2008 (1) TMI 854 - HC - VAT and Sales Tax

Berry coffee, uncured coffee or a coffee berry - Exemption under section 5(3) of the CST Act - Held that - In the light of entry No. 18 of the Second Schedule of the KST Act, we are of the opinion that, whether the coffee is purchased by the assessee as a coffee bean or a coffee seed or a berry coffee, it makes no difference as it is defined only a coffee. The question of law framed in this petition has to be answered in favour of the assessee by holding that the berry coffee, uncured coffee or a coffee berry are one and the same. Therefore, the assessee is entitled for exemption under section 5(3) of the CST Act.

Summary

Issues Involved:
1. Entitlement to exemption under section 5(3) of the CST Act.
2. Revisional authority's power to revise the assessing officer's order.
3. Classification of coffee beans and coffee berries under the KST Act.
4. Applicability of the term "manufacture" in the context of curing coffee.

Issue-wise Detailed Analysis:

1. Entitlement to exemption under section 5(3) of the CST Act:
The primary issue was whether the assessee could claim exemption under section 5(3) of the CST Act for coffee beans exported after curing. The court concluded that the cured coffee beans and the uncured coffee berries are essentially the same commodity. Therefore, the assessee is entitled to the exemption as the product did not change its identity through the curing process. The court relied on the interpretation of "coffee" in entry 18 of Part C of the Second Schedule of the KST Act, which includes coffee beans and seeds, whether raw or roasted.

2. Revisional authority's power to revise the assessing officer's order:
The revisional authority had reopened the assessment under section 21(2) of the KST Act, arguing that the original order was prejudicial to the state's interest. The court found that the revisional authority and the Karnataka Appellate Tribunal erred in their judgment by not properly considering the nature of the coffee as defined in the KST Act and the relevant judicial precedents. The court held that the revisional authority was not justified in modifying the assessment order.

3. Classification of coffee beans and coffee berries under the KST Act:
The court examined the classification of coffee under entry 18 of Part C of the Second Schedule of the KST Act, which includes coffee beans and seeds, whether raw or roasted. It was determined that both cured and uncured coffee fall under this entry, and thus, they should be treated as the same commodity for tax purposes. The court emphasized that the curing process does not transform the coffee into a different commodity.

4. Applicability of the term "manufacture" in the context of curing coffee:
The court discussed whether curing coffee berries into coffee beans constitutes a manufacturing process. It referred to the Supreme Court's judgment in Aspinwall's case, which dealt with the term "manufacture" under the Income-tax Act, and found it not directly applicable to the CST and KST Acts. Instead, the court relied on other Supreme Court judgments, such as State of Punjab v. Chandu Lal Kishori Lal, which held that processes like ginning cotton or processing seafood do not change the essential character of the product. The court concluded that curing coffee does not amount to manufacturing for the purposes of the CST and KST Acts.

Conclusion:
The court allowed the petition, set aside the orders of the Karnataka Appellate Tribunal and the revisional authority, and confirmed the original assessment order. The assessee was entitled to the exemption under section 5(3) of the CST Act, as the cured coffee beans and uncured coffee berries were considered the same commodity.