Predominant Purpose Of Industry Is Essential For Determining Bracket Of Cess Taxation: Allahabad High Court

The Lucknow Bench of the Allahabad High Court has held that in determining cess for an industry, the assessing authority must consider the predominant purpose of the industry. “In this case where the question is whether a particular industry is an industry as covered in Schedule I of the Act, it has to be judged normally by what that industry produces mainly. Every industry carries out multifarious activities to reach its goal through various multifarious methods. Whether a particular industry falls within the realm of taxation, must be judged by the predominant purpose and process and not by any ancillary or incidental process carried on by a particular industry in running its business,” held Justice Irshad Ali. The assessment authorities conducted a continued assessment of the petitioner's decorative laminated sheet industry (senmica). In this regard, three non-speaking assessment orders were passed against petitioner. Aggrieved, the petitioner filed appeals claiming that the assessments were made on the basis of extraneous materials and without providing proper opportunity of hearing with regard to categorization. Thereafter, on 09.03.2004, an adverse assessment order was passed against the petitioner classifying them as a Chemical Industry. Relying on the judgement of the Supreme Court in M/s Saraswati Sugar Mills and others vs. Haryana State Board and others, the Court held that an industry would be a specified industry only if the final product produced fell “squarely within an entry in Schedule I”. The Court also held that the use of raw material was distinct from a newly manufactured product, and it was only the latter that could be taken into consideration while determining tax liability. It held that in the manufacture of decorative laminate sheets, mere usage of paper, phenol, etc. would not classify the petitioner as a paper industry. It was further held that while the petitioner industry participated in a chemical endeavour to some extent, the manufacture of senmica as a whole would not be regarded a Chemical Process. The Court held that the Cess Act was a fiscal statute and had to take into account the literal meaning of the word 'industry' as used in the Act. The same could not be done merely on the basis of raw material used in the manufacturing process. “The Cess Act is a fiscal enactment. In the context in which the word 'vegetable' is used in Entry 15 'vegetable product' means product of or made of or out of vegetable. 'Vegetables' as understood in common parlance are not products of manufacture unless we say that agriculture is an industry for certain purposes. If the botanic meaning meaning of vegetable as referring to any and every kind of plant life is to be given then some of the industries listed in Schedule I like paper industry and textile industry and even chemical industry which are covered by other entries could also be brought within Entry 15. The word vegetable in the context does not attract the botanic meaning. The suger manufacturing industry does not, therefore, come within Entry 15 of Schedule I of the Cess Act.” In the present case it found that Decorative Laminated Sheets could not be subjected to any cess under the act, as such an industry found no mention in Schedule-1 of the act, and neither could its final product be termed as paper. Accordingly, the writ petition was allowed. Case Title: M/s Century Laminating Company Ltd. Thru Deputy Manager v. Assessing Authority U.P. Pollution Control Board [WRIT - C No. - 1001686 of 2004] Click Here To Read/Download The Order

Predominant Purpose Of Industry Is Essential For Determining Bracket Of Cess Taxation: Allahabad High Court

Upasna Agrawal

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