2025 (8) TMI 890 - HC - VAT / Sales Tax

Cutting purchased H.R. coils into smaller sizes via job work not 'manufacture' - entry tax demand unsustainable

The Commissioner Commercial Tax U.P. Lucknow Versus M/s J.S. Jain Agro Industries Pvt Ltd., S/S Carrier Wheels

The Commissioner Commercial Tax U.P. Lucknow Versus M/s J.S. Jain Agro Industries Pvt Ltd., S/S Carrier Wheels - 2025:AHC:136552 1. ISSUES PRESENTED and CONSIDERED Whether cutting of H.R. Coils into smaller sizes after purchase constitutes manufacture of a new or different commodity liable to entry tax. Whether the purchase of H.R. Coils, exempted under relevant notification, loses exemption status upon job work involving cutting. Whether the process of cutting H.R. Coils results in emergence of a distinguishable commercial commodity with a new name, character, or use. The applicability and scope of precedent rulings regarding transformation of goods and imposition of entry tax. The validity and effect of executive circulars or directions interfering with quasi-judicial powers in tax assessment matters. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether cutting of H.R. Coils into smaller sizes amounts to manufacture of a new or different commodity liable to entry tax Legal Framework and Precedents: The Court referred to multiple judgments of the Hon'ble Apex Court and High Courts, including rulings on similar processes involving steel coils and other raw materials. Notably, the judgment in Lal Kunwa Stone Crusher (p) Ltd. held that breaking down larger stones into smaller pieces does not create a new commodity. Similarly, Rajpurohit GMP India Ltd. clarified that processes such as die-punching or cutting that do not produce a new commercial commodity or alter the essential character of the goods do not amount to manufacture for tax purposes. Court's Interpretation and Reasoning: The Court noted that H.R. Coils are sheets of steel in coil form primarily for ease of transportation and minimization of wastage. Cutting these coils into smaller sizes does not change their essential nature or create a new commodity. The Court emphasized that no evidence was presented to demonstrate that the cutting process resulted in a distinguishable article with a new name, character, or use. Key Evidence and Findings: The revisionist-State failed to produce material or evidence showing transformation into a new commodity. The record confirmed that the H.R. Coils were purchased exempt from entry tax and only subjected to cutting job work. Application of Law to Facts: Applying the principle that mere cutting or sizing does not amount to manufacture, the Court held that the goods retained their original character and exemption status. The process was deemed insufficient to trigger entry tax liability. Treatment of Competing Arguments: The State argued that cutting created a different commodity liable to entry tax, relying on a judgment involving a different statutory context (Ashirvad Ispat Udyog). The Court distinguished this precedent on facts, noting it involved a definition of a 'new unit' under a different Act and was thus inapplicable. The respondents' reliance on established precedents was upheld. Conclusion: Cutting H.R. Coils into smaller sizes does not amount to manufacture of a new or different commodity and does not attract entry tax liability. Issue 2: Whether the purchase of H.R. Coils, exempted under relevant notification, loses exemption status upon job work involving cutting Legal Framework and Precedents: The Court considered the relevant entry tax exemption notification covering H.R. Coils and the principle that exemption granted under statute or notification continues unless goods undergo transformation amounting to manufacture. The Court also referenced the judgment of the Delhi High Court in Faridabad Iron & Steel Traders Association, which clarified that folding or unfolding steel sheets (coil form versus sheet form) does not change the nature of the commodity. Court's Interpretation and Reasoning: The Court observed that the purchase of H.R. Coils was undisputedly exempt from entry tax. The subsequent job work involving cutting did not alter the commodity's essential nature or remove the exemption. The Court underscored that exemption cannot be denied without evidence of a new commercial commodity arising from the process. Key Evidence and Findings: No material was brought on record demonstrating that the cutting process converted the H.R. Coils into a taxable commodity. The exemption notification was applicable as the goods retained their original character. Application of Law to Facts: The Court applied the principle that exemption status continues post-processing unless a new taxable commodity emerges. Since no such emergence occurred, exemption remained intact. Treatment of Competing Arguments: The State's contention that cutting created a taxable commodity was rejected for lack of evidence and legal support. The respondents' submissions based on prior judgments were accepted. Conclusion: The exemption granted on purchase of H.R. Coils continues despite cutting job work; thus, no entry tax is payable. Issue 3: Whether the process of cutting H.R. Coils results in emergence of a distinguishable commercial commodity with a new name, character, or use Legal Framework and Precedents: The Court relied on the principle that a process amounts to manufacture only if it results in a new article with a distinguishable name, character, or use. The Apex Court's decisions in Lal Kunwa Stone Crusher and Rajpurohit GMP India Ltd. were pivotal, emphasizing that mere size alteration or physical modification without change in essential character does not constitute manufacture. Court's Interpretation and Reasoning: The Court found that cutting H.R. Coils into smaller sizes did not create a new commodity. The goods remained steel sheets, only altered in size for practical purposes. The Court rejected the notion that such processing produced a new commercial commodity. Key Evidence and Findings: No evidence was presented to show emergence of a new commodity. The State failed to prove any distinguishable character or new commercial identity post-cutting. Application of Law to Facts: The Court applied the test of emergence of a new commodity and found it unmet. The cutting was a mere physical alteration without change in commercial identity. Treatment of Competing Arguments: The State's reliance on a judgment involving different facts and statutory provisions was not accepted. The respondents' arguments based on established principles were preferred. Conclusion: The cutting process does not result in a new or distinguishable commercial commodity. Issue 4: Validity and effect of executive circulars or directions interfering with quasi-judicial powers in tax assessment matters Legal Framework and Precedents: The Court examined the Delhi High Court's ruling in Faridabad Iron & Steel Traders Association regarding the limits of executive circulars. It was held that circulars issued by executive authorities cannot interfere with quasi-judicial functions of assessing officers and cannot impose or alter tax liabilities beyond legislative intent. Court's Interpretation and Reasoning: The Court reiterated that power to impose tax is a legislative function and cannot be delegated or indirectly imposed through executive circulars. Circulars may guide administrative uniformity but cannot bind quasi-judicial decisions or override statutory provisions. Key Evidence and Findings: The State relied on an executive circular to support its case, which was found impermissible as it attempted to impose revenue legislation indirectly. Application of Law to Facts: The Court held that the circular relied upon by the State was invalid insofar as it sought to control quasi-judicial functions or impose tax liability beyond the statute. Treatment of Competing Arguments: The respondents challenged the circular's validity, and the Court agreed with the principle that quasi-judicial powers must be exercised independently. Conclusion: Executive circulars cannot interfere with quasi-judicial powers or impose tax liability beyond legislative provisions; such circulars are invalid.