Goods Manufactured On “Diversification” Must Be “Different”, “Distinct” & “Separate” In Nature To Claim Exemption U/Sec 4-A (5) UP Trade Tax Act: Supreme Court

The Supreme Court observed that the goods manufactured on “diversification” must be a “different”, “distinct” and a “separate” good in nature so as to claim exemption under Section 4-A (5) of the U.P. Trade Tax Act.

"In a case of “diversification”, the effect has to 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 bench of Justices M R Shah and Krishna Murari observed.

The appellant in this case is a manufacturer of crown corks used for sealing glass bottles. Initially, it was producing “Spun Line Crown Corks”. However, subsequently, it diversified the manufacturing activity to manufacture “Double Lip Dry Blend Crowns” 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 issue raised in this appeal was whether for the goods, manufactured by use of modern technologies can be said to be “diversification”, and manufacturing of the goods of a nature different from the goods manufactured earlier entitle the appellant to claim the exemption from trade tax as provided under Section 4-A (5) of the U.P. Trade Tax Act?

The Apex Court bench noted that, as per Section 4A of the Act, in case of “diversification” the goods manufactured by diversification shall be different from the goods manufactured before such diversification. The court noticed that the earlier product being manufactured by the appellant was used for sealing glass bottles and subsequently the additional product produced with the use of modern technology is also being used for the same purpose namely, “sealing glass bottles”

"Therefore, the same cannot 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 has to 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 words used in Section 4-A are very clear and unambiguous. As per the settled proposition of law and as observed hereinabove, 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.", the bench observed while upholding the High Court judgment.

Case details

AMD Industries Limited  vs Commissioner of Trade Tax | 2022 LiveLaw (SC) 18 |  CA 108 OF 2013 | 9 January 2023 | Justices M R Shah and Krishna Murari 

For Appellant(s) Mr. Atul Yeshwant Chitale, Sr. Adv. Ms. Tanvi Kakar, Adv. Ms. Jayati Atul Chitale, Adv. Mrs. Suchitra Atul Chitale, AOR

For Respondent(s) Mr. Bhakti Vardhan Singh, AOR

Headnotes

UP Trade Tax Act ; Section 4A - In a case of “diversification”, the effect has to 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 - “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. (Para 8-9)

Interpretation of Statutes - Taxing Statutes - In case of an exemption notification/exemption provision, the same is required to be construed literally and the person claiming the exemption must satisfy all the conditions of exemption provision. (Para 8.2)

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