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TMI Blog2009 (12) TMI 907X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Revenue - S.T.R.P. No. 14 of 2007 - - - Dated:- 15-12-2009 - MANJUNATH K.L. AND ARAVIND KUMAR, JJ. For the Appellant : Smt. Geetha Menon, Government Advocate, For the Respondent : M.N. Shankare Gowda ORDER:- The order of the court was made by ARAVIND KUMAR J.- The Revenue is questioning the correctness and legality of the order passed by the Karnataka Appellate Tribunal in S.T.A. Nos. 2457-62 of 2004 dated August 23, 2005. 2. The facts leading to the filing of this revision petition are as follows: The respondent-assessee engaged in the business of cutting and polishing of granite stones, for the period from April 1, 1998 to March 31, 1999 was assessed by the Assistant Commissioner of Commercial Taxes, I Circle, Bellary, by order dated April 25, 2000. Subsequently, after issuance of notice of proposal to levy penalty, an order came to be passed under section 5A(2) of the Karnataka Sales Tax Act, 1957 levying penalty thereunder by order dated March 8, 2004. The said order of levying penalty was questioned by the assessee before the Joint Commissioner of Commercial Taxes (Appeals) who by order dated July 13, 2004 confirmed the order of levying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the order of the Tribunal. 7. Per contra, Sri M.N. Shankare Gowda, the learned counsel for the respondent-assessee, would submit that the cause for issuance of notice being the honourable single judge's orders in Poonam Stone Processing Industries v. Deputy Commissioner of Commercial Taxes (Admn.), Gulbarga Division, Gulbarga [2000] 118 STC 409 (Karn). There was no justification for the authorities to levy penalty and the Tribunal having considered this fact has rightly set aside the levy of penalty. He further submits that the authorities themselves were under doubt as to the activity carried on by the granite stone dealers as to whether they are carrying on manufacturing activity or not and this is explicitly clear from the circular issued in Circular No. 19/2003-04 dated November 11, 2003 and when the authorities themselves were under doubt as to the activity of the assessee, the authorities were not justified in levying penalty on the premise that activity of cutting and polishing of granite stones is not a manufacturing activity. He elaborates his submission by contending that change of law would not give rise to levy penalty particularly in the background of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner and the polished stones are wholly different commodities and unpolished unsize stone cannot be equated to a polished stone. The question is whether polished stone is the result of any manufacturing activity. The principle should be governed by the decision of the Rajasthan High Court which we have already referred to Assistant Commercial Taxes Officer, Ward A, Chittorgarh v. Sitaram Badrilal [1986] 61 STC 258 (Raj). Following the aforesaid decision, we hold that mere polishing of stones does not result in the manufacture of new article. In view of the same, the Tribunal was in error in holding/observing that expression manufacturing unit employed under section 5A of the Act should not be construed in strict sense and accordingly we answer the question of law in favour of the Revenue and against the assessee. 10. Now coming to question No. 2 formulated hereinabove, it would be necessary for us to examine whether there has been violation of section 5A of the Act by the assessee and if so whether the authorities were justified in levying penalty under section 5A(2) and (3) of the Act. It is in this background, the provision of section 5A(2) and 5A(3) is to be looked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng such dealer from making use of any declaration forms prescribed under the first proviso to sub-section (1) and requiring him to surrender forthwith the declaration forms already issued to him, if any; and (ii) imposing upon him a penalty not exceeding the amount of tax leviable under the provisions of (sections 5) on the sale value of the inputs already purchased by him against prescribed declaration forms up to the date of surrender of the unused forms by him. (d) If any dealer, in respect of whom an order has been passed under clause (c) of this sub-section, pays the penalty and complies with other terms of such order, the assessing authority may, in his discretion, permit such dealer to obtain the prescribed declaration forms afresh and to make use of the same for the purchase of inputs in the State at concessional rates of tax. The authorities below have levied penalty only on the premise of the applicability of Poonam Stone Processing Industries case [2000] 118 STC 409 (Karn). It is also not in dispute that the said judgment has been carried in writ appeal by the said assessee and the judgment of the learned single judge came to be set aside which is Poonam Stone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are said: (1) As the process of cutting and polishing of granite stones is not a manufacturing activity as held by the honourable High Court of Karnataka. The activity of purchase of unpolished granite stones against form 37 declarations at the concessional tax as provided under section 5A of the Act is not available to dealers engaged in such activity. Issue of any such declarations towards purchase of unpolished granite stones would be violation of the provisions of section 5A of the Act and attracts penalties provided therein. (2) Sale of polished granite stones by any dealer which has been obtained out of unpolished granite stones subjected to the process of cutting and polishing is a first sale liable to tax under section 5(3A) of the Act at the rate specified in entry Sl. No. 17(1)(a) of Part S of the Second Schedule to the Act. Such sale cannot be taken as subsequent sale of tax suffered polished granite stones. (3) Accordingly, action shall be taken under section 5A of the Act to levy penalties in cases where dealers have wrongly issued form 37 declarations towards purchase of unpolished granite stones for being used in conversion into polished granite stones. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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