IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 33901 of 2008(J)
1. KOLDY PETROLEUM (INDIA) LTD.
... Petitioner
Vs
1. STATE OF KERALA, REPRESENTED BY
... Respondent
2. STATE LEVEL COMMITTEE FOR EXEMPTION
3. DISTRICT COLLECTOR, PALAKKAD DISTRICT.
4. DEPUTY TAHSILDAR (RR), CHITTOOR,
5. GENERAL MANAGER,
6. SALES TAX OFFICER, CHITTOOR,
For Petitioner :SRI.C.K.KARUNAKARAN
For Respondent :GOVERNMENT PLEADER
The Hon'ble MR. Justice K.M.JOSEPH
Dated :28/01/2009
O R D E R
' C.R. '
K.M. JOSEPH, J.
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W.P.(C) No. 33901 OF 2008 J
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Dated this the 28th day of January, 2009
J U D G M E N T
Petitioner challenges Exts.P5 and P10 and seeks a
direction to pass fresh orders on Ext.P1 after considering all the
grounds raised in Ext.P1 appeal. Further ancillary prayers are
also raised.
2. Case of the petitioner in brief is as follows.
Petitioner is a small scale industry which applied for
exemption from payment of sales tax under the provisions of SRO
1729/1993. The 5th respondent, namely, the General Manager,
District Industries Centre, Palakkad, rejected the application. The
petitioner preferred appeal to the 2nd respondent, State Level
committee for Exemption of Sales Tax. The appeal was allowed
and the matter was remitted back to the 5th respondent. The 5th
respondent again rejected the application. Thereafter, the
petitioner preferred Ext.P1 appeal which has been rejected by
Ext.P10 by the 2nd respondent.
WPC.33901/08
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3. The petitioner is a company incorporated under the
Companies Act, 1956, for the purpose of establishing, operating
LPG bottling plants and sale of LPG cylinders and other functions.
It is the case of the petitioner that hearing of Ext.P1 appeal was
scheduled on 6.3.2006 and the petitioner was notified by Ext.P3.
It is stated that the counsel was out of station and, therefore, the
petitioner sought for an adjournment and the request was made
through Ext.P4 letter. It is thereafter that the petitioner came to
know about Ext.P10 order passed on Ext.P1 appeal after filing the
writ petition. A counter affidavit is filed to which a reply affidavit is
filed.
4. I heard learned counsel for the petitioner and learned
Government Pleader. It is contended that the finding that there is
no manufacture involved is absolutely unsustainable. He would
point out that actually the process involved in the case satisfied
the requirement of the definition of the word ‘manufacture’ in the
notification. ‘Manufacture’ has been defined as follows in clause 1
(ix) of SRO 1729/93:
” ‘Manufacture’ shall mean the use of raw
materials and production of goods commercially
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different from the raw materials used but shall
not include mere packing of goods, polishing,
cleaning, grading, drying, blending or mixing
different varieties of the same goods, sawing,
garbling, processing one form of goods not
another form of the same goods by mixing with
chemicals or gas fumigation or any other
process applied for preserving the goods in good
condition or for easy transportation. The
process of producing desiccated coconut out of
coconut shall be deemed to be ‘manufacture’ for
the purpose of this notification.
The following processes shall not be deemed to
be ‘manufacture’ for the purpose of this
notification.
(a) Crushing copra and producing coconut oil
and coconut oil cake.
(b) Converting timber logs into timber sizes.
(c) Crushing rubble into small metal pieces.
(d) Converting sodium silicate into liquid silicate.
(e) Tyre-retreading.
(f) Cutting granite or marble slabs into smaller
pieces and/or polishing them.
(g) Such other processes as may be notified by
Government in this behalf. ”
The process ‘manufacture’ has been detailed in the appeal
memorandum. Paragraphs 6 and 7 would appear to be devoted to
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the process involved and it is extracted as hereunder.
“6. Without prejudice to the above
submissions, it is submitted that the process of
bottling LPG is not mere packing. The petitioner
purchases bulk quantity of LPG from oil
refineries and LPG importers and transports it in
tanker lorries to its factory. The same is
unloaded and stored in large storage tanks and
thereafter filled into smaller cylinders. This is a
complex process, which involves expertise and
special knowledge, especially the process of
purging of Oxygen from the Cylinder by pumping
in Nitrogen and thereafter decanting Nitrogen to
fill LPG under strict controls of the parameters
like pressure and0. temperature. Moreover, the
Gas Cylinder Rules, 1981, which was formulated
under the Explosive Act, 1994, which is an Act to
regulate the manufacture, possession, use, sale,
etc. of explosive material, defines manufacture
of gas in Rule 2(xxv) as filling of a cylinder with
any compressed gas and also includes transfer
of compressed gas from one cylinder to any
other cylinder. Similarly Section 4(h) of the
Explosive Act also gives a definition for the word
‘manufacture’ in the same lines. Similarly even
the word ‘manufacture’ expressed in
SRO.1729/93 means the use of raw materials
and production of goods commercially different
WPC.33901/08
: 5 :from the raw materials. The submissions made
in the preceding paragraph will definitely show
that the bottling of LPG is not mere packing.
7. Now the next question is whether there
an emergence of any goods during the
manufacture, which is commercially different
from the raw materials. The process of bottling
LPG has not been deemed as packing of LPG
under the KGST Act. Entry 91 of the 1st
Schedule of the KGST Act and SRO.405/94
which gives details of various packing materials
for commodities does not include the Steel
Cylinder for LPG in the said list. LPG is listed
under Item 97 (VI) of the 1st Schedule. As no
packing is specified in LPG under Item 97 (VI) or
Item 91 of the 1st Schedule, it can only be
presumed that LPG under the 1st Schedule is the
commercial product LPG and not the bulk LPG.
Bulk LPG has to be processed and bottled to
make it suitable for domestic and commercial
use. Hence by no product substantially different
from LPG obtained in the process of refining of
petroleum. It has been held by the Hon’ble
Supreme court as well as various High Courts,
including the Kerala High Court it is the
marketability of the product that attracts the
incidence of tax. From the foregoing paragraph
it can be seen that the process of bottling LPG
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has every characteristic of a manufacturing
process and has to be rightly classified as
‘manufacture’ for the purpose of SRO.1729/93.”
It is stated that there is manufacture and he would submit
that this court should discourage this sort of approach to the
matter by the State Level Committee. He would submit that under
the Explosive Rules, it is treated as manufacture. It is also stated
that bottling of LPG was a regulated industrial activity and covered
with the first Schedule of the Industries (Development and
Regulation) Act, 1951 and licence under the Act was necessary till
1994. It is also pointed out that in Karnataka and Andhra
Pradesh, it is being treated as manufacture. It is also pointed out
that a new commercially different product emerges in this process.
5. Per contra, learned Government Pleader
Sri.C.K.Govindan would submit that it is a clear case where
absolutely no manufacture is involved. LPG remained as LPG
even after process undertaken by the petitioner is completed. It is
further pointed out that actually it would amount to packaging and
no new commercial product emerged.
6. There can be no doubt that the question as to whether
WPC.33901/08
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it is manufacture or not to be answered with reference to the terms
of the definition of the word ‘manufacture’ in the notification. On a
perusal of the definition, there are three crucial elements involved
in manufacture as defined. In the first place, there must be raw
materials. Secondly, there must be production and lastly, what is
produced must be commercially different product. Applying these
three tests to the process undertaken in the petitioner’s factory, I
am of the firm view that it cannot be said that there is any
manufacture involved. It is not in dispute that what was LPG
continues to be LPG. In other words, the product which was
present in bulk form is put into smaller form and thereafter it is
sold in the end consumer. In this process, what is involved is
stated by the petitioner itself in its appeal memorandum which I
have already extracted. A perusal of the same would clearly show
that the petitioner specifically admits that LPG is purchased in bulk
from oil refineries and LPG importers and transports it in tanker
lorries to its factory. It is unloaded and stored in large storage
tanks and later filled into smaller cylinders. This is the process
which is involved. Therefore, there is no dispute that what is filled
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into the smaller cylinders continues to be LPG. There is no case
that there is any chemical change in the product. What is stated
as a complex process involving skill and special knowledge is as
follows. Oxygen is purged from the cylinder by pumping in
Nitrogen and thereafter decanting Nitrogen to fill LPG under strict
control of the parameters like pressure and temperature. This is
the complex process which is adverted to. This process, in my
view, is apparently undertaken for the purpose of filling the small
cylinders with LPG. In other words, what is brought in bulk is
transferred into small cylinders and for carrying out this process,
purging of Oxygen from the cylinder by pumping in Nitrogen and
subsequently decanting Nitrogen under the strict control of the
parameters like pressure and temperature is undertaken. By no
stretch of imagination, can it be said that this involves production
of a commercially different article. What was LPG remains LPG in
smaller cylinders. Learned counsel for the petitioner relied on the
decision reported in Deputy Commissioner of Sales Tax (Law),
Board of Revenue(Taxes), Ernakulam Vs. M/s.Coco Fibres
[1992 Supp. (1) SCC 290]. Therein, the apex court was
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considering whether making of coconut fibre from husk involves
any manufacturing process. The court proceeded to hold as
follows:
” In view of the admitted position that
green husk is soaked into saltish sea water for
days together and after decomposition, on being
subjected to beating either by manual or
mechanical process, fibre is produced in the
process, which is a distinct commodity known in
the commercial parlance. No one in the market
would sell or supply husk when fibre is asked for.
Accordingly, it must be held that the coconut fibre
is commercially a different identifiable commodity
known as such in the commercial parlance.”
7. It is noted, in the facts of this case, that there is no
case that what is marketed is a product different from LPG.
8. No doubt, learned counsel for the petitioner would
submit that the process involved by the petitioner satisfies the
requirement of the manufacture as what emerges is a
commercially different article. I feel that there is no merit in the
said contention. In the first place, the said contention overlooks
the indispensable requirement of manufacture as defined in the
Clause as already noted that there must be raw material and an
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act of production and the product being commercially different. It
may be true that to reach it to the end consumer it has to be
packed into smaller cylinders. It may be necessary for marketing it
to the end consumer. I am not able to find out as to what are the
raw materials from which this LPG is made. In other words, LPG
is transferred from bulk quantity into smaller cylinders. There is no
raw materials as such from which a product is made which can be
said to be commercially different. Apparently, the makers of the
notification intended to promote manufacturing activity within the
State. It has expressed its clear intention not to extend the benefit
to activities like packaging as the definition shows. As already
noted, there is no production of a commercially different article
from a different raw material and LPG remains as LPG after the
entire process is over. In such circumstances, I see no merit in
the writ petition and it is dismissed.
Sd/-
(K.M.JOSEPH, JUDGE)
aks
// TRUE COPY //
P.A. TO JUDGE