2006 (8) TMI 554 - HC - VAT and Sales Tax

Summary

Issues: Sales tax exemption under section 5(3) of the Central Sales Tax Act, 1956 for the purchase of raw hides and skins for export after processing in a tannery.

Detailed Analysis:

The judgment concerns sales tax exemption claimed under section 5(3) of the Central Sales Tax Act, 1956 for the purchase of raw hides and skins for export after processing in a tannery. The petitioner contended that the entire purchases are entitled to exemption under section 5(3) as the items are mostly exported. The key question before the Tribunal was whether there is manufacturing or processing of raw hides and skins to produce tanned and dressed hides, disentitling the petitioner from claiming exemption under section 5(3) of the CST Act. The assessing officer for the assessment year 1989-90 accepted the petitioner's eligibility for export exemption but disallowed it due to failure to satisfy the requirements of section 5(3). The officer noted that exports were not made directly by the petitioner, causing a delay in establishing purchases against export orders. Lack of documentation like foreign buyers' orders and bill of lading further weakened the petitioner's case for exemption.

The petitioner relied on a Supreme Court decision to support their claim that processing raw hides and skins for export does not amount to manufacturing. However, the court noted that the Supreme Court's decision was not in the context of sales tax exemption based on export orders. The Supreme Court had emphasized that even after tanning, leather retains its basic character. The court opined that the observations from the Supreme Court decision were sufficient to disallow the exemption claimed under section 5(3) as the purchase order for export should be for the same commodity purchased. Raw hides and skins undergo a significant transformation during processing, becoming a commercially distinct product from the original raw materials. Export orders were specific to dressed and tanned skins, not raw hides and skins, making it impractical for the petitioner to correlate export orders with raw material purchases.

In a previous unreported decision, the court had already declined exemption under section 5(3) for a similar case where the purchased item was not considered suitable for export. Referring to another decision, the court concluded that the purchase of raw hides and skins for processing and export does not qualify for exemption under section 5(3). Therefore, the court dismissed all sales tax revision cases based on these precedents and findings. The judgment underscores the importance of meeting the specific requirements of section 5(3) for claiming sales tax exemption on purchases intended for export after processing.