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PETITIONER: COMMISSIONER OF SALES TAX, ORISSA AND ANR.

       Vs.

RESPONDENT: JAGANNATH COTTON COMPANY AND ANR.

DATE OF JUDGMENT28/07/1995

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) SEN, S.C. (J)

CITATION:  1995 SCC  (5) 527        JT 1995 (5)   569  1995 SCALE  (4)584

ACT:

HEADNOTE:

JUDGMENT:                     J U D G M E N T B.P.JEEVAN REDDY.J.      Leave granted.      The appeals  are preferred against a common judgment of the Orissa  High Court  in five writ petitions. All the five writ  petitions   were  filed   by  the  respondent  herein, Jagannath Cotton  Company, wherein  the question  is whether the respondent  is entiled  to the benefit of exemption from sales tax  under the Industrial Policy Resolution of 1986 as well as  of 1989.  It also involves the question whether the process undertaken  by the  respondent,  applying  which  he obtains  cotton   from   waste   cotton,   can   be   called ’manufacturing’ activity.      With a  view to  encourage the industrialisation of the State, the  Government of  Orissa published  the  Industrial Policy Resolution  (dated May  13, 1986)  in the  Gazette of June 11,  1986. It  provided  several  incentives  to  those establishing new  industries in the State and also those who expanded their  existing capacities. Inter alia, it provided for certain  concessions in  the matter of sales tax. In the case  of   village,  cottage  and  small  scale  industries, exemption from  tax was  provided on  the  purchase  of  raw material as  well as the sale of finished product whereas in the case of new medium and large scale industrial units, the facility  of  deferment  of  payment  of  sales  tax  for  a particular period  was provided.  The State was divided into three   zones    having   regard    to   their    level   of industrialisation. Zone-A which was supposed to be the least industrialised area  provided more  incentives than  Zones-B and C.  District Sambhalpur, wherein the respondent-industry is located,  falls in Zone-C. The provisions of Orissa Sales Tax Act  also appear  to have  been amended in tune with the said policy resolution as would be evident from Entry 30(ff) referred to  in the  counter filed by the respondent in this Court-but   this   is   one   of   the   aspects   requiring

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clarification. Entry  30(ff) seems to provide exemption from sales tax  of the  products of a small scale industry set up on  or   after  Ist  April,  1986  and  starting  commercial production thereafter  inside the  State subject  to certain further conditions.      The High  Court has  allowed the  writ petitions on two grounds, viz.,  (1) that  the industrial  policy  resolution does not require that for obtaining the benefit of exemption of sales  tax, a  small scale industry should necessarily be engaged in  the manufacture  or production  of goods and (2) that the  process adopted  by the  respondent  by  which  he obtains cotton from waste cotton does amount to manufacture. So far  as the  first ground  given by  the  High  Court  is concerned, we  find it difficult to accept. A reading of the Industrial Policy  Resolution (I.P.R.) of 1986 as well as of 1989 clearly  shows that  several concessions at substantial cost to  public exchequer  were provided only with a view to accelerate the  pace of industrialisation in the State. Para 3 of  the I.P.R.  states,  "(T)herefore,  the  major  thrust should  be   on  development   of  sophisticated  industries including   electronics,    upgradation    of    technology, modernisation of  the  existing  units  and  development  of functional(?) industrial  areas in the fields of electronics and computers,  electrical and  domestic appliances, plastic and polymers,  leather, textiles, ceramics, chemicals, drugs and pharmaceutical  industries." Even  the provisions of the I.P.R. relating  to sales  tax concessions bear out the said object. The relevant provisions read thus:      "(d) Concessions Relating to Sales Tax-      (i)  Exemption   of  Sales  Tax  on  raw      materials - All new village, cottage and      small industries  will be  exempted from      Sales Tax  on purchase of spare parts of      Machinery,  raw  materials  and  packing      materials for  a period  of 5 years from      the date of their commercial production.      All new medium and jarge industries will      be eligible  for similar  facility for 3      years in Zone B and C and for 5 years in      Zone A.      (ii) Exemption  of Sales Tax on finished      products-      (a) Products  of all  existing  and  new      Khadi, village  cottage  industries  and      Handicrafts will  be exempted from sales      tax   when   sold   by   the   concerned      manufacturing units  or sales outlets of      authorised Co-operative/Govt.  agencies.      Finished Products  of all  existing  and      new electronics  industries so  declared      by  the  State  Electronics  Development      Corporation will  also be  exempted from      Sales Tax.      (b)  Products   of   new   small   scale      industries will  be exempted  from Sales      Tax for  a period  of 5  years from  the      date of their commercial production.      (iii)  Sales  Tax  Deferment  Scheme-New      medium and  large industrial  units will      be eligible  to defer  payment of  Sales      Tax collected on their finished products      for a  period of 5 years in Zone-’B’ and      ’C’ and  7 years  in Zone-’A’  from  the      date  of  their  commercial  production.      Deferred amount  in respect of each year

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    would be  paid in  full after the expiry      of the period of deferment annually.      (iv) Exemption  of Sales Tax on finished      products in  lieu of deferment:- In lieu      of the  Sales Tax  Deferment Scheme, new      medium and  large industrial  units  can      opt for  exemption of Sales Tax on their      finished products  for  a  period  of  5      years if located in Zone-A from the date      of their commercial production."                       (Emphasis supplied)      A reading of the above provisions in the context of the I.P.R. shows  that the  incentives are  meant only for those units which  are engaged in the manufacture or production of goods. Indeed,  clause (2)(a) in the above extract speaks of "concerned  manufacturing   units".  Manufacture,   in   its ordinary  connotation,   signifies  emergence   of  new  and different  goods   as  understood   in  relevant  commercial circles. Furthermore, the use of the expression "purchase of raw material"  itself shows that what is ultimately produced is different  goods than  the raw  material used. Similarly, the repeated  use of  the expression "finished products" and the grant of exemption in the case of small scale industries both in  respect  of  raw  materials  as  well  as  finished products indicates  that these  concessions  at  substantial cost to  public exchequer were being provided with a view to encourage units  engaged in the manufacture or production of goods and  not to  help those  units  which  merely  engaged themselves in  some sort  of processing whereunder the goods remain essentially  the  same  goods  even  after  the  said process. Even if a process is adopted, the test is the same, viz.,  whether   different  goods  emerge  as  a  result  of application of such process.      Apart from  the above  consideration, we  must also see what are the provisions, if any, in the Orissa Sales Tax Act Providing exemption  from sales  tax  in  the  case  of  new industries  and   whether  they   are  consistent  with  the provisions of  I.P.R. or  are they different. The High Court seems to have proceeded on the assumption that the I.P.R. by itself is  enough to  provide the  exemption from  the sales tax. But  where the provisions of the Sales Tax Act are also amended providing  for exemption,  then the court has to see whether they  are  the  same  as  the  I.P.R.  or  are  they different- and  if different,  what is  the effect  of  such difference. It  is, therefore,  necessary to  ascertain  the relevant  provisions   in  the  Sales  Tax  Act,  rules  and notifications, if any, issued thereunder before expressing a final opinion in the matter.      There is  yet another important aspect upon which there is woeful  lack of  material. While  the respondent  asserts that he  obtains cotton  from the  waste cotton by employing machinery, the  exact process employed by him is not set out or clarfied in the counter-affidavit filed in these matters. The process  employed by  him is not set out or clarified in the counter-affidavit  filed in  these matters.  The process adopted by  the respondent  has also  not been  noted in the judgment. We  do not  know whether this aspect was gone into at all.  Even the  order of  the Sales  Tax Officer does not clearly set  out the  process. Before  the Court can express itself on  the question  whether a particular process Before the Court  can express  itself on  the  question  whether  a particular process amounts to manufacture/production or not, it must  know what  is the  precise  process  that  is  gone through. It  is necessary to have this material. As a matter of fact,  there are  a number  of decisions  both under  the

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Central Excise  Act as well as under the several State Sales Tax enactments  where similar  questions  have  arisen.  The principles emerging  therefrom may  have to be kept in mind. The dealers  and assessees normally contend that the process undertaken by them does not involve manufacture, that no new goods have  come into  existence and that, therefore, no tax or duty  is leviable.  But here the respondent is adopting a converse position  because it is beneficial to him under the I.P.R.      We are  of the  opinion that  in  the  above  state  of affairs, the  proper course  would be to remit the matter to the High  Court for  a decision  afresh in  the light of the observations made herein.      Accordingly, the  appeals are  allowed, the judgment of the High  Court is set aside and the matters remitted to the High Court  for a  fresh  decision  in  the  light  of  this judgment. No costs.