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Judgment
R. Gururajan, J.—Petitioner is seeking for a writ of certiorari to quash the impugned order dated May 2, 2002 passed by the State Level
Committee annexure K. I.A. II was filed seeking for amendment of the prayer. The same was allowed. In terms of the amendment, petitioner is
now challenging only annexure Q dated November 14, 2003.
Facts in brief are as under:
Petitioner is a limited company. Petitioner is a registered dealer u/s 12-E of the Karnataka Sales Tax Act, 1957 (for short ""the K.S.T. Act"").
Petitioner has put up a cement unit at Penambur, Mangalore. Petitioner manufactures cement at its various plants located in the States of
Maharashtra, Gujarat, Madhya Pradesh, Andhra Pradesh and Orissa. The cement unit at Mangalore has several basic features. Details of the
system established at Mangalore is enumerated in the project report filed at annexure A. The State Government issued a notification dated March
15, 1996 read with notification June 15, 1996 as per annexures B and C. The notifications envisage grant of exemption/deferment of sales tax on
the sale of goods manufactured by a new industrial unit set up after April 1, 1996 within the State of Karnataka. Petitioner in the light of the
notifications submitted an application. The Joint Director forwarded the said application to the Director of Industries and Commerce with his
recommendations in terms of annexure E. Petitioner in the light of the recommendations of the Joint Commissioner sought for an opportunity to
represent its case to the office of the Director. An application was filed on January 16, 1999. An opportunity was sought in terms of annexure F.
Thereafter respondents rejected the request of the petitioner in terms of annexure G. Aggrieved by annexure G, petitioner filed writ petitions in
W.P. Nos. 32658 and 34399 to 34407 of 1999. This Court after hearing, disposed of the writ petitions in terms of annexure H. Thereafter
petitioner received a notice and in response to the notice, petitioner filed his reply on May 31, 2001. Petitioner also explained personally before the
State Level Committee. The State level Committee thereafter rejected the case of the petitioner. Annexure K is the endorsement. During the
pendency of the writ petition, assessment orders have been passed in terms of annexure M1 to M6 followed by the demand notice annexures LI to
Thereafter appeals were filed and request was made to defer the appeal. The appellate authority confirmed the assessment orders.
Subsequently, a demand was made in terms of annexure Q. Annexure Q is challenged.
Respondents have entered appearance and they have opposed the prayers.
In the objection statement it is stated that the petitioner has a manufacturing unit at Kovaya in Gujarat. Bulk cement is imported and transported
from the Cement unit at Kovaya to Mangalore unit and then sales are effected by the petitioner. Respondents say that there is no manufacturing
activity as sought to be made out in Mangalore. According to them the bulk cement is brought from Gujarat for packing at Mangalore. They say
that in these circumstances, they have chosen to issue the present endorsement in the light of the technical committee report.
Learned Senior counsel Mr. Sarangan invites my attention to the material facts to contend that the manufacturing activity is being carried on at
Mangalore as well. He says that the homogenisation is a must for better quality and the homogenisation takes place at Mangalore. According t the
learned Counsel homogenisation is also a manufacturing process and it cannot be excluded. His further submission is that homogenisation is
referable to quality of cement and quality cement alone is marketable as per his submissions. He also refers to the notification to contend that the
object of the notification is to provide for incentives and those incentives are not to be denied to the petitioner. He strongly relies on the various
judgments of this Court in support of his case.
Per contra, learned Government Advocate would say that the material facts would show that no manufacturing activity as such takes place at
Mangalore. His submission is that homogenisation process at Mangalore cannot be classified as a manufacturing activity in the given circumstances.
He also relies on several judgments.
After hearing the learned Counsel I have carefully perused the material on record. The only issue to be adjudicated is as to whether any
manufacture in terms of the notification is being carried on by the petitioner at Mangalore in the given circumstances. To consider this crucial issue,
facts are required to be noticed.
Material facts would reveal that the petitioner has set up a manufacturing unit at Kovaya in Amreli District of Gujarat. The normal mode of
transport for these markets would be by a combination of road and rail. This however, according to the petitioner, is uneconomical for long
distances and is also uncertain, because of poor road conditions and congestion as well as inadequate supply of wagons. Since a captive jetty is
available with the petitioner, it is proposed to transport the raw cement produced at the Kovaya plant to various units along with western coast
from where the markets in the hinterland could be served. In those circumstances, based on a survey, petitioner identified Mangalore as a place for
its site. Annexure A is the project report. Project parameters have been provided in Clause 3.3 of the project report. Homogenisation process has
been referred to in Clauses 4.9 to 4.12. The Clauses read as under:
4.9 Three cement homogenising silos will be installed. Each silo will be approximately 14M dia x 32 M height and will have an effective capacity of
5,500 T cement.
4.10 The cement coming to the top of the silos through the pipe conveyor will be routed through suitably sized filters on the top of the silos. This
will ensure that only clean air is discharged into the atmosphere and all suspended cement dust particles are entrapped and fed into the silo.
4.11 Cement will be extractable in a controlled programmable manner from the silo bottom. Homogenisation of the extracted cement will be
facilitated by a properly designed aeration and extraction system. The necessary instrumentation system will be provided for achieving the desired
extraction from the respective zones of the silo and for controlling the quality of cement fed to the packing department.
4.12 Cement from the pipe conveyor will be fed into the silos and will not be sent directly to the packing department. This will ensure that the
cement is homogenised and thereafter subjected to the quality control tests before its despatch to the market.
The State Government has issued a notification in terms of annexure B for the period 1996-2001. The order dated March 15, 1996 provides
for various incentives and concessions. Clause 5 of the said notification provides for sales tax concession for new units. These incentives and
concessions are subject to certain terms and conditions. It also provides for a certificate at the hands of the Commissioner for Industrial
Development and Director of Industries and Commerce, Bangalore. Notification dated November 15,1996 provides for a certificate from the
Director of Industries with regard to production. A procedure is also prescribed in the order. Petitioner submitted an application for issuance of an
eligibility certificate in terms of a letter dated December 16, 1998. Annexure E is the letter issued by the Office of the Joint Director, District
Industries Centre, to the Joint Director (ID), informing him that there is no manufacturing activity at Mangalore unit. It is stated in the said letter that
if the Government does not offer sales tax exemption, the unit will incur loss for three to four years. It is further stated that the said unit is Hitech,
pollution free and employed local people and as a special case sales tax exemption may be granted for a period of five years. Petitioner also
addressed a letter dated January 16, 1999 to the Director of Industries and Commerce explaining their activity in this State. On receipt of the same
an endorsement was issued in terms of annexure G rejecting the request of the petitioner. Writ petitions were filed in this Court against the said
endorsement. This Court directed the respondents to reconsider the matter. In the light of the order of this Court petitioner made one more
representation as per annexure J. Thereafter, respondents rejected the case of the petitioner in the light of the decision of the State Level
Committee. The State Level Committee in its proceedings at page No. 126 has ruled that the Mangalore plant which undertakes only the activity
of physical change exclusively, i.e., packing of cement, does not amount to manufacture since the manufacture should result in production of a
new/different commercial commodity. Let me see as to whether the decision is correct in law in the given set of facts.
Manufacture has not been defined in the notification. Concession is available only in the event of ""manufacture"". A certificate is necessary for
availing the concession. Material facts would reveal that the petitioner has a manufacturing unit at Gujarat and cement manufactured there is
brought to Mangalore and homogenisation is effected at Mangalore and thereafter packed cement is sold. The question that requires to be
considered is as to whether the homogenisation done at Mangalore plant would amount to ""manufacture""? In this regard, one has to notice how the
courts have understood ""manufacture"" in the given circumstances. The ""manufacture"" has not been defined anywhere. The courts have considered
this issue.
The Supreme Court in the case of Chowgule & Co. Pvt. Ltd. v. Union of India [1981] 47 STC 124 had an occasion to consider the word
manufacturing"" in terms of Central Sales Tax Act, 1956. The court noticed in the said judgment that the test for determining whether manufacture
can be said to have taken place is: does the processing of the original commodity bring into existence a commercially different and distinct
commodity? The court further ruled that blending of different qualities of ore possessing differing chemical and physical composition so as to
produce ore of the contractual specifications could not be said to involve the process of manufacture, since the ore that was produced could not be
regarded as a commercially new and distinct commodity from the ore of different specifications blended together.
In the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (faxes) v. Pio Food Packers [1980] 46 STC 63 the Supreme
Court has considered the word ""manufacture"" and ruled as under (page 65):
...Commonly, manufacture is the end result of one or 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 recognised as a new and
distinct Article that a manufacture can be said to take place. Where 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.
In V.M. Salgaocar Bros. (P) Ltd. v. Commissioner of Income Tax [1996] ITR 849 : [1996] 41 Kar LJ 79 a Division Bench of this Court has
considered the term ""new industrial undertaking"" and also the term ""manufacturing process"". The court Rules as under (page 859 of ITR):
The term ''produce'' is wider in its amplitude than the term ''manufacture'', for while the latter can be used only in regard to inanimate objects and
articles, the former can be used even in regard to animate things and objects.
The court further ruled that ""all ''manufacturing'' or production, activities involve some process or the other but all processes need not
necessarily amount to production or manufacturing of an article. It is only when a change or series of changes take the commodity subjected to
such process to a point where it can no longer be regarded as the original commodity but is instead recognised as a new and a distinct article, that
such a processes may be said to have resulted in a ''manufacture'' or ''production''....
In Brooke Bond Lipton India Limited v. State of Karnataka [1998] 109 STC 265 this Court has ruled as under (page 266):
(iv) that the industrial unit of petitioner produced blended tea packages by the operation of modern automatic machines ensuring unadulterated
blended tea in order to maintain its basic qualities and properties like colour and flavour for a longer period. The packaged blended tea so
produced had its own price structure, much higher than the blended tea available in loose or ordinary packings, with a distinct class of customers
and having different commercial incidents. The packaged tea produced in the industrial unit of the petitioner was a manufactured product, the
contributing in puts being garden teas of various colour and flavour and the packing materials.
In Ujagar Prints v. Union of India [1989] 74 STC 403 the Supreme Court considered the legislative powers. In the said judgment the
Supreme Court ruled as under (page 404):
The prevalent and generally accepted test to ascertain that there is ''manufacture'' is whether the change or the series of changes brought about by
the processes take the commodity to the point where commercially, it can no longer be regarded as the original commodity but is, instead,
recognised as a distinct and new Article that has emerged as a result of the processes. The principles are clear. But difficulties arise in their
application in individual cases. There might be border-line cases where either conclusion with equal justification may be reached. Insistence on any
sharp or intrinsic distinction between ''processing'' and ''manufacture'' results in oversimplification of both and tends to blur their interdependence.
Petitioner also relies on the judgment of the Bombay High Court in K.S. Films v. State of Maharashtra [1969] 23 STC 121 to contend that the
article produced must be saleable, i.e., capable of being sold.
Petitioner also relies Salar Jung Sugar Mills Ltd. etc. Vs. State of Mysore and Others, in support of his submission. In this case this court
considered the saleable commodity.
Petitioner relies on a judgment of the Supreme Court in State of Andhra Pradesh v. H. Abdul Bakshi and Bros. [1964] 15 STC 644 to
contend that sale ability is the necessary ingredient.
Petitioner relies on a judgment of the Gujarat High Court in K. Rasiklal & Co. v. State of Gujarat [1992] 86 STC 238 to contend that liberal
interpretation has to be given in the matter.
Per contra, learned Government Advocate relies on the following judgments reported in Deputy Commissioner of Sales Tax (Law), Board of
Revenue (Taxes), Ernakulam Vs. Pio Food Packers, , Chowgule and Co. Pvt. Ltd. and Another Vs. Union of India (UOI) and Others, , V.M.
Salgaocar Bros. (P) Ltd. Vs. Commissioner of Income Tax, , and Ujagar Prints v. Union of India : [1989]179ITR317a(SC) . He contends that
based on these judgments a new commodity has to come to existence for consideration of ""manufacture"". He says that all these judgments would
negative the petitioner''s arguments.
From these judgments what is clear to this Court is that the manufacture is the end result of one or more processes through which the original
commodity is made to pass. The commodity has to undergo a change and the end-product must result in a new and distinct article. It is only then
the manufacture takes place. This has been reiterated by the Supreme Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue
(Taxes) v. Pio Food Packers [1980] 46 STC 63, Ujagar Prints v. Union of India [1989] 74 STC 401 and Chowgule & Co. Pvt. Ltd. v. Union of
India [1981] 47 STC 124.
In the case on hand, admitted facts would reveal that even after homogenisation no new product appears as argued by the petitioner. The end-
product at Mangalore is only a homogenised cement and not a new Article as stated by the apex court. In fact this Court in the case of V.M.
Salgaocar Bros. (P) Ltd. Vs. Commissioner of Income Tax, after noticing the various judgments categorically Rules as under (pages 860 and 861
of ITR):
The test is not whether what is produced as a result of the process carried out in the plant becomes more saleable from an otherwise less saleable
article. The test is whether the Article produced or manufactured can be said to be commercially distinct or different from the one which has been
subjected to the said process.... Simply because a process carried out on a particular Article adds to its value or improves its marketability on
account of processes like shining, polishing, removal of impurities, etc., this may not by itself be sufficient to hold that the products so finished are
commercially different from the ones on which such a process has been carried out. Value addition therefore does not by itself constitute
production or manufacture and cannot be made the sole test for determining whether an Article has been produced or manufactured. The
universally applicable test is as to whether what is subjected to a particular process can be said to be commercially different from the end-
product.... The very fact that a certain process has been carried out in respect of a particular commodity does not mean that the said process has
resulted in the production or manufacture of a new article.... Wherever a commodity undergoes a change as a result of some operation performed
on it, or in regard to it, such operation would amount to processing of the commodity. The nature and extent of the change is not material. What is
important is that the commodity has as a result of the operation experienced some change. But it is only when the change or a series of changes
that are experienced by the commodity takes the commodity to the point of being known commercially as a distinctly different commodity, that the
process can be said to have resulted in manufacturing or production. The fact that the iron ore is subjected to the process of sizing and washing
may therefore at best be said to be a process but not a process which results in any production or manufacture.... The above reasoning holds good
even for the pilot plant.... The pilot plant was only meant to carry out some exploratory exercises with a view to finding out whether the excavation
of the ore from a particular spot or a particular grade was economically viable. It did not itself result in the manufacture or production of any new
article. That being so, the pilot plant can also not be said to be used in the manufacture or production of any Article so as to qualify for the benefit
claimed by the assessee.
This judgment is a complete answer to ""process"", ""manufacture"" arguments and to the argument of ""saleable commodity"" as pointed out by the
learned Government Advocate. The homogenisation may be at best be a process but not a process which results in production or manufacture.
Therefore, the respondents are right in their submission that there is no manufacture at Mangalore. The finding of the committee of ""no
manufacture"" is based on facts and is supported by the decisions of both the apex court and this court. I do not find any factual or legal errors
warranting my interference.
Sri Sarangan, learned Senior Counsel argued at great length to say that without homogenisation there is no quality cement available and that
therefore the said process is to be included as a manufacturing process. I am afraid that this argument is not available to the petitioner. The Division
Bench in V.M. Salgaocar Bros. (P) Ltd. Vs. Commissioner of Income Tax, has ruled that the test is not whether what is produced as a result of
the process carried out in the plant becomes more saleable from an otherwise less saleable article. The test is whether the Article produced or
manufactured can be said to be commercially distinct or different from the one which has been subject to the said process. So long there is no new
product forthcoming, the saleable argument has to be rejected.
Sri Sarangan learned Senior Counsel, strongly relies on the judgment of this Court in the case of Brooke Bond Upton India Limited v. State of
Karnataka [1998] 109 STC 265. This Court in the said judgment has ruled that the industrial unit of petitioner in the said case produced blended
tea packages by the operation of modern automatic machines ensuring unadulterated blended tea in order to maintain its basic qualities and
properties like colour and flavour for a longer period. The packaged blended tea so produced had its own price structure, much higher than the
blended tea available in loose or ordinary packings, with a distinct class of customers and having different commercial incidents. It was on the
peculiar facts of the said case, the court ruled that the blending would amount to ""manufacture"". The court also noticed that the uncontroverted
facts permit a possible view that the packaged blended tea is a manufactured product. Each judgment has to be understood on the basis of the
facts placed in that case, the present set of facts squarely fit into the judgment of this Court in V.M. Salgaocar Bros. (P) Ltd. Vs. Commissioner of
Income Tax, . Therefore the judgment in Brooke Bond''s case [1998] 109 STC 265 does not apply to the petitioner with regard to its pleas of
manufacture. Therefore the argument based on Brooke Bond''s [1998] 109 STC 265 does not appeal to me in the given circumstances.
I must notice the latest judgment of the Supreme Court in Union of India (UOI) Vs. Ahmedabad Electricity Co. Ltd. and Others, wherein the
Supreme Court has ruled that the word ""manufacture"" used as a verb is generally understood to mean as bringing into existence a new substance.
Manufacture"" may involve various processes. The aim of any manufacturing activity is to achieve an end-product. This judgment nails the
arguments/contentions of the petitioner.
There is one more reason as to why the petitioner cannot be given the concession in this case. It cannot be forgotten that the State by offering
concessions, is losing substantial revenue legally due to it. The said concession is granted in the light of the availability of employment and the fixed
assets, etc. In fact, in the case on hand, annexure E would show that no eligibility certificate as such is available to the petitioner on the facts of this
case. The technical committee has gone into the matter in terms of the averment in para 7. These matters are essentially for the authorities to
consider/decide and courts should not go into that argument unless a very strong case is made out by the petitioner dislodging a factual finding of
authorities. In the case on hand looking from any angle, no such case is made out by the petitioner. In these circumstances, notwithstanding serious
arguments advanced by Sri Sarangan, learned Senior Counsel, I am unable to accept his plea with regard to manufacturing in the light of
homogenisation process. This conclusion is inevitable.
I must notice at this stage annexure R1 and in annexure R1 it is stated that what is transferred from Gujarat-Mangalore is only on stock transfer
basis. This also evidences that there is no manufacturing as such at Mangalore. Petitioner in the amended petition only challenges annexure Q.
Petitioner has suffered assessment orders and appeals have been filed by the petitioner. Appeals stood rejected. The main ground raised both
before the assessing authority as well as before the appellate authority is one of eligibility in terms of the notification. Since I have accepted
eligibility in terms of the endorsement, these orders also do not require any interference. Annexure Q is only pursuant to the impugned appeal
orders. Annexure Q is therefore upheld.
In the result, this petition stands rejected. Parties are to bear their respective costs.