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2008 DIGILAW 41 (KAR)

TATA TEA LTD. v. STATE OF KARNATAKA.

2008-01-17

A.S.BOPANNA, K.L.MANJUNATH

body2008
ORDER K. L. MANJUNATH, J. - This appeal is by the assessee being aggrieved by the order passed by the Karnataka Appellate Tribunal, Bangalore in STA No. 464/05 dated May 30, 2006, wherein the Tribunal has confirmed the order passed by the Joint Commissioner of Commercial Taxes, Bangalore, passed under section 21(2) of the Karnataka Sales Tax Act, 1957, dated March 10, 2005. The petitioner is a public limited company registered under the Companies Act, 1956. The petitioner - company, during the assessment year 1997-98, had purchased raw coffee from grower, unregistered dealer and registered dealer. It has also purchased cured and uncured coffee. The petitioner after purchasing berries got cured the same through a private curer and exported the coffee so purchased by it to a foreign buyer based on order placed by a foreign buyer. Thereafter, the assessee filed the return claiming exemption under section 5(3) of the Central Sales Tax Act. The return filed by the assessee/petitioner was accepted by the assessing officer. Thereafter the Joint Commissioner of Commercial Taxes exercising his power under section 21(2) of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as, "the KST Act") reopened the assessment, on the ground that the order of the assessing officer is prejudicial to the interest of the State and held that the petitioner is not entitled to claim exemption under section 5(3) of the Central Sales Tax Act, 1956 (hereinafter referred to as, "the CST Act") in regard to the coffee beans purchased by it and exported after curing the same. The petitioner filed its objections on the ground that as no manufacturing process is involved after curing it, it does not change the nature of coffee and relying upon entry 18 of Part C of the Second Schedule of the KST Act; Coffee, that is to say, - (i) Coffee including coffee beans and coffee seeds (whether raw or roasted) excluding those covered by serial number three of the Third Schedule and in items (ii), (iii) and (iv) below. (ii) Coffee powder excluding French coffee; instant coffee and coffee drink. (iii) Instant coffee. (iv) French coffee. It was contended by the assessee that the revisional authority has no power to revise the order passed by the assessing officer by holding that the order passed by the assessing officer is prejudicial to the interest of the Revenue. (ii) Coffee powder excluding French coffee; instant coffee and coffee drink. (iii) Instant coffee. (iv) French coffee. It was contended by the assessee that the revisional authority has no power to revise the order passed by the assessing officer by holding that the order passed by the assessing officer is prejudicial to the interest of the Revenue. The revisional authority contended that there is a change in the process which amounts to manufacturing process while curing the coffee berry into coffee beans and therefore, held that the coffee purchased by the assessee and exported are different commodities and therefore, purchase tax would be attracted and the assessee is not eligible to claim exemption so far as it relates to coffee cherry purchased and exported after curing. Aggrieved by the order passed by the revisional authority, the assessee filed an appeal before the Karnataka Appellate Tribunal. The Appellate Tribunal has also dismissed the appeal of the assessee relying upon the judgment of the apex court in Aspinwall and Co. Ltd. v. Commissioner of Income-tax reported in [2002] 125 STC 101; [2001] 251 ITR 323. Being aggrieved by the concurrent findings of the revisional authority and the Karnataka Appellate Tribunal, the present revision is filed raising the following substantial question of law : "On the facts and in the circumstances of the case, whether the coffee bean purchased by the assessee and exported as coffee bean after curing has to be considered as one and the same and whether the assessee is entitled to claim exemption under section 5(3) of the CST Act ?" We have heard the learned counsel appearing for both the parties. The learned Senior Counsel appearing for the assessee contends that the revisional authority without considering the order passed by the assessing officer properly and without considering entry 18 of Part "C" of the Second Schedule of the KST Act has wrongly held that the coffee berry purchased by the petitioner and exported after curing are totally different commodities and that the assessee is not entitled to claim exemption due to curing of the berry purchased. According to him, curing of the berry cannot be treated as a manufacturing process while considering the exemption to be granted to the assessee in view of the entry 18 of Part "C" of the Second Schedule of the KST Act. According to him, curing of the berry cannot be treated as a manufacturing process while considering the exemption to be granted to the assessee in view of the entry 18 of Part "C" of the Second Schedule of the KST Act. To support his view he has relied upon the judgment of the apex court in State of Punjab v. Chandu Lal Kishori Lal and State of Punjab v. Krishna Cotton, Dal and Oil Factory reported in [1970] 25 STC 52. He also relied upon the judgments of the apex court in the Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers reported in [1980] 46 STC 63 and Sterling Foods v. State of Karnataka reported in [1986] 63 STC 239. Relying upon these three judgments, he contends that the revisional authority as well as the Tribunal have committed a serious error in not granting exemption to the assessee by relying upon the decision of the apex court in Aspinwall and Co. Ltd. v. Commissioner of Income-tax [2002] 125 STC 101; [2001] 251 ITR 323. According to him the word "manufacture" used in Aspinwall's case [2002] 125 STC 101; [2001] 251 ITR 323 cannot be applied to the case of the assessee since the case therein was considered by the apex court under the Income-tax Act whereas the case of the assessee herein comes under the provisions of the CST and KST Acts. He further contends that the word "manufacture" has been considered while considering the sales tax payable by an assessee in State of Punjab v. Chandu Lal Kishori Lal and State of Punjab v. Krishna Cotton, Dal and Oil Factory reported in [1970] 25 STC 52 (SC). He contends that there is direct judgment on the point which is squarely applicable to the facts of this case; the Tribunal should not have relied upon the judgment of the Supreme Court in Aspinwall's case [2002] 125 STC 101; [2001] 251 ITR 323 when the said case has been considered under the Income-tax Act. Therefore, he requests this court to allow the revision petition answering the question of law framed in favour of the assessee. Therefore, he requests this court to allow the revision petition answering the question of law framed in favour of the assessee. Similarly, he contends that the case of the Sterling Foods v. State of Karnataka [1986] 63 STC 239 (SC) and also the Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Pio Food Packers [1980] 46 STC 63 (SC) have direct bearing on the facts of this case. The learned AGA Sri Sangolli contends that purchase of coffee berry and its conversion into coffee bean or seed due to curing amounts to manufacturing process. When there is involvement of manufacturing process, the coffee bean extracted by the assessee after curing has to be treated as a different commodity and therefore, the assessee is not eligible to claim exemption under section 5(3) of the CST Act and he strongly contends that the judgment of the Aspinwall's case [2002] 125 STC 101 (SC); [2001] 251 ITR 323 (SC) has a direct bearing on the facts of the case and the Tribunal was justified in dismissing the appeal of the assessee by applying the principles laid down by the Supreme Court in the aforesaid judgment. Therefore, he requests this court to dismiss the petition. Having heard the counsel for the parties, we have noticed the following undisputed facts in this case. The assessee has purchased coffee from three different persons, i.e., grower, unregistered dealer, and registered dealer. It is also not in dispute that the assessee has purchased two varieties of coffee, i.e., cured and uncured coffee. It is also not in dispute that the coffee, uncured and cured coffee, purchased by the assessee have been exported by it pursuant to an order placed by a foreign buyer. It is also not in dispute that if the coffee purchased by an assessee has been exported pursuant to a foreign order to a foreign buyer, such coffee is exempted from payment of tax under section 5(3) of the CST Act, but the only dispute is in regard to the nature of coffee purchased and the nature of coffee exported by the assessee. If the coffee purchased and exported by the assessee are one and the same, then we have to answer the question of law in this petition in favour of the assessee and against the Revenue. If the coffee purchased and exported by the assessee are one and the same, then we have to answer the question of law in this petition in favour of the assessee and against the Revenue. In the circumstances we have to examine the nature of coffee purchased and the nature of the coffee exported by the assessee. In order to levy tax under section 5(3)(a) of the KST Act, entry 18 of Part C of the Second Schedule of the KST Act deals with the nature of coffee taxable under the Sales Tax Act which is extracted as hereunder : Coffee, that is to say, - (i) Coffee including coffee beans and coffee seeds (whether raw or roasted) excluding those covered by serial number three of the Third Schedule and in items (ii), (iii) and (iv) below. (ii) Coffee powder excluding French coffee; instant coffee and coffee drink. (iii) Instant coffee. (iv) French coffee. From this it is clear that "coffee" means coffee beans and coffee seeds whether raw or roasted excluding coffee powder, French coffee, instant coffee and coffee drink. Under the Sales Tax Act, there is no different entry for a coffee bean/coffee cherry (uncured coffee). What is described in entry No. 18 is a coffee bean and coffee seed whether raw or roasted. In other words, the cured and uncured coffee are found in entry 18 of the Second Schedule of Part C to the KST Act. It is also not in dispute that the curing process is a manufacturing process, but the question to be determined in the present case is similar to the question considered by the honourable Supreme Court in the case of State of Punjab v. Chandu Lal Kishori Lal and State of Punjab v. Krishna Cotton, Dal and Oil Factory reported in [1970] 25 STC 52. While considering the case of ginned and unginned cotton, their Lordships have observed as hereunder : "In our opinion the appellants are right in their contention that the ginning process is a manufacturing process. But the question presented for determination in the present case is somewhat different, viz., whether the respondent is entitled to the exemption under section 5(2)(a)(vi) of the Act in the context and setting of the language of sections 14 and 15 of the Central Sales Tax Act, 1956. But the question presented for determination in the present case is somewhat different, viz., whether the respondent is entitled to the exemption under section 5(2)(a)(vi) of the Act in the context and setting of the language of sections 14 and 15 of the Central Sales Tax Act, 1956. 'Declared goods' in section 14 of the Central Sales Tax Act, 1956, are individually specified under separate items. 'Cotton ginned or unginned' is treated as a single commodity under one item of declared goods. It is evident that cotton ginned or unginned being is treated as a single commodity and as a single species of declared goods cannot be subject under section 15(a) of the Central Sales Tax Act to a tax exceeding two per cent of the sale or purchase price thereof or at more than one stage. ..." The honourable Supreme Court in Sterling Foods v. State of Karnataka [1986] 63 STC 239 had occasion to consider the processed or raw frozen shrimps, prawns and lobsters. While considering the aforesaid case, their Lordships have held : "The question whether raw shrimps, prawns and lobsters after suffering processing retain their original character or identity or become a new 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 (e.g. entry 13a of Schedule III to the Karnataka Sales Tax Act, 1957) because even where the commodity is the same in the eyes of the persons dealing in it the State Legislature may make a classification for 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 recognised in commercial parlance and further held that the purchase of raw shrimps, prawns and lobsters by the appellant for the purpose of fulfilling existing contracts for export were exempt from purchase tax under the deeming provision of section 5(3) of the Central Sales Tax Act, 1956, even though after making such purchase the appellant subjected them to the process of cutting heads and tails, peeling, deveining, cleaning and freezing before export because they remained the same goods in commercial parlance after such processing and freezing." The honourable Supreme Court in Aspinwall's case [2002] 125 STC 101; [2001] 251 ITR 323 has held : "15. Adverting to the facts of the present case, the assessee after plucking or receiving the raw coffee berries makes it undergo nine processes to give it the shape of coffee beans. The net product is absolutely different and separate from the input. The change made in the article results in a new and different article which is recognised in the trade as a new and distinct commodity. The coffee beans have an independent identity distinct from the raw material from which it was manufactured. A distinct change comes about in the finished product. 16. The submission of learned counsel for the Revenue that the assessee was doing only the processing work and was not involved in the manufacture and producing of a new article cannot be accepted. The process is a manufacturing process when it brings out a complete transformation in the original article so as to produce a commercially different article or commodity. That process itself may consist of several processes. The different processes are integrally connected which results in the production of a commercially different article. If a commercially different article or commodity results after processing then it would be a manufacturing activity. The assessee after processing the raw berries converts them into coffee beans which is a commercially different commodity. Conversion of the raw berry into coffee beans would be a manufacturing activity. 17. For the reasons stated above, we are of the opinion that the High Court was wrong in its opinion that the processing of the raw berries into coffee beans ready for consumption would not be a manufacturing activity disentitling the assessee to the investment allowance provided under section 32A of the Act." The Tribunal, relying upon this judgment, has dismissed the appeal of the assessee. But the Tribunal did not notice that the honourable Supreme Court while considering the provisions of section 32A of the Income-tax Act has held that curing of coffee seeds amount to manufacturing. But in the instant case, while considering the provisions of the Sales Tax Act, the Supreme Court had an occasion to consider a similarly situated case, i.e., in State of Punjab v. Chandu Lal Kishori Lal and State of Punjab v. Krishna Cotton, Dal and Oil Factory reported in [1970] 25 STC 52. But in the instant case, while considering the provisions of the Sales Tax Act, the Supreme Court had an occasion to consider a similarly situated case, i.e., in State of Punjab v. Chandu Lal Kishori Lal and State of Punjab v. Krishna Cotton, Dal and Oil Factory reported in [1970] 25 STC 52. In Aspinwall's case [2002] 125 STC 101 (SC); [2001] 251 ITR 323 (SC) their Lordships have not considered the judgment rendered by the Supreme Court in State of Punjab v. Chandu Lal Kishori Lal and State of Punjab v. Krishna Cotton, Dal and Oil Factory reported in [1970] 25 STC 52 since there was no occasion for their Lordships to consider the case as their Lordships were dealing with the provisions of section 32A of the Income-tax Act. Therefore, the judgment delivered by their Lordships in Aspinwall's case [2002] 125 STC 101 (SC); [2001] 251 ITR 323 (SC) is under a different context and it has no bearing on the facts of the case. Considering the Aspinwall's case [2002] 125 STC 101 (SC); [2001] 251 ITR 323 (SC), we are of the opinion that the Tribunal as well as the revisional authority was not justified in modifying the order of assessment passed by the assessing officer as there is no change in the product even after curing the uncured coffee. Therefore, in the light of entry No. 18 of the Second Schedule of the KST Act, we are of the opinion that, whether the coffee is purchased by the assessee as a coffee bean or a coffee seed or a berry coffee, it makes no difference as it is defined only a coffee. In the circumstances, we are of the view that the question of law framed in this petition has to be answered in favour of the assessee by holding that the berry coffee, uncured coffee or a coffee berry are one and the same. Therefore, the assessee is entitled for exemption under section 5(3) of the CST Act. In this result, this petition is allowed. The order passed by the Karnataka Appellate Tribunal in STA No. 464 of 2005 dated May 30, 2006 and the order passed by the revisional authority are hereby set aside and the order passed by the assessing officer is hereby confirmed.