TaxTMI 
TaxTMI 
2016 (10) TMI 815
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....d assistance of manual and physical labour. In the method upon which the activities are being undertaken in India is popularly known as afloat method and in the said method dismantling starts while the ship is in water. The process of scrapping and dismantling converts ship into different articles and the activities are a manufacturing process in view of Section 2(14) of the VAT Act and therefore, the opponent being entitled to tax credit of tax paid on the goods purchased locally from registered dealers and used as raw materials in the process. Since the opponent had a little confusion with regard to admissibility of tax credit on the use of LPG and Oxygen gas in the said process, it approached the determining authority by raising a question which reads as under: "Whether tax credit paid on purchases of Oxygen Gas and LPG used in cutting hull of the ship during ship breaking/scrapping process is admissible?" 3. The determining authority vide order dated 23.08.2010 conveyed that with respect to aforesaid consumption of articles no tax credit can be made available and thereby rejected the contention of the opponent. It is under this set of circumstance against the said decision o....
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.... was also contended by the learned counsel that the consumption cannot be treated as manufacturing process and therefore, simply because the LPG and Oxygen gases are being consumed in the process of breaking of ship, the material in the form of same cannot attract the scope of Section 2(19) of the Act and therefore, since it is not a manufacturing process the learned Tribunal has erroneously come to the conclusion. The learned AGP has further submitted that entire process of breaking of ship does not involve changing physical shape of the material used for building of any new material namely, plates, angles, channels, which are recovered with the help of Oxygen and LPG gases utilized for cutting the said portions and therefore, consumable activity itself is not a manufacturing activity no question of grant of any tax credit arises. The learned counsel has further submitted that nowhere in the application of determination a mention is made by the opponent that he purchases ships and he is in the business of manufacturing plates, angles, etc. On the basis of production of statement of employees the counsel submitted that it is clearly established that above process does not involve a....
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.... Pvt. Ltd. 2007 GSTB 205 as also in case of Delhi Iron and Steel Company reported in 98 STC 202 HC Mumbai and by referring to those decisions learned counsel submitted that the activity undertaken by the opponent is not a manufacturing activity at all and the consumption of LPG gas and Oxygen gas does not attract Section 2(19) of the VAT Act and therefore, the tax credit is not awardable to the opponent under Section 11 of the Act and by referring to these contentions and various decisions which are referred to in the order of the learned Tribunal the counsel submitted to set aside the impugned order dated 27.09.2012. 6. To oppose this petition Mr. Tushar P. Hemani, learned counsel appearing on behalf of opponent no.1, contended that the learned Tribunal has given elaborate reasons and passed a reasoned order and therefore, said order does not call for any interference. The counsel submitted that the learned Tribunal while passing the order impugned in the petition has thoroughly examined even the procedure with respect to breaking of ship and has also examined consumption of Oxygen gas and LPG gas and in what manner and after detailed examination of the entire process the Tribuna....
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....es tax department since about 20 years by now has continued to assess the opponent as a manufacturer, there was no justifiable reason for determining authority to treat the activity not as a manufacturing activity. The learned counsel has drawn attention to a case decided by the Hon'ble Bombay High Court reported in 251 ITR 806 in case of Ship Scrap Traders and has contended that in almost similar situation the ship breaking activity was considered as a manufacturing activity and referring to several paragraphs of the said judgment delivered by the Bombay High Court, the counsel contended that the conclusion arrived at by the learned Tribunal is lawful and in consonance with the proposition of law on the issue. The learned counsel further submitted that the judgment of Hon'ble Apex Court in case of N.C. Budharaja & Co. reported in 1993 204 ITR 412 was also considered by the Hon'ble Bombay High Court in the aforesaid case and therefore, referring to the ratio laid down and observation made by the High Court the counsel has submitted that ship breaking activity gives rise to manufacture and production of altogether new commercial articles and things which are commercially....
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....under Section 2(19) of the Act. Section 2(19) of the VAT Act reads as under: "2(19). "raw materials" means goods used as ingredient in the manufacture of other goods and includes processing materials, consumable stores and material used in the packing of the goods so manufactured but does not include fuels for the purpose of generation of electricity." 7. Having heard the learned counsels appearing for both the sides and having gone through the judgment delivered by the learned Tribunal and having gone through even independently the material adduced on record, following facts are emerging from the record which deserves justification. (i) It transpires from the record that the Oxygen gas as well as LPG gas both are consumable stores and are raw material and as such covered under the definition of raw material definition spelt out in Section 2(19) of the Act and therefore, tax credit on purchases of these commodities are admissible under Section 11 of the VAT Act, as rightly held by the Tribunal. (ii) It is also emerging from the record that upon analysis of the entire process of ship breaking activity and the various facets of that activity has reflected that the activity is noth....
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.... ship breaking activity is a manufacturing process within the meaning of Section 2(14) of the Act. 11. It can thus to sen that the learned Tribunal upon examination of overall material on record coupled with the relevant proposition has rightly held that ship breaking activity is a manufacturing activity. 12. In yet another decision delivered by the Hon'ble Apex Court in case of Vijay Ship Breaking Corporation reported in 214 ITR 309, wherein also, at length, the Hon'ble Supreme Court has examined the manufacturing activity and what it amounts to, and thereby after analysis, the Hon'ble Supreme Court has held that ship breaking activity gave rise to manufacture and production of altogether a different article. The relevant extract from the said decision as contained in para 15, 16, 17, 18, 19, 20, 21, 22 and 23 are reproduced hereinafter: 15. The manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end-result of one or more processes through which the original commodities are made to pass. Whatever maybe the operation, it is the effect of the....
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.... indicative of the mind of Legislature. Where a word is doubtful or ambiguous in nature, the meaning has to be ascertained by considering the company in which it is found and the meaning of the word associated with it. The words 'manufacture' and 'production' have received extensive judicial attention both under the Act as well as the Central Excise Act and the various sales tax laws. The word 'production' has wider connotation than the word 'manufacture'. In order to appreciate and understand the scope and meaning of the said words, it is necessary to turn to the various judgments dealing with the said subject and law laid down by the various High Courts including this High Court and the views expressed by the Apex Court while dealing with such contentions. The authorities relied upon by the parties 18. The Apex Court in N.C. Budharaja & Co.'s case (supra) observed: "..... The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterized as production, every production need not to manufacture...." (p. 423) It was further observed: "The word 'production' or &#....
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....ct question was involved as to whether the scrap iron and steel, which were obtained by the respondents therein by dismantling and breaking up of the ships should be regarded as different commercial commodity from the ship itself and the Division Bench answered the said question in the following words: "Held, that the scrap iron and steel which were obtained by the respondents by dismantling and breaking up of the ship must be regarded as a different commercial commodity from the ship itself, and hence the activity would amount to manufacture. The goods manufactured would be the scrap iron and steel obtained or manufactured by the dismantling and breaking up of the ship, and the goods used in the manufacture of this scrap iron and steel would be the ship itself. The case was, therefore, covered by the provisions of Section 13(a) of the Act and the purchase tax was payable by the respondents in respect of the purchase price attributable to the frame or hull or the body proper of the ship out of which scrap iron and steel and steel plates as well as wooden planks, excluding the loose ones and rivets and bolts, were obtained by the respondents". 21. While referring to the above j....
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.... case of Ashish Steels (P.) Ltd. v. S. Mukhopadhyay [1989] 74 STC 292, wherein the Division Bench while dismissing the petition filed by the petitioner, relying upon the judgment of this Court in Indian Metal Traders' case (supra), held that the process of breaking up or dismantling a ship could fall within the compass of 'manufacture'. We respectfully propose to follow these judgments and concur with the views expressed therein as the facts involved in the present batch of cases are little close to the facts which were involved in Indian Metal Traders' case (supra). 23. The Apex Court in the case of N.C. Budharaja & Co. (supra) observed that the word 'production' or 'produce' takes into account all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods. The Apex Court while considering the next word 'articles' occurring in the said clause has noticed that the word 'articles' is preceded by the words 'it has begun or begins to manufacture or produce' and reached to the conclusion that the expressions 'manufacture' and 'produce' are normally associated w....