http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 3  

CASE NO.: Appeal (civil)  8315 of 2001

PETITIONER: Pondicherry State Cooperative Consumer Federation Ltd

RESPONDENT: Union Territory of Pondicherry

DATE OF JUDGMENT: 13/11/2007

BENCH: Ashok Bhan & V.S. Sirpurkar

JUDGMENT: J U D G M E N T

CIVIL APPEAL No.8315 OF 2001

V.S. SIRPUKAR, J

1.      The Judgment of the High Court denying the exemption from  payment of Sales Tax is under challenge in this appeal at the instance of  the Appellant Pondicherry State Cooperative Consumer Federation Ltd.  (for short "the Assessee").  Such exemption was granted by the Sales Tax  Appellate Tribunal at Pondicherry by allowing an appeal filed by the  Assessee.  Prior to that the Assessee was assessed by the Assessing  Authority and on an appeal by the Assessee the taxable liability was  brought down to Rs.14,26,729.86 by the Appellate Commissioner.  An  appeal was, thereafter, filed before the Tribunal which allowed the appeal  holding that the Assessee was covered by the G.O.Ms.No.15/74 dated  25.6.1974 and was as such exempted from paying the Sales Tax.   2.      The Assessee is a Small Scale Industry certified as such by Director  of Industries, Government of Pondicherry by G.O. No.35/IND/88-89/A-5/A- 9 dated 19.5.1989.  The said certificate specifically provided that the Unit  of the Assessee was exempted from payment of Sales Tax for five years  vide G.O.Ms.No.15/74/FIN (CT) dated 25.6.1974.  It is obvious that  thereafter this tax holiday was extended from time to time.  The Assessee  is also registered as a Small Industrial Unit and is certified as such by the  Director of Industries by his order dated 9.3.1989.  The Assessee  purchases Palmolive Oil in bulk and packs the oil in small packages for the  purpose of selling in retail and this packing of Palmolive Oil is done in the  small industrial unit of the Assessee. 3.      The Government of Pondicherry has issued a G.O. which we have  referred to earlier dated 25.6.1974 and vide that G.O., in exercise of  powers conferred by Sub-Section (3) of Section 19 of the Pondicherry  General Sales Tax Act, 1967 a general exemption is provided from  payment of Sales Tax on the turnover of the sales of goods  "manufactured" by (i) Small Scale Industries which went into production on  or after 6th November; and (ii) All industries other than small scale  industries which went into production on or after 1st April, 1971, as certified  by the Director of Industries, Pondicherry.  There is no difficulty and it is an  accepted position that the appellant-assessee is covered by this G.O.   4.      The Department, however, took the view that purchase of Palmolive  Oil and then re-packing the same could not amount to manufacture of  goods and as such the said G.O. could not be made applicable to the  Assessee’s case.  It is in that view that the Assessment Orders were  passed.  The Tribunal took the view that though in the strict legal sense the  Assessee’s activities could not be viewed as "manufacturing" yet since the  Director of Industries had exempted the Assessee from payment of Sales  Tax it had to be accepted as a valid legal document founded on the  authority of the Finance Department in terms of G.O.Ms.No.15/74 dated  25.6.1974. In that view the Tribunal allowed the appeal filed by the  Assessee.  However, the High Court took the view that for being covered

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 3  

under G.O.Ms.No.15/74 dated 25.6.1974 it had to be proved by the  Assessee that it "manufactured" the goods since the said G.O. was  applicable to the industries manufacturing goods and the turnover relating  to such manufactured goods.  The High Court further took the view that it  could not be said that there was any manufacturing process involved in the  Assessee’s Small Scale Industry and, therefore, held that no exemption  would be available to the Assessee.  It is this judgment of the High Court  which is assailed before us. 5.      Learned Senior Counsel Shri Venkatraman appearing for the  Appellant-Assessee submitted that this question was no more res integra  and was covered by the Judgment of this Court reported in Vadilal  Chemicals Ltd. vs. State of U.P. & Ors. [(2006) 6 SCC 292].  It was  pointed out that in that case an identical question fell for consideration  under the similar circumstances.  There also, the question was: as to  whether the small scale industry which was engaged in bottling of  anhydrous ammonia could be said to be entitled to the exemption from  payment of Sales Tax on the ground that it was manufacturing such goods  since there was a general exemption offered by the Andhra Pradesh  Government by G.O.Ms.No.117 dated 17.3.1993 to the small scale  industry.  There also it was found on inspection that the Assessee Industry  was allowed irregular tax exemption on the first sales of anhydrous  liquefied ammonia  as it was found that the commodity that was purchased  and sold was one of the same and there was no new commodity that had  emerged and that the Assessee had only done bottling of ammonia.  The  show cause notices were issued to the Assessee in that case suggesting  therein that the activity of bottling/packing of gases into unit containers  from bulk quantities was not recognized as "manufacture" even under the  Central Excise Act.  In that view the question which fell for consideration  before this Court was as to whether under the circumstances the Assessee  could claim the exemption.  This Court firstly held that the exemption  certificate was granted by the authorities after due consideration.  It was  then noted that though the exemption was available on the products  "manufactured" in industrial units, the interpretation put forth by the  authorities on the word "manufacture" was incorrect.   This Court took the  view that the authorities had based the interpretation of word  "manufacture" on the law relating to Excise and that it was erroneous to do  so.  It was observed that in the State Sales Tax Act there was no provision  relating to "manufacture" and the concept was to be found only in the 1993  G.O. which had provided the exemption.  The Court further took the view  that the exemption was granted with a view to give a fillip to the industry in  the State and also for the industrial units of the State.  The Court,  therefore, took the view that a liberal interpretation of the term  "manufacture" should have been adopted by the State authorities, more  particularly, when the State authorities had granted the certificate of  eligibility after due consideration of the facts.   6.      In our view the law laid down in this decision is applicable to the  present case on all fours.  Here also the authorities had firstly certified the  Assessee’s industry to be Small Scale Industry and had then proceeded to  grant exemption to it from payment of Sales Tax on the goods  manufactured.  The said certificate was not found to have been  erroneously issued and was very much in vogue when the show cause  notices came to be served on the assessee.  The G.O. providing  exemption clearly suggested that such exemption was given in the public  interest.  Therefore, it is obvious that the decision in Vadilal Chemical’s  case would be equally applicable as even in that case what the industry  did was to bottle the ammonia gas purchased in bulk.  In the present case  it is Palmolive Oil which is purchased in bulk and is re-packed so as to  facilitate its sale in the retail market. 7.      Shri T.L.V. Iyer, Senior Advocate appearing on behalf of the Union  Territory of Pondicherry, however, tried to suggest that the exemption from  payment of tax granted on 19.5.1989 was granted by the Director of  Industries and it was clear from that exemption that it was only on the  basis of the G.O.Ms.No.15/74 dated 25.6.1974.  Our attention was invited  to the last lines of the aforementioned G.O. dated 19.5.1989.  The last  portion is as under:

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 3  

"The unit is exempted from payment of sales tax for five years  vide G.O.Ms.No.15/74/FIN(CT) dated 25.6.1974."

On this the learned Senior Counsel argued that therefore, it had to be  proved that the goods were manufactured by the Assessee and in the  present case since the Palmolive Oil did not change its character on its  being re-packed by the Assessee, it could not be said that the assessee  had manufactured any goods.  Learned counsel also urges that in the  absence of any definition of "manufactured goods" in the Sales Tax Act, we  would have to fall back upon either the dictionary meaning of the term or to  borrow it from the Central Excise Act.  We are afraid, the contention cannot  be accepted in the wake of clear law laid down by this Court in Vadilal  Chemical’s case.  We have already shown as to how the decision in that  case is applicable to the present situation.  In that view we are of the clear  opinion that since in the present case the exemption was granted to all  small scale industrial units registered with the Director of Industries and  since the Assessee was recognized and certified as a small industrial unit,  engaged in the activity of re-packing of edible oil and further since the  exemption was granted with the open eyes to this particular industry, the  State cannot be allowed to run around and take a stance that the appellant- assessee was not entitled to the exemption on the ground that it did not  manufacture any goods.  We are in respectful agreement with the view  taken in Vadilal Chemical’s case which is more particularly reflected in  paras 19 and 20 of that decision where this Court observed as under: "In this case the State Sales Tax Act contains no provision  relating to "manufacture".  The concept only finds place in the  1993 GO issued by the Department of Commerce and  Industries. It appears from the context of the other provisions  of 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 GO must be interpreted (See CST v. Industrial  Coal Enterprises)\005\005.. The exemption was granted in terms  of 1993 GO, the thrust of which was to increase industrial  development in the State."

8.      We respectfully agree with the aforesaid observations and would  chose to take the same view by accepting the contention of the appellant  that a liberal view of G.O. Ms.No.15/74 dated 25.6.1974 would have to be  taken.  We accordingly allow the appeal, set aside the order passed by the  High Court and restore that of the Tribunal but without any order as to  costs.