Diversification exemption under trade tax law requires goods of a different nature; technological upgrade alone is not enough.

Exemption under the diversification limb of Section 4-A(5) of the U.P. Trade Tax Act depends on the post-change goods being different in nature from the earlier goods. A mere shift to modern technology that improves quality or quantity, while the end use remains the same, does not constitute diversification; it amounts only to expansion or modernisation. As the earlier and later products were both used for sealing glass bottles, the statutory condition was not met and the exemption claim failed.

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Issues: Whether manufacture of a product by use of modern technology, where the end use remains the same as the earlier product, amounts to "diversification" so as to qualify for exemption under Section 4-A(5) of the U.P. Trade Tax Act.

Analysis: The exemption provision required that, in the case of diversification, the goods manufactured after diversification must be different in nature from the goods manufactured earlier. The provision was held to be clear and unambiguous and therefore had to be construed literally. The earlier product and the later product were both used for sealing glass bottles. On that basis, the change in machinery and technology was treated as an improvement in quality and quantity, at the most amounting to expansion or modernisation, but not diversification. Since the conditions for claiming exemption on diversification were not satisfied, the claim failed.

Conclusion: The claim for exemption was rightly rejected and the issue was answered against the assessee.

Ratio Decidendi: For exemption under the diversification limb of Section 4-A(5), the goods manufactured after the change must be different in nature from the earlier goods; a mere technological upgrade producing goods with the same essential nature and use amounts only to modernisation or expansion, not diversification.

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