Madras High Court
M/S Farida Prime Tannery vs The Tamil Nadu Sales Tax Appellate ... on 3 December, 2021
Author: R.Mahadevan
Bench: R.Mahadevan, Mohammed Shaffiq
W.P. No.20387 of 2004
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 03.12.2021
CORAM
THE HONOURABLE MR.JUSTICE R.MAHADEVAN
and
THE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ
Writ Petition Nos.20387/2004 and 30959 and 30960/2007
and 36852/2006
M/s Farida Prime Tannery,
Thuthipet. .. Petitioner in WP Nos.20387/2004,
30959 and 30960/2007
M/s Sree Gayathri Enterprises,
Kilpauk .. Petitioner in W.P.No.36852 of 2006
Versus
1. The Tamil Nadu Sales Tax Appellate Tribunal,
Tribunal ( Main Branch),
Represented by its Secretary,
City Civil Court Buildings,
Chennai.
2. The Appellate Assistant Commissioner (CT),
Vellore.
3. The Deputy Commercial Tax Officer,
Gudiyatham (West) .. Respondents in WP Nos.20387/2004,
30959 and 30960/2007
1. The Deputy Commercial Tax Officer,
Ayanavaram Assessment Circle,
Kuralagam Annexe, Chennai 600 108.
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W.P. No.20387 of 2004
2. The Secretary,
Tamilnadu Sales Tax Appellate Tribunal (AB) Chennai,
City Civil Court Buildings, 2nd Floor,
Chennai 600 104.
3. The Union of India, represented
by its Secretary, Ministry of Finance,
Parliament Street, New Delhi.
4. The State of Tamil Nadu,
rep by its Deputy Commissioner ( CT),
Chennai ( Central) Division,
Greams Road, PAPJM Buildings,
Kilpauk, Chennai 600 006. .. Respondents in WP No.36852 of 2006
W.P.No.20387 of 2004: Writ petition is filed under article 226 of the
Constitution of India praying to issue a writ of certiorarified Mandamus to call
for the records of the impugned proceedings of the first respondent herein in
S.T.A.No.728 of 2001 and C.O.P.No.79 of 2003 on its files, quash the order
dated 23.12.2003 made therein and further restore further restore the order of
the second respondent herein dated 18.02.2000 passed in A.P.No.429/1999 on
his files so far as it in favour of the petitioner herein and pass orders.
W.P.No.30959 of 2007: Writ petition is filed under article 226 of the
Constitution of India praying to issue a writ of certiorarified Mandamus to call
for the records of the impugned proceedings of the first respondent herein in
S.T.A.No.308 of 2003 and C.O.P.No.124 of 2003 relating to the assessment
year TNGST 1998-99 quash the order dated 06.08.2007.
W.P.No.30960 of 2007: Writ petition is filed under article 226 of the
Constitution of India praying to issue a writ of certiorarified Mandamus to call
for the records of the impugned proceedings of the first respondent herein in
S.T.A.No.309 of 2003 and C.O.P.No.123 of 2003 relating to the assessment
year TNGST 1997-98 quash the order dated 06.08.2007 made therein and
further restroe the order of the second respondent herein dated 31.10.2001
passed in A.P.No.39/2001 in so far as it is in favour of the petitioner herein.
W.P.No.36852 of 2006: Writ petition is filed under article 226 of the
Constitution of India praying to issue a writ of certiorarified Mandamus to call
for the records of the first respondent herein in S.T.A.No.586 of 2000 quash
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W.P. No.20387 of 2004
the impugned proceedings of the second respondent dated 19.12.2003 and
further direct the first respondent to accept the return filed by the petitioner
and pass order under the provisions of the Tamilnadu General Sales Tax Act,
1959 and under the Central Sales Tax Act, 1956.
For Petitioners : Mr.V.Sundareswaran
in all the Writ Petitions
For Respondents : Mr.N.R.R. Arun Natarajan
Special Government Pleader (Taxes)
in all the Writ Petitions
COMMON ORDER
(Order of the Court was made by MOHAMMED SHAFFIQ, J.) The petitioners herein, which are the two different companies, have come up with these writ petitions challenging the orders passed by the Tamil Nadu Sales Tax Appellate Tribunal, Chennai. Since the issues involved therein are inter-connected and inter-twined, all the writ petitions are disposed of by this common order.
2.The brief facts leading to the filing of these writ petitions would run thus:
WP.Nos.20387/2004 and 30959 and 30960/2007 The petitioner is a registered dealer in hides and skins under the provisions of the TNGST Act, 1959 and CST Act, 1956 on the file of the third https://www.mhc.tn.gov.in/judis 3/20 W.P. No.20387 of 2004 respondent. They are engaged in the business of purchase of raw hides and skins and sale/export of the same after tanning, besides undertaking the job works of tanning for both local and other state dealers. For the assessment years 1996-97, 1997-98 and 1998-99, the petitioner filed their returns and claimed exemption under section 5(3) of the CST Act, on the last purchases of raw hides and skins effected for export, after undergoing the process of tanning, besides claiming exemption on the value of dyes and chemicals utilised in the process of job works performed for local as well as other state dealers. According to the petitioner, the dyes and chemicals being consumables, were exempted from the levy of tax. The original assessments were completed by the assessing officer / third respondent, rejecting the claim of the petitioner seeking exemption under section 5(3) of the CST Act. Similarly, the assessing officer disallowed the deduction claimed on the value of dyes and chemicals used in the process of job work of tanning for local and other state dealers. Accordingly, the third respondent levied tax on the entire sales turnover, besides levying penalty. Challenging the same, the petitioner preferred first appeals to the Appellate Assistant Commissioner (CT), Vellore / second respondent, who set aside the levy of tax on the value of dyes and chemicals utilised in the job work for other state dealers, but restored the order of the assessing officer in respect of the value of dyes and chemicals utilised in https://www.mhc.tn.gov.in/judis 4/20 W.P. No.20387 of 2004 the job work for local dealers. The second respondent also granted the relief in relation to the last purchase of hides and skins meant for export and granted exemption in respect of second sales turnover leather, besides setting aside the corresponding penalty. Aggrieved against the same, the State went on further appeals before the first respondent. The petitioner filed cross objection challenging the turnover sustained by the first appellate authority. The Tribunal disposed of the appeals and cross objections, by separate orders dated 23.12.2003 and 06.08.2007. Therefore, these writ petitions by the assessee.
WP.No.36852 of 2006:
The petitioner is a registered dealer in hides and skins and also an exporter of the finished leather. During the course of such business, he received purchase orders from the foreign customer and therefore, placed orders on the local dealer for the purchase of raw skins to comply with the said foreign export order. According to the petitioner, in view of section 14 r/w section 5 of the Central Sales Tax Act, the purchase of raw skins are exempted from payment of tax, if they are purchased pursuant to the foreign export order. They filed its returns for the assessment year 1991-92 disclosing the last purchase of raw skins pursuant to the export order as exempted in view of section 5(3) of the Central Sales Tax Act. It is the further case of the petitioner https://www.mhc.tn.gov.in/judis 5/20 W.P. No.20387 of 2004 that the respondents are not at all empowered to treat the raw and the finished hides and skins as two different commodities to visit the petitioner with liability under the Central Sales Tax Act. However, the first respondent rejected the plea and passed the order of assessment dated 31.08.1995 imposing tax on the last purchase of raw hides and skins treating it as different commodities. Challenging the same, the petitioner filed an appeal before the Appellate Assistant commissioner in AP No.1419 of 1995, which was allowed in favour of the petitioner by order dated 18.09.1997. However, the State went on further appeal before the second respondent on the ground that the raw hides and skins are different and the petitioner has to satisfy the ingredient of section 5(3) to claim exemption. However, the second respondent rejected the contention of the petitioner and allowed the appeal by order dated 19.12.2003. As against the said order, the petitioner preferred tax case before the Tamil Nadu Taxation Special Tribunal and the same was returned and represented before this court, in view of the abolition of the Special Tribunal by Act 32/2004. Therefore, this writ petition.
3.Thus, the questions that arise for consideration in these writ petitions are viz., https://www.mhc.tn.gov.in/judis 6/20 W.P. No.20387 of 2004
(i). Whether the petitioners are entitled to claim the benefit of section 5(3) of the Central Sales Tax Act,1956 (hereinafter referred to as “CST Act, 1956”) in respect of purchase of raw hides and skins which are being converted to dressed hides and skins before exported?
(ii). Whether the dyes and chemicals used in the execution of works contract of tanning are liable to tax under Section 3B of the TNGST Act, 1959?
Question No.1
4.According to the respondents / revenue, for a sale/ purchase to fall within the ambit of section 5(3) of CST Act,1956, the penultimate sale/ purchase preceding the export and the actual export must be of the very “same goods”. The goods on which the exemption is claimed under section 5(3) of the CST Act, 1956 are raw hides and skins, while the goods exported being dressed hides and skins, which are commercially different. Therefore, the petitioners' claim under Section 5(3) of the CST Act, 1956 is unsustainable. In support of the same, the learned Special Government Pleader appearing for the respondents placed reliance on the judgment of the Hon'ble Supreme Court in the case of K.A.K. Anwar & Co Vs The state of TN reported in (1998) 108 STC 258 ( SC) wherein it was held that “the raw https://www.mhc.tn.gov.in/judis hides and skins are 7/20 W.P. No.20387 of 2004 commercially different from dressed hides and skins”. The relevant paragraph reads as follows:
“The words “ hides and skins, whether is a raw or dressed state” in a Section 14(iii) of the Central Sales Tax Act clearly seem to indicate that the legislature recognised that raw hides and skins was an item different from dressed hides and skins, As has already been noticed herein above it is after undergoing a manufacturing process involving various stages that raw hides and skins becomes dressed hides and skins.........In the present case dressed hides and skins in a separate commercial commodity which emerges after hides and skins has been subjected to manufacturing process and therefore, Section 14(iii) deals with two different types of goods which unlike the case of pulses referred to in Section 15(d), is not regarded by the Act as one and the same commodity.” A reading of the above decision would clearly demonstrate that raw hides and skins, which are the subject matter of the penultimate sale/purchase, in respect of which the benefit under Section 5(3) of CST Act, 1956 is claimed, are commercially different from that of dressed hides and skins, which emerge after they are subjected to various manufacturing processes before being exported. It is thus contended by the learned counsel for the revenue that as the penultimate sale/purchase and the goods that are actually exported, are commercially different, the same would go out of the sweep of Section 5(3) of the CST Act, 1956 and the petitioners are not entitled to the benefit of section 5(3) of the CST Act, 1956.
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5.The relevancy and applicability of the “same goods” theory, while examining a claim under Section 5(3) of CST Act, 1956, came up for consideration before the Hon'ble Supreme Court and stood resolved by the Constitutional Bench in the case of State of Karnataka Vs Azad Coach Builders Private Limited and Another reported in (2010) 9 Supreme Court Cases 524. Before the issue was decided by the Constitutional Bench, the matter was referred by a Division Bench of the Hon'ble Supreme Court which felt that the judgment of the Hon'ble Supreme Court in Sterling Foods and Vijayalakshmi Cashew Co., reported in (1986) 3 SCC 469 needs a fresh look, in the light of the later judgment of the Supreme Court in K. Gopinathan Nair and hence, the matter was referred to a larger bench. The larger bench thereafter placed the matter before the Constitutional Bench.
6.The Constitutional Bench of the Hon'ble Supreme Court in the case of State of Karnataka Vs Azad Coach Builders Private Limited and Another reported in (2010) 9 Supreme Court Cases 524 , considered the claim of an assesee, who had effected sales of bus bodies to an exporter, who had exported completed buses to foreign buyers. Importantly, the Hon'ble Supreme Court found, as a matter of fact, that the assessee therein by name M/s. Azad Coach Builders was requested to build bus bodies by the exporter, Tata Engineering https://www.mhc.tn.gov.in/judis 9/20 W.P. No.20387 of 2004 Locomotive Co., Ltd in accordance with the specifications provided by the foreign buyers, Lanka Ashok Leyland Ltd., Colombo. It was found that the specimen copy of the purchase order dated 11.07.1988 placed on the assessee by the exporter revealed that the assessee therein was asked to fabricate bus bodies on the chassis supplied by the exporter in accordance with the specifications given by the foreign buyer. In one of the communications received from the foreign buyer, it was stipulated that the steel and aluminum panels of the bus bodies be built by M/s.Azad Coach Builders, since the customers in Sri Lanka preferred them. M/s.Azad Coach Builders accordingly manufactured the bus bodies, in accordance with the specifications stipulated by the foreign buyer and mounted the same on the chassis made available by the exporter making it as a complete bus ready for export. It was urged before the Hon'ble Supreme Court that to claim the benefit under Section 5(3) of the CST Act,1956, it is essential that the goods sold/purchased under Section 5(3) of the CST Act, 1956 and the goods actually exported must retain the commercial identity. This submission was made on the basis of what was called as “same goods” theory, which was applied by the Hon'ble Supreme Court in the case of Sterling Foods vs. State of Karnataka reported in (1986) 3 SCC 469 and in the case of Vijayalakshmi Cashew Co. vs. CTO reported in (1996) 1 SCC 468.
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7.The Hon'ble Supreme Court in the case of Sterling foods, while examining the claim of exemption under Section 5(3) of the CST Act, 1956, in respect of purchase of prawns, shrimps and lobsters, which were exported after removal of heads and tails, peeling, deveining and cleaning etc., held that even after the prawns are subject to the above process, it retained its commercial identity and therefore, was entitled to the benefit under section 5(3) of the CST Act, 1956. The Hon'ble Supreme Court in the case of Vijayalaxmi Cashew Co., while examining the question as to whether the cashew kernels obtained out of raw cashew nuts would be entitled to the benefit of section 5(3) of the CST Act,1956, held that the cashew kernels which was exported was commercially different from raw cashew nuts purchased and thus, would not be entitled to the benefit of section 5(3) of the CST Act.
8.The Constitutional Bench of the Hon'ble Supreme Court in the case of State of Karnataka vs. Azad Coach Builders Private Limited and another reported in (2010) 9 SCC 524, on analyzing the above decisions, in the light of the Statement of objects and reasons of the amended Act 103 of 1976 introducing Section 5(3) of the CST Act, 1956, observed as follows:-
https://www.mhc.tn.gov.in/judis 11/20 W.P. No.20387 of 2004 • To constitute a sale in the course of export there must be an intention on the part of both the buyer and the seller to export.
• There must be obligation to export and there must be an actual export.
• The obligation may arise by reason of statute, contract between the parties, or from mutual understanding or agreement between them, or even from the nature of the transaction which links the sale to export.
To occasion export there must exist such a bond between the contract of sale and the actual exportation, that each link is inextricably connected with the one immediately preceding it, without which a transaction sale cannot be called a sale in the course of export of goods out of the territory of India.
"27.“The phrase” sale in the course of export comprises in itself three essentials (i) that there must be a sale (ii) that goods must actually be exported and (iii) that the sale must be a part and parcel of the export. The word “occasion” is used as verb and means “to cause" or “to be the immediate cause of”. Therefore, the words “occasioning the export” mean the factors, which were the immediate cause of export. The words “to comply with the agreement or order" mean all transactions which are inextricably linked with the agreement or order occasioning that export. The expression "in relation to" are words of comprehensiveness, which might both have a direct significance as well as an https://www.mhc.tn.gov.in/judis 12/20 W.P. No.20387 of 2004 indirect significance, depending on the context in which it is used and they are not words of restrictive content and ought not be so construed. Therefore, the test to be applied is, whether there is is an inseverable link between the local sale or purchase and export and if it is clear that the local sale or purchase between the parties is inextricably linked with the export of the goods, then a claim under Section 5(3) for exemption from State sales tax is justified, in which case, the same goods theory has no application.
(Emphasis supplied) Thus, the above decision of the Constitutional Bench of the Hon'ble Supreme Court would show that to claim the benefit under Section 5(3) of the CST Act, 1956, an enquiry has to be conducted to ascertain whether there exist such a bond between the penultimate sale/purchase and the actual export that both transactions are inextricably connected. There must be an inseverable link between the sale/purchase claimed to be under Section 5(3) of the CST Act, 1956 and the actual export. If an assessee is able to demonstrate the existence of such an inextricable link, then the “same goods” theory would not apply while examining a claim under section 5(3) of the CST Act, 1956.
9.Such being the position of law, we find that the Tribunal has accepted the case of the revenue only on the premise that raw hides and skins are https://www.mhc.tn.gov.in/judis 13/20 W.P. No.20387 of 2004 commercially different and therefore, the benefit under Section 5(3) of the CST Act, 1956 cannot be extended. However, subsequent to the decision of the Tribunal, the Constitutional Bench of Hon'ble Supreme Court in the case of State of Karnataka Vs Azad Coach Builders Private Limited and Another reported in (2010) 9 SCC 524 has held that the benefit of Section 5(3) of the CST Act, 1956, cannot be denied on the ground that the goods purchased and the goods exported were different. In other words, if there exist an inseverable link between the local sale/ purchase and export and it is clear that both are inextricably connected, then the benefit under Section 5(3) of the CST Act, 1956 cannot be disallowed applying the “same goods” theory. As stated earlier, the Tribunal had not made any enquiry as to whether the goods purchased and exported in respect of which the benefit of section 5(3) of the CST Act, 1956 claimed, are inextricably connected with the actual export. Such enquiry is essential to decide the claim of the petitioners under Section 5(3) of the CST Act, 1956.
10.Therefore, the orders of the Tribunal are set aside to that extent and the matters are remanded back to the Assessing Officer for passing fresh orders, after giving an opportunity of hearing to the petitioners and permitting them to lead requisite evidence to establish such inextricable link between the https://www.mhc.tn.gov.in/judis 14/20 W.P. No.20387 of 2004 sale/purchase of the raw hides and skins in question and the export of dressed hides and skins by the petitioners, keeping in view the law laid down by the Hon'ble Supreme Court in the case of State of Karnataka Vs Azad Coach Builders Private Limited and Another reported in (2010) 9 SCC 524. The first question raised in all the writ petitions is decided accordingly. Question No.2
11.This question, as to whether the dyes and chemicals used in the execution of works contract of tanning are liable to tax under Section 3B of TNGST, 1959, raised for determination only in the writ petition bearing Nos.20387/2004 and 30959 and 30960/2007 filed by M/s.Farida Prime Tannery, Thuthipet. In the orders which are impugned herein, the Tribunal held that the dyes and chemicals used in the process of tanning leather are liable to tax, in view of Section 3B of TNGST Act, 1959. The said order has been challenged by the petitioner on the ground that the dyes and chemicals are consumables and getting washed away and thus, there is no transfer of property in the dyes and chemicals used in the process of tanning.
12.The above issue now stands resolved by the Full Bench of this Court in the case of Unique traders vs. Commercial Tax Officer reported in 2020 (19) GSTR 48, 2020 (5) CTC 68 wherein the following question was framed:
https://www.mhc.tn.gov.in/judis 15/20 W.P. No.20387 of 2004 “whether the purchase of ink for printing polythene rolls is taxable in terms of Section 3-B of the Tamil Nadu General Sales Tax Act, 1959 / Tamil Nadu Value Added Tax Act.”
13. The Full Bench noticed the divergent views expressed by this Court, after referring to the decision of the Division Bench of this Court in the case of Tamil Nadu, rep. by the Deputy Commissioner (Commercial Taxes), Salem Tax Vs. Tvl.S.S.M.Processing Mills,Case (Revision) Nos.69 of 2009, 80 and 81 of 2011, wherein it was held that “there is transfer of property in dyes and chemicals used in the works contract of bleaching”. As could be seen from the paragraph 43 of the full bench decision, after extracting the observation of the Division Bench in the case of S.S.M.Processing Mills, the Full Bench affirmed the same at paragraph 57 in affirmative. The relevant portion of the Division Bench judgment reads as under:
“The fact that the chemicals used for bleaching is washed away in the process, by itself, would not be a justifiable ground to accept the case of the assessee that there was no transfer of property of any goods. The very fact of the yarn being bleached by a chemical process, by applying the chemical, will clearly point out that there is transfer of property of the chemical, hence, bleaching contract attracts sales tax as in the case of dyeing contract, when the chemicals are purchased from outside the state. Consequently, this Court allow the Tax Case (Revisions) https://www.mhc.tn.gov.in/judis 16/20 W.P. No.20387 of 2004 filed by the state.” The Full Bench affirmed the above decision in the case of SSM Processing Mills, as would be clear from the following:
“The learned Single Judge whose order is under appeal before us has applied the correct position of law by relying on Tvl.S.S.M. Processing Mills, (referred supra), and on the Full Bench of the Kerala High Court in Enviro Chemicals v. State of Kerala.(referred supra).” Thereafter, the Full Bench proceeded to conclude that dyes used in printing is exigible to tax. The following portion of decision is relevant:-
“The correct position of law as repeatedly and consistently pointed out by the Hon'ble Supreme Court, finally in (2015) 78 VST 451 (SC), State of Karnataka Vs Pro Lab & Ors, is “to sum up, it follows from the reading of the aforesaid judgment that after insertion of clause 29-A in Article 366, the Works Contract which was indivisible one by legal fiction, altered into a contract, is permitted to be bifurcated into two: one for "sale of goods" and other for "services", thereby making goods component of the contract exigible to sales tax. Further, while going into this exercise of divisibility, dominant intention behind such a contract, namely, whether it was for sale of goods or for services, is rendered otiose or immaterial. It follows, as a sequitur, that by virtue of clause 29-A of Article 366, the https://www.mhc.tn.gov.in/judis 17/20 W.P. No.20387 of 2004 State Legislature is now empowered to segregate the goods part of the Works Contract and impose sales tax thereupon. It may be noted that Entry 54, List II of the Constitution of India empowers the State Legislature to enact a law taxing sale of goods. Sales tax, being a subject-matter into the State List, the State Legislature has the competency to legislate over the subject.” Accordingly, the Full Bench of this Court answered the reference in favour of the Revenue, holding that the purchase of ink for printing is eligible to tax in terms of Section 3-B of the Tamil Nadu General Sales Tax Act,1959.
14.Thus, the question, as to whether the dyes and chemicals used in the execution of works contract including tanning are liable to tax, is answered in favour of the Revenue, beyond pale of any doubt in view of the decision of the Full Bench as referred to above. In view of the same, the orders of the Tribunal impugned in WP.Nos.20387/2004 and 30959 and 30960/2007 insofar as it relates to levy of tax of dyes and chemicals used in the execution of works contract including tanning, stand confirmed.
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15.In fine, all the writ petitions are partly allowed to the extent as indicated in paragraph 10 of this order, as regards the exemption claimed by the petitioners under section 5(3) of the CST Act, 1956.
W.P.Nos.20387/2004 and 30959 and 30960/2007 are dismissed, in respect of levy of tax under Section 3B of the TNGST Act, 1959. No Costs.
[R.M.D., J.] [M.S.Q., J.] 03.12.2021 Speaking (or) Non Speaking Order Index : Yes/ No Internet: Yes/No smn/rsh To
1. The Tamil Nadu Sales Tax Appellate Tribunal, Tribunal ( Main Branch), City Civil Court Buildings, Chennai.
2. The Appellate Assistant Commissioner (CT),Vellore.
3. The Deputy Commercial Tax Officer, Gudiyatham (West)
4. The Deputy Commercial Tax Officer, Ayanavaram Assessment Circle, Kuralagam Annexe, Chennai 600 108.
5. The Secretary, Tamilnadu Sales Tax Appellate Tribunal (AB) Chennai, City Civil Court Buildings, 2nd Floor, Chennai 600 104.
https://www.mhc.tn.gov.in/judis 19/20 W.P. No.20387 of 2004 R.MAHADEVAN, J.
and MOHAMMED SHAFFIQ, J.
smn/rsh
6. The Union of India, , Ministry of Finance, Parliament Street, New Delhi,
7. The Deputy Commissioner ( CT), Chennai ( Central) Division, Greams Road, PAPJM Buildings, Kilpauk, Chennai 600 006 W.P. No.20387 of 2004 and W.P.Nos 30959 and 30960 of 2007 and 36852 of 2006 03.12.2021 https://www.mhc.tn.gov.in/judis 20/20