Supreme Court: To claim exemption under Trade Tax Act Goods manufactured on 'Diversification' must be 'Different, Distinct & Separate' in nature

Supreme Court: To claim exemption under Trade Tax Act Goods manufactured on 'Diversification' must be 'Different, Distinct & Separate' in nature

The Supreme Court in the case of AMD Industries Ltd (formerly known as M/s. Ashoka Metal Décor Pvt Ltd) vs. Commissioner of Trade Tax, Lucknow and another upheld the judgment passed by the High Court of Judicature at Allahabad holding that for the goods manufactured, the appellant- AMD Industries was not entitled to the exemption under Section 4-A (5) of the Uttar Pradesh Trade Tax Act (hereinafter referred to as 'Act'), the manufacturer.

The division bench comprising Justices M.R. Shah and Krishna Murari observed that when Section 4-A (5) of the Act unequivocally provides that the 'diversification' can be considered only in a case where 'goods of different nature' are produced, and only then the exemption shall be available. The goods manufactured on 'diversification' must be a 'different, distinct and a separate' good in nature. In the present case, the goods manufactured on use of advance and/or modern technology, cannot be said to be a different commercial activity at all.

The appellant- a manufacturer of crown corks, used for sealing glass bottles. The appellant had established a unit for manufacture of 'Spun Line Crown Cork' in the year 1986. The appellant had submitted an application on 24 May, 2000 for granting eligibility certificate under Section 4-A of the Act before the Divisional Level Committee for manufacture of 'double Lip Dry Blend Crown' under the program of diversification for which it imported new plant and machinery and invested a fixed capital cost of Rs. 4.5 crores. In this case, the Allahabad High Court had upheld the findings of the Trade Tax Tribunal that for the goods manufactured, the appellant is not entitled to the exemption under Section 4-A (5) of the U.P. Trade Tax Act.

The primary issue involved in the present appeal was whether the investment of the appellant can be said to be in the unit, having undergone 'diversification' or is in a unit having undergone 'modernization' and whether the goods manufactured by the appellant's unit have undergone 'diversification' or 'modernization'?

The Top Court elucidated, that as per Section 4A (2)(c) of the Act, in case of 'diversification' the goods manufactured by diversification shall be different from the goods manufactured before such diversification. The Court found that earlier the product being manufactured by the appellant was used for sealing glass bottles and subsequently the additional product produced with the use of modern technology was also being used for the same purpose namely, "sealing glass bottles." Therefore, the same could not be said to be manufacturing of goods different from being manufactured before such diversification.

"With the passage of time, due to advancement in technology, if there is a replacement of the old machinery with the new machinery for improvement in quality and quantity of a product, at the most, it can be said to be expansion and/or modernization, but it cannot be said to be "diversification," which is "manufacturing of goods different from the goods manufactured before such diversification." In a case of "diversification," the effect must be that the quality and quantity of the product should have been improved and/or increased but if the ultimate use is the same, the product manufactured on use of modern and/or advanced technology cannot be said to be manufacturing the different goods for claiming the exemption from payment of trade tax," the Apex Court stated.

The Court clarified that the words used in Section 4-A are very clear and unambiguous. As per the settled proposition of law, the Statute and more particularly, the exemption provisions are to be read as they are and to be construed literally and should be given a literal meaning. Giving the literal meaning to the exemption provision namely, Section 4-A, it cannot be said that the appellant was entitled to the exemption as claimed.

To conclude the Top Court while dismissing the appeal ruled that the goods manufactured on use of advance and/or modern technology, cannot be said to be a different commercial activity at all. The High Court had not committed any error in refusing to grant exemption to the appellant.