2018 (1) TMI 1194 - HC - VAT and Sales Tax

Concessional Rate of Tax - purchase of machinery spares, Generator spares, Hand lift - The assessing officer rejected the concessional rate of tax by holding that, as per provisions of section 3(5) and entries 3(i) to 3(ix) of English Schedule to the Tamil Nadu General Sales Tax Act, 1959, the assessee was not eligible to purchase machinery spares separately for repairs, reconditioning or replacement - AO observed that, assessee had purchased chemicals, dyes and finishing chemicals and used for converting wet blue to finished leather and since both wet blue and finished leather are one and the same commodity - As per the AO no manufacturing takes place. Held that - Following the decision in the case of The State of Tamilnadu, rep. by the Joint Commissioner (CT) Versus Habib Leather Manufacturing Co. 2017 (12) TMI 621 - MADRAS HIGH COURT , tax revision dismissed - decided against revenue.

Issues Involved:
1. Eligibility for concessional tax rate on machinery spares under Section 3(5) of the Tamil Nadu General Sales Tax Act, 1959.
2. Determination if the conversion of wet blue leather to finished leather constitutes manufacturing.
3. Validity of the Tribunal's reliance on previous judgments.

Detailed Analysis:

1. Eligibility for Concessional Tax Rate on Machinery Spares:
The respondent, a dealer in tanned and finished leathers, was initially assessed with a higher taxable turnover due to the rejection of the concessional tax rate on machinery spares. The assessing officer held that under Section 3(5) and relevant entries of the Tamil Nadu General Sales Tax Act, 1959, the assessee was not eligible for concessional tax on machinery spares purchased for repairs, reconditioning, or replacement. This decision was overturned by the first appellate authority, which allowed the concessional rate, and the Tribunal upheld this by referencing the High Court's decision in a similar case (Golden Leathers Tannery Vs. State of Tamil Nadu).

2. Determination if the Conversion of Wet Blue Leather to Finished Leather Constitutes Manufacturing:
The primary contention was whether the transformation of wet blue leather into finished leather qualifies as manufacturing. The assessing officer argued that both forms of leather are the same commodity under Entry 7(b) of the Second Schedule to the Act, implying no manufacturing activity. The first appellate authority disagreed, citing various judgments to establish that the conversion process involves significant changes, thus qualifying as manufacturing. The Tribunal supported this view, noting that the processes involved in converting wet blue leather to finished leather result in a distinct and new product, thereby constituting manufacturing.

3. Validity of the Tribunal's Reliance on Previous Judgments:
The petitioner argued that the Tribunal overlooked Supreme Court judgments in similar cases, which should have influenced the decision. The Tribunal, however, followed the High Court's decision in Golden Leathers, which detailed the various stages and processes involved in converting wet blue leather to finished leather, affirming it as a manufacturing activity. The Tribunal emphasized that each process contributes to the transformation of the commodity into a new and distinct product, aligning with the principles laid down in previous Supreme Court rulings.

Conclusion:
The High Court dismissed the Tax Case Revision, affirming the Tribunal's decision that the conversion of wet blue leather to finished leather constitutes manufacturing. The Court upheld the eligibility for concessional tax on machinery spares and chemicals used in the manufacturing process. All substantial questions of law were answered against the revenue, reinforcing the Tribunal's reliance on established legal principles and previous judgments.

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