The Supreme Court while adjudicating on a case under Section 4A (5) of the U.P. Trade Tax Act (hereinafter referred to as “Act”), opined that while interpreting any exemption notification or provision, literal interpretation has to be done and a person claiming such an exemption must comply with all the conditions.
Further, the Apex Court propounded that the Appellant’s goods cannot be said to be different from the earlier ones. It was observed that due to advancement in technology if the earlier machinery is replaced with new for improvement in quality and quantity, at most it is the case of expansion and/or modernization. It cannot be said to be diversification. If the ultimate use of the products is the same, then the product manufactured cannot be said to be different from the earlier product and therefore, exemption from payment of trade tax cannot be claimed.
Brief Facts:
The present appeal has been preferred against the order of the High Court vide which the order of the Learned Tax Tribunal was upheld. It was held that the Appellant was not entitled to exemption under Section 4A (5) of the Act.
Brief Background:
The Appellant has a unit of manufacturing and used one of the packing materials of the ‘glass bottles.’ An application was submitted for an eligibility certificate under Section 4A of the Act under the program of diversification. The Appellant was granted an eligibility certificate under ‘modernization’ instead of ‘diversification’. Exemption under Section 4A(5) of the Act could only be provided had the good been considered new under the ‘diversification’ scheme.
Contentions of the Appellant:
It was submitted that the Appellant diversified its manufacturing activity to manufacture “Double Lip Dry Blend Crowns” and for the same new plant and machinery had to be imported. The new product is eco-friendly and uses PVC granules as raw materials. It was contended that the new product was entirely different from the products manufactured earlier.
Merely because both the products are known as “Corks” and are used for sealing glass bottles does not mean that there was no difference between the products. It was argued that the Appellant was entitled to tax exemption since diversification of goods was undertaken by him.
It was argued that the ultimate use of goods is not a criterion for ascertaining exemption from trade tax. The only relevant consideration is that the nature of the goods has to be different.
Contentions of the Respondent:
It was submitted that the test under Section 4A (5) of the Act is how goods are understood in commercial parlance or circle. The Appellant has merely enhanced the quality and quantity of goods and this is why the exemption should not be granted. A mere change in technology is not considered to be a difference in the nature of goods.
Observations of the Court:
It was opined by the Court that in the case of diversification, the goods manufactured must be different from the earlier goods. Coming to expansion or modernization, if there is an additional purchase then the exemption shall be available.
The Bench expounded that while interpreting any exemption notification or provision, literal interpretation has to be done and a person claiming such an exemption must comply with all the conditions.
In the present case, the Appellant’s goods cannot be said to be different from the earlier ones. It was observed that due to advancement in technology if the earlier machinery is replaced with new for improvement in quality and quantity, at most it is the case of expansion and/or modernization. It cannot be said to be diversification. If the ultimate use of the products is the same, then the product manufactured cannot be said to be different from the earlier product and therefore, exemption from payment of trade tax cannot be claimed.
The decision of the Court:
Based on the abovementioned reasons, the Apex Court accordingly, dismissed the appeal.
Case Title: AMD Industries Ltd. V. Commissioner of Trade Tax, Lucknow & Anr.
Coram: Hon’ble Mr. Justice M.R. Shah, Hon’ble Mr. Justice Krishna Murari
Case No: Civil Appeal No. 108 of 2013
Citation: 2023 Latest Caselaw 13 SC
Advocate for Appellant: Adv. Suchitra Atul Chitale
Advocate for Respondents: Adv. Bhakti Vardhan Singh
Read Judgement @LatestLaws.com
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