2006 (1) TMI 582 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether polished tiles obtained from rough granite blocks should be considered the same goods or a commercially new commodity for exemption under Section 5(3) of the CST Act, 1956.
2. Applicability of the Karnataka High Court decision in Foredge Granite v. State of Karnataka to the appellant's case.

Detailed Analysis:

Issue 1: Classification of Polished Tiles for CST Exemption
The primary issue was whether the polished tiles derived from rough granite blocks should be considered the same goods or a new commodity for the purpose of exemption under Section 5(3) of the CST Act, 1956. The court examined whether the rough granite blocks and polished tiles are commercially the same commodity. The Tribunal had previously ruled in favor of the assessee, stating that polished tiles should be considered the same goods as rough granite blocks, thus eligible for CST exemption.

The court referred to several Supreme Court decisions, including Sterling Foods v. State of Karnataka and Vijayalaxmi Cashew Company v. Deputy Commercial Tax Officer, which emphasized that the goods purchased and exported must be the same for exemption under Section 5(3). The court noted that the rough granite blocks undergo significant processing, including cutting, slicing, and polishing, which transforms them into a new commercial commodity, i.e., polished tiles. The court concluded that in common and commercial parlance, polished tiles are distinct from rough granite blocks, hence not eligible for exemption under Section 5(3) of the CST Act.

Issue 2: Applicability of Foredge Granite v. State of Karnataka
The second issue was whether the decision in Foredge Granite v. State of Karnataka applied to the appellant's case. The court clarified that the Foredge Granite case dealt with whether cutting rough granite blocks into different sizes constituted manufacturing activity for exemption under a specific notification, not under Section 5(3) of the CST Act. The court reiterated that the identity of the goods in commercial parlance is crucial for determining eligibility for CST exemption. Since the polished tiles are commercially different from rough granite blocks, the Foredge Granite decision was deemed inapplicable to the present case.

Conclusion:
The court allowed the revision petition, setting aside the Karnataka Appellate Tribunal's order and restoring the first appellate authority's decision. The court held that the polished tiles are a new commercial commodity distinct from rough granite blocks and thus not eligible for CST exemption under Section 5(3). The court also ruled that the Foredge Granite decision does not apply to the present case, as it dealt with a different legal issue. The court emphasized that the identity of the goods in commercial parlance is the determining factor for CST exemption.