Holding

Diversification under Section 4-A(5) requires the manufacture of goods that are different in nature from those previously produced, and the appellant's new product does not satisfy this requirement.

Summary

AMD Industries Ltd, formerly Ashoka Metal Decor Pvt Ltd, manufactured "Spun Line Crown Corks" for sealing glass bottles and later introduced "Double Lip Dry Blend Crowns" using modern technology, claiming that the new product constituted diversification under Section 4-A(5) of the U.P. Trade Tax Act and thus entitled to exemption from trade tax. The appellant argued that the new product was of a different nature and that the use of the product was irrelevant to the test for diversification. The respondents contended that both products served the same purpose and that diversification requires the manufacture of goods of a different nature, not merely an improvement in quality or technology. The Supreme Court examined the literal meaning of "diversification" in Section 4-A, holding that it requires the production of goods distinct from those previously manufactured, and that mere modernization or expansion does not satisfy this condition. Since the new crowns were still used for sealing glass bottles and were not a different kind of good, the Court found no entitlement to exemption. Consequently, the appeal was dismissed, affirming the High Court’s decision.

Issues considered

Whether the introduction of a new product using modern technology qualifies as "diversification" under Section 4-A(5) of the U.P. Trade Tax Act.
Whether goods that serve the same ultimate purpose but differ in manufacturing process can be considered "goods of a different nature" for the purpose of claiming exemption.

Legislation cited

U.P. Trade Tax Acts. 4-A(2)(c), s. 4-A(5)(b)(i), s. 4-A(5)(b)(ii), s. 4-A(5)(c)

Subjects

Trade tax exemptionDiversificationModernizationExpansionSection 4-ALiteral interpretationGoods of different natureU.P. Trade Tax Act

Judgment

[2023] 1 S.C.R. 1035 1035

AMD INDUSTRIES LIMITED (EARLIER KNOWN AS M/S. A
ASHOKA METAL DECOR PVT. LTD.)
v.
COMMISSIONER OF TRADE TAX, LUCKNOW & ANR
(Civil Appeal No. 108 of 2013) B
JANUARY 09, 2023
[M. R. SHAH AND KRISHNA MURARI, JJ.]
U.P Trade Tax Act – s.4-A(5) – Whether for the goods,
manufactured by use of modern technologies can be said to be
“diversification”, and manufacturing of the goods of a nature C
different from the goods manufactured earlier if entitles the appellant
to claim the exemption from trade tax provided u/s.4-A(5) – Held:
In case of “diversification” the goods manufactured by
diversification shall be different from the goods manufactured before
such diversification – In the present case, the earlier product being
manufactured by the appellant was used for sealing glass bottles D
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 E
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” Words
used in s.4-A are clear and unambiguous – Exemption provisions
are to be read as they are and construed literally – Giving the literal F
meaning to s.4-A, it cannot be said that the appellant is entitled to
the exemption as claimed – High Court committed no error in refusing
to grant exemption to the appellant.
Dismissing the appeal, the Court
HELD: 1.1 On a fair reading of Section 4 - A(2)(c), Section G
4-A(5)(b)(i) & (ii) and Section 4-A(5)(c), it is clear that in case of
“diversification” the goods manufactured by diversification shall
be different from the goods manufactured before such
diversification [Section 4-A(2)(c)]. 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 H
1035
1036 SUPREME COURT REPORTS [2023] 1 S.C.R.

A expansion. The present case is concerned with the case of
“diversification”. Therefore, the goods manufactured after
diversification must be different goods from the goods
manufactured before such diversification. In case of an exemption
notification/exemption provision, the same is required to be
construed literally and the person claiming the exemption must
B satisfy all the conditions of exemption provision. [Paras 8.1,
8.2][1043-D-F]
1.2 In the present case, the appellant was manufacturing /
producing “Spun Line Crown Cork” used for sealing the glass
bottles. With the use of modern technologies, now the appellant
C is manufacturing “Double Lip Dry Blend Crowns”, which is also
used for sealing the glass bottles. 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
D 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
E 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
F 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. 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
G meaning. Giving the literal meaning to the exemption provision
namely, Section 4-A, it cannot be said that the appellant is entitled
to the exemption as claimed. Considering the aforesaid facts and
circumstances of the case and as observed hereinabove, when
the provisions of the Act unequivocally provides that the
H “diversification” can be considered only in a case where “goods
AMD INDUSTRIES LTD. v. COMMISSIONER OF TRADE TAX, 1037
LUCKNOW & ANR

of different nature” are produced, and only then the exemption A
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 High Court has not committed
any error in refusing to grant exemption to the appellant. [Paras B
8.3-8.5][1043-G-H; 1044-A-F]
Hansraj Gordhandas Vs. H.H. Dave, Assistant Collector
of Central Excise Customs, Surat and Ors. AIR 1970
SC 755 : [1969] SCR 253; Parle Biscuits (P) Ltd. Vs.
State of Bihar and Ors. (2005) 9 SCC 669 : [2004] 6 C
Suppl. SCR 954; Assistant Commissioner (CT) LTU and
Anr. Vs. Amara Raja Batteries Limited (2009) 8 SCC
209 : [2009] 11 SCR 953; Commissioner of Sales Tax,
Orissa and Anr. Vs. Jagannath Cotton Company and
Anr. (1995) 5 SCC 527 : [1995] 2 Suppl. SCR 390 –
referred to. D
Case Law Reference
[1969] SCR 253 referred to Para 4.7
[2004] 6 Suppl. SCR 954 referred to Para 4.7
[2009] 11 SCR 953 referred to Para 4.7
E
[1995] 2 Suppl. SCR 390 referred to Para 5.5
CIVIL APPELLATE JURISDICTION : Civil Appeal No.108 of
2013.
From the Judgment and Order dated 16/09/2008 of the High
Courtof U. P. at Lucknow in TTR No. 275/2004.
F
Atul Yeshwant Chitale, Sr. Adv., Ms. Tanvi Kakar, Ms. Jayati
Atul Chitale, Mrs. Suchitra Atul Chitale, Advs. for the Appellant.
Bhakti Vardhan Singh, Adv. for the Respondents.
The Judgment of the Court was delivered by
M. R. SHAH, J. G
1. I.A. No. 118667 of 2021 is allowed. The appellant is permitted
to change its name in the cause title from M/s. Ashoka Metal Décor
Pvt. Ltd. to AMD Industries Limited and the I.A. is accordingly disposed
of.

H
1038 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 2. Feeling aggrieved and dissatisfied with the impugned judgment
and order passed by the High Court of Judicature at Allahabad in Trade
Tax Revision No. 275 of 2004 by which the High Court has dismissed
the said revision application preferred by the appellant herein and has
confirmed the order passed by the learned Trade Tax Tribunal, Lucknow
Bench, Lucknow (hereinafter referred to as “Tribunal”) and the
B Assessing Officer holding 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 (hereinafter referred to as “Act”), the manufacturer – original
revisionist has preferred the present appeal.
3. The facts leading to the present appeal in nutshell are as under:-
C 3.1 The appellant herein established the unit for manufacture of
“Spun Line Crown Cork” in the year 1986, used as one of the packing
materials of the ‘glass bottles’. The appellant submitted an application
on 24.05.2000 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.
D
3.2 On the basis of the joint spot inquiry consisting of two members
committee, the appellant was granted the eligibility certificate under
‘modernisation’ instead of eligibility certificate under ‘diversification’
scheme.
3.3 At this stage, it is required to be noted that if the goods
E manufactured would have been considered as a new product under the
diversification scheme, the appellant was entitled to the exemption under
Section 4-A(5) of the Act. The appellant was denied the exemption
under Section 4-A(5) of the Act. The appellant preferred an appeal
under Section 10 of the Act against the order dated 10.12.2003 passed
under Section 4-A of the Act before the Trade Tax Tribunal contending
F inter alia that the process of manufacture and the machineries used for
both the products (existing and the new) are different.
3.4 It was also the case on behalf of the appellant that the existing
(old) product cannot be manufactured on the new installed machine and
vice-a-versa, the new product cannot be manufactured on the old
G machines. It was also the case on behalf of the appellant that one of the
major raw materials for both the products are not the same and that
ultimate use of both the products are different.
3.5 It was submitted that under the term “modernization” only
those units fall, which by the modern technical produce the same goods
and the scheme of “modernization” do not apply on the units which
H produce different goods.
AMD INDUSTRIES LTD. v. COMMISSIONER OF TRADE TAX, 1039
LUCKNOW & ANR [M. R. SHAH, J.]

3.6 The appeal preferred by the appellant came to be dismissed. A
The second appeal before the Tribunal also came to be dismissed. It
was specifically held that the nature of goods being produced under the
modern technology is not different than the goods produced by the unit
earlier, as both the produced material are used in packing the bottles of
cold drinks and therefore, as the goods manufactured are not different
but the same and used for the same purpose, the appeals came to be B
dismissed. Against the order passed by the Tribunal, the revision
application before the High Court has been dismissed by the impugned
judgment and order, and, hence the present appeal.
4. Shri Atul Yeshwant Chitale, learned Senior Advocate appearing
on behalf of the appellant has submitted that the issue involved in the C
present appeal is with respect to the interpretation of Explanation 5 to
Section 4-A(5) of the Act, which grants exemption from payment of
trade tax to units, which had undertaken ‘diversification’ in their units on
or after 31.03.1995.
4.1 It is submitted that the appellant is a manufacturer of crown
D
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.
4.2 It is submitted that the new product being manufactured by E
the appellant is an eco-friendly product using PVC granules as raw
materials. The new product is different from the “Spun Line Crown
Corks” manufactured earlier.
4.3 It is submitted that the new product is an entirely different
product from what was manufactured earlier and the use of the product F
was also different. It is submitted that the new product was an entirely
different product in commercial parlance. It is submitted that the mere
fact that both the products are commonly known as “Corks” would have
no relevance. It is submitted that similarly the fact that both the products
are used for sealing glass bottles would also not be a relevant criterion.
The test which was to be applied is whether the goods were different G
from those manufactured earlier. It is submitted that the appellant was
entitled to claim exemption from trade tax since it has undertaken
diversification and the goods i.e., “Double Lip Dry Blend Crowns” now
being manufactured are of a nature different from those manufactured
earlier by the appellant being a different commercial commodity.
H
1040 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 4.4 It is submitted that the Trade Tax Tribunal as well as the High
Court have misconstrued the Explanation 5 to Section 4-A(5) of the Act
and the notification dated 31.03.1995 on the basis of which the appellant
had sought eligibility certificate on the ground of diversification.
4.5 It is submitted that in order to be entitled to claim exemption
from trade tax on the ground of diversification, the goods had to be of a
B
nature different from those manufactured earlier. Ultimate use of the
goods is irrelevant for the consideration for exemption from trade tax.
Different goods can be used for same thing. However, this does not
mean that the nature of the goods is the same. It is submitted that even
mere fact that both the goods are commonly known as “Corks” is also
C not a relevant factor for determining if the goods are different goods.
4.6 The learned senior counsel appearing on behalf of the appellant
has drawn our attention to the difference in earlier product and the
subsequent product. In support of his submission that the new product is
altogether a different product than that of the earlier product, he has
also drawn our attention to the difference in process of manufacturing
D
of both the products.
4.7 It is submitted that both, the Trade Tax Tribunal and the High
Court have erroneously introduced a new criterion that the use of both
products is the same. It is submitted that the criteria of use of goods is
neither provided in the section nor in the notification. Section 4-A(5) and
E the notification only requires the nature of goods to be different. It is
submitted that as per the settled position of law, an exemption notification
is required to be given a literal meaning. Reliance is placed on the
decisions of this Court in the case of Hansraj Gordhandas Vs. H.H.
Dave, Assistant Collector of Central Excise Customs, Surat and
Ors., AIR 1970 SC 755; Parle Biscuits (P) Ltd. Vs. State of Bihar
F
and Ors., (2005) 9 SCC 669 and Assistant Commissioner (CT)
LTU and Anr. Vs. Amara Raja Batteries Limited, (2009) 8 SCC
209.
4.8 Making above submissions and relying upon the above
decisions, it is prayed to allow the present appeal.
G 5. Present appeal is vehemently opposed by Shri Bhakti Vardhan
Singh, learned counsel appearing on behalf of the respondents.
5.1 It is submitted that in the present case, the appellant established
a unit for manufacture of the “Spun Line Crown Corks” used as one of
the packing materials of the glass bottles, to be sold to the glass bottlers.
H It is submitted that after ‘modernisation’, the appellant manufactured
AMD INDUSTRIES LTD. v. COMMISSIONER OF TRADE TAX, 1041
LUCKNOW & ANR [M. R. SHAH, J.]

“Corks” also used as one of the packing materials of the glass bottles. A
5.2 It is submitted that under Section 4-A(5) of the Act and the
notification, exemption from trade tax shall be available to a unit, which
has undertaken “expansion, diversification or modernization” and
manufactures the different goods from those manufactured earlier by
such undertaking. It is submitted that therefore, the issue involved in the
B
present appeal is as to 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 has undergone “diversification” or “modernization”?
5.3 It is submitted that therefore under Section 4-A(5) of the Act,
the requirement for availing the benefits under the head of C
“diversification” therefore is that the “goods of different nature is required
to be produced”. It is submitted that the exemption notification issued
under Section 4-A also uses the terminology and resultantly the test for
diversification is the “production of a goods which is different in nature
than that was produced earlier”.
D
5.4 It is submitted that clause (5) of Section 4-A also makes the
legal position clear. It is submitted that the opening sentence of clause
(5) seeks to refer “expansion, diversification and modernization” and
then clarifying in one separate sub-clause the exercise of “expansion or
modernization” means the “increase in production” and thereafter in
another separate sub-clause clarifies “diversification” to mean that the E
production of goods of a different kind, distinct and different in nature, a
new article as understood in commercial circle.
5.5 It is submitted that the test is how a good is understood in the
commercial parlance or commercial circle. It is submitted that the goods
manufactured by the appellant prior to the investment exercise was F
subject to levy under the class of goods namely “Corks”. After the
investment exercise, the manufacturing of the “Double Lip Dry Blend
Crowns” is merely the enhanced quality and quantity of goods namely
“Corks” earlier produced before the investment exercise. It is submitted
that therefore, the investment was an exercise of “modernization and
expansion” only and the different goods were not manufactured, not G
entitled to the exemption under Section 4-A(5) of the Act and the
notification issued under Section 4-A. In support of his above submissions,
learned counsel appearing on behalf of the respondents has placed reliance
upon the decision of this Court in the case of Commissioner of Sales
Tax, Orissa and Anr. Vs. Jagannath Cotton Company and Anr.,
(1995) 5 SCC 527 (para 5). H
1042 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 5.6 It is further submitted that mere change in technology now
the goods being manufactured by the unit of the appellant cannot be
considered “different in nature” than the goods being manufactured
earlier by the unit because of the fact that the goods are being utilized
for packing the bottles. It is submitted that as per the settled position of
law, the exemption notifications are to be strictly construed.
B
5.7 Making above submissions and relying upon the findings
recorded by the High Court that the goods manufactured now by the
appellant cannot be said to be different than that of the goods
manufactured earlier and the goods manufactured earlier and the new
are used as “Corks”, it is prayed to dismiss the present appeal.
C 6. Heard the learned counsel for the respective parties at length.
7. The short question which is posed for consideration of this
court is:-
“Whether for the goods, manufactured by use of modern
technologies can be said to be “diversification”, and manufacturing
D 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?
8. While considering the aforesaid issue, relevant provisions of
Section 4-A are required to be referred to, more particularly, Section 4-
A(2)(c), Section 4-A(5)(b)(i) & (ii) and Section 4-A(5)(c), which reads
E
as under:-
“Section 4-A - Exemption from trade tax in certain cases
(1) …………..
(2) It shall be lawful for the State Government to specify in the
notification under sub-section (1) that the exemption from, or
F
reduction in the rate of tax, shall be admissible—
(a) …….
(b) …….
(bb) …….
G (c) in respect of those goods only which are manufactured in a
unit which has undertaken expansion, diversification or
modernisation on or after April 1, 1990, and which in the case of
diversification, are different from the goods manufactured
before such diversification, and in the case of expansion or
modernisation are additional production as a result of such
H expansion or modernisation; and
AMD INDUSTRIES LTD. v. COMMISSIONER OF TRADE TAX, 1043
LUCKNOW & ANR [M. R. SHAH, J.]

(3) ……. A
(4) …….
(5) “Unit which has undertaken expansion, diversification or
modernisation” means an industrial undertaking—
(a) …….
(b) whose first date of production of goods,— B
(i) of a nature different from those manufactured earlier
by such undertaking, in case of units undertaking
diversification, and
(ii) manufactured in excess of base production in such
undertaking, in case of units undertaking expansion or C
modernisation, falls at any time after March 31, 1990;
(c) the production capacity whereof except as provided in the
proviso to sub-section (1) has increased by atleast twenty-five
percent as a result of expansion or modernisation, or wherein
goods of a nature different from those manufactured earlier D
are manufactured after diversification;”
8.1 Thus, on a fair reading of the aforesaid provisions, it is clear
that in case of “diversification” the goods manufactured by diversification
shall be different from the goods manufactured before such diversification
[Section 4-A(2)(c)].
8.2 In the case of “expansion or modernization”, the exemption E
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. As per the settled position of law, in case of F
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.
8.3 In the present case, the appellant was manufacturing / producing
“Spun Line Crown Cork” used for sealing the glass bottles. With the use
of modern technologies, now the appellant is manufacturing “Double G
Lip Dry Blend Crowns”, which is also used for sealing the glass bottles.
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 H
1044 SUPREME COURT REPORTS [2023] 1 S.C.R.

A 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
B 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
C 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. Giving the
literal meaning to the exemption provision namely, Section 4-A, it cannot
D be said that the appellant is entitled to the exemption as claimed.
8.4 Considering the aforesaid facts and circumstances of the case
and as observed hereinabove, when the provisions 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
E 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 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
F the High Court.
9. In view of the above and for the reasons stated above, present
appeal fails and the same deserves to be dismissed and is accordingly
dismissed. No costs.

G Divya Pandey Appeal dismissed.
(Assisted by : Abhishek Pratap Singh and Rakhi, LCRAs)

H