2007 (7) TMI 618 - HC - VAT and Sales Tax

Benefit of sales tax exemption denied - Whether in the facts and circumstances of the case the Appellate Tribunal was right in upholding the orders of the lower authorities denying to the petitioner the benefit of sales tax exemption in terms of G.O. No. CI 140 SPC 93 dated July 12 1993 read with the certificate of sales tax exemption dated October 10 1995 granted by the District Industries Centre Mysore certifying sales tax exemption on the finished goods? Held that - We have to answer the finding recorded by the assessing authority the appellate authority and Karnataka Appellate Tribunal as erroneous in law and non-consideration of the same would vitiate the orders as the same are contrary to the Government order notification and the certificate issued by the District Industries Centre Mysore in favour of the assessee. Therefore the abovesaid question is answered in favour of the assessee and against the Revenue. In view of the undisputed facts and the certificate issued by the competent officer certifying that the assessee has been manufacturing the goods of turmeric powder by following certain manufacturing processes such as the roots of turmeric are boiled dried powdered and coloured. The above manufacturing processes involved in manufacture of turmeric powder which is one of the spices different and distinct from the roots of turmeric. Therefore we have to hold that there is a manufacturing process involved in manufacture of turmeric powder from roots of turmeric. This has been rightly certified by the certifying officer but not accepted by the assessing authority the appellate authority and Karnataka Appellate Tribunal without assigning valid reasons. Therefore the findings of the assessing authority the appellate authority and Karnataka Appellate Tribunal are not only erroneous but error in law. Therefore questions of law framed in this petition by the petitioner are also required to be answered in favour of the assessee.

Issues Involved:
1. Denial of sales tax exemption benefit.
2. Justification of the Tribunal's decision.
3. Requirement of manufacturing activity for tax exemption.
4. Eligibility for sales tax exemption on turmeric powder.
5. Classification of turmeric powder as a manufacturing activity.

Issue-wise Detailed Analysis:

1. Denial of Sales Tax Exemption Benefit:
The petitioner-assessee challenged the denial of sales tax exemption by the appellate authorities and the Karnataka Appellate Tribunal. The petitioner argued that the exemption was granted under Government Orders dated July 12, 1993, and August 28, 1993, and supported by a certificate from the District Industries Centre (DIC), Mysore. The court found that the authorities' rejection of the exemption claim was contrary to the Government orders and the certificate issued by the DIC. The court held that the authorities' failure to refer the certificate to the DIC or the State Level Committee for clarification was erroneous. Therefore, the court answered this issue in favor of the assessee, stating that the authorities' orders were vitiated and contrary to the Government notification and the DIC certificate.

2. Justification of the Tribunal's Decision:
The Tribunal's decision to uphold the denial of sales tax exemption was questioned. The petitioner argued that the Tribunal's findings were erroneous and contrary to law. The court found that the Tribunal's decision was not justified as it failed to consider the Government orders and the DIC certificate properly. The court held that the Tribunal's findings were erroneous in law and contrary to the Government policy and the certificate issued by the DIC. Therefore, the court answered this issue in favor of the assessee.

3. Requirement of Manufacturing Activity for Tax Exemption:
The issue was whether manufacturing activity was a pre-condition for granting sales tax exemption. The petitioner argued that the Government order did not stipulate manufacturing activity as a pre-condition. The court found that the conversion of turmeric roots into turmeric powder involved a manufacturing process, as certified by the DIC. The court referred to various Supreme Court and Division Bench judgments to support the finding that the turmeric powder is a distinct and separate commodity from turmeric roots. Therefore, the court held that the petitioner was eligible for the exemption, and the authorities' findings to the contrary were erroneous.

4. Eligibility for Sales Tax Exemption on Turmeric Powder:
The petitioner claimed eligibility for sales tax exemption on turmeric powder under the Government orders and the DIC certificate. The court found that the petitioner was manufacturing turmeric powder, which is a spice, and therefore eligible for the exemption. The court held that the authorities' rejection of the exemption claim was contrary to the Government orders and the DIC certificate. Therefore, the court answered this issue in favor of the assessee.

5. Classification of Turmeric Powder as a Manufacturing Activity:
The issue was whether the conversion of turmeric roots into turmeric powder constituted a manufacturing activity. The court found that the process involved in converting turmeric roots into turmeric powder, such as boiling, drying, and powdering, constituted a manufacturing activity. The court referred to various judgments to support the finding that the turmeric powder is a distinct and separate commodity from turmeric roots. Therefore, the court held that the petitioner was engaged in a manufacturing activity and eligible for the exemption. The court answered this issue in favor of the assessee.

Conclusion:
The court allowed the revision petition, set aside the impugned orders of the first appellate authority, the assessing authority, and the Karnataka Appellate Tribunal, and held that the petitioner was entitled to exemption from payment of sales tax on turmeric powder under the Government order dated August 28, 1993.

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