Judgment · High Court · 2007

H.L.DATTU, C.J. & K.T.SANKARAN, J.-------------------------O.T.A.No.2 of 2007 -------------------------Dated this the 13th day of June, 2007.JUDGMENTH.L.DATTU, C.J.The appellant is an association. The members of theassociation is engaged in the manufacture of splints and Veneers. They are aggrieved by the orders passed by the Commissioner ofCommercial Taxes dated 15.5.2006. By the impugned order, theCommissioner has opined as under:“The term 'manufacture' is defined under theKerala Value Added Tax Act, 2003 as:“ ..... producing, making extracting, altering, ornamenting, finishing, assembling orotherwise processing, treating or adapting anygoods and includes any process incidental orancillary to such activity but does not includeany process or mode of manufacture as may beprescribed.”In view of the above, industrial units approved bythe Khadi and Village Industries Commission engagedin the manufacture of splints and veneers for matchers, whether it is using machinery or not, will be covered bySl.No.55(13) of the 1st schedule to the Act.It is seen that most KVIB units are making onlyinterstate sales of their products. As per Section 8(1) ofthe Central Sales Tax Act, 1956, “The tax payable on O.T.A.No.2 of 2007 :: 2 ::the interstate sales of goods which are supported by'C' or 'D' Form shall be 4%. But as per Section 8(2) ofthe Central Sales Tax Act, 1956, “the tax payable byany dealer on his turnover in so far as the turnover orany part thereof relates to the sale of any goods in thecourse of interstate trade or commerce not fallingwithin sub-section (1) in the case of goods, the sale oras the case may be, the purchase of which is underthe sales tax law of the appropriate State, exemptfrom tax generally shall be nil.” As per theexplanation under the above sub-section “a sale orpurchase of any goods shall not be deemed to beexempt from tax general under the sales tax law ofthe appropriate state, if under that law, the sale orpurchase of such goods is exempt only in specifiedcircumstances or under specified conditions or the taxis levied on the sale or purchase of such goods atspecified stages or otherwise than with reference tothe turnover of the goods.”In the case of the products notified by theKhadi and Village Industries Commission, exemptionis available only at the point of sale by themanufacturing units approved by the Kerala Khadiand Village Industries Board. So this is not a generalexemption as per sub-section 8(2)(c) of the CST Act1956 and tax will be attracted in the case of interstatesales of such products in spite of exemption beingavailable under the Kerala Value Added Tax Act onthe local sales of such products by the industrial units O.T.A.No.2 of 2007 :: 3 ::specified in Entry 55 of the 1st schedule. So noexemption is allowable in respect of the interstatesales of the products by Kerala Khadi and VillageIndustries Units.”2. Aggrieved by the clarification/opinion of theCommissioner, the Association is before us in this Tax Appeal.3. The question of law for consideration and decisionby this court is as under:“Whether on the facts and circumstance of thecase, has not the Commissioner of Commercial Taxesgone wrong in holding that the exemption under Entry 55(13) of the 1st schedule to the VAT Act is not a generalexemption?”4. This court, while considering W.A.No.932/07 hasobserved as follows:“The State has empowered theCommissioner to issue appropriate circulars tomaintain uniformity in the procedure for the purposeof quantification of tax and also in the procedure forlevying tax on certain transactions. By virtue of thepowers given to the State authorities under Sub-section (2) of Section 9 of the CST Act, theCommissioner, in exercise of his powers, has issuedthe circular dated 19.4.2006. In view of the above, we are of the opinion that the Commissioner isempowered under the CST Act to issue suchcircular.” O.T.A.No.2 of 2007 :: 4 ::In view of the orders and directions issued inW.A.No.932/07, the question of law raised by the associationrequires to be answered against the association and in favour ofthe revenue. The appeal deserves to be rejected and it isrejected. Ordered accordingly.Sd/- H.L.DATTU CHIEF JUSTICESd/- K.T.SANKARAN JUDGEsk///true copy//P.S. To Judge