High Court's judgment in Deepak Kumar Poddar v. State of Assam to support their position.Court's Analysis:The court examined the definition of 'manufacture' under section 2(22) of the Assam General Sales Tax Act, 1993, which includes producing, making, extracting, altering, ornamenting, blending, finishing, or otherwise processing, treating, or adapting any goods. The court referred to several judgments, including Ujagar Prints v. Union of India, to determine whether a process amounts to manufacturing. The key test is whether a distinct and new article emerges as a result of the process.- Conclusion: The court concluded that processing raw water into drinking water does not result in a new and distinct commercial commodity. The raw water, even after purification, remains water with the same character and use, though its quality is improved. Therefore, the process does not amount to manufacturing under the relevant sections of the Assam laws.Issue 2: Cancellation of Eligibility CertificateThe petitioner also argued that once eligibility certificates were issued, they could not be canceled merely on a change of opinion on a debatable issue.- Court's Analysis: The court noted that whether the eligibility certificate was canceled based on a mere change of opinion or due to misstatement or error of application of binding law needs to be determined by the concerned authority. If the cancellation was due to a misstatement or ignoring settled law, the appropriate authority could take a decision accordingly.Conclusion:The court upheld the impugned order, stating that the transformation of raw water into packaged drinking water does not constitute 'manufacture' under the Assam Value Added Tax Act, 2003, and the Assam General Sales Tax Act, 1993. The court also indicated that the cancellation of eligibility certificates needs to be examined by the concerned authority to determine if it was based on a mere change of opinion or due to misstatement or error of application of binding law.Final Judgment:The writ petition was dismissed.