Heard Mr.S.Ramanathan, learned counsel for the petitioner and Mr.K.Venkatesh, learned Government Advocate for the respondent.
2.The petitioner has filed this writ petition challenging the assessment order dated 30.03.2007, passed under the provisions of the Tamil Nadu General Sales Tax Act, 1959 (in short TNGST Act) for the assessment year 2004-05. The challenge to the impugned order is only with regard to the demand for tax due on the purchase against Form XVII of Pigments, Dyes, Chemicals, Basic Chromium Sulphate and Machinery. The petitioners contention is that the Pigments, Dyes, Chemicals, Basic Chromium Sulphate and Machinery are used in the conversion of Wet Blue leather into finished leather and this amounts to manufacture and therefore, the petitioner is entitled to purchase these products under Form XVII Declarations and avail concessional rate of tax.
3.With regard to machinery, the petitioners contention is that in terms of Section 3(5) of the TNGST Act, the tax payable by any dealer in respect of sale of any of the goods mentioned in the 8th schedule to any other dealer in installation and use in his factory site situate within the State for the manufacture of goods shall be at the concessional rate of 3% and Form XVII Declaration can be issued. Therefore, it is submitted that this impugned assessment order demanding tax on the purchase of the above referred items is incorrect. Consequently, the surcharge levied and the penalty under Section 23 of the TNGST Act is not sustainable.
4.So far as the matter concerning the purchase of Pigments, Dyes, Chemicals and Basic Chromium Sulphate are concerned, the issue has already been decided by the Honble Division Bench of this Court in the case of Golden Leathers v. Secretary, Tamil Nadu Sales Tax Appellate Tribunal, Chennai and others reported in (2010) 35 VST 216 (Mad). It was held that if a person placed an order for finished leather, wet blue leather would not be supplied to him. After the 12 processes, wet blue leather got transformed into finished leather, after which, it lost its identity as wet blue leather and became a different commodity with a distinct identity in the market and in the industry concerned. The fact that in item 7B of Schedule II to the TNGST Act, the two categories of leather that were mentioned were raw hides and skins and dressed hides and skins could not decide the issue whether any manufacturing activity took place or not. Both wet leather and finished leather might be described as dressed hides and skins as opposed to raw hides and skins. But it must still be examined whether, when the wet blue was tken through the various stages, a manufacturing activity took place. The change or series of changes took the wet blue to a point where it could no longer be regarded as wet blue but must be recognized as finished leather. So there was a manufacture. This question must be decided on the fact and circumstances of each case that came up for consideration, the processes that the particular goods passed through and whether they got converted or not and whether the inputs were used for such activity and in such a case, the actiivity amounted to a manufacturing activity.
5.In the light of the law laid down by the Honble Division Bench of this Court in Golden Leathers (supra) the demand for tax, surcharge and penalty on the purchase of Pigments, Dyes, Chemicals and Basic Chromium Sulphate is not sustainable. Therefore, the assessment order under the said heads is quashed.
6.With regard to machinery, the petitioners contention is that they have purchased the machinery and they have installed it in their factory for the manufacture of the goods viz., conversion of wet blue leather in to finished leather and they are entitled to avail concessional rate of tax. Further, with regard to purchase of spares, the petitioner is entitled to concessional rate of tax, since in the 8th Schedule to the TNGST Act in Sl.No.3, includes machineries of all kinds including parts and accessories of machinery and tools used with the machineries mentioned in sub item i, viii in Sl.No.3 of the Schedule.
7.While responding to the notice dated 27.11.2006, the petitioner had submitted their objections dated 03.01.2007 with regard to the proposal demanding tax on the purchase of electricals and machinery. The petitioner has furnished the value of the purchase of machineries, spares and electrical spares against Form XVII and stated that as per Section 3(5) of the TNGST Act read with Entry 3 of the 8th Schedule, they are entitled to purchase machinery spares. Thus, in view of the specific entry, the petitioner claimed that they are entitled to purchase machinery spares against Form XVII. With regard to electrical spares the petitioner admitted the liability and paid the tax on purchase. Consequently, the petitioner requested to drop the proposal to levy tax on the purchase of machinery spares against Form XVII.
8.Though such a specific stand has been taken in the objections filed by the petitioner, the Assessing Officer while completing the assessment, in the impugned order has not dealt with the objections, but brushed aside the objections by merely stating that the purchase of electricals and machinery cannot be done against Form XVII under Section 3(5) of the Act. There is no reason assigned by the respondent as to how he came to such conclusion.
9.Thus, the finding rendered by the respondent with regard to claim of concessional rate of tax for the purchase of machinery spares is vitiated on account of non-application of mind as it is devoid of reasons. Therefore, the claim for tax on purchase of machinery spares as well as surcharge thereof and penalty under Section 23 on the said head is set aside and the matter is remitted to the respondent for fresh consideration. The respondent shall afford an opportunity of personal hearing to the petitioner and re-do the assessment under the said head viz., with regard to the purchase of machinery spares, taking note of the legal submissions made and pass a reasoned order on merits and in accordance with law. This writ petition is allowed with the above directions. No costs. Consequently, connected miscellaneous petition is closed.
20.09.2017 Index:Yes/No abr To The Deputy Commercial Tax Officer (Main)(FAC), Gudiyatham (West) Circle, Gudiyatham.
T.S.SIVAGNANAM, J.
abr W.P.No.16865 of 2007 20.09.2017