2017 (6) TMI 411 - HC - VAT and Sales Tax

Exemption in terms of Notification issued under Section 17 of the Act - The claim for exemption was rejected by the Assessing Officer on the ground that the society was not authorized to effect sales of E.B. line materials and RTS grills to the Tamil Nadu Electricity Board - levy of penalty u/s 12(3)(b) of the Act - whether the appellant, a cooperative society engaged in industrial activity, is entitled to claim exemption on the product sold by it to the Tamil Nadu Electricity Board? - Held that - the appellant industry is registered under the Tamil Nadu Khadi and Village Industries Board and to the said effect, a certificate has been issued by the Assistant Director on 09.12.1996 - it is not in dispute that the appellant is one of the institutions certified by the Khadi and Village Industries Board and this stand has been reiterated by the Assistant Director to the Joint Commissioner vide letter dated 06.12.2004. It is important to note that in the said letter, the Khadi and Village Industries Board specifically certified that the society, which is a unit of the Board, is authorized to purchase finished goods from the members of the society and sell the same for the benefit of its members. This aspect of the matter was not considered by the Joint Commissioner while passing the impugned order. Merely because the product supplied by the society, which is being utilized by the Electricity Board for the purpose of supporting high voltage electrical cables, cannot make the product to fall outside the classification of blacksmithy product. The own use of the product is of no consequence to consider a claim for exemption of product, which was sold by the appellant society. Rejection also on the ground that the process involves painting and welding - Held that - ainting and welding would be necessary to make the finished product. But, the essential character of the product does not change from that of a blacksmithy product. The products, which were sold by the appellant society to the Tamil Nadu Electricity Board, are essentially blacksmithy products and are entitled for exemption in terms of the Notification issued under Section 17 of the Act - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Applicability of exemption claimed by an industrial cooperative society for the assessment year 1994-95.
2. Justification of penalty levied by the Assessing Officer.
3. Correctness of the order passed by the Joint Commissioner in setting aside the order of the Appellate Assistant Commissioner and restoring the order of the Assessing Officer.

Issue 1: Applicability of Exemption:
The industrial cooperative society, engaged in manufacturing steel and furniture, claimed exemption for the assessment year 1994-95 under G.O.Ms.No.272 Revenue Department. The Assessing Officer rejected the exemption, leading to a dispute. The society argued that as per the Khadi and Village Industries Commission Act, their products supplied to the Electricity Board fall under blacksmithy items, making them eligible for exemption. The Appellate Assistant Commissioner supported the society's claim. The Joint Commissioner, however, set aside the Appellate Assistant Commissioner's order, stating a violation of the Government Order. The High Court held that the society, being certified by the Khadi and Village Industries Board, was authorized to sell blacksmithy products, making them eligible for exemption under the Act.

Issue 2: Justification of Penalty:
The Assessing Officer had levied a penalty under Section 12(3)(b) of the Act, which the Appellate Assistant Commissioner vacated based on the turnover being from the society's accounts. Citing legal precedents, the High Court affirmed that if the turnover is from proper accounts, no penalty can be imposed. Therefore, the penalty levied was not justified.

Issue 3: Order of the Joint Commissioner:
The Joint Commissioner's order to set aside the Appellate Assistant Commissioner's decision was based on the society purchasing finished goods, allegedly violating the Government Order. The High Court disagreed, emphasizing that the society's purpose was to benefit its members by selling goods. The Court highlighted that the products supplied to the Electricity Board were certified as blacksmithy items by the Khadi and Village Industries Board. The Joint Commissioner's decision was deemed incorrect as the product's essential character remained that of a blacksmithy item, making the society eligible for exemption.

In conclusion, the High Court ruled in favor of the industrial cooperative society on all issues, allowing the tax case and rejecting the Revenue's claims. The judgment emphasized the society's entitlement to exemption under the Act, the lack of justification for the penalty imposed, and the incorrectness of the Joint Commissioner's order in setting aside the Appellate Assistant Commissioner's decision.