Karnataka Sales Tax Act - Whether cutting and polishing granite amounts to manufacture to attract tax - matter remanded: SC
By TIOL News Service
NEW DELHI, OCT 19, 2016: THESE 57 appeals, by special leave, assail the common judgment and order passed by the High Court of Karnataka in STA No. 574-575/2011 and other connected matters preferred under Section 24(1) of the Karnataka Sales Tax Act, 1957 on 4th December, 2012 whereby it has overturned the order dated 25.02.2011 passed by the Additional Commissioner of Commercial Taxes, Zone-I, Bangalore in a batch of suo motu revisions under Section 12-A(1) of the Act whereby the revisional authority has opined that there had been an erroneous order in the appeal causing loss to the State exchequer and accordingly issued notices to the concerned assesses requiring them to participate in the revision petitions and file written objections and put forth their stand availing the opportunity of being heard.
The facts in one sample appeal:
The respondent-assessee is a dealer under the Act as well as the Central Sales Tax Act, and is engaged in the business of manufacturing and trading in granite stone. The assessing authority finalised the assessment for certain assessment years allowing exemption on polished granite stone on the basis that polished granite stones were produced from out of the tax suffered from rough granite blocks. Thereafter, the assessing authority reopened the assessment. While passing the order of reassessment, the Assessing Officer opined certain amount had been allowed exemption as granite stones sold within the State were polished out of unpolished granite blocks locally purchased on demand of sales tax. The said authority referred to Entry No. 17(1) of Part S of second schedule appended to the Act which relates to granite stones, namely, (a) polished, (b) unpolished and (c) chips. The Assessing Authority observed that the polished and unpolished granite stones are under separate entries in the said schedule and such being the case, treating of sale of polished granite sold within the State which are obtained out of unpolished granite stones as sales inasmuch as they are suffered sales tax was not correct and, therefore, the exemption had been granted erroneously. Being aggrieved by the aforesaid order, the assessee preferred an appeal before the appellate authority. After referring to the decision in M/s. Vishwakarma Granites v. Commissioner of Commercial Taxes W.P. No. 13803/05 decided on 21st June, 2006 by Karnataka H.C. , it opined that the orders passed under Section 12A of the Act deserves to be set aside and accordingly allowed the appeals.
The High Court in appeal posed the question that arose for consideration in the following terms:-
"Whether the rough granite purchased by a dealer and the sale, the same after cutting and polishing into granite tiles, whether such a process amount to manufacture and that the said product constitute a different commodity to attract Sales Tax U/s.5 of the Sales Tax Act?"
The High Court opined that cutting the granite blocks into small sizes and polishing them does not amount to manufacturing process to attract sales tax under Section 5 of the Act. However, the High Court observed whether the transactions attract tax under Section 6B can be looked into and considered by the Assessing Officer after giving opportunity to the parties, and consequently allowed the appeals.
The Supreme Court observed,
“There is a distinction between polished granite stone or slabs and tiles. If a polished granite stone is used in a building for any purpose, it will come under Entry 17(i) of Part S of the second schedule, but if it is a tile, which comes into existence by different process, a new and distinct commodity emerges and it has a different commercial identity in the market. The process involved is extremely relevant. That aspect has not been gone into. The Assessing Officer while framing the assessment order has referred to Entry 17(i) of Part S but without any elaboration on Entry 8. Entry 8 carves out tiles as a different commodity. It uses the words "other titles". A granite tile would come within the said Entry if involvement of certain activities is established. To elaborate, if a polished granite which is a slab and used on the floor, it cannot be called a tile for the purpose of coming within the ambit and sweep of Entry 8. Some other process has to be undertaken. If tiles are manufactured or produced after undertaking some other activities, the position would be different. A finding has to be arrived at by carrying out due enquiry and for that purpose appropriate exercise has to be undertaken. In the absence of that, a final conclusion cannot be reached.
In view of the aforesaid, we allow the appeals, set aside the orders passed by the High Court and all the authorities and remit the matter to the Assessing Officer to re-adjudicate the matter keeping in view the observations made hereinabove.”
(See 2016-TIOL-176-SC-CT)
