Court rules on granite dealer's tax exemption eligibility for transformed goods under CST Act.

The court held that the assessee, a dealer in granite, was not eligible for exemption under Section 5(3) of the CST Act for the sale of rough granite blocks that were transformed into polished slabs before export. The goods' change in identity rendered the local sale taxable under the TNGST Act. The court emphasized that to qualify for exemption, the goods sold and exported must remain the same, as per the precedent set in Sterling Foods. The judgment favored Apex Exports, whose goods retained their original identity, while ruling against Chettinad Granites due to the alteration in the nature of the goods.

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Issues Involved:
1. Eligibility for exemption under Section 5(3) of the Central Sales Tax Act, 1956 (CST Act) for the sale of rough granite blocks.
2. Tax liability under the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) for local sales.
3. Interpretation of the term "in relation to" under Section 5(3) of the CST Act.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Section 5(3) of the CST Act:
The assessee, a dealer in granite, claimed exemption under Section 5(3) of the CST Act for the sale of rough granite blocks to two exporters, Chettinad Granites and Apex Exports. The assessing officer denied the exemption, stating that the rough granite blocks were exported as polished slabs, which are commercially different from rough blocks. The Tribunal allowed the appeal for Chettinad Granites, but the Joint Commissioner, using suo motu revision powers, set aside this order, confirming the original assessment. The High Court examined whether the goods sold and exported were the same, as required by Section 5(3) of the CST Act.

2. Tax Liability under the TNGST Act for Local Sales:
For Chettinad Granites, the rough granite blocks were cut and polished before export, changing their identity. The court referred to the Supreme Court's ruling in Sterling Foods v. State of Karnataka [1986] 63 STC 239, which stated that for Section 5(3) to apply, the goods purchased and exported must be the same. Since the rough blocks became polished slabs, they were considered different commodities, making the local sale taxable under the TNGST Act.

3. Interpretation of the Term "In Relation to" under Section 5(3) of the CST Act:
The assessee argued that the term "in relation to" should include goods that undergo changes for export purposes. However, the court, relying on Sterling Foods, held that the goods must retain their identity to qualify for exemption. The Supreme Court's judgment in Azad Coach Builders Pvt. Ltd. [2006] 145 STC 176 (SC) suggested a reconsideration of this interpretation, but until a larger bench decides otherwise, Sterling Foods' precedent remains binding.

Separate Judgments:
- Chettinad Granites: The court found that the rough granite blocks were converted into polished slabs, a different commodity. Hence, the exemption under Section 5(3) of the CST Act did not apply, and the local sale was taxable under the TNGST Act. The Tribunal's order was set aside, and Writ Petition No. 22939 of 2004 was allowed.
- Apex Exports: The court found that the goods exported were dressed granite blocks, not polished slabs. The nature and identity of the rough granite blocks did not change. Therefore, the sale was covered under Section 5(3) of the CST Act, and the Joint Commissioner's order was set aside. Writ Petition No. 10390 of 1999 was allowed.

Conclusion:
The court concluded that the exemption under Section 5(3) of the CST Act applies only if the goods sold and exported are the same. For Chettinad Granites, the rough blocks were transformed into polished slabs, making them different commodities and taxable under the TNGST Act. For Apex Exports, the goods remained the same, qualifying for exemption. The court's decision was based on the binding precedent of Sterling Foods, despite the potential reconsideration suggested in Azad Coach Builders' case.

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