2013 (2) TMI 687 - HC - VAT and Sales Tax

Processing of the product will also amount to manufacture. - manufacture with its grammatical variations and cognate expressions means producing, making, extracting, altering, ornamenting, finishing, assembling or otherwise processing, treating or adapting any goods, and includes any process incidental or ancillary to such activities

Summary

Issues:
1. Claim for tax benefit under entry 55(20) of the Kerala Value Added Tax Act, 2003.
2. Classification of honey processing activities as 'manufacture.'
3. Liability of tax under section 6(2) of the Act on the purchase turnover of honey.

Analysis:

1. The petitioners, claiming to be a honey marketing depot under the Khadi and Village Industries Commission, sought tax benefits under entry 55(20) of the Kerala Value Added Tax Act, 2003. The petitioners engaged in collecting, processing, and selling honey, arguing that their activities fell under the definition of 'manufacture' as per the Act. However, the Tribunal ruled against them, stating that the honey purchased by the petitioners was not produced in their unit, and they did not own a beekeeping unit. The Tribunal found that the petitioners only purchased and sold honey, which constituted a trading activity, not manufacturing. Thus, the honey sold could not be classified under the tax exemption entry 55(20) but was taxable at four percent under entry 58(1) of the Act.

2. The key issue revolved around whether the processing activities undertaken by the petitioners constituted 'manufacture' under the Act. The definition of 'manufacture' in the Act includes altering, processing, treating, or adapting goods. The petitioners argued that their processing activities, such as filtering, settling, and pre-processing honey, transformed raw honey into pure honey, thereby constituting 'manufacture.' The High Court noted that processing the product could amount to manufacture, especially if it rendered the product fit for the market. The Court observed that there was no substantial change in the character or texture of the honey after processing, indicating a need for further examination. Consequently, the Court set aside the Tribunal's order and remitted the matter back to the Tribunal for a reevaluation based on the evidence presented by the petitioners.

3. Another issue addressed was the liability of tax under section 6(2) of the Act on the purchase turnover of honey. The Tribunal had remanded this question back for reconsideration. The High Court considered the documents provided by the petitioners, showing processing expenses incurred, and reiterated the definition of 'manufacture' under the Act. The Court emphasized that processing activities could be considered manufacturing and directed the Tribunal to review whether the petitioners were entitled to tax exemption for honey. The Court upheld the Tribunal's decision to revisit the issue under section 6(2) of the Act, leaving it to the Tribunal to examine the matter further and make a decision in accordance with the law after hearing both parties. The Court also granted the Tribunal the authority to refer the matter back to the assessing officer if necessary.

In conclusion, the High Court remitted the case back to the Tribunal for a fresh determination on the tax benefits for honey processing activities and the liability of tax on the purchase turnover of honey, emphasizing the need for a thorough examination of the processing activities to ascertain if they constitute 'manufacture' under the Act.