AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 719
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 engaged in the business of manufacturing and trading in granite stone. The assessing authority finalised the assessment for certain assessment years allowing exemption on polished granite stone on the basis that polished granite stones were produced from out of the tax suffered from rough granite blocks. Thereafter, the assessing authority reopened the assessment. While passing the order of reassessment, the Assessing Officer opined certain amount had been allowed exemption as second sale mentioning in the order of assessment that the granite stones sold within the State were polished out of unpolished granite blocks locally purchased on demand of sales tax. The said authority referred to Entry No. 17(1) of Part S of second schedule appended to the Act which relat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y 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 original granite block cannot be treated as the first sale and that therefore, tax could not be levied on the polished granite stones u/s. 5-A and 5-B of the Act prior to amendment of Section 6B of KST Act. 10. It is not disputed that the assessment orders in these matters are prior to 01.04.2002, on which date, Section 6-B of the Act is amended and the provision relating to levy of re-sale tax is submitted. Thus, the provision of Section 6-B of the Act as introduced by Act No.5 of 2002 with effect from 01.04.2002 is not applicable to the matters on hand, inasmuch as, the transactions involved in the cases on hand are much prior to the said amendment." 4. After noting the said decision, the revisional authority opined, the question as to whether....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. CCE, Jaipur (2005) 1 SCC 279, reproduced paragraph 4 of the said judgment and thereafter referred to a passage from Foredge Granite (supra) and opined that cutting the granite blocks into small sizes and polishing them does not amount to manufacturing process to attract sales tax under Section 5 of the Act. However, the High Court observed whether the transactions attract tax under Section 6B can be looked into and considered by the Assessing Officer after giving opportunity to the parties, and consequently allowed the appeals. 8. We have heard Mr. Basava Prabhu S. Patil, learned senior counsel for the appellants and Mr. Bhargava V. Desai, learned counsel for the respondents. 9. The factual matrix as noticeable is th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ranite 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 of the business carried on. It is stated therein that the petitioner purchases rough granite blocks and with the help of the machines run by electrical energy in his unit, cut the granite into required sizes and thickness and polishes the same to the requirement of the customers and sells the same. In support of his case, the learned counsel for the petitioner pointed out the objections filed by him before the Revisional Authority and also produced a brochure before us indicating the nature of the activities carried on by him. Neither a perusal of the objections filed by the petitioner nor the very attractive brochure produced before us would convince us to come to a different conclusion from the fin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kinds of processing at each stage, with each process suffered, the original commodity experiences change. But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity, but instead is recognized as a new and distinct commodity that it can be said that a new commodity, distinct from the original has come into being. The test is, whether in the eyes of those dealing in the commodity or in commercial parlance the processed commodity is regarded as distinct in charact....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 tax under the KST Act, 1956, in respect of goods manufactured and sold by new industrial unit. The assessing authority had allowed the claim of the dealer and had granted exemption from payment of sale tax, treating the business activity of the petitioner as a manufacturing activity and therefore, entitled to certain incentives and concession flowing from the notification. This order of the assessing authority was revised by the revisional authority by invoking the provisions of Section 21(2) of KST Act and the order so passed was confirmed by the Karnataka Appellate Tribunal, by rejecting the appeal filed by the assessee. It is the correctness or otherwise of this order was ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter 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 cutting or sawing to a specific dimension and beveled edges are polished, it could be a case of export of the same goods and therefore, eligible for tax exemption under Sec. 5(3) of the Act. In our view, the 'tiles' are not simply cut or sawn of a granite blocks. They undergo further processing of cutting into thin slices, and process of polishing and emerge as 'tiles' and ready to be sold as 'tiles' and in commercial parlance, they are treated as different commodity altogether. Even if we have to adopt a value added test, then also, in our view, there is substantial transformation of the original commodity into different commercial commodity. Therefore, what is sold and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 two concepts, namely, the "manufacture" and the recognised test of "common parlance". 20. Now, we may look at what has been held in Aman Marble (supra). The two-Judge Bench was dealing with the issue whether the cutting of marble blocks into marble slabs amounts to manufacture for the purpose of the Central Excise Act. In that context, the Court referred to the authority in Rajasthan SEB v. Associated Stone Industries (2000) 6 SCC 141 and reproduced a passage from the same which is as follows:- "This apart, excavation of stones from a mine and thereafter cutting them and polishing them into slabs did not amount to manufacture of goods. The word 'manufac....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 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 80-IA of the Income Tax Act, 1961. The Court analysed the various steps that is undertaken to reproduce the details of step-wise activity undertaken by the assessee. The Court reproduced the same:- "(i) Marble blocks excavated/extracted by the mine owners being in raw uneven shapes have to be properly sorted out and marked; (ii) Such blocks are then processed on single blade/wire saw machines using advanced technology to square them by separating waster material; (iii) Squared up blocks are sawed for making slabs by using the gang saw machine or single/multi-block cutter machine; (iv) The sawn slabs are further rei....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 not concerned only with cutting of marble blocks into slabs. In the present case we are also concerned with the activity of polishing and ultimate conversion of blocks into polished slabs and tiles. What we find from the process indicated hereinabove is that there are various stages through which the blocks have to go through before they become polished slabs and tiles. In the circumstances, we are of the view that on the facts of the cases in hand, there is certainly an activity which will come in the category of "manufacture" or "production" under Section 80-IA of the Income Tax Act." 26. The Court referred to the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ept 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 covered. It is noticeable that in Entry 8, certain tiles have been classified under Entry 8(i) (ii) and (iii) of Part T. Under Entry 8(iv) further tiles are classified. It is 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)" 28. There is a distinction between polished granite stone or slabs and tiles. If a polished granite stone is used in a....