2016 (10) TMI 719 - SC - VAT and Sales Tax

Granite tile production qualifies as manufacturing under tax law, emphasizing commercial distinctions for tax treatment.

The Supreme Court held that the process of cutting and polishing rough granite blocks into granite tiles constitutes manufacturing, creating a distinct ... Demand of duty - Exemption on polished granite stone on the basis that polished granite stones were produced from out of the tax suffered from rough granite blocks - Revisions under Section 12-A(1) - If a polished granite stone is used in a building for any purpose, it will come under Entry 17(i) of Part S of the second schedule, but if it is a tile, which comes into existence by different process, a new and distinct commodity emerges and it has a different commercial identity in the market - Held that: - if a polished granite which is a slab and used on the floor, it cannot be called a tile for the purpose of coming within the ambit and sweep of Entry 8. Some other process has to be undertaken. If tiles are manufactured or produced after undertaking some other activities, the position would be different - Decided in favor of revenue. Issues Involved:1. Whether the process of cutting and polishing rough granite blocks into granite tiles amounts to manufacturing.2. Whether polished granite stones and unpolished granite stones are distinct commercial products.3. Applicability of the Karnataka Sales Tax Act, 1957, specifically Section 6B and Entry 17(i) of Part S of the Second Schedule.4. The relevance of the decision in Vishwakarma Granites and other precedents.Detailed Analysis:Issue 1: Manufacturing ProcessThe core issue was whether the activity of cutting and polishing rough granite blocks into granite tiles constitutes a manufacturing process. The High Court had previously opined that cutting and polishing granite does not amount to manufacturing, referencing the decision in Aman Marble Industries Pvt. Ltd. v. CCE, Jaipur (2005) 1 SCC 279. However, the Supreme Court noted that the process involved in converting rough granite blocks into polished tiles involves multiple stages, including cutting, slicing, polishing, and reinforcing, which results in a new and distinct commercial product. This aligns with the principle established in ITO, Udaipur v. Arihant Tiles & Marbles Pvt. Ltd. (2010) 2 SCC 699, where it was held that such activities constitute manufacturing or production.Issue 2: Distinct Commercial ProductsThe Supreme Court emphasized that polished granite stones and unpolished granite stones are considered separate commercial products. The revisional authority had correctly identified that the polished granite stones and granite tiles obtained from rough granite stones are distinct and separate commercial products, as supported by the decision in Goa Granites. The Court highlighted that in commercial parlance, polished tiles are not regarded as the same commodity as rough granite blocks, thus supporting the view that they are distinct products.Issue 3: Applicability of the Karnataka Sales Tax Act, 1957The assessment authority had initially allowed exemptions on the sale of polished granite stones based on the premise that they were produced from already taxed rough granite blocks. However, the revisional authority overturned this by referencing Entry 17(i) of Part S of the Second Schedule, which distinguishes between polished and unpolished granite stones. The Supreme Court noted that the distinction between polished granite stones and tiles is crucial, as tiles are classified under Entry 8 of Part T of the Second Schedule, which indicates a different tax treatment. The Court remitted the matter back to the Assessing Officer for re-adjudication, emphasizing the need to consider the specific processes involved in producing tiles.Issue 4: Relevance of PrecedentsThe High Court had relied heavily on the decision in Vishwakarma Granites, which distinguished between manufacturing and the common parlance test. However, the Supreme Court pointed out that the High Court had not correctly applied the principles from Aman Marble and other relevant cases. The Supreme Court clarified that the process of converting rough granite blocks into polished tiles involves significant transformation, resulting in a new commercial product. This aligns with the principles established in earlier cases like Sterling Foods and Arihant Tiles.ConclusionThe Supreme Court allowed the appeals, set aside the orders of the High Court and other authorities, and remitted the matter to the Assessing Officer for re-adjudication. The Court directed the Assessing Officer to consider the observations regarding the manufacturing process and the distinct commercial identity of polished granite stones and tiles. The Court emphasized the importance of a detailed enquiry into the processes involved to determine the correct tax treatment under the Karnataka Sales Tax Act, 1957.