Research › Search › Judgment

Madras High Court · body

2008 DIGILAW 4409 (MAD)

STATE OF TAMIL NADU v. KURUKENMUTTI A ESTATE.

2008-11-27

K.K.SASIDHARAN, PRABHA SRIDEVAN

body2008
JUDGMENT MRS. PRABHA SRIDEVAN J. - The following substantial questions of law are raised in this tax case : "1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in having allowed the appeal by relaying upon the decision in Steel Authority of India Limited v. State of Orissa reported in [1998] 110 STC 113 (Orissa) ? 2. Whether the Tribunal could raise an extraneous issue that discrimination is exercised in not granting exemption on agricultural products of other States when such an issue is not at all existing in this case ? 3. Whether the Tribunal has erred in not considering the finding of the first appellate authority that in deciding the liability of tax upon the respondent the question whether the purchaser had paid tax or not is immaterial since coffee seeds are taxable at the point of first sale ? 4. Whether the consequent deletion of penalty levied under section 16(2) of the Tamil Nadu General Sales Tax Act, 1959 (the TNGST Act) is valid in law ?" The assessee is a dealer in coffee. They have estates in Karnataka. Their administrative office is in Coimbatore and they have registered as dealers under the TNGST Act with effect from February 14, 1994. The case relates to the financial year 1993-94. There was an inspection on August 4, 1994 and it was found that the assessee had sold their coffee seeds to K.R. Ramanujam & Co., Salem, for a sum of Rs. 3,25,000. The inference was that they have suppressed the turnover and therefore, the assessment order passed on January 27, 1995 has been revised by levying tax on the suppressed turnover of Rs. 3,25,000 and penalty was also levied under section 16(1) of the TNGST Act. Before the appellate authority, the question raised was whether the sales effected for a sum of Rs. 3.25 lakhs, was assessable at first sale at the hands of the assessee as first sellers or at the hands of the first purchasers. No other question was raised. The appellate authority dismissed the appeal. Against that order, the assessee went before the Tribunal. The Tribunal allowed the appeal and set aside the levy of tax on the disputed turnover as well as penalty. Against that, the present revision has been filed by the Revenue. No other question was raised. The appellate authority dismissed the appeal. Against that order, the assessee went before the Tribunal. The Tribunal allowed the appeal and set aside the levy of tax on the disputed turnover as well as penalty. Against that, the present revision has been filed by the Revenue. The learned Special Government Pleader submitted that whether the goods are cured or uncured coffee the incidence of tax will not change and the contention that coffee estates were situated at Chickmagalore District of Karnataka State was never projected earlier and when the assessee has to pay tax on the first sale, they cannot shift the point of taxation. The Special Government Pleader relied on the decision in Aspinwall and Co. Ltd. v. Commissioner of Income-tax reported in [2002] 125 STC 101 (SC); [2001] 251 ITR 323 (SC). Mr. Inbarajan, the learned counsel for the assessee, filed a typed set of papers which contains the statement made by the power-of-attorney holder of the assessee, written submissions, purchase bills, etc. According to him, the sale of coffee seeds cannot be included in the taxable turnover in view of the definition of 2(r) and what was sold was only uncured coffee. The coffee seeds had not been subjected to any physical, chemical or other process and except for mere cleaning, sorting or drying it remains an agricultural or horticultural produce as it was grown by the assessee on lands belonging to himself and therefore, the same should be excluded from tax. The learned counsel further submitted that it is for the Department to prove that uncured coffee sold by the assessee was different in nature and was no longer raw coffee and that the coffee seeds had undergone a process beyond mere cleaning, sorting and drying. The learned counsel further submitted that it is for the Department to prove that uncured coffee sold by the assessee was different in nature and was no longer raw coffee and that the coffee seeds had undergone a process beyond mere cleaning, sorting and drying. Section 2(r) reads thus : "'turnover' means the aggregate amount for which goods are bought or sold, or delivered or supplied or otherwise disposed of in any of the ways referred to in clause (n), by a dealer either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea and rubber (natural rubber, latex and all varieties and grades of raw rubber) grown within the State by himself or on any land in which he has an interest whether as owner, usufructuary mortgage, tenant or otherwise, shall be excluded from his turnover." In Peria Karamalai Tea & Produce Co. Ltd. v. Tamil Nadu Taxation Special Tribunal rep. by Registrar [2004] 138 STC 186 (Mad), which relates to cardamom, this court has considered in detail the question whether curing would be a process more than ordinary process of mere drying. The court held thus : "20. The meaning of the word 'drying' has to take its colour from the other words with which it keeps company. The process of mere cleaning, grading and sorting doesn't require any specialised or skilful process as that of 'curing'. 21. In view of the above discussion, we are of the view that there is absolutely no material so as to interfere with the concurrent finding of fact that the activity of 'curing' of agricultural produce 'cardamom' cannot be considered as mere drying, but it could be considered as 'not only drying, but also preserving the aroma and flavour and also giving shining'. In such circumstances, the saving clause of mere cleaning, grading, sorting and drying in Explanation (1) to section 2(r) of the TNGST Act would not come to the rescue of the petitioner so as to conclude that the fresh green 'cardamom', which has been subjected to the process of 'curing', is saved under Explanation (1) to section 2(r) of the TNGST Act." In Aspinwall and Co. Ltd. v. Commissioner of Income-tax [2002] 125 STC 101; [2002] 251 ITR 323, the Supreme Court answering a question as to whether the activity of curing coffee amounts to manufacturing and whether the assessee would be entitled to relief under section 32A of the Income-tax Act, described curing operation and drew conclusion therefrom as to what manufacturing activity would be. The apex court observed thus : "7. It was noticed that the Tribunal had inspected the factory premises to have a first-hand knowledge of the operations carried on by the assessee - company. The inspection was made by the Tribunal in the presence of both the parties through their representatives. The factual observation of the Tribunal as a result of the inspection found that the following nine processes are involved in curing of coffee : '(1) Receipt of coffee from the estates; (2) Storage of coffee in covered godowns; (3) Drying of coffee to the required standards prescribed by the Coffee Board in drying yards; (4) Hulling/pealing/polishing; (5) Grading of coffee mechanically; (6) Colour sorting; (7) Garbling and manual grading; (8) Out-turning of garbled coffee; and (9) Bulking.' 8. The Tribunal also found that to deal with the nine processes, the assessee has the factory area where godowns for storage of uncured/clean coffee, coffee drying yards, machine rooms, garbling sheds, etc., are located. 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 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." Apart from the bills which are now produced before us, which refers to sale of arbabica parchment uncured coffee, we have no other evidence as to what was actually sold to the purchaser at Salem and while it is true that in the statement given to the enforcement officers, there is reference that the Coimbatore office is the administrative office of the estates at Karnataka. There is nothing to show that the coffee seeds which were sold were agricultural produce "grown" in the lands in which the assessee had an interest whether as owner, usufructuary mortgagee or tenant, so that section 2(r) would apply. In fact, it is seen that the stand that coffee seeds are grown in the assessee's own lands is taken for the first time before us. In these circumstances, we cannot fault the Revenue for not dealing with the question whether uncured coffee was different from coffee seeds that are grown on the estates allegedly belonging to the assessee. We leave this issue open since there are no factual findings by the fact-finding authority for us to decide it. The Tribunal ought not to have gone into the question whether there was discrimination on the ground of exemption on agricultural products of other States and agricultural products grown in our State. The question Nos. 1 to 3 therefore, will have to be answered in favour of the Revenue. The Tribunal ought not to have gone into the question whether there was discrimination on the ground of exemption on agricultural products of other States and agricultural products grown in our State. The question Nos. 1 to 3 therefore, will have to be answered in favour of the Revenue. As regards question No. 4, we find that apart from stating that the sale of coffee seeds for Rs. 3.25 lakhs was not accounted for by the assessee, there is no finding of wilfulness. So the deletion of penalty is not interfered with. The appeal is partly allowed. No costs.