2012 (8) TMI 871 - HC - VAT and Sales Tax

Taxation of industrial inputs - Whether the assessee has violated the declaration furnished by him and is liable to suffer penalty under section 5A(3) of the Karnataka Sales Tax Act? Held that - The section 5A(3) envisages two types of cases. The first situation being a person having no manufacturing unit, purchases the inputs by making false declaration under sub-section (1) to have the benefit of concessional tax. In the second case, a person having manufacturing unit, purchases inputs by furnishing declaration under subsection (1) and pays only concessional tax. Later on, sells away such inputs contrary to such declaration. In both the cases, the person can be levied penalty after being given opportunity. In the instant case, section 5A(3)(i) of Karnataka Sales Tax Act does not apply, because the assessee has got a manufacturing unit. In the instant case, he has sold the granite after processing. Processing of granite may not be the manufacturing activity. But however, the assessee has not violated the provisions of section 5A(1) and 5A(3)(ii), in other words, has not sold the goods in violation of the declaration. Therefore, levy of penalty is bad in law. The appeal is allowed.

Summary

Issues:
1. Whether processing of raw granite amounts to manufacturing activity for tax concession under section 5A of the Karnataka Sales Tax Act.
2. Whether the appellant violated the declaration and is liable to penalty under section 5A(3) of the Act.

Analysis:
1. The appellant, a granite dealer, purchased raw granites, processed them, and sold dressed and finished products seeking tax concession under section 5A. The assessing authority held that processing raw granite does not constitute manufacturing activity, denying the tax benefit. The court considered if the processed products were different commercial goods, if the transformation process qualified as manufacturing activity, and if penalty under section 5A(3)(iii) was justified. The court found that although processing granite may not be manufacturing, the appellant did not violate the declaration and thus, the penalty was deemed unlawful. The appeal was allowed.

2. The court analyzed the provisions of section 5A(3) of the Karnataka Sales Tax Act, distinguishing cases where a person without a manufacturing unit makes false declarations for tax benefits and cases where a person with a manufacturing unit sells inputs contrary to declarations. In the present case, as the appellant had a manufacturing unit and did not violate the declaration, the penalty under section 5A(3)(iii) was deemed unjustified. The court referred to a previous judgment and concluded that the appellant's processing activity did not breach the provisions of section 5A(1) and 5A(3)(ii), leading to the allowance of the appeal.