Rajasthan High Court - Jaipur
Devarsa Gas Chem Pvt. Ltd. vs Rajasthan Taxation Tribunal And Ors. on 8 February, 2001
Equivalent citations: 2001(2)WLC382, 2002(1)WLN200
JUDGMENT Rajesh Balia, J.
1. Heard learned Counsel for the parties.
2. The petitioner has been licensed to carry on business of filling and selling Liquefied Petroleum Gas (LPG) as a parallel marketer as per Section 2 of the Liquefied Petroleum Gas (Regulation of Supply and Distribution) Order, 1993 (herein after the 'Order of 1993'). The activities of petitioner consisted of purchasing in bulk the liquefied petroleum gas from the bulk manufacturer of liquefied petroleum gas, in the present case Hindustan Petroleum Ltd. and packing the LPG in marketable cylinders and to sell it to end users of the gas.
3. The petitioner having installed units for carrying out process of filling the gas cylinders, to be marketed for use by the buyers, after being registered as a small scale industry with the Industries Department of the State of Rajasthan, commenced his gas bottling plant somewhere in 1994 and made an application on 26th September, 1995, for obtaining eligibility certificate to secure exemption from payment of sales-tax under the Rajasthan Sales-tax Incentive Scheme for Industries, 1987. On 13th October, 1995, petitioner was communicated by the General Manager, District Level Screening Committee, Pali that his application has been rejected by the Committee, observing it to be an 'ineligible industry' as per item 19 of Annx. B attached with the said Incentive Scheme of 1987.
4. The petitioner made a representation to respondent No. 2 for reconsidering his application by pointing out that rejection of his application with reference to item No. 19 of Annx. B was erroneous, in pursuance of which petitioner was required to have discussion with the authority concerned vide communication dated 9th April, 1996 (Annx. 4) and ultimately, by communication dated 13th November, 1996, petitioner was informed that its application for grant of 'eligibility certificate' for exemption from payment of sales-tax has been rejected vide Annx. 5.
5. Aggrieved with that rejection, petitioner preferred an Original Application before the Rajasthan Taxation Tribunal, Jodhpur, then exercising jurisdiction in that regard. The Taxation Tribunal vide its impugned order dated 29th July, 1998, held that though item No. 19 of Annx. B does not apply to case of the petitioner inasmuch as said item is confined to distilling, storing, bottling, blending or brewing of potable liquor/alcohol and, does not extent to other commodities. However, it found that though transfer from bulk form to cylinder might entail process involving mixture of air and liquefied petroleum gas and it is transferred under pressure and require installation of specific equipments but it remains that what is bought is liquefied petroleum gas and what is sold is liquefied petroleum gas, therefore, no commercially distinct and different commodity comes into existence and therefore, the process does not involve manufacturing and, in effect the petitioner company does nothing but repacks the goods. As such, the petitioner company is not entitled to benefits under the Incentive Scheme, firstly, because it is not engaged in manufacturing activity and secondly, because repacking of material is included in 'ineligibility list in item No. 6 of the Annx. B appended to Incentive Scheme. In coming to this conclusion, Tribunal relied upon decision of Gujarat High Court in State of Gujarat v. Kosan Gas Company 1992 (87) STC 236. Aggrieved with the aforesaid order petitioner is before this Court.
6. It has been contended by learned Counsel for the petitioner that the Tribunal has apparently erred in not appreciating that the contention of the assessee-petitioner from the beginning has been that bulk liquefied petroleum gas as coming out from manufacturer, itself can not be used by the consumer in that form nor it can be packed without undergoing technically manufacturing process. It becomes usable for consumer use only after passing through certain manufacturing process with adherence of various safety measures. It was pointed out by the learned Counsel that unless the liquefied petroleum gas in cylinder is filled by mixing of air, the liquefied gas as such can not be used by the consumer as fuel gas. It is air in the cylinder that reacts with the liquefied gas on being put under pressure. The cylinder, by opening the valve, emits the liquefied petroleum gas mixed with air, in gas form and not in liquid form, that makes it a usable fuel. It is this commodity, which is known as commercially marketable commodity by the common buyer and not the bulk liquefied petroleum gas, stored in large tankers or underground tanks, to be packed by mechanised process, by admixturing with air under pressure, in preparing to make it usable. Thus the manufacturing process of liquefied petroleum gas, so far as its marketability is concerned, is compete only after it is so filled in equipments like LPG cylinders, fitted with safety valve and sealed with, along with regulators to enable the consumer to use said LPG and is a commercially distinct LPG than LPG stored in bulk. The petitioner is, therefore, not engaged in mere activity of repacking of bulk LPG into small quantity of LPG, from large store house to smaller containers but packing is essential part of making it usable for buyers by transferring LPG from bulk storage to specified containers by use of mechanised process under air compressure mixing with proper proportion of air.
7. If that be so, it not only becomes a manufacturing process within definition of 'manufacture' under the Rajasthan Sales-tax Act, 1954, under which said Incentive Scheme has been promulgated it can not be considered to be a case of re-packing because it is a case of bringing the LPG gas for the first time in marketable form.
8. Mr. Johari learned Counsel for the Revenue, on the other hand, contended that no manufacturing process is involved in filing of LPG gas in small containers from large container but is merely a part of distributory system of the end-product manufactured by the petroleum companies and merely because instead of Company itself marketing in small quantity, marketing of small quantity has been left to marketer by repacking smaller quantity of LPG supplied to them in different variable filling equipments. Therefore the Tribunal was right in its conclusion that the process employed by the petitioner Company is neither a manufacturing process and even if it is a manufacturing process, it is merely a repacking of the commodity (LPG) from large container to smaller containers.
9. A contention was also raised by Mr. Johari that claim of the assessee being claim of concession under the Scheme the provisions of the Scheme must be strictly construed by diverting any benefit of doubt in such construction of Scheme to the Revenue and therefore even if there is some ambiguity it should be resolved in favour of Revenue and against the concession. For this proposition learned Counsel relied upon a decision of this Court in Aditya Cement's case (121 STC 113).
10. We have given our anxious consideration to rival contentions. It is not in dispute that the present case is covered by the Rajasthan Sales tax Act, 1954, as petitioner unit has come into existence prior to commencement of Sales-tax Act. 1994. It is true that Incentive Scheme of 1987 framed by the State Government in exercise of powers Under Section 4 of the Act has not defined 'manufacture' independently for its purpose but the term 'manufacture' has been defined in the Act of 1954, which reads as under:
(1) "manufacture" includes any process or manner of producing, collecting, extractions, preparing or making any goods; but does not include such manufacturers or manufacturing processes as may be notified by the State Government;
11. The definition of 'manufacture' under the Sales-tax Act is wide enough to cover any process which results in preparing or even collecting of the goods or making of goods. It is not the case that the activity with which we are concerned, has been excluded as a 'manufacturing process' by any notification, as envisaged Under Section 2(k) of the Act. It may further be noticed at this juncture that the question whether the petitioner is involved in manufacturing process or not?, was not at all gone into by the District Level Screening Committee, that is the original authority. The said Committee had, in fact, assumed it to be a manufacturing process but has held it to be ineligible, under Entry-19 of Annx. B to the Incentive Scheme of 1987. Said Incentive Scheme of 1987 envisage exempting an industrial unit from the payment of tax on sale of goods manufactured by it within the State in the manner and to the extent and for the period as covered by the said notification while it applies. It operates on an industrial unit which has commenced commercial production during operation of the Incentive Scheme, that is to say, after 5th March, 1987 but before closer of the Scheme, which initially was for 5 years and was extended from time to time later on.
12. Having given this broad field of operation, Clause 2(j) of the Scheme also envisage certain ineligible industries which were not to be given benefit of Scheme. Those industries, captioned as 'ineligible industries', were listed in Annx. B to the Scheme. In the list of ineligible industries, Entry-19 reads-
units distilling, storing, bottling, blending or brewing potable liquor/alcohol.
13. It appears that led by word "bottling" in said Entry-19, the District Level Screening Committee held the petitioner industry to be a 'bottling plant', falling in the list of ineligible industry. In that, the District Level Screening Committee has apparently erred in as much as word 'bottling' forms part of the group of words which preceded the commodity identified in that Entry, namely, 'potable liquor/alcohol' has to be considered as taking its colour from other words with which it keeps company and can not be considered independent of other expression used in the context of single commodity viz. 'potable liquor/ alcohol' else they lose their meaning. Distilling, bottling, blending and brewing, these all are different processes by which potable liquor/alcohol is brought into existence and marketed. Therefore, this entry must be held confined to put the processes named therein in respect of manufacture of potable liquor and alcohol in the list of 'ineligible industries' and not to bottling of any commodity. Word 'bottling' in the said item No. 19 has not been used in its generic sense.
14. That is the view taken by the Tribunal so far as reasoning adopted by the District Level Screening Committee is concerned and, in our opinion, rightly so.
15. However, Tribunal has fallen in error to invoke Item No. 6 of Annx. B of the Scheme, for affirming the decision of District Level Screening Committee, in reaching the conclusion that the activity in which the petitioner is engaged, is an activity of repacking only; which reads as follows--
"Repacking of any goods including medicines, toiletries, pesticides, herbicides, edible products';
16. It has also reached conclusion that the process employed by the petitioner is for 'bottling or filling gas cylinders' as they are marketed, is not a manufacturing process but only transfer of the commodity from one container to another container. In reaching this conclusion, the Tribunal has unequivocally found that in the process of filling the bottles (cylinders) or transferring LPG from bulk storage to gas cylinders, admixturing of air is necessary ingredient. Therefore, two findings which the Tribunal has reached were that mechanical process is required to be applied for filling gas cylinders with LPG and, in doing so, LPG is required to be mixed with air; that is to say, it is not filled in the cylinders, in the same condition in which it is stored in bulk storage.
17. It is a matter of common knowledge that liquefied petroleum gas is a highly inflammable article and tends to catch fire when it comes in contact with air. Obviously, therefore, packing of air along with LPG in the cylinders to be marketed to consumers has definite connotation and a scientific reason, that has been explained by the petitioner that it is because of mixture of air alone that LPG becomes usable by consumers as fuel gas. It could not be used as fuel in liquid form but admixturing of air with LPG is essential for making it marketable for end consumer use, as part of process of filling gas cylinders with LPG for use by consumers as fuel gas. If that be so, the conclusion is not far to reach that the petitioner is engaged in the process to bring the commodity in marketable condition. That may be the last lap of manufacturing process to complete, rendering the LPG as marketable commodity and, if that conclusion is reached, it can not be said to a case of mere 'repacking.'
18. The principle is well-settled that where any packing is essential to make the commodity marketable and without which it can not be marketed, such packing itself is part of manufacturing process notwithstanding the material used is considered as packing material, for the purpose of levy of tax on its sale. However packing process at that stage can not be a process of distributive system alone.
19. Reference in this connection may be made to Union of India v. Delhi Cloth and General Mills Ltd. while considering the term 'manufacture' under Excise Act their Lordship held that to become goods an article must be something which can ordinarily come to market to be bought and sold. This was followed in Indian Cable Co. Ltd. v. Collector of Central Excise reiterated that manufacture must be bring into existence a new substance known to the market. A Division Bench of this Court in Udaipur Distillery Co. Ltd. v. Rqjasthan Taxation Tribunal and Ors. D.B. Writ Petitions No. 3025, 3026 and 3027/98 decided on 2nd June, 2000, considered this aspect of the matter and drew distinction between the basis of charge while pointing out the distinction between activity of manufacture and identity of goods sold, representing the distinct basis of levy under the two Acts viz., Central Excise Act and Sales Tax Act. However, the Bench held that 'until the goods reach the stage of marketability, the manufacturing activities does not come to close.
20. In this view, since the exemption envisaged under the Incentive Scheme is to bring in existence the activity of manufacture, the process which is necessary to bring the goods' at the stage of marketability' as distinct from 'expedient mode of distribution of goods already existing in marketable state' must be held to be a 'manufacturing activity.'
21. We are, therefore, of the opinion that in the facts as found by the Tribunal, only reasonable conclusion possible to arrive at is that filling of gas cylinders with LPG, by transferring it from bulk storage admixturing it with proportionate amount of air to make it marketable is a manufacturing process and can not be termed as process of repacking only of any goods, as envisaged in Entry-6 of Annx. B of the Incentive Scheme of 1987. The Tribunal has obviously erred in not taking into consideration the effect of finding about process reached by it on the marketability of the commodity which is an essential ingredient of manufacturing.
22. The decision relied upon by the Tribunal as well as by learned Counsel for the respondents, of Gujarat High Court in Kosan Gas Company's case (supra), in our opinion, does not render any assistance to the controversy before us inasmuch' as the decision was founded on admitted facts as will be apparent from the following statement in the judgment:
On admitted facts in the instant case, the activity as admitted by both the sides carried on by the assessee is of transferring the LPG from big or bulk container to small cylinders with a view to effect efficient delivery to the customers or clients.
23. Therefore, the question whether the transfer of LPG from big or bulk container to smaller containers involve its mixing with air through application of mechanical process, was neither raised by the parties before Gujarat High Court nor answered by the Court. Since like facts are not admitted here and have been found otherwise by the Tribunal, the ratio of decision in Kosan Gas Company (supra), in our opinion does not help any further for deciding the issue before us.
24. As a result of aforesaid discussion, the petition is allowed. The order passed by the Taxation Tribunal as well as District Level Screening Committee is set aside. The District Level Screening Committee is directed to consider case of the petitioner afresh in view of observations made herein above and make necessary orders within period of four weeks.