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TMI Blog2021 (3) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... process and used for mixing the raw material. This stand alone item ought not to be understood as Chandrika Soap made otherwise than Handmade. The Chandrika Soap is treated as hand made by the assessing authorities in the State of Karnataka. The dominant tests on what constitutes handmade are satisfied in the case on hand and the findings of the Tribunal are set aside and accordingly the first question is answered in favour of the assessee and against the Department. Whether the direction of the Tribunal for calculating interest on the differential tax and tax paid based on the return is legal? - HELD THAT:- The re-assessment does not arise and question is answered in favour of assessee and against the Revenue. Revision dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... ufactured by the assessee and sold in the Kerala State or elsewhere is a handmade soap. Chandrika soap is treated as a handmade soap by the authorities under Karnataka General Sales Tax Act and corresponding rate of tax was applied to Chandrika Soap sold by the assessee in State of Karnataka etc. The assessee states that the authorities under KGST Act prior to the subject assessment years treated Chandrika Soap as a handmade product and collected tax at 4%. Similarly tax at 4% has been collected for the assessment years subsequent to 2004-2005. Therefore the issue whether Chandrika Soap is handmade soap or machine made soap is limited to the subject assessment years. 4. The assessee filed T.A.No.36 of 2009 before the Appellate Tribunal questioning the order of Appellate Commissioner for the assessment year 2002-2003. The Appellate Tribunal through judgment dt.4.8.2009 held that Chandrika Soap manufactured by assessee is a handmade soap attracting tax at 4%. Similar view was taken by the Tribunal, in appeals filed by the assessee in T.A.Nos.83 and 84 of 2009 dated 24.4.2009. The Revenue questioning the said order filed S.T.Rev.Nos.41 and 42 of 2010 before this Court. The objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther particulars. The State will file photocopies of the enquiry report before the Tribunal and a copy will be given to the respondent." 6. At this stage we find it convenient to refer to the report dt.14.12.2010 prepared by the team of officers constituted for this purpose, by the department. The report dt.14.12.2010 refers to the process of manufacturing of soap by the assessee; the ingredients used in manufacture of soap and the contrivances noticed by the team at the time of inspection for soap manufacturing. Keeping in our perspective, i.e. the contrivance which is treated as a machine by the Tribunal to deny concessional rate of tax, the following extract from the report is reproduced. "Mixing Drum which is a device that consists of a drum with a central hub containing rotating blades supported by bearings and connected to a handle for power input, 9 numbers with 200 kg. Capacity." "The earliest case in which the word "machinery" was interpreted is the decision of the Privy Council in Corporation of Calcutta v Chitpore Municipality (A.I.R. 1922 P.C. 27; (1922) 15 M.I.W. 253). The criteria laid down and applied by the Privy Council int hat c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After stamping packing and casing are done manually for which no contrivances are put in use. Shipment of finished goods into goods vehicle are also done manually. All these contrivances are independent and are not interconnected. By applying or supplying power it does not work as a combined effect of the movement either collectively or individually except in the case of mixing drum. There is no systematic arrangement of several parts which does not multiply or convert the force supplied to it for any such purpose. In the result, such contrivances do not satisfy this definition emerging out of the above discussion. But the mixing drum on the other hand is a device that consists of a drum with a central hub containing rotating blades supported by bearings and connected to a handle for power input. The power used is human power. There is an alliance of the several parts into one unit, all functioning simultaneously on the supply of power at a given point. By applying the power, the force is multiplied leading to the rotation of blades which results in the mixing of the contents in the drum. But this contrivance is seen used for the preliminary mixing of the raw materials and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4% II. Other than handmade At the point of first sale - 12% 9. In the case on hand, the rate of tax is dependent on the mode and manner of manufacture of soap. 10. Sr.Adv.Joseph Markos argues that the Tribunal committed a very serious error in law while adjudicating a classification or category issue arising under Schedule I of KGST Act. The Revenue, in the first round of litigation canvassed that the acceptance of levy of concessional rate of tax at 4% on Chandrika Soap as a handmade product is erroneous principally on the ground that there was no data on the process involved in the manufacturing of Chandrika Soap. In other words a finding was rendered without actual examination of manufacturing process of Chandrika soap by the assessee. Reliance on the certificate issued by the authorities under Karnataka General Sales Tax Act etc. for this purpose is equally erroneous. This Court accepted these primary objections raised by the revenue and through order dt.28.10.2010 directed a team to be constituted by the Commissioner of Taxes, inspect the unit of assessee and file a report on the mode and the manner of manufacturing process involved in Chandrika soap. Report dated 14.12.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 'drum' is a machine used as a device having the unique purpose, augments or replaces human or animal effort for the accomplishment of physical tasks. This broad category encomposes such simple devices as inclined plane, lever, wedge, wheel and axle pulley and screw. However it is stated that he is not comparing 'drum' with any of the modern contrivances employed by the manufacturers in contemporaneous period. According to him, the drum is rightly understood as machine by the Tribunal and the assessee is not entitled to claim 4% concessional rate of tax. The judgment of this Court in M/s Dorcas Market Makers Pvt. Ltd. v State of Kerala (Judgment dated 28.7.2016 of Kerala High Court in S.T.Rev.No.8 of 2013 & conn.cases) was challenged before the Supreme Court with a delay petition and the delay petition was dismissed. Hence it is noted the judgment of this Court in Dorcas case holds good as on date. 14. We have heard the counsel and frame the following questions for our consideration: 1. Whether in the facts and circumstances borne out in the report dated 14.12.2020, Chandrika Soap manufactured by assessee is entitled to be treated as Handmade soap and conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tests for determining, what constitutes machine and employment of such machine to a particular set of facts etc. The determination of category or classification of goods, in our considered view, is not pedantic; or purposeful only to levy and demand tax on the dealer; at the same time the exercise of determination of classification ought not to be on fertile imagination of officers functioning under the Act or subject to the consideration to verbose expressions. The entry is literally understood and juxtaposed with particular activity, claimed and/or proved by the dealer; thereafter applicable rate of tax is applied and tax recovered. The Legislature provided two rates of tax, one for handmade and another other than handmade. The application of this classification ought to be in a natural flow of understanding of the activity considered in this behalf. Nothing unnecessarily added or inferred while determining the applicable rate of tax for such course may defeat the very legitimate classification provided by the Act. Where the concessional rate is attracted through stretched construction by the authorities under the Act, should not be denied likewise ignore basic details and gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city is used in any manner by the assessee. The 'drum' when operated is used by hand and force is generated for mixing the ingredients. We are on basic principles of manufacturing process etc. are unable to appreciate the contention of department that small contrivances used to generate force etc. come under the category of Machines. The report deals in sufficient detail on the purpose and utility of drum in the sequence of manufacturing process and used for mixing the raw material. This stand alone item ought not to be understood as Chandrika Soap made otherwise than Handmade. The Chandrika Soap is treated as 'hand made' by the assessing authorities in the State of Karnataka. 19. After appreciating the flow of manufacturing process and predominant use of labour for manufacturing the soap including while mixing the materials, we are convinced that the claim of assessee that Chandrika Soap is 'handmade' is tenable. We have juxtaposed the findings of the Tribunal with the report dt.14.12.2010 and we are of the view that the assessee is denied concessional rate of 4% tax for manufacture of Chandrika Soap on erroneous view of the issues. 20. We are not burdeni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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