TMI Blog2016 (10) TMI 719X X X X Extracts X X X X X X X X Extracts X X X X ..... NT Dipak Misra, J. These appeals, by special leave, assail the common judgment and order passed by the High Court of Karnataka in STA No. 574-575/2011 and other connected matters preferred under Section 24(1) of the Karnataka Sales Tax Act, 1957 (for brevity, the Act ), on 4th December, 2012 whereby it has overturned the order dated 25.02.2011 passed by the Additional Commissioner of Commercial Taxes, Zone-I, Bangalore in a batch of suo motu revisions under Section 12-A(1) of the Act whereby the revisional authority has opined that there had been an erroneous order in the appeal causing loss to the State exchequer and accordingly issued notices to the concerned assesses requiring them to participate in the revision petitions and file written objections and put forth their stand availing the opportunity of being heard. As the factual score in all the cases has the colour of similitude barring the numerical figures and the arithmetical computations, we shall advert to the facts in the appeal where Ayili Stone Industries is the respondent-assessee. 2. The respondent-assessee is a dealer under the Act as well as the Central Sales Tax Act, 1956 (for short, CST Act ) and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the polished granite stones could be imposed Sales Tax for the second time prior to 1-4-2002 i.e., prior to amendment to Section 6B of KST Act. Thus, the circular in so far as it relates to clause-3(a) is concerned, as extracted above is just and proper. However, the impugned Circular in so far as it relates clause-3(b) is concerned, is not proper inasmuch as the same is opposed to the dictum laid down by the Division Bench of this Court in the case of M/s. Foredge Granite s case cited supra. 9. The Commissioner has referred to Part-S entry No. 17 of II schedule to the Karnataka Sales Tax at 1957 to hold that the polished and unpolished granite stones are separate commodities. But he has failed to appreciate the fact that merely because entry No.17, para-5 to II Schedule refers to polished and unpolished granites under two separate heads, it cannot be said that the polished and unpolished granites are two separate commodities, as has been held by the Division Bench of this Court in the case of M/s. Foredge Granite Pvt. Ltd. As the granite block is already taxed at the time of its first sale and the subsequent sale of cut and polished granite stones derived from the origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r tiles are classified as under. (iv) Other tiles not covered by items 1-4-88 to 31-3-96 Fifteen percent (i), (ii) and (iii) above 1-4-96 to 31-3-98 Twelve percent 1-4-98 to 31-3-01 Ten percent 1-4-01 to 31-03-02 Twelve percent 1-4-02 to 31-5-03 Fifteen percent From 1-6-2003 (Sixteen percent) The granite tiles are covered under the aforesaid entry in entry 8(iv) of part T of second schedule to KST Act 1957. Thus, the rough granite stone and granite tiles obtained out of rough granite stone or block are distinct and separate commercial products and are also separately classified in the respective entries explained above . 6. The High Court in appeal posed the question that arose for consideration in the following terms:- Whether the rough granite purchased by a dealer and the sale, the same after cutting and polishing into granite tiles, whether such a process amount to manufacture and that the said product constitute a different commodity to attract Sales Tax U/s.5 of the Sales Tax Act? 7. As the impugned order would show, the High Court after passing the question referred to the authority in Aman Marble Industries Pvt. Ltd. v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by polishing and cutting. But the substance of the material is not altered. The article is made more presentable and attractive for the benefit of the users and it cannot be said that the activity is a manufacturing activity. 11. Thereafter, the Division Bench referred to various aspects of the circular. It was contended before the High Court that the activity of the assessee in cutting and polishing of granite stone will not come within the meaning of manufacturing activity and the circular had been issued on an erroneous notion. The High Court in Vishwakarma Granites (supra) has noted that in Poonam Stone Processing Industries (supra) the issue as to whether the act of cutting and polishing of granite stone amounts to manufacturing activity was not considered as the Division Bench had held that the said question was unnecessary to be decided in the writ appeal. It is worthy to note what has been stated in Poonam Stone Processing Industries (supra):- 3. On the question whether the petitioner was engaged in a manufacturing activity or not, the Tribunal has considered the same in great detail in para 13 of its order. The Tribunal has taken into consideration the nature o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 17 of Part S of the Second Schedule to Karnataka Sales Tax Act, as it stood prior to 1.4.1991 was applicable to the facts of the case of the assesses? 13. While discussing, the Court took note of the fact that what is sold or supplied by the dealer-assessee, registered both under the Act and CST Act, is rough granite block to an 100% export-oriented unit and it is also not in dispute that what is exported by the export-oriented unit is polished and thin slices of tiles made out of big rough granite blocks supplied by the assessee. The Division Bench referred to Sterling Foods v. State of Karnataka [1986] 63 STC 239 wherein it has been held thus:- The test which has to be applied for the purpose of determining, whether a commodity subjected to processing retains its original character and identity is as to whether the processed commodity is regarded in the trade by those who deal in it as distinct in identity from the original commodity or it is regarded, commercially and in the trade the same as the original commodity. It is necessary to point out that it is not every processing that brings about change in the character and identity of a commodity. The nature and ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commodity exported are one and the same, except for the diminishing size. In aid of their assertion, they had placed reliance on the observations made by this Court in the case of M/s Foredge Granite Pvt. Ltd. vs. The State of Karnataka and Another (STRP.No.58/1991). At the outset, we should notice in this case, firstly, that sub-section (3) of Sec. 5 of the CST Act did not fall for consideration of this Court. The issue that was raised in the said decision was, mere cutting a rough block of granite into different sizes to the requirement of the customer would involve any manufacturing activity? The facts which were noticed by the Court in that case was, that the petitioner had 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 15/16.10.1981, which provided for exemption from payment of ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 be said, that what is sold and what is exported are one and the same commodity. But in the present case, the facts noticed by the fact finding authorities is that, the exporter before exporting the cut sizes of granite blocks, cuts them into slices to the actual size of tiles, polishes or effects honing process, which is similar to polishing and the end result is a tile that has a stain or patina finish or polish finish. If it was a case of mere c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port. 18. The decision in Foredge Granite (supra) was distinguished by observing that:- We further add that the Apex Court in the case of Sterling Foods v. The State of Karnataka(1986) 63 STC 239 has observed that the character or identity of the commodity has to be determined not on the basis of a distinction made by the State Legislature for the purpose of exigibility to state sales tax, because even where the commodity is the same in the eyes of the persons dealing in it, the State Legislature may make a classification determining liability to sales tax. This question for the purpose of the Central Sales Tax Act, has to be determined on the basis of what is commonly known or recognized in commercial parlance . Therefore, in our view, for deciding the issue raised in this revision petition, reference to Entry 17 of Part S of Second Schedule to the KST Act is wholly irrelevant. 19. In Vishwakarma Granites (supra) the High Court distinguished the Division Bench decision by opining that it was not specifically dealing with the issue of manufacture and further it was adverting to the exigibility of tax under Section 5(3) of the CST Act. The Court distinguished the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any operation in the course of manufacture is so integrally connected with the further operations which result in the emergence of manufactured goods and such operation is carried on with the aid of power, the process in or in relation to the manufacture must be deemed to be one carried on with the aid of power. Pumping out water, excavation of stones and cutting and polishing them into slabs cannot be said to be integrally connected in the manufacturing of goods . 22. At this stage, we think it appropriate to refer to comparatively a recent pronouncement in ITO, Udaipur v. Arihant Tiles Marbles Pvt. Ltd. (2010) 2 SCC 699 In the said case, the assessee was engaged in the business of manufacture/production of polished slabs and tiles which the assessee exported (partly). The question that arose for consideration is whether conversion of marble blocks by sawing into slabs and tiles and polishing amounts to manufacture or production of article or thing so as to make the respondent assessee(s) entitled to the benefit of Section 80-IA of the Income Tax Act, 1961, as it stood at the material time. Thus, manufacture or production was required to be understood within Section 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s dealing with, the said activity was not required to be considered. Thereafter, the three-Judge Bench adverted to the principle stated in Aman Marble (supra). The Court distinguished the same by holding that the word production was not under consideration before the Court in the said case and thereafter noted that in the said case it had been held that cutting of marble blocks into slabs did not amount to manufacture. Explaining the dictum in the said case, the Court observed:- In our view, the judgment of this Court in Aman Marble Industries (P) Ltd. also has no application to the facts of the present case. One of the most important reasons for saying so is that in all such cases, particularly under the excise law, the Court has to go by the facts of each case. In each case one has to examine the nature of the activity undertaken by an assessee. Mere extraction of stones may not constitute manufacture. Similarly, after extraction, if marble blocks are cut into slabs per se will not amount to the activity of manufacture. 25. Thereafter, the Court proceeded to deal with the process undertaken by the assessee and in that context stated:- In the present case, we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se under a different enactment. The three-Judge Bench has explained the principle stated in Rajasthan SEB s case as well as in Aman Marble (supra). In the case at hand, though the High Court in the impugned order posed the question correctly and placed reliance on Aman Marble (supra), yet it has not correctly applied the principle in the correct perspective. In Aman Marble (supra) the Court has held that it was not possible to accept that excavation of stones and thereafter cutting and polishing them into slabs resulted in a manufacture of goods. The decision in Foredge Granite (supra) had been restricted to the concept of polished granite block. The revisional authority, as we perceive, has applied the test of separate and distinct commercial product that comes into existence from granite stones and for the said purpose, it has relied on the pronouncement in Goa Granites (supra). We have copiously referred to Goa Granites (supra). It has drawn a distinction between the slabs and tiles. Entry 17(i) of Part S of the Act deals with polished granites, unpolished granites and chips. The tiles come under Entry 8 in part T of the second schedule to the Act. At Entry 8(iv), the tiles are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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