Goods Manufactured After Diversification Must Be Different To Claim Exemption Under UP Trade Tax Act: SC

The Supreme Court while dealing with an appeal filed by AMD Industries Limited held that as per U.P. Trade Tax Act, goods manufactured after the diversification must be different goods from the goods manufactured before such diversification.

However, the appellant company was permitted to change its name in the cause title from M/s. Ashoka Metal Décor Pvt. Ltd. to AMD Industries Limited.

The two-Judge Bench of Justice M.R. Shah and Justice Krishna Murari said, “In the case of “expansion or modernization”, the exemption shall be available, if there is an additional production as a result of such modernization or expansion. In the present case, we are concerned with the case of “diversification”. Therefore, the goods manufactured after diversification must be different goods from the goods manufactured before such diversification.”

The Bench further observed that 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 the exemption provision.

Senior Advocate Atul Yeshwant Chitale appeared on behalf of the appellant while Advocate Bhakti Vardhan Singh appeared for the respondents.

Facts –

The appellant established the unit for the manufacture of “Spun Line Crown Cork”, used as one of the packing materials of the 'glass bottles'. The appellant was granted the eligibility certificate under ‘modernisation’ instead of the eligibility certificate under the ‘diversification’ scheme for the manufacture of “double Lip Dry Blend Crown”. The exemption was denied under Section 4-A(5) of the U.P. Trade Tax Act.

The appellant preferred an appeal against the order before the Trade Tax Tribunal but the same came to be dismissed. The second appeal before the Tribunal also came to be dismissed. Against the order passed by the Tribunal, the revision application before the High Court also got dismissed by the impugned judgment and order, and, hence the matter was before the Apex Court.

The question for consideration before the Supreme Court 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 Court while considering the aforementioned question noted, “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”.”

The Court further noted that in a case of “diversification”, the effect has to be that the quality and quantity of the product should have been improved or increased but if the ultimate use is the same, the product manufactured on the use of modern technology cannot be said to be manufacturing the different goods for claiming the exemption from payment of trade tax.

The Court also asserted, “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 High Court has not committed any error in refusing to grant exemption to the appellant. We are in complete agreement with the view taken by the High Court.”

The Court while upholding the decision of the High Court concluded that the appellant is not entitled to the exemption as claimed.

Accordingly, the Court dismissed the appeal.

Cause Title- AMD Industries Limited (Earlier known as M/s. Ashoka Metal Décor Pvt. Ltd.) v. Commissioner of Trade Tax, Lucknow and Anr.

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