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TMI Blog2006 (1) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... wing exemption from Central sales tax law as contemplated under section 5(3) of the CST Act, 1956? 2.. Whether under the facts and circumstances of the case of the appellant, the ratio of the decision of the honourable High Court of Karnataka in the case of Foredge Granite v. State of Karnataka [S. T. A. No. 1264 of 1989 dated September 27, 1990] is applicable?" 3.. The honourable Chairman of the Tribunal in exercise of his powers under section 3 of the Karnataka Appellate Tribunals Act, 1976 read with rule 6 of the Karnataka Appellate Tribunals Rules, 1979 had constituted a Full Bench by his order dated July 8, 2002 to furnish their opinion on the points framed by the Bench. 4.. The two learned Judges of the Bench have opined that the polished tiles obtained out of the rough granite blocks should be reckoned as the same goods and eligible for exemption under section 5(3) of the Central Sales Tax Act, 1956 and they are also of the view, that the decision of this court in the case of Foredge Granite Pvt. Ltd. v. State of Karnataka [S. T. A. v M/s. Inlac Granite Stones Limited, Bangalore, and since the sales were notsupported by "C" forms, the assessing officer had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1177 of 2000, the Revenue isbefore this court in this revision petition. In this revision petition, facts are not in dispute. What is sold or suppliedby the dealer-assessee registered both under the KST Act and the CST Act,M/s. Inlac Granite Stones Limited, Bangalore, and since the sales were not supported by "C" forms, the assessing officer had passed assessment order under section 9(3) of the CST Act, 1956, for the assessment year 1993-94, assessing taxable turnover at Rs. 3,78,511 at 15 per cent and for the assessment year 1994-95 assessed the taxable turnover at Rs. 5,81,805 at 10 per cent. The assessee being aggrieved by the aforesaid order passed by the assessing authority, had filed two separate appeals before the Joint Commissioner of Commercial Taxes (Appeals), Bangalore, who by his common order dated August 31, 2000 after examining the issues involved in the appeals in detail, has rejected both the appeals. The findings and the conclusion reached by him are, that the rough granite blocks undergo cutting, sizing, polishing, slicing and so on. All these process are done mechanically or in machines. The Legislature has also understood rough granite and polished g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 6(1) of the CST Act, every dealer, subject to the other provisions of the Act, is liable to pay tax under this Act on all sales of goods other than electrical energy effected by him in the course of inter-State trade or commerce during any year. Proviso to sub-section (1) carves out an exception to the main provision. The exception is, that a dealer shall not be liable to pay tax under the Act on any sale of goods, which is, in accordance with the provisions of sub-section (3) of section 5 of the CST Act, a sale in the course of export of those goods out of the territory of India. Section 5(3) of the CST Act reads as under: "Section 5. When is a sale or purchase of goods said to take place in the course of import or export.--(1) to (2) . . . (3) Notwithstanding anything contained in sub-section (1), the last sale or purchase of any goods preceding the sale or purchase occasioning the export of those goods out of the territory of India shall also be deemed to be in the course of such export, if such last sale or purchase took place after, and was for the purpose of complying with, the agreement or order for or in relation to such export." Section 5(1) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct commodity that it can be said that a new commodity, distinct from the original, has come into being. The test is whether in the eyes of those dealing in the commodity or in commercial parlance the processed commodity is regarded as distinct in character and identity from the original commodity." (emphasis(1) supplied) The aforesaid view is reiterated by the Supreme Court in the case of Vijayalaxmi Cashew Company v. Deputy Commercial Tax Officer [1996] 100 STC 571. In the said decision, the court has observed as under: "In order to resist imposition of sales tax by the State on the penultimate transaction contemplated by section 5(3) of the Central Sales Tax Act, 1956, the dealer will have to establish the identity of the goods purchased with the goods to be exported out of the territory of India. If, in order to fulfil an export obligation, an exporter purchases goods and as result of some processing the identity and character of the goods change, then it will not be a case of export of the same goods. The penultimate sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock and what is exported is polished tiles and therefore, what is sold or supplied and what is exported are not one and the same commodity and therefore, the assessee is not eligible to claim exemption under section 5(3) of the Act. Per contra, Sri Rabinathan, learned counsel for the assessee, would contend that the rough granite blocks are supplied to an 100 per cent export oriented unit by the assessee and thereafter, they are cut into sizes and polished and exported out of the country by the exporter. According to the 1. Here italicised. learned counsel, what is sold or supplied is being exported and therefore, the sale by the assessee is in the course of export and therefore, eligible for exemption from payment of tax under the Act in view of section 5(3) of the CST Act, 1956 read with proviso to section 6(1) of the CST Act, 1956. The issue in this case is, whether the polished tiles, which were exported are those goods, which were sold by the assessee in the penultimate transaction? In other words, whether the rough granite blocks, which were sold were the very goods, which were exported? To be further precise, the controversy in this revision petition is about the identity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased rough granite blocks and with the help of the machines run by electrical energy in its unit, cuts the granites into required sizes and thickness and polishes the same to the requirement of the customers and sells the same. The case of the assessee before the assessing authority was that the business activity of the petitioner is a manufacturing activity and therefore, would be entitled to the benefit of the notification dated October 15/16 1981, which provided for exemption from payment of tax under the KST Act, 1957, in respect of goods manufactured and sold by new industrial unit. The assessing authority had allowed the claim of the dealer and had granted exemption from payment of sales tax, treating the business activity of the petitioner as a manufacturing activity and therefore, entitled to certain incentives and concession flowing from the notification. This order of the assessing authority was revised by the revisional authority by invoking the provisions of section 21(2) of the KST Act and the order so passed was confirmed by the Karnataka Appellate Tribunal, by rejecting the appeal filed by the assessee. It is the correctness or otherwise of this order which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied, neither in common parlance nor in commercial parlance, can sliced, thin, polished tiles be regarded as the rough granite blocks. When rough granite blocks are subjected to process of cutting, slicing into required size and polished and exported as tiles, the rough granite blocks cease to be granite blocks and become a distinct and different commercial commodity from the original commodity. In the trade circle, they are not considered as one and the same commodity. If the purchaser goes to the market to buy the polished tiles, he will not be given the rough granite blocks. Converse of this is also an indication that they do not retain their identity as rough granite blocks when they are cut/sliced, polished as tiles and therefore, for the purpose of section 5(3) of the CST Act, it cannot be said that the goods sold or supplied were those goods, which were exported. The granite stones are extracted from the quarry and they are cut into small and large blocks. If they are cut or sawn to very specific dimension and sold either as smaller blocks or cut sizes of granite blocks to the exporter and if that exporter exports those small cut sizes of granite blocks, it can definitely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notification dated March 31, 1983, had rejected the writ petitions by his order dated December 3, 1993(1). In the appeals filed against the said order, the division Bench has only stated that, in the first notification dated October 30, 1982 there was no reference in any part of the notification to the manufacturing activity to be involved, for claiming exemption and therefore, the department could not have refused to give benefit of incentive and concessions available under the notification dated October 30, 1982 since the notification dated March 31, 1983 firstly, has superseded the earlier notification and secondly, it is in this notification a reference is made to, manufacturing activity to claim incentives and concessions. Therefore, in our view, this decision would in no way assist the dealer in the present case. Reliance is also placed on the decision of this court in the case of Padmavathi Marbles v. State of Karnataka [S. T. R. P. Nos. 65 and 66 of 1992 dated January 30, 1996]. We fail to see how the decision would assist the assessee. That was a case where the assessee was involved in the activity of stone polishing. It had claimed the benefit of 50 per cent of sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court held, that by reason of processing of the goods after their purchase, there was no change in their identity and that, in fact, commercially, they were to be regarded as the original goods. Since the goods that were purchased were those goods which were exported, the Supreme Court allowed the claim of the assessee in view of section 5(3) of the CST Act, 1956. Our attention is also drawn to the observations made by the Madras High Court in the case of T. Azeezur Rahman and Company v. State of Tamil Nadu [1991] 82 STC 355. In the said decision, the court has observed as under: "For purposes of entitling an assessee to the benefits of section 5(3) of the Central Sales Tax Act, 1956, in respect of a commodity subject to the limitations contained in section 14(iii) read with section 15 of the Act, the lack of commercial identity of the goods has no relevance, and what is really relevant is whether the sale or purchase in question is the 'penultimate sale or purchase' that satisfies the two conditions specified in section 5(3), namely, (a) that such penultimate sale must take place (i.e., become complete) after the agreement or order under which the goods are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty or specification did amount to processing, though not a manufacture." In Union of India v. Ahmedabad Electricity Co. Ltd. [2004] 134 STC 24 (SC), it is held that: "the natural meaning of the word 'process' is mode of treatment of certain materials in order to produce a good result, a species of activity performed on the subject-matter in order to transform or reduce it to a certain stage. The thin line of difference between 'manufacture' and 'processing' is that, in the former, a new commodity is produced at the end of the process, while in the latter, the commodity retains its identity throughout till the end, after the operations performed on it". Reference is also made to the decision of the Rajasthan High Court in the case of Guljag Industries Limited v. State of Rajasthan [2003] 129 STC 3. We do not see any issue in this decision which has any bearing on the issue that we are considering in the present case. The learned counsel Sri Rabinathan nextly relies on the decision of the Supreme Court in the case of Commissioner of Sales Tax, U. P. v. Lal Kunwa Stone Crusher (P.) Ltd. [2000] 118 STC 287. In the said decision, the court has o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into smaller sizes for which lime powder and steel granite were used. But these lime powder, water and steel granite got washed away and thereafter the granite was polished. This cutting and polishing is necessary in order to make the granite fit to be introduced in the export market. The nature of the activities undertaken by the exporter is similar to the activities undertaken by various assessees in the different cases relied on by the appellant wherein the apex court and the High Courts have very clearly held that despite such activities, the commodity still remained the same. Therefore, the appellant is eligible for exemption of sales tax on sales of granite blocks effected by them to the exporters under section 5(3) of the Central Sales Tax Act, 1956." With greatest respect at our command, we do not subscribe to the view expressed by the Special Tribunal. We stop at that. In the instant case, the assessee has supplied rough granite blocks to an 100 per cent export oriented industrial unit. They have been cut into slices, polished and exported out of the country. The input is rough granite blocks and the output is sliced, thin, polished tiles. Their chemical composition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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