JAGANNATH COTTON COMPANY Vs. STATE OF ORISSA

JUDGEMENT

(1.) THESE five writ applications involve a common question of law and, therefore, were heard together and are being disposed of by this common judgment. O. J. C. No. 1166 of 1992 is against an order of reassessment made by the sales tax authority under section 12 (8) of the Orissa Sales Tax Act, 1947, in respect of assessment year 1989-90. O. J. C. Nos. 6 of 1993 and 162 of 1993 are by the self-same assessee against notice issued for framing assessment for the assessment years 1990-91 and 1991-92 respectively. O. J. C. Nos. 181 of 1993 and 182 of 1993 are also by the same assessee against notice issued for assessment under the Central Sales Tax Act, 1956, for the years 1990-91 and 1991-92. The question for consideration in all these writ applications is whether the activity of the petitioner in obtaining cotton from waste cotton can be said to be a manufacture of a product, or merely is a case of processing on which the further question regarding exemption from levy of sales tax under the Industrial Policy Resolution of 1986 as well as 1989 would depend ?

(2.) THE Government of Orissa in the Industries Department being satisfied that there has been remarkable progress of industrial growth on account of attractive package of incentives conferred under the Industrial Policy Resolution of 1980 came forward with the Policy Resolution of 1986 in May, 1986. Amongst the objectives for laying down the Policy, planning for long-term and optimal utilisation of raw materials, industrial by-products and waste materials available in the State and expeditious delivery of incentives and facilities and effective monitoring progress of industrialisation, are some with which we are concerned in the case in hand. The Policy declared that all new industrial units for which investment has been made on or after the effective date will be eligible for the package of incentives under the Policy. So far as concession relating to exemption of sales tax is concerned, the Policy provided that all new small industries will be exempted from sales tax on purchase of spare parts of machinery, raw materials and packing materials for a period of five years from the date of commercial production. So far as finished products are concerned, it provided that products of new small-scale industries will be exempted from sales tax for a period of five years from the date of their commercial production. Though the petitioner is a small-scale industrial unit and after purchasing the raw materials of waste cotton produces cotton by way of mechanical processing applied for issuance of eligibility certificate to the competent authority, namely the General Manager, District Industries Centre, but after having issued such certificate, as the same was withheld, the petitioner approached this Court in O. J. C. No. 6397 of 1992 and this Court by order dated November 16, 1992, directed the appropriate authority of the Government to consider the application of the petitioner for renewal and issuance of certificates in forms II and III. In accordance with the said direction, the District Industries Centre, Sambalpur, issued the eligibility certificates. Thus the petitioner has been recognised as a small-scale industrial unit by the competent authority of the Government in the Industries Department which is the policy-making department of the resolution and has extended some incentives and concession to these industrial units. Notice for assessment under section 12 (4) of the Orissa Sales Tax Act was served upon the petitioner for the assessment year 1989-90 on March 26, 1991, annexed as annexure 8. The petitioner appeared and made its submissions on March 30, 1991 and no orders have been passed thereon. The Sales Tax Officer, however, issued a notice of reassessment under section 12 (8) of the Act for the self-same year 1989-90 which was served on the petitioner on July 19, 1991. The same has been annexed as annexure 9. The petitioner appeared and made its submissions on the question of entitlement of exemption from sales tax under the Policy Resolution of the Government, but the assessing officer passed the order of reassessment on December 31, 1991, annexed as annexure 1, which is the impugned order in O. J. C. No. 1166 of 1992. The assessing officer has come to the conclusion that the production of cotton from waste cotton does not involve any process of manufacture and since no manufacturing activity is evident, the dealer is not eligible to utilise the forms for purchase of raw materials free of tax. The assessing officer has also come to the conclusion that notwithstanding grant of registration certificate by the District Industries Centre and exemption certificates in forms II and III, in view of the nature of activity as no manufacturing is involved, the dealer is not eligible to get the exemption from levy of sales tax in accordance with the Policy Resolution of the Government. With these conclusions, the assessing officer having levied a penalty of Rs. 10,000 under section 12 (8) of the Orissa Sales Tax Act and having re-determined the taxable turnover by adding Rs. 8,82,222 and ultimately having found that the dealer is liable to pay the total tax Rs. 1,07,643. 41, the petitioner has assailed the said order.

(3.) THE Officer of the Industries Department having appeared for opposite party No. 1 has filed a counter-affidavit supporting the stand of the petitioner. He has categorically stated that the industrial unit of the petitioner has been considered eligible for the incentives declared in Industrial Policy Resolution of 1986 as well as the incentives declared in Industrial Policy Resolution of 1989 as a continuing unit of 1986 and it is engaged in the manufacturing of cotton from waste cotton. On behalf of the sales tax authority, a counter-affidavit has, however, been filed stating therein that no doubt, the assessing officer had passed an order under section 12 (4) of the Orissa Sales Tax Act allowing the exemption from levy of sales tax under Industrial Policy Resolution of 1986, but that had been done under a mistake which tantamounts to escapement of turnover and consequently, notices had been issued under section 12 (8) of the Orissa Sales Tax Act. It has further been stated that issuance of a declaration form as per the Industrial Policy Resolution and the certificates issued by the Industries Department are not conclusive so far as the entitlement of the petitioner to receive the exemption in question and the Sales Tax Officer would be well within his jurisdiction to examine the validity of the grant of exemption. Since the activities of the petitioner do not involve any process of manufacturing, the tax exemption cannot be given and has not been given both on the raw materials as well as finished products. According to the counter-affidavit, the definition of "manufacture" which was added in section 2 (ddddd) with effect from August 1, 1991, clearly indicates that the law prior to the same did not authorise an industry involved in mere processing to get the exemption in question and consequently, the impugned order under annexure 1 is fully justified.