Chemicals Ltd. Vs. The State of Andhra Pradesh & Ors  Insc 382 (2 August 2005)
Pal & Tarun Chatterjee Ruma Pal, J.
issue in this appeal is whether the appellant is entitled to exemption from
payment of sales tax under the Andhra Pradesh General Sales Tax Act 1957 as
notified by G.O.M.S. No.117 dated 17th March,1993 (referred to in brief as the
1993 G.O. was issued by the Government of Andhra Pradesh, Industries and
Commerce Department to effectuate the liberalized State incentive scheme for
setting up new industries as introduced by the Government in 1989. The package
of incentives already granted by the State Government was reviewed whereafter
the State Government decided to introduce certain modifications in order to
accelerate industrial development in the State. The incentives were granted on
the basis of Districts according to their grouping under areas I, II and III.
We are concerned with District Medak, falling within area II.
from an investment subsidy, rebate on electricity charges and a deferment/tax
holiday on sales tax for specified periods on products manufactured in the new
industrial units were granted in Clauses 5(c) and 5(b) respectively of the 1993
G.O. Medium and large scale industries were given sales tax deferment, whereas
tiny and small scale industries were given a sales tax (holiday) exemption. The
appellant falls within the latter category. In terms of the 1993 G.O. units
like the appellant's were given a 5 years sales tax holiday subject to a
ceiling of hundred percent of fixed capital costs or Rs. 35 lakhs whichever was
less during the entire holiday period.
procedure prescribed for availing of the benefits of 1993 G.O. envisaged the
setting up of State Level and District Level Committees. The District Level
Committees included within its members, the Deputy Commissioner of Commercial
Taxes. Clauses 10 and 11 of the 1993 G.O. read as follows:- "10. The above
Committee shall scrutinize and sanction the claims of the units of the
concerned District involving eligible capital investment of Rs. 7.5 lakhs and
The decisions of the State Level Committee shall be final in scrutinizing/
deciding the eligible investment and sanctioning the incentives condoning the
delays in filing of applications for registration and claims for eligible
industries." Clause 16 records that the 1993 G.O. which was issued in the
name of the Governor of the State was with the concurrence of the Finance and
Planning (Financial Wing) Department. Annexure-I to the 1993 G.O. provides for
a list of ineligible industries. We will have the occasion to refer to this in
greater detail at a subsequent stage.
1994 the appellant set up a small scale industrial unit in Medak in the State
of Andhra Pradesh and invested a sum of Rs. 93.99 lakhs
for production of Liquor Ammonia and for refilling of Anhydrous Ammonia. On 6th June, 1994 the appellant commenced commercial
production. Its application to the Industries Department for an eligibility
certificate mentioned the nature of the activities carried on by the unit and
also gave details of the investments made. The application was returned by the
Industries Department on 18th
May, 1995, because the
Commissioner (Industries) was of the opinion that "refilling" activities
were not eligible for incentives under the scheme.
the matter was re-examined at the instance of the appellant. Since instructions
had already been issued by the Department to the effect that refilling of LPG
Gas was considered eligible for incentives, filling of anhydrous ammonia into
cylinders was also held to be entitled to the grant of the same benefit.
on 7th of August, 1996 the appellant's unit was inspected by the Industries
Department for verification of the appellant's application. A recommendation
was made by the Industries Department for grant of the benefit, however limited
to 50% of 15% investment subsidy and sales tax exemption of Rs.35 lakhs under
the Scheme. A temporary eligibility certificate was then issued to the
appellant on 22nd
August, 1995 by the
District Industries Centre. This was made conditional on the SSI unit not
collecting Sales Tax from its consumers during the period of exemption. If it
did, it would be liable to remit the sales tax collected to Government.
cover of a letter from the Commissioner of Industries dated 10th August 1996, a final eligibility certificate
was granted to the appellant certifying the eligibility of the appellant for
sales tax exemption. It may be mentioned here that the final eligibility
certificate was issued with the sanction accorded by the State Level
Committee/District Level Committee. A copy of the covering letter was forwarded
to the Commissioner of Commercial Taxes, the concerned Commercial Tax Officer
and the Deputy Commissioner Commercial Taxes, Hyderabad.
Commissioner of Commercial Taxes in his turn wrote to the Deputy Commissioner
Commercial Taxes Hyderabad, the respondent No.4 before us, (referred to in
brief as DCCT) requesting him to permit Sales Tax exemption by the appellant in
accordance with the 1993 G.O. saying that the eligibility certificate would be
operative from 6th June, 1994 for a period of five years for an amount of Rs.
35 lakhs. The appellant was thereafter granted exemption from payment of sales
tax on the products sold from its unit upto a limit of Rs. 35 lakhs for five
years from 1994 to 1999.
the period from 30th September, 2002 to 3rd October, 2002 about four years
after the period of exemption expired, 9 pre-revision show cause notices under
Section 9(2) of the Central Sales Tax Act.1956 read with Section 20(2) of the
Andhra Pradesh General Sales Tax Act,1957 were issued by the DCCT to the
appellant. It was said in the notices that upon verification it was noticed that
the Assessing Authority had allowed irregular sales tax exemption on the first
sales of anhydrous liquefied ammonia amounting to Rs. 33,98,287.00 and adjusted
the tax against the tax exemption granted under the Tax Holiday Incentive
Scheme. The DCCT noticed that the commodity that was purchased and sold were
one and the same and that there was no new commodity that had emerged and that
the activity of manufacture as it was understood in common parlance had not
taken place. According to the DCCT, "manufacture" envisaged a
commercially distinct and different commodity or a finished product with a
separate identity from its raw material. It was said that:- "The activity
of bottling/packing of cases into a unit containers from bulk quantities was
not recognized as manufacture even under Central Excise Act. It was also
ascertained from the concerned Central Excise Authorities that the said units
were not registered under Central Excise Act and not paying Central Excise Duty
on the gases cleared in cylinders to the consumers.
view of the foregoing conclusions, the granting of deferment/exemption of sales
tax to the said units is incorrect and the same is to be withdrawn." The
nine show cause notices are materially identical except that each related to
different assessment years during the period of the sales tax holiday.
appellant replied to the show cause notices in which the jurisdiction of the
DCCT to issue the notices was questioned. It was clarified that the appellant
was liable to duty under the Central Excise Tariff Act 1985 and that the
appellant had been paying 16% Excise Duty on both Anhydrous Ammonia and Liquor
Ammonia manufactured by it in accordance with the procedure prescribed under
that Act. The details of the processes undertaken in producing the products
were also given. It was also drawn to the attention of the DCCT that the
authority to determine the eligibility under the G.O. Ms. was not the
Commercial Taxes Department, but the Department of Industries & Commerce.
the appellant filed a writ petition in the Andhra Pradesh High Court for a
declaration that the appellant was entitled to the benefits notified by the
1993 G.O. and that the pre-revision show cause notices issued by the DCCT for
the years 1995-1996 up to the 1999-2000, were illegal, void and unenforceable.
the pendency of the writ proceedings on 21st January, 2003 the DCCT passed an order confirming
the demand proposed to be raised in the show cause notices. The DCCT held that
process of refilling anhydrous ammonia into cylinders did not amount to a
manufacturing activity. He held that the State Government had issued a Memo
dated 8.2.2000 declaring that LPG bottling units were not eligible for any
Sales Tax incentive as no manufacturing activity was involved.
the DCCT issued demand notices for recovery of sales tax for the period between
1995-96 to 1999-2000.
High Court dismissed the writ petition on the basis of an earlier Division
Bench pronouncement in SHV Energy Promotion Board, Hyderabad and Anr. Being aggrieved by the
dismissal of the writ petition the appellant filed a special leave petition
challenging the decision of the High Court before this Court under Article 136.
Dave, learned senior counsel appearing on behalf of the appellant submitted
that the decision relied upon by the High Court was distinguishable. Apart from
reiterating the appellant's stand as taken in the reply to the impugned show
cause notices it was also submitted that in this particular case the appellant
had been granted the benefit under the 1993 G.O. after an exhaustive
consideration of the appellants' case. It was stated that the appellant had
made a full disclosure of the process of manufacture undertaken by the
appellant. It was also submitted that the word "manufacture" as used
in the 1993 G.O. must be understood in the context of the incentive scheme and
the objects sought to be fulfilled thereby.
emphasis was on Industrial development and not on the manufacture. It was
submitted that the words used in the 1993 G.O. must be given a liberal
construction since it is part of a packet of incentives. As far as sales tax
law was concerned, the State Act neither defined manufacture nor was it
concerned with whether goods sold were manufactured or not. According to the
learned counsel there was intrinsic evidence in the 1993 G.O. to show that the
word "manufacture" was used in a wide sense and that this was
apparent from Annexure I to the 1993 G.O. which contained a list of ineligible
industries. These included widely disparate industries such as powder of
chilly, turmeric, masala spices, kari, sambhar etc.; manure mixing industries
and hotels except (a) Motels (b) hotels set up in State Government approved
tourist centers of Districts. Finally and in the alternative it was contended
that if the issue was decided against the appellant, having regard to the
circumstances of the case, the respondent State should not be permitted to
recover the amount as the appellant had not collected any sales tax from its
consumers, not only because of the prohibition under the State Sales Tax Act,
but also because of the conditions under which the eligibility certificates
both temporary and final had been issued.
Dwivedi, learned senior counsel appearing on behalf of the respondents has said
that manufacture for the purpose of the sales tax does not include repackaging,
rebottling etc. This has been so held in Deputy Commissioner of Sales Tax (Law)
Board of Revenue (Taxes) vs. M/s. PIO Food Packers (1980) Suppl. SCC 174.
Therefore, it was contended, if the commodity remains the same then
irrespective of the process, it would not amount to manufacture.
was a patent error which was correctible under Section 20 of the State Sales
Tax Act. Countering the appellants' submission for a liberal construction, it
is argued that since an exemption was sought to be claimed, the language would
have to be strictly construed. The list of ineligible industries in Annexure I
to the 1993 G.O. did not, according to the respondents, give rise to any
presumption that the process carried on by the industries excluded, indicated
what was manufacture for the purpose of the 1993 G.O. The list merely excluded
certain industries altogether to avoid controversy.
learned counsel conceded that as far as the production of liquor ammonia was
concerned, it could reasonably be said that it had undergone a process of
manufacture but as far as the bottling of the anhydrous ammonia was concerned,
the process could not amount to manufacture.
opinion, the appeal must be allowed. At the outset we may note that the earlier
decision of the Division Bench relied upon by the High Court is clearly
distinguishable. It dealt with a different Government order and the Court based
its decision to a large extent on the fact that the eligibility certificate
which had been granted to the assessee unit in that case was not only temporary
but had also been cancelled. In the present case, the grant of the eligibility
certificate was not the outcome of an unconsidered decision based on extraneous
considerations. The matter was considered in depth and sanctioned by the
District Level Committee of which, as we have already noted, the DCCT was a
part. The appellant had made a full disclosure of the process undertaken in
respect of which sales tax exemption was granted. No malafides has been alleged
against the appellant nor is it the case of the respondents that the appellant
had taken any unfair advantage of the 1993 G.O.
the 1993 G.O. which was issued by the Industries & Commerce Department had
granted the sales tax holiday on products manufactured in industrial units set
up by the State Government. But the interpretation of the word 'manufacture' as
used in the 1993 G.O. by the DCCT was wholly incorrect. For one, the DCCT
appears to have imported the definition of 'manufacture' from the law relating
was uncalled for having regard to the fact that the word had been used in a
different context altogether. (See Ashirwad Ispat Udyog & Ors vs. State
Level Committee & Ors.) Reliance by the respondents on M/s.PIO Food Packers
(supra) is misplaced. In that case, sales tax was sought to be levied under the
Kerala General Sales Tax Act, 1974 on the ground that the pineapples purchased
by the assessee had been consumed in the manufacture of canned pineapple,
pineapple jam and pineapple squash within the meaning of the phrase 'consumes
such goods in the manufacture of the goods' used in Section 5A(1)(b) of the
Act. It was in the context of that phrase that this Court said:- "Commonly
manufacture is the end result of one more processes through which the original
commodity is made to pass. The nature and extent of processing may vary from
one case to another, and indeed there may be several stages of processing and
perhaps a different kind of processing at each stage. With each process
suffered, the original commodity experiences a change. But it is only when the
change, or a series of changes, take the commodity to the point where
commercially it can no longer be regarded as the original commodity but instead
is recognized as a new and distinct article that a manufacture can be said to
there is no essential difference in identity between the original commodity and
the processed article it is not possible to say that one commodity has been
consumed in the manufacture of another. Although it has undergone a degree of
processing, it must be regarded as still retaining its original identity".
result it was held:
that when pineapple fruit is processed into pineapple slices for the purpose of
being sold in sealed cans there is no consumption of the original pineapple
fruit for the purpose of manufacture.
case does not fall within Section 5- A(1)(a) of the Kerala General Sales Tax
this case the State Sales Tax Act contains no provision relating to
'manufacture'. The concept only finds place in the 1993 G.O. issued by the
Department of Commerce and Industries. It appears from the context of the other
provisions of the 1993 G.O. that the word 'manufacture' had been used to
exclude dealers who merely purchased the goods and resold the same on retail
price. What the State Government wanted was investment and industrial activity.
It is in this background that the 1993 G.O. must be interpreted.
(1992) 2 SCC 607). The Department of Commerce and Industries had by its letters
dated 3rd June 1995 and 20th August 1996 clarified the issue. The exemption was granted in terms of
the 1993 G.O. the thrust of which was to increase the industrial development in
the State. The Commissioner, Commercial Tax had also in no uncertain terms
accepted the interpretation put by the Industries Department on the 1993 G.O.
and written to the DCCT to permit sales tax exemption to the appellant in
accordance with the 1993 G.O. for a period of five years upto a limit of Rs.35 lakhs.
the conclusion of the DCCT was based on an incorrect factual premise that the
appellant had not paid excise duty on the bottled ammonia. The DCCT ignored the
appellant's clear statement in its reply to the show cause notices that the
bottled ammonia had been subjected to excise duty and that it had paid the levy
as prescribed under the Central Excise Tariff Act, 1985.
under the incentive scheme in question, there was only one method of verifying
the eligibility for the various incentives granted including sales tax
exemption. The procedure was for the matter to be scrutinized and recommended
by the State Level Committee and District Level Committee and the certification
by the Department of Industries & Commerce by issuing an Eligibility
Certificate. There was no other method prescribed under the scheme for
determining an industrial unit's eligibility for the benefits granted. The Department
of Industries & Commerce having exercised its mind, and having granted the
final eligibility certificate (which was valid at all material times), the
Commercial Taxes Department could not go beyond the same. More so when the
Commissioner, Sales Tax had accepted the Eligibility Certificate issued to the
appellant and had separately notified the appellants eligibility for exemption
under the 1993 G.O. In these circumstances the DCCT certainly could not assume
that the exemption was wrongly granted nor did he have the jurisdiction under
Section 20 of the State Act to go behind the eligibility certificate and embark
upon a fresh enquiry with regard to the appellant's eligibility for the grant
of the benefits.
counter affidavit filed by the respondents-sales tax authorities is telling. It
is said that the Sales Tax Department had decided to cancel the eligibility
certificates for sales tax incentives. As we have said the eligibility
certificates were issued by the Department of Industries and Commerce and could
not be cancelled by the Sales Tax Authorities. [See in this connection: Apollo Tyres
vs. CIT Kochi, (2002) 9 SCC 1.) There is another reason why the action of the
DCCT cannot be upheld. The primary facts relating to the processes undertaken
by the appellant at its unit were known to the Department of Industries and
Commerce and the DCCT. The only question was what was the proper conclusion to
be drawn from these. The Department of Industries and Commerce which was
responsible for the issuance of the 1993 G.O. accepted the appellant as an
eligible industry for the benefits.
from the fact that it can be assumed that the Department of Industries was in
the best position to construe its own order, we can also assume that in framing
the scheme and granting eligibility to the appellant all the departments of the
State Government involved in the process had been duly consulted.
State, which is represented by the Departments, can only speak with one voice.
Having regard to the language of the 1993 G.O. it was the view expressed by the
Department of Industries which must be taken to be that voice.
true that on 17th March 2000, the Commissioner of Industries issued a circular cancelling
Eligibility Certificates issued to Industrial Gases bottling units, Mineral
Water and Sand Benefication units. But the Commissioner of Industries had also
directed the cancellation of the Temporary/Final Eligibility Certificates
issued to such industries with effect from 30th March 2000 and to inform the
units to pay sales tax with effect from 31st March 2000 to the Commercial Taxes
Department. The cancellation was, therefore, given prospective effect. If the
DCCT wanted to rely on the circular, it had to give effect to it completely,
and indisputably by 31st March, 2000 the period of sales tax exemption was over
for the appellant.
we are with the appellant on the merits, it is unnecessary to consider the
alternative argument relating to the recovery of the sales tax from the
appeal is for the reasons stated allowed and the decision of the High Court is
set aside. The show cause notices and the impugned order of the DCCT is
will be no order as to costs.