2019 (12) TMI 886 - HC - VAT / Sales Tax

Process amounting to manufacture or not - processing of Blue Leather into Finished Leather by undertaking the various processes to complete the same into Finished Leather - benefit of concessional rate of tax - Section 3(3) of the TNGST Act - HELD THAT - The said controversy as to whether the conversion of the wet leather into finished leather came into consideration in the case of Golden Leathers vs. Secretary, Tamilnadu Sales Tax Appellate Tribunal 2010 (4) TMI 535 - MADRAS HIGH COURT , wherein discussing the Tanning process undertaken by the manufacturing unit of the leather industry, a Division Bench of this Court concluded that conversion of Wet Leather into Finished Leather amounted to 'manufacture' and therefore, the concessional rate of tax under section 3 was available to such manufacturer. There is no doubt that the Tribunal was justified in allowing the Appeal of the Assessee and holding that the the process of conversion of Wet Blue Leather into Finished Leather amounts to 'manufacture' within the meaning of Section 3 and therefore there was no misuse of declaration in Form 17 by the Assessee while purchasing chemicals for processing the leather and therefore, the Assessee was not liable to pay higher rate of tax on such purchase of materials. Revision petition dismissed - decided against Revenue.

Summary

Issues:
- Interpretation of Section 3(3) of the TNGST Act regarding tax liability for dealers.
- Determination of whether the conversion of wet leather into finished leather constitutes 'manufacture' for tax purposes.

Analysis:
1. Interpretation of Section 3(3) of the TNGST Act:
The High Court examined the provisions of Section 3(3) of the TNGST Act, which stipulate that dealers are liable to pay tax at a concessional rate of 3% if the goods purchased under a declaration are used in connection with manufacturing goods for sale within the State. Failure to meet the conditions of manufacture within the State renders the concessional rate unavailable, leading to taxation at a higher rate.

2. Conversion of Wet Leather into Finished Leather - Manufacturing Activity:
The Court delved into the process of converting wet blue leather into finished leather, highlighting the various stages involved such as splitting, washing, rechroming, dyeing, drying, staking, trimming, buffing/stuffing, dedusting, and finishing. The Court referenced a prior case, Golden Leathers vs. Secretary, where it was established that the conversion of wet leather into finished leather constitutes 'manufacture' for tax purposes, making the concessional rate of tax under Section 3 applicable to such activities.

3. Judicial Precedents and Factual Findings:
The Court cited judicial precedents and factual findings to support the conclusion that the transformation of wet blue leather into finished leather results in a distinct commodity with a separate identity in the market. The Court emphasized that the process satisfies the criteria set by the Supreme Court to determine whether an activity amounts to 'manufacture'. The Appellate Assistant Commissioner's detailed analysis of the manufacturing activities further supported the finding that a manufacturing activity indeed takes place during the conversion process.

4. Decision and Dismissal of Revision Petition:
Ultimately, the High Court upheld the Tribunal's decision in favor of the Assessee, ruling that the conversion of wet blue leather into finished leather qualifies as 'manufacture' under Section 3 of the TNGST Act. Consequently, the Assessee was not deemed to have misused the declaration form for purchasing materials, and the higher rate of tax was not applicable. The Revision Petition filed by the Revenue was dismissed as lacking merit, with no costs awarded.

In conclusion, the judgment clarifies the interpretation of tax liability under the TNGST Act and affirms that the conversion of wet blue leather into finished leather constitutes a manufacturing activity, entitling the Assessee to the concessional tax rate.