2017 (5) TMI 1121 - HC - VAT and Sales Tax

Tax Exemption Denied for 'Mehndi Cone' under U.P. VAT Act - Manufacturing Process Key

M/s Pradhan Trading Company Versus Commissioner, Commercial Tax

The High Court upheld the Tribunal's decision that 'Mehndi Cone' does not qualify for exemption under Entry 23 of Schedule-1 of the U.P. VAT Act. The ... Rate of tax - classification - Mehndi Cone - whether 'Mehndi Cone' would be covered by Entry 23 of Schedule-1 of U.P. VAT Act or not? - Held that: - The entry specified in the notification grants exemption under Schedule-1 to Mehndi leaves or powder and not Mehndi itself - the 'Mehndi Cone' is a new product, which comes into being after Mehndi powder is processed by adding oil and chemicals. Once a distinct new entity has come into existence, it cannot be said to be either Mehndi leave or Mehndi powder. Exemption is not allowed to Mehndi or all its derivatives, but is restricted to 'Mehndi leaves' and 'Mehndi powder' alone - The Tribunal has rightly come to the conclusion that the paste, which is created in the process is a cosmetic preparation as various oil and chemicals are added to Mehndi powder so as to exclude it from the purview of exemption notification. 'Mehndi Cone' does not fall within the exemption notification issued under Schedule-I - appeal dismissed - decided against Revenue. Issues:Interpretation of Entry 23 of Schedule-1 of U.P. VAT Act regarding 'Mehndi Cone' classification.Analysis:1. The case involved an application under Section 59 of the U.P. Value Added Tax Act, 2008 seeking clarification on the classification of 'Mehndi Cone' under Entry 23 of Schedule-1 of the Act.2. The Commissioner opined that 'Mehndi Cone' would not be covered by the entry and should be taxed at 12.5%, leading the assessee to appeal to the Tribunal and subsequently to the High Court.3. The applicant argued that 'Mehndi Cone' is essentially the same as 'Mehndi Powder', being a ready-to-use version with added ingredients, thus falling under Entry 23.4. Reference was made to legal precedents, including a Division Bench decision and orders from the authority for advance ruling, to support the argument that 'Mehndi Cone' should be considered under Entry 23.5. The Standing Counsel contended that 'Mehndi Cone' is a distinct product from 'Mehndi Powder' covered by the entry, emphasizing the addition of new elements through a manufacturing process.6. The High Court considered the arguments, noting that the exemption under the notification applied specifically to 'Mehndi leaves' and 'Mehndi powder', not all derivatives of 'Mehndi'.7. It was established that 'Mehndi Cone' resulted from a manufacturing process involving the addition of oils and chemicals to 'Mehndi Powder', creating a new product distinct from the original items covered by the entry.8. The Court rejected the liberal construction of Entry 23, emphasizing the need for strict interpretation of tax exemption entries.9. Legal principles regarding the definition of 'manufacture' were discussed, highlighting that the process transforming 'Mehndi Powder' into 'Mehndi Cone' constituted manufacturing, making the latter ineligible for the exemption.10. Ultimately, the High Court upheld the Tribunal's decision, ruling that 'Mehndi Cone' did not qualify for exemption under Schedule-I due to its transformation through manufacturing processes.This detailed analysis provides a comprehensive overview of the legal judgment regarding the classification of 'Mehndi Cone' under Entry 23 of Schedule-1 of the U.P. VAT Act, emphasizing the interpretation of tax exemption provisions and the impact of manufacturing processes on product classification.