2002 (8) TMI 811 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the conversion of "raw rubber wood" into "treated rubber wood" constitutes a "manufacturing process" under S.R.O. No. 1729 of 1993.
2. The legality and binding nature of the Government's clarification dated August 16, 1996 (Exhibit P3).
3. The appropriate authority to decide the eligibility for sales tax exemption under the Kerala General Sales Tax Act, 1963.

Detailed Analysis:

1. Manufacturing Process of Rubber Wood:
The petitioner, a partnership firm engaged in the manufacture of chemically treated kiln seasoned sawn to size rubber wood, claimed that their process converts raw rubber wood, which is otherwise only useful as fuel, into a commercially different product, i.e., treated rubber wood. This process involves several stages including prophylactic treatment, sawing, impregnation, air curing, and kiln seasoning. The petitioner argued that this transformation constitutes a manufacturing process as defined in S.R.O. No. 1729 of 1993, which should entitle them to sales tax exemption.

2. Government's Clarification (Exhibit P3):
The District Level Committee and the State Level Committee rejected the petitioner's application for sales tax exemption based on a Government clarification dated August 16, 1996 (Exhibit P3), which stated that the processing of rubber wood does not amount to a manufacturing activity because the timber retains its original identity. The court noted that the Government did not have the authority to issue such clarifications by executive orders, especially after the striking down of section 59-A of the KGST Act by the court in Tranvancore Chemical & Manufacturing Company Ltd. v. State of Kerala. The court held that Exhibit P3 was illegal, unauthorized, and without jurisdiction.

3. Appropriate Authority for Decision:
The court directed that the Commissioner of Commercial Taxes, Thiruvananthapuram, should exercise his powers under section 59-A of the KGST Act, 1963, as amended by the Kerala Finance Act, 2000, to decide whether the petitioner's process constitutes "manufacture" under S.R.O. No. 1729 of 1993. The Commissioner is to consider whether the process results in a new and distinct commercial commodity, keeping in mind the legal principles laid down by the Supreme Court, such as in Deputy Commissioner of Sales Tax v. Pio Food Packers and other relevant cases. The petitioner is allowed to present evidence, including affidavits from consumers and the commercial community, to support their claim.

Conclusion:
The court quashed Exhibit P3 and the proceedings of the District and State Level Committees based on it. The Commissioner of Commercial Taxes is directed to reconsider the petitioner's application for sales tax exemption within three months, following the guidelines specified in the judgment. The recovery of demands for the assessment years 1995-96 and 1996-97 will be deferred until a decision is made. The petitions are disposed of accordingly.