TaxTMI 
TaxTMI 
2016 (12) TMI 696
X X X X Extracts X X X X
X X X X Extracts X X X X
....2003 (hereinafter referred to as "VAT Act"), the assessee has preferred the present Tax Appeal with the following substantial question of law for determination. "Whether on the facts and in the circumstances of the case, Gujarat Value Added Tax Tribunal was justified in law in holding that 'Product Information Literature' purchased by the appellant was not eligible for Inputs Tax Credit under the provisions of Section 11(3)(a)(vi) of the Gujarat Value Added Tax Act, 2003?" Tax Appeal No.1464/2008 [2.1] Feeling aggrieved and dissatisfied with the impugned judgment and order dated 25.08.2008 passed by the learned Tribunal in Appeal No.3/2008 by which the learned Tribunal has held that on purchase of Pyrotel Gel Clot used by the assessee in laboratory for testing raw and finished materials, the assessee is not entitled to Input Tax Credit, the assessee has preferred the present Tax Appeal with the following substantial question of law for determination. "Whether on the facts and in the circumstances of the case, Gujarat Value Added Tax Tribunal was justified in law in holding that 'Laboratory Stores' purchased by the appellant was not eligible for Inputs Tax Cr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etermination Order dated 19.12.2007 held that on purchase of the material used for testing in a laboratory unit, the assessee is not entitled to the Input Tax Credit. [3.2] Feeling aggrieved and dissatisfied with the Determination Order dated 19.12.2007 passed by the Joint Commissioner of Commercial Tax (Legal) holding that on purchase of the material used in the laboratory unit, used for testing of the raw material as well as the final product, the assessee is not entitled to Input Tax Credit, the assessee preferred appeal before the learned Tribunal being Appeal No.3/2008. By impugned judgment and order the learned Tribunal has dismissed the said appeal and confirmed the decision of the Joint Commissioner by observing that the pre­manufacturing chemical analysis and post­manufacturing chemical analysis of raw and finished goods respectively, with the use of the goods / materials in question (used for testing in the laboratory unit) by itself is not manufacturing activity in the sense that manufacture of the goods in question and therefore, the said goods cannot be said to have been used as consumable goods or consumable stores for manufacturing taxable goods and that t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....learned Tribunal being Appeal No.6/2008. By impugned judgment and order the learned Tribunal has held that the pamphlet / literature cannot be said to be "paper label" covered by Entry 19 or Entry 39 or the "packing material" as per the notification issued under Section 55 of Schedule II of the VAT Act. The learned Tribunal also held that such a literature cannot be said to be a consumable as it is not consumed as input and finally loses its identity. The learned Tribunal also observed that supply of such information in such a literature is not a requirement of the VAT Act and leaflet in question is not a goods in which the assessee packed the marketable goods / drugs and therefore, the leaflets are not packing materials and hence, the same cannot be said to have been used as packing materials and therefore, they do not satisfy the requirement of section 11 or Entry 55 of Schedule II of Government Notification dated 29.03.2006 issued by the Government of Gujarat in exercise of powers under Entry 55 of Schedule II and therefore, not entitled to the Input Tax Credit. [4.2] Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal in App....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e "used in manufacturing" as contended in Section 11(3)(vi) of the VAT Act shall not be given a narrow and restricted meaning. It is submitted that it should be construed in widest possible manner and anything that is used for the purpose of making product saleable / marketable shall be included within the ambit of this phrase. In support of his above submissions Shri Soparkar, learned Counsel appearing on behalf of the assessee has relied upon the following decisions of the Hon'ble Supreme Court and this Court. 1. J.K. Cotton Spinning and Weaving Mills vs. Sales Tax Officer (1965)16 STC 562 (Paragraph Nos.8 to 12) 2. Surgichem vs. State of Gujarat 87 STC 40 (Paragraph Nos.4 and 5) 3. Vasuki Carborundum Works vs. State of Gujarat 43 STC 294 (Last para starting from page 298) 4. K. Rasiklal and Co. vs. State of Gujarat 86 STC 238 (Paragraph Nos.12 and 13) [5.5] It is submitted that in the present case testing at pre­manufacture and post­manufacture stage is a mandatory requirement under the provisions of the Rules, 1945 and unless and until the testing is done, the final product cannot be sold in the market and therefore, unless such a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that according to Clause (vi) Sub­section (3) of Section 11 of the VAT Act, Input Tax Credit can be claimed with respect to (1) raw material used in manufacture of taxable goods; (2) packaging of the goods so manufactured. [7.2] It is submitted that the term "raw material" is defined under sub­ section (19) of section 2 of the VAT Act and as per the definition of "raw material", it includes (1) ingredients in the manufacturing of other goods; (2) processing materials; (3) consumable stores; (4) material used in packaging of goods so manufactured. It is submitted by Shri Soparkar, learned Counsel appearing on behalf of the assessee that the word "packing material" is expressly not defined under the VAT Act. However, there is a reference to "packaging material" in Entry No.55 of Schedule II of the VAT Act. It is submitted that Entry No.55 of Schedule II of the VAT Act provides for rate of tax on packaging material as specified by State Government. It is submitted that pursuant to the said entry, the State Government has issued notification being Notification No.(GHN­18) VAT­2006/SCH­II(55)(3)­TH date....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oods so manufactured. It is submitted that "Product Information Literature" can neither be said to be a "Packing Material" nor it can be said to be "raw material" used in the manufacture of taxable goods. It is submitted that it also cannot be said to be raw material used in the packing of the goods so manufactured. It is submitted that even as per the definition of "label" as per the Law Lexicon, "Product Information Literature" cannot be treated as "label" considering detailed information on it, size of the same and possibility of attachment of the same as packing material. It is submitted that therefore the same cannot be said to be packing material and/or raw material and therefore, the assessee is not entitled to the Input Tax Credit on "Product Information Literature". [8.1] It is further submitted that therefore when the "Product Information Literature" are not the goods / raw materials used as ingredient in the manufacture of the goods or processing materials or consumable stores, on such "Product Information Literature", the assessee is not entitled to the Input Tax Credit. Making above submissions, it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he issue involved in the present appeal is required to be considered. That the assessee has claimed Input Tax Credit under Clause (vi) of sub­Section (3) of Section 11 of the VAT Act, which reads as under: "11. Tax Credit. (1) (a) ... (2) ... (3)(a) Subject to the provisions of this section, tax credit to be claimed under sub­ section (1) shall be allowed to a purchasing dealer on his purchase of taxable goods which are intended for the purpose of­ (vi) Use as raw material in the manufacture of taxable goods intended for (i) to (v) above or in the packing of the goods so manufactured." On considering the aforesaid provisions it appears that according to Clause (vi) of sub­section (3) of Section 11 of the VAT Act, Input Tax Credit claimed with respect to (1) raw material used in manufacturing of taxable goods; (2) packing of the goods so manufactured. The term "raw material" is defined under sub­Section 19 of Section 2 of the VAT Act which reads as under: "(19). "raw materials" means goods used as ingredient in the manufacture of other goods and includes processing materials, consumable stores and materi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed for use in the process or activity as specified in rule 13 will qualify for special treatment. This is not to say that every category of goods "in connection with" manufacture of, or "in relation to' manufacture, or which facilitates the conduct of the business of manufacture will be included within rule 13. Attention in this connection may be invited to a judgment of this Court in which it was held that vehicles used by a company (which mined ore and turned out copper in carrying on activities as a miner and as a manufacturer) fell within rule 13, even if the vehicles were used merely for removing ore from time to the factory, and finished goods from the factory to the place of storage. Spare parts and accessories required for the effective operation of those vehicles were also held to fall within rule 13. See Indian Copper Corporation Ltd. v. Commissioner of Commercial Taxes, Bihar and Others. The High Court has rightly pointed out that unless designs are prepared it would be "impossible for the workmen" to turn out goods for sale. If the process of designing is so intimately connected with the process of manufacture of cloth, we see no reason to regard th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olding so the Division Bench noted that the adhesive plaster tapes can only be sold after wrapping them on plastic spools and therefore, plastic spools over which the adhesive plaster tapes are wrapped have to be considered as a component part of the goods marketed i.e. adhesive plaster tapes. The Division Bench also observed that therefore plastic spools are to be held component part of the adhesive plaster tapes, i.e. goods marketed. In the said decision the Division Bench also further observed that manufacturing process can be said to be over only after the goods become marketable. [9.3.3] In the case of Vasuki Carborundum Works (Supra), after considering the decision of the Hon'ble Supreme Court in the case of J.K. Cotton (Supra), the Division Bench has held that although the process or activity may not be necessary, theoretically, for production of finished goods, if it is such an integral part of the ultimate manufacturing of goods that in its absence the manufacture may not be commercially expedient, that activity or process must be considered as manufacturing activity itself and the goods intended for use in that process or activity should be considered to be goods requi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....processing materials" and it would be unwarranted in the language employed by the legislature to enlarge the meaning of the term "consumable stores" and it should, be necessary implication, be restricted by giving a restricted meaning so as to put them at par with the raw materials or processing materials since it is not any and every stores which can be purchased by a manufacturer as tax­free but only those stores which are consumable and, therefore, necessary in the manufacturing process which can therefore be included in the said term. In our opinion, the contention urged on behalf of the assessee should prevail for the following reasons. In J. K. Cotton S. & W. Mills Co. Ltd. v. Sales Tax Officer, a question arose under the Central Sales Tax Act, 1956, as to what should be the meaning ascribed to the expression "in the manufacture of goods" in section 8(3)(b) of the said Act. The assessee­company before the Supreme Court was a mill company manufacturing cotton textiles, tiles and other commodities. The assessee­company applied before the Sales Tax Officer to specify in the certificate goods which the assessee­company purchased in the course of inter­....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r under section 13, the Central Government had framed rules which prescribed by rule 13 that the goods referred to in clause (b) of sub­section (3) of section 8, which a registered dealer may purchase, shall be goods intended for use by him as raw materials, processing materials, machinery, pant, equipment, tools, stores, spare parts, accessories, fuel or lubricants in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power. In this context, the Supreme Court speaking through Shah, J., interpreted the expression "in the manufacture of goods" and held that the said expression should normally encompass the entire process carried on by the dealer of converting raw materials into finished goods and that where any particular process is so integrally connected with the ultimate production of goods that, but for that process, manufacture or processing of goods would be commercially inexpedient, goods required in that process would fall within the expression "in the manufacture of goods". Shah, J., speaking for the court, held as under : "To read the expression 'in the manufacture' of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....with which we are concerned in this reference, does not refer to packing materials but entitles the manufacturer to purchase tax­free, on furnishing certificate, raw materials, processing materials or consumable stores required in the manufacture of taxable goods for sale. We are afraid, we cannot agree with the learned Assistant Government Pleader for the revenue that the legislative intent, therefore, by necessary implication is to exclude packing materials from the category of goods which a manufacturer can purchase tax­free on furnishing a prescribed certificate. The crux of the problem in the present reference is that are the articles in question such that they can be said to be consumable stores required in the manufacture of taxable goods for sale, since admittedly it is neither raw material nor a processing material. The Supreme Court has pointed out in J.K. Cotton S. & W. Mills Co. Ltd.'s case, that a process or an activity may not be necessary theoretically for production of finished goods, but if it is such an integral part of the ultimate manufacture of goods that in its absence the manufacture may not be commercially expedient, that activi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ence the manufacturing activity may not be commercially expedient. It would depend on the facts and circumstances of each case but having regard to the nature of articles with which we are concerned in the present case, we must hold that having regard to its nature, namely, it is a part of consumable stores which must necessarily be used for the purpose of marketing the articles in question, the assessee was entitled to purchase the same on the prescribed certificate under section 13(1)(B) and the Tribunal is clearly wrong in holding that it will not be a consumable article or goods required in the manufacture of taxable goods for sale under section 13(1)(B)." [9.3.4] In the case of K. Rasiklal & Co. (Supra) even the name plates fixed on the oil engines manufactured and sold by the assessee were held to be goods used by a manufacturer in the manufacturing of taxable goods. In the said decision even the wooden strips, cellac, glue, hosepipe, hardware, packing material and timber were held to be used in manufacturing the taxable goods that was oil engines. While holding so in paras 12, 13 and 14, the Division Bench has observed and held as under: "12. Question No. 1 at th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y not be commercially expedient, that activity may also be treated as manufacturing activity and the goods be treated as used in relation to manufacture. While arriving at this conclusion, this Court has followed the decisions of the Supreme Court in the case of Incline Copper Corporation Ltd. v. Commissioner of Commercial Taxes reported in [1965] 16 STC 259 and in the case of J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales Tax Officer reported in [1965] 16 STC 563. In the aforesaid two cases, the Supreme Court has held that a process or an activity may not be necessary for actual production of finished goods. But if it is such an integral part of the ultimate manufacture of goods that in its absence the manufacturing may not be commercially expedient, that activity or process must be considered to be manufacturing activity itself and the goods intended for use in that process or activity should be considered to be goods required in the manufacture of taxable goods for sale. This principle has been followed by this Court in the case of Vasuki Carborundum Works [1979] 43 STC 294. The Tribunal has also followed the aforesaid principle while deciding the question as regards th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ourt has observed and held that the activity of manufacture must include everything done upto the stage of making the manufactured product available for sale as manufactured. In the said case the dispute is in respect of the tax paid on dry ice employed / used to facilitate the transportation of the manufactured goods i.e. ice­cream and the Division Bench has held the same as consumable stores on application of the principles of commercial expediency. [10.] Applying the aforesaid decisions to the facts of the case on hand, the "laboratory stores" used in the laboratory unit for testing at pre­ manufacturing and post­manufacturing stage are required to be held as "consumable stores" and therefore, are required to be held as "raw materials used in the manufacture", as the requirement of testing is mandatory under Rule 22.4 of the Rules, 1945 and unless and until such a test is conducted and/or carried out the final product is not commercially saleable / marketable. Under the circumstances, the assessee shall be entitled to the Input Tax Cr....