Kerala High Court
State Of Kerala vs M/S.Surya Laborataries on 22 January, 2021
S.T.Rev.Nos.41/2013 &
connected cases 1
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
FRIDAY, THE 22ND DAY OF JANUARY 2021 / 2ND MAGHA, 1942
ST.Rev..No.41 OF 2013
AGAINST THE ORDER OF KAIT & SALES TAX APPELLATE TRIBUNAL IN TA
36/2009 DATED 22-02-2013 OF AGRL.I.T. ADDITIONAL BENCH,PALAKKAD
PETITIONER:
STATE OF KERALA
REPRESENTED BY THE DEPUTY COMMISSIONER OF LAW
COMMERCIAL TAXES, ERNAKULAM.
BY GOVERNMENT PLEADER MOHAMMED RAFIQ
RESPONDENT:
M/S.SURYA LABORATARIES
IRINJALAKUDA, PIN - 680 121
R1 BY ADV. SRI.V.ABRAHAM MARKOS
R1 BY ADV. SRI.ABRAHAM JOSEPH MARKOS
R1 BY ADV. SRI.ABRAHAM VARGHESE THARAKAN
R1 BY ADV. SRI.BINU MATHEW
R1 BY ADV. SRI.JOSEPH MARKOSE SR.
R1 BY ADV. SRI.TOM THOMAS KAKKUZHIYIL
OTHER PRESENT:
SR GP MOHAMMED RAFIQ
THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON
22.01.2021, ALONG WITH ST.Rev..42/2013, ST.Rev..43/2013,
ST.Rev..52/2013, ST.Rev..54/2013, ST.Rev..56/2013, THE COURT ON
THE SAME DAY PASSED THE FOLLOWING:
S.T.Rev.Nos.41/2013 &
connected cases 2
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
FRIDAY, THE 22ND DAY OF JANUARY 2021 / 2ND MAGHA, 1942
ST.Rev..No.42 OF 2013
AGAINST THE ORDER OF KAIT & SALES TAX APPELLATE TRIBUNAL
ADDITIONAL BENCH,PALAKKAD IN TA 83/2009 DATED 22-02-2013
PETITIONER:
STATE OF KERALA
REPRESENTED BY THE DEPUTY COMMISSIONER OF
LAW,COMMERCIAL TAXES, ERNAKULAM.
BY GOVERNMENT PLEADER MOHAMMED RAFIQ
RESPONDENT:
M/S SURYA LABORITIES
IRINJALAKUDA PIN - 680 121.
R1 BY ADV. SRI.V.ABRAHAM MARKOS
R1 BY ADV. SRI.ABRAHAM JOSEPH MARKOS
R1 BY ADV. SRI.ABRAHAM VARGHESE THARAKAN
R1 BY ADV. SRI.BINU MATHEW
R1 BY ADV. SRI.JOSEPH MARKOSE SR.
R1 BY ADV. SRI.TOM THOMAS KAKKUZHIYIL
THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON
22.01.2021, ALONG WITH ST.Rev..41/2013, ST.Rev..43/2013,
ST.Rev..52/2013, ST.Rev..54/2013, ST.Rev..56/2013, THE COURT ON
THE SAME DAY PASSED THE FOLLOWING:
S.T.Rev.Nos.41/2013 &
connected cases 3
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
FRIDAY, THE 22ND DAY OF JANUARY 2021 / 2ND MAGHA, 1942
ST.Rev..No.43 OF 2013
AGAINST THE ORDER IN TA 84/2009 DATED 22-02-2013 OF kait &
S.T.A.TRIBUNAL,ADDITIONAL BENCH,PALAKKAD
PETITIONER:
STATE OF KERALA
REPRESENTED BY THE DEPUTY COMMISSIONER OF
LAW,COMMERCIAL TAXES, ERNAKULAM.
BY GOVERNMENT PLEADER MOHAMMED RAFIQ
RESPONDENT:
M/S.SURYA LABORATIES
IRINJALAKUDA, PIN - 680 121.
R1 BY ADV. SRI.V.ABRAHAM MARKOS
R1 BY ADV. SRI.ABRAHAM JOSEPH MARKOS
R1 BY ADV. SRI.ABRAHAM VARGHESE THARAKAN
R1 BY ADV. SRI.BINU MATHEW
R1 BY ADV. SRI.JOSEPH MARKOSE SR.
R1 BY ADV. SRI.TOM THOMAS KAKKUZHIYIL
THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON
22.01.2021, ALONG WITH ST.Rev..41/2013, ST.Rev..42/2013,
ST.Rev..52/2013, ST.Rev..54/2013, ST.Rev..56/2013, THE COURT ON
THE SAME DAY PASSED THE FOLLOWING:
S.T.Rev.Nos.41/2013 &
connected cases 4
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
FRIDAY, THE 22ND DAY OF JANUARY 2021 / 2ND MAGHA, 1942
ST.Rev..No.52 OF 2013
AGAINST THE ORDER IN TA 36/2009 DATED 22-02-2013 OF
S.T.A.TRIBUNAL,ADDITIONAL BENCH,PALAKKAD
PETITIONER:
M/S.SURYA LABORATORIES, IRINJALAKUDA
BY ADVS.
SRI.JOSEPH MARKOSE (SR.)
SRI.V.ABRAHAM MARKOS
SRI.ABRAHAM JOSEPH MARKOS
SRI.BINU MATHEW
SRI.TOM THOMAS (KAKKUZHIYIL)
SRI.S.VINODKUMAR
RESPONDENT:
STATE OF KERALA, REP.BY THE SECRETARY (TAXES),
TRIVANDRUM 695 001.
R1 BY GOVERNMENT PLEADER MOHAMMED RAFIQ
THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON
22.01.2021, ALONG WITH ST.Rev..41/2013, ST.Rev..42/2013,
ST.Rev..43/2013, ST.Rev..54/2013, ST.Rev..56/2013, THE COURT ON
THE SAME DAY PASSED THE FOLLOWING:
S.T.Rev.Nos.41/2013 &
connected cases 5
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
FRIDAY, THE 22ND DAY OF JANUARY 2021 / 2ND MAGHA, 1942
ST.Rev..No.54 OF 2013
AGAINST THE ORDER IN TA 83/2009 DATED 22-02-2013 OF
S.T.A.TRIBUNAL,ADDITIONAL BENCH,PALAKKAD
PETITIONER:
M/S. SURYA LABORATORIES
IRINJALAKUDA.
BY ADVS.
SRI.V.ABRAHAM MARKOS
SRI.ABRAHAM JOSEPH MARKOS
SRI.BINU MATHEW
RESPONDENT:
STATE OF KERALA
REPRESENTED BY THE SECRETARY (TAXES),
TRIVANDRUM-695 001.
R1 BY GOVERNMENT PLEADER MOHAMMED RAFIQ
THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON
22.01.2021, ALONG WITH ST.Rev..41/2013, ST.Rev..42/2013,
ST.Rev..43/2013, ST.Rev..52/2013, ST.Rev..56/2013, THE COURT ON
THE SAME DAY PASSED THE FOLLOWING:
S.T.Rev.Nos.41/2013 &
connected cases 6
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
FRIDAY, THE 22ND DAY OF JANUARY 2021 / 2ND MAGHA, 1942
ST.Rev..No.56 OF 2013
AGAINST THE ORDER/JUDGMENT IN TA 84/2009 OF
S.T.A.TRIBUNAL,ADDITIONAL BENCH,PALAKKAD
PETITIONER:
M/S SURYA LABORATORIES
IRINJALAKUDA.
BY ADVS.
SRI.V.ABRAHAM MARKOS
SRI.ABRAHAM JOSEPH MARKOS
SRI.BINU MATHEW
SRI.TOM THOMAS (KAKKUZHIYIL)
SRI.S.VINODKUMAR
RESPONDENT:
STATE OF KERALA
REPRESENTED BY THE SECRETARY (TAXES),
TRIVANDRUM - 695 001.
R1 BY GOVERNMENT PLEADER MOHAMMED RAFIQ
THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON
22.01.2021, ALONG WITH ST.Rev..41/2013, ST.Rev..42/2013,
ST.Rev..43/2013, ST.Rev..52/2013, ST.Rev..54/2013, THE COURT ON
THE SAME DAY PASSED THE FOLLOWING:
JUDGMENT
[ ST.Rev..41/2013, ST.Rev..42/2013, ST.Rev..43/2013,
ST.Rev..52/2013, ST.Rev..54/2013, ST.Rev..56/2013 ]
Dated this the 22nd day of January 2021
S.V.BHATTI, J.
Heard learned Senior Advocate Joseph Markose and
Sr.Government Pleader Mohammed Rafiq for the petitioner and
respondent respectively.
2. The Revenue and the assessee are before this Court
challenging the common order dt.22.2.2013 of KAI & ST Appellate
Tribunal. The operative portion of the common order on Point
Nos.1 and 3 of the order under revision reads thus:
Point No.1:
"On a clear reading of the Enquiry Report as well as the documents, it
is seen that various machineries were used by the appellant/assessee
for the manufacturing of 'Chandrika Soap' by the Surya Laboratories
sold by the assessee, cannot be considered to be a handmade Soap. So
we found that the appellant assessee is not entitled to the concessional
rate of tax as it is handmade. This point answered against the
appellant."
Point No.2:
"...In the result, the appeal T.A.Nos.36/2009, 83/2009 and
84/2009 are dismissed except the calculation of interest
(Point No.3) holding that the product sold is other than
handmade Soap (not handmade soap) and assessee is liable to
pay tax at the rate of 12%.
With regard to interest, the assessing authority is
directed to levy interest on the differential tax between
assessed tax and the tax paid based on the return."
S.T.Rev.Nos.41/2013 &
2.1. Hence S.T. Revision Nos.41, 42 and 43 of 2013 are at the
instance of Revenue challenging the direction of Tribunal
restricting the assessing authority to levy interest on
differential tax between the assessed tax and the tax paid based
on the return. S.T.Revision Nos.52, 54 and 56 of 2013 are at
the instance of the assessee rejecting the case of assessee for
concessional rate of tax at 4% treated the soap sold by the
assessee as hand made.
3. The assessment years covered by the revisions are 2002-
2003, 2003-2004 and 2004-2005. Surya Laboratories is a
registered dealer under Kerala General Sales Tax Act, 1963 (for
short 'KGST Act). The assessee manufactures soap by name
Chandrika at the factory established and operated in Mysore,
State of Karnataka. The assessee by effecting stock transfer of
goods i.e. Chandrika Soaps to its godown in State of Kerala
sold the soaps in this State. The assessee states that they are
fully compliant with all the statutory requirements and
Chandrika Soap manufactured by the assessee and sold in the
S.T.Rev.Nos.41/2013 &
Kerala State or elsewhere is a handmade soap. Chandrika soap
is treated as a handmade soap by the authorities under
Karnataka General Sales Tax Act and corresponding rate of tax
was applied to Chandrika Soap sold by the assessee in State of
Karnataka etc. The assessee states that the authorities under
KGST Act prior to the subject assessment years treated
Chandrika Soap as a handmade product and collected tax at
4%. Similarly tax at 4% has been collected for the assessment
years subsequent to 2004-2005. Therefore the issue whether
Chandrika Soap is handmade soap or machine made soap is
limited to the subject assessment years.
4. The assessee filed T.A.No.36 of 2009 before the
Appellate Tribunal questioning the order of Appellate
Commissioner for the assessment year 2002-2003. The
Appellate Tribunal through judgment dt.4.8.2009 held that
Chandrika Soap manufactured by assessee is a handmade soap
attracting tax at 4%. Similar view was taken by the Tribunal,
in appeals filed by the assessee in T.A.Nos.83 and 84 of 2009
dated 24.4.2009. The Revenue questioning the said order filed
S.T.Rev.Nos.41/2013 &
S.T.Rev.Nos.41 and 42 of 2010 before this Court. The
objection of Revenue, at that juncture, against the order
holding Chandrika Soap as a handmade soap was that the
Tribunal while recording a finding to accord concessional rate
of tax at 4% fell more in error of fact than law. The non-using
of power in the manufacture of Chandrika Soap is not very
germane and the Tribunal ought not to have relied on the
certificates issued by authorities of the State of Karnataka. The
Tribunal in its judgment dated 4.8.2009 either did not consider
the issue in right perspective or relied on irrelevant certificates
vis-à-vis the rate at which tax has to be collected from the
assessee. This Court taking note of these grounds of challenge
by the department in S.T.Rev.No.41/2010, on 28.10.2010,
issued the following directions:
"The Commissioner of Commercial Taxes, Kerala, will
contact his counter-part in Bangalore and arrange for
inspection of respondent soap factory at Mysore by the
assessing officer or any other officer authorized by him to
verify as to whether manufacture is done by human-hand or
by engaging machinery in the factory and the changes if any
made by the present owner also should be reported to this
Court with specific details of staff engaged in the factory in
the manufacture, packing etc. If there is any retrenchment
S.T.Rev.Nos.41/2013 &
of employees made on or after the respondent handed over
the charge of the factory to the present owner, the same
should also be reported to this Court. Government Pleader
will file a report of inspection within one month from
now".
5. Finally, on 20.1.2011, the revisions were allowed and
the revisions remitted for reconsideration afresh by the
Tribunal.
"The question whether the soap made by the
respondent can be treated as handmade or otherwise
will have to be decided with reference to the factual
position ie. The nature of manufacturing activity, the
involvement of human agencies, machines if any etc.
Since the Tribunal did not have materials now brought
on record through the enquiry report and since the
question is a mixed question of law and fact, we feel
the matter should be first decided by the Tribunal.
We, therefore, allow the revisions by setting aside the
orders of the Tribunal and and remand the case back
to the Tribunal for reconsideration of the appeal on
the question with specific reference to the findings in
the enquiry report and if necessary, after calling for
further particulars. The State will file photocopies of
the enquiry report before the Tribunal and a copy will
be given to the respondent."
6. At this stage we find it convenient to refer to the report
dt.14.12.2010 prepared by the team of officers constituted for
this purpose, by the department. The report dt.14.12.2010
refers to the process of manufacturing of soap by the assessee;
S.T.Rev.Nos.41/2013 &
the ingredients used in manufacture of soap and the
contrivances noticed by the team at the time of inspection for
soap manufacturing. Keeping in our perspective, i.e. the
contrivance which is treated as a machine by the Tribunal to
deny concessional rate of tax, the following extract from the
report is reproduced.
"Mixing Drum which is a device that consists of a drum
with a central hub containing rotating blades supported
by bearings and connected to a handle for power input,
9 numbers with 200 kg. Capacity."
"The earliest case in which the word "machinery" was
interpreted is the decision of the Privy Council in
Corporation of Calcutta v Chitpore Municipality (A.I.R.
1922 P.C. 27; (1922) 15 M.I.W. 253). The criteria laid
down and applied by the Privy Council int hat case has
been the basic guideline followed in several cases in
which such a question arose. They are:
•The word "machinery" must mean something more
than a collection of ordinary tools. It must mean
something more than a solid structure built upon the
ground whose parts either do not move at all or, if they
do move do not move the one with or upon the other in
interdependent action with the object of producing
specific and definite result.
• It is not possible to define "machinery" as applicable
to all cases. However, it could be said that when used in
ordinary language, prima facie means some mechanical
contrivances, which by themselves or in combination
S.T.Rev.Nos.41/2013 &
with one or more other mechanical contrivances, by the
combined movement and inter-dependent operation of
their respective parts, generate power, or evoke modify,
apply or direct natural forces with the object in each case
of effecting so definite and specific result.
Determination as to what is or what is not "machinery"
must to a large extent, depend on the special facts of
each case.
• Illustrations are better guides to ascertain the true
meaning of the word "machinery" when used ordinarily
and not as a specific definition.
• Whether an intelligent person would in the ordinary
use of language describe a particular thing as
machinery."
"Taking into consideration, the criteria laid down in the
Judgments discussed above, in order to find whether the
factory is using machinery for the manufacture of soaps
we shall now proceed to consider the functioning of the
contrivances used in the manufacture under scrutiny.
As detailed ibid the contrivances used for production of
soap in the factory right from the shipping of raw
materials are one oil tank used for storing the
coconut/palm oil lifted from the barrels one ordinary
weighing balance used for weighment of oils taken for
mixing, heating drums used for heating the oil with
paraffin wax and mixing, mixing drums which is a
device that consists of a drum with a central hub
containing rotating blades supported by bearings and
connected to a handle for power input. Scrap cutter
tray, cooling box made out of metal, slice cutter and
piano cutter which consists of a frame used for cutting
the soap blocks with help of strings and stamping
equipments containing a dye connected to a handle.
After stamping packing and casing are done manually
for which no contrivances are put in use. Shipment of
finished goods into goods vehicle are also done
S.T.Rev.Nos.41/2013 &
manually.
All these contrivances are independent and are not
interconnected. By applying or supplying power it does
not work as a combined effect of the movement either
collectively or individually except in the case of mixing
drum. There is no systematic arrangement of several
parts which does not multiply or convert the force
supplied to it for any such purpose. In the result, such
contrivances do not satisfy this definition emerging out
of the above discussion.
But the mixing drum on the other hand is a device that
consists of a drum with a central hub containing
rotating blades supported by bearings and connected to a
handle for power input. The power used is human
power. There is an alliance of the several parts into one
unit, all functioning simultaneously on the supply of
power at a given point. By applying the power, the force
is multiplied leading to the rotation of blades which
results in the mixing of the contents in the drum.
But this contrivance is seen used for the preliminary
mixing of the raw materials and the process flow show
that the content is subjected to final mixing done
manually using a wooden stirrer after transferring the
materials into the cooling box.
Thus applying the tests laid down in the judgments
discussed above, it is found that the contrivances used in
the factory for the production of soaps will not
encompass within the meaning of the word 'machinery',
except the mixing drum for reasons detailed above."
"The firm is recognised as a manufacturer of hand made
Ayurvedic Toilet soaps by the Directorate of industries
and Commerce, Government of Karnataka as per PMT
No.08/16/037 to as has been subsequently amended on
11.11.2007."
"Based on the aforesaid discussions the issues raised are
answered as follows:
S.T.Rev.Nos.41/2013 &
• Applying the tests laid down in the judgments
discussed above, it is found that the contrivances used in
the factory for the production of soaps will not
encompass within the meaning of the word machinery,
except the mixing drum used for preliminary mixing of
the raw materials.
• The mixing drum is a device having an alliance of
several parts into one unit, all functioning
simultaneously on the supply of power at a given point.
By applying the power, the force is multiplied leading to
the rotation of bales which results in the mixing of the
contents in the drum which would encompass within the
meaning of the word 'machinery'.
•There is no change, either in the proprietorship or in
the status of the factory since its commencement in 1984
and Sri C.K.Janan continues to be the proprietor of the
factory."
7. After referring to the very same circumstances now
adverted to by us in this judgment, the Tribunal has recorded
the following finding, i.e. over and above than what the report
states.
"On a clear reading of the Enquiry Report as well as the
documents, it is seen that various machineries were used
by the appellant/assessee for the manufacturing of
'Chandrika Soap' by the Surya Laboratories sold by the
assessee, cannot be considered to be a handmade Soap.
So we found that the appellant assesseee is not entitled
to the concessional rate of tax as it is handmade. This
point answered against the appellant."
Hence the revisions.
S.T.Rev.Nos.41/2013 &
8. Entry 133(1) of Ist schedule to Kerala General Sales Tax Act
reads as follows:
133. Soaps
I. Handmade At the point of first sale - 4%
II. Other than handmade At the point of first sale - 12%
9. In the case on hand, the rate of tax is dependent on the
mode and manner of manufacture of soap.
10. Sr.Adv.Joseph Markos argues that the Tribunal committed
a very serious error in law while adjudicating a classification or
category issue arising under Schedule I of KGST Act. The
Revenue, in the first round of litigation canvassed that the
acceptance of levy of concessional rate of tax at 4% on Chandrika
Soap as a handmade product is erroneous principally on the
ground that there was no data on the process involved in the
manufacturing of Chandrika Soap. In other words a finding was
rendered without actual examination of manufacturing process of
Chandrika soap by the assessee. Reliance on the certificate issued
by the authorities under Karnataka General Sales Tax Act etc. for
this purpose is equally erroneous. This Court accepted these
primary objections raised by the revenue and through order
S.T.Rev.Nos.41/2013 &
dt.28.10.2010 directed a team to be constituted by the
Commissioner of Taxes, inspect the unit of assessee and file a
report on the mode and the manner of manufacturing process
involved in Chandrika soap. Report dated 14.12.2010 was filed
and finally the revisions were disposed of by this Court. The
Tribunal it is argued on remand noticed more than what the team
of officers found out in their inspection and held that the process
of manufacture of soap is not handmade. By referring to the
judgment of this Court in Tax Revision No.8/2013 and batch
dt.28.7.2016, it is contended that the issue on hand is no more res
integra; matters dealing with General Sales Tax, which is an
indirect tax, consistency and continuity in classification are very
important. Even in respect of the same assessee, the assessment at
concessional rate of 4% was accepted for the same manufacturing
process prior to the subject assessment years and same
concessional rate of 4% was accepted for the subsequent
assessment years i.e. 2005, 2006 etc. He refers to and relies on the
judgment of Supreme Court reported in Collector of Central
Excise, New Delhi v Louis Shoppe and another (1996(3) SCC 445)
S.T.Rev.Nos.41/2013 &
for the proposition that test is predominance of handmade
activity in the manufacture of soap and not a pedantic view on
classification.
12. The main argument of Sr.Advocate focuses on the report
dt.28.10.2010 and the contrary findings recorded by the Tribunal.
The report erases any doubt in the manufacturing process of
assessee and it is handmade. He prays for setting aside the order
under revisions by holding that the assessee is entitled to
concessional rate of tax at 4% for the subject assessment years as
well.
13. Sr.Government Pleader Mohammed Rafiq contends that
Entry 133 provides for concessional rate of tax at 4% for 'handmade
soap'. Entry 133, read literally, according to him operates like this.
'Handmade soaps' at the point of first sale at 4% and 'Soaps other
than handmade' at the point of first sale at 12%.
13.1. According to him, a dealer registered under the Act is
entitled to claim 4% concessional rate of tax under Entry 133, if the
soaps manufactured and sold by the dealer are 'handmade'. In the
case on hand, though the order under revision refers to the assessee
S.T.Rev.Nos.41/2013 &
using machines, he would like to confine the submission to one of
the dominant contrivances i.e. a drum employed by the assessee for
manufacturing the soap. He draws our attention to the meaning of
the word 'machine' in the Britannica Online Encyclopedia and argues
that in a given case like the present the 'drum' is a machine used as a
device having the unique purpose, augments or replaces human or
animal effort for the accomplishment of physical tasks. This broad
category encomposes such simple devices as inclined plane, lever,
wedge, wheel and axle pulley and screw. However it is stated that he is
not comparing 'drum' with any of the modern contrivances employed
by the manufacturers in contemporaneous period. According to him,
the drum is rightly understood as machine by the Tribunal and the
assessee is not entitled to claim 4% concessional rate of tax. The
judgment of this Court in M/s Dorcas Market Makers Pvt. Ltd. v
State of Kerala (Judgment dated 28.7.2016 of Kerala High Court in
S.T.Rev.No.8 of 2013 & conn.cases) was challenged before the Supreme
Court with a delay petition and the delay petition was dismissed.
Hence it is noted the judgment of this Court in Dorcas case holds
good as on date.
S.T.Rev.Nos.41/2013 &
14. We have heard the counsel and frame the following
questions for our consideration:
1. Whether in the facts and circumstances borne out
in the report dated 14.12.2020, Chandrika Soap
manufactured by assessee is entitled to be treated as
Handmade soap and consequently obligated to pay tax at
concessional rate of 4% or Chandrika Soap falls under the
category i.e. soaps other than hand made ;
2. Whether the direction of the Tribunal for calculating
interest on the differential tax and tax paid based on the
return is legal.
14.1. The second question is completely dependent on the
conclusion we record on the substantial Question No.1.
15. We find it useful, at the outset to refer to the judgment
of privy council which is referred to in the report dated
14.12.2010 of the Committee appointed by the Department.
"The earliest case in which the word "machinery" was
interpreted is the decision of the Privy Council in
Corporation of Calcutta v Chitpore Municipality (AIR
1922 PC 27 (1922) 15 M.I.W.253). The criteria laid
down and applied by the Privy Council in that case has
been the basic guideline followed in several cases in
which such a question arose. They are:
• The word "machinery" must mean something more
than a collection of ordinary tools. It must mean
S.T.Rev.Nos.41/2013 &
something more than a solid structure built upon the
ground whose parts either do not move at all or if they do
move, do not move the one with or upon the other is
interdependent action with the object of producing a
specific and definite result.
•It is not possible to define "machinery" as applicable to
all cases. However, it could be said that when used in
ordinary language, prima facie means some mechanical
contrivances, which by themselves or in combination with
one or more other mechanical contrivances, by the
combined movement and inter-dependent operation of
their respective parts, generate power, or evoke modify,
apply or direct natural forces with the object in each case
of effecting so definite and specific result. Determination
as to what is or what is not "machinery" must, to a large
extent depend on the special facts of each case.
• Illustrations are better guides to ascertain the true
meaning of the word "machinery" when used ordinarily
and not as a specific definition.
• Whether an intelligent person would in the ordinary
use of language, describe a particular thing as machinery."
16. Their Lordships as early as 1952 in an era of
transformation in Mechanical Engineering i.e. from mechanized
function to semi-mechanized and fully mechanized, fully
automatic etc. the tests for determining, what constitutes machine
and employment of such machine to a particular set of facts etc.
The determination of category or classification of goods, in our
S.T.Rev.Nos.41/2013 &
considered view, is not pedantic; or purposeful only to levy and
demand tax on the dealer; at the same time the exercise of
determination of classification ought not to be on fertile
imagination of officers functioning under the Act or subject to
the consideration to verbose expressions. The entry is literally
understood and juxtaposed with particular activity, claimed
and/or proved by the dealer; thereafter applicable rate of tax is
applied and tax recovered. The Legislature provided two rates of
tax, one for handmade and another other than handmade. The
application of this classification ought to be in a natural flow of
understanding of the activity considered in this behalf. Nothing
unnecessarily added or inferred while determining the applicable
rate of tax for such course may defeat the very legitimate
classification provided by the Act. Where the concessional rate is
attracted through stretched construction by the authorities under
the Act, should not be denied likewise ignore basic details and
grant concessional rate of tax. In our view Tribunal has
committed a serious error in appreciating the report
dt.14.12.2010.
S.T.Rev.Nos.41/2013 &
17. In Dorcas case, a Division Bench of this Court was
dealing with a similar claim of concessional rate of tax for
Medimix soap manufactured by the assessee therein. The Bench
held as follows:
"Consistency in the matter of classification of goods for
the purpose of taxation has to be taken as admitted
situations as between the assessee and the Revenue, at least
till a controversy arises for an adjudication on the basis of
fresh materials and situations, as the case in hand.
Departmental authorities had consistently assessed the
assessee's commodity at 4%. That situation continued
through the different assessment years. The assessment
years in hand relate to 1999-2000 to 2004-2005. The first
report following the inspection on 23.1.2006 definitely
shows that the assessee's process does not consume
electricity. In the common course of human conduct;
manufacturing of soap, to be called 'hand made', cannot be
conceived as something that would be made merely by
using hand without the aid of any tools, implements or
other equipments which can be used with such force as
could be exerted by human beings. The manner in which
"hand made soap" ought to be understood for the purpose
of the Act, cannot be something where the process of
manufacture excludes machineries as a whole."
18. The Supreme Court in Louis Shoppe case was dealing
with the classification of wooden furniture and held that wooden
furniture as such does not qualify as 'handicraft'. It may be
characterised as 'handicrafts' if the following tests are satisfied:
S.T.Rev.Nos.41/2013 &
(1) It must be predominantly made by hand. It does not
matter if some machinery is also used in the process.
(2) It must be graced with visual appeal in the nature of
ornamentation or inlay work or some similar work lending it an
element of artistic improvement. Such ornamentation must be of
a substantial nature and not a mere pretence. These principles
would apply to all pending matters and to all matters arising
thereunder. Referring to the judgment of Louis Shopee case, the
argument for assessee is that the thrust is on the manufacturing
process predominantly by hand, and in the case on hand from
the report dated 14.12.2010, at no stage of manufacturing process
electricity is used in any manner by the assessee. The 'drum'
when operated is used by hand and force is generated for mixing
the ingredients. We are on basic principles of manufacturing
process etc. are unable to appreciate the contention of department
that small contrivances used to generate force etc. come under the
category of Machines. The report deals in sufficient detail on the
purpose and utility of drum in the sequence of manufacturing
process and used for mixing the raw material. This stand alone
S.T.Rev.Nos.41/2013 &
item ought not to be understood as Chandrika Soap made
otherwise than Handmade. The Chandrika Soap is treated as
'hand made' by the assessing authorities in the State of Karnataka.
19. After appreciating the flow of manufacturing process
and predominant use of labour for manufacturing the soap
including while mixing the materials, we are convinced that the
claim of assessee that Chandrika Soap is 'handmade' is tenable.
We have juxtaposed the findings of the Tribunal with the report
dt.14.12.2010 and we are of the view that the assessee is denied
concessional rate of 4% tax for manufacture of Chandrika Soap
on erroneous view of the issues.
20. We are not burdening our judgment by referring to all
the citations relied on by the assessee or revenue. The dominant
tests on what constitutes 'handmade' are satisfied in the case on
hand and the findings of the Tribunal on Point No.1 of the
common order are set aside and accordingly the first question is
answered in favour of the assessee and against the Department.
Question No.2
21. In view of the findings recorded on substantial question
S.T.Rev.Nos.41/2013 &
No.1, the re-assessment does not arise and question is answered in
favour of assessee and against the Revenue.
Hence S.T.Revision Nos.52, 54 and 56 of 2013 are allowed.
S.T.Revision Nos.41,42 and 43 of 2013 are dismissed.
Sd/-
S.V.BHATTI
JUDGE
Sd/-
BECHU KURIAN THOMAS
JUDGE
css/
S.T.Rev.Nos.41/2013 &
APPENDIX OF ST.Rev. 41/2013
PETITIONER'S EXHIBITS:
ANNEXURE A TRUE COPY OF THE ORDER DATED 28.10.2006
PASSED BY THE SALES TAX OFFICER,
IRINJALAKUDA
ANNEXURE B TRUE COPY OF THE FIRST APPELLATE ORDER
DATED 18.10.2008 PASSED BY THE ASSISTANT
COMMISSIONER I, COMMERCIAL TAXES, PALAKKAD
ANNEXURE C TRUE COPY OF THE SAID ORDER DATED
22.02.2013 PASSED BY THE AGRICULTURAL
INCOME TAX & SALES TAX APPELLATE TRIBUNAL,
ADDITIONAL BENCH, PALAKKAD IN
T.A.NO.36/2009
S.T.Rev.Nos.41/2013 &
APPENDIX OF ST.Rev. 42/2013
PETITIONER'S EXHIBITS:
ANNEXURE A TRUE COPY OF THE ORDER DATED 31.03.2007
PASSED BY THE SALES TAX OFFICER,
IRINJALAKUDA
ANNEXURE B TRUE COPY OF THE FIRST APPELLATE ORDER
DATED 22.10.2008 PASSED BY THE ASSISTANT
COMMISSIONER I, COMMERCIAL TAXES, PALAKKAD
ANNEXURE C TRUE COPY OF THE SAID ORDER DATED
22.02.2013 PASSED BY THE AGRICULTURAL
INCOME TAX AND SALES TAX APPELLATE
TRIBUNAL, ADDITIONAL BENCH, PALAKKAD IN
T.A.NO.83/2009
S.T.Rev.Nos.41/2013 &
APPENDIX OF ST.Rev. 43/2013
PETITIONER'S EXHIBITS:
ANNEXURE A TRUE COPY OF THE ORDER DATED 31.03.2007
PASSED BY THE SALES TAX OFFICER,
IRINJALAKUDA
ANNEXURE B TRUE COPY OF THE FIRST APPELLATE ORDER
DATED 22.10.2008 PASSED BY THE ASSISTANT
COMMISSIONER I, COMMERCIAL TAXES, PALAKKAD
ANNEXURE C TRUE COPY OF THE SAID ORDER DATED
22.03.2013 PASSED BY THE AGRICULTURAL
INCOME TAX AND SALES TAX APPELLATE
TRIBUNAL, ADDITIONAL BENCH, PALAKKAD IN
T.A.NO. 84/2009
S.T.Rev.Nos.41/2013 &
APPENDIX OF ST.Rev. 52/2013
PETITIONER'S EXHIBITS:
ANNEXURE A TRUE COPY CERTIFICATE DATED 19.04.1989
ISSUED BY THE DEPARTMENT OF INDUSTRIES AND
COMMERCE.
ANNEXURE B TRUE COPY OF ASSESSMENT ORDER DATED
19.01.2002 FOR AY 2000-01.
ANNEXURE C TRUE COPY OF ASSESSMENT ORDER DATED
31.01.2003 FOR AY 2001-02.
ANNEXURE D TRUE COPY OF ASSESSMENT ORDER DATED
28.10.2006 FOR AY 2002-03.
ANNEXURE E TRUE COPY OF THE APPELLATE ORDER DATED 18-
10-2008 PASSED BY THE APPELLATE ASSISTANT
COMMISSIONER OF COMMERCIAL TAXES, PALAKKAD.
ANNEXURE F TRUE COPY OF ORDER DATED 4-8-2009 OF THE
SALES TAX APPELLATE TRIBUNAL, PALAKKAD IN
T.A. NO.36/2009.
ANNEXURE G TRUE COPY OF SALES TAX REVISION NO.33/2010
DATED NIL FEBRUARY, 2010
ANNEXURE H TRUE COPY OF INTERIM ORDER DATED 28-10-2010
OF THE HIGH COURT OF KERALA IN S.T.REV. 41
& 42/2010.
ANNEXURE I TRUE COPY OF THE INSPECTION REPORT DATED
14.12.2010.
ANNEXURE J TRUE COPY OF THE JUDGEMENT DATED 20.01.2011
OF THE HIGH COURT OF KERALA IN S.T.REV.
No.41/2010.
ANNEXURE K TRUE COPY OF THE ARGUMENT NOTE DATED
15.02.2013 FILED IN T.A. No.36/2009.
ANNEXURE L CERTIFIED COPY OF IMPUGNED COMMON ORDER
DATED 22.02.2013
S.T.Rev.Nos.41/2013 &
APPENDIX OF ST.Rev. 54/2013
PETITIONER'S EXHIBITS:
ANNEXURE-A TRUE COPY OF A CERTIFICATE DATED 19.04.1989
ISSUED BY THE DEPARTMENT OF INDUSTRIES AND
COMMERCE, MYSORE
ANNEXURE-B TRUE COPY OF ASSESSMENT ORDER DATED
19.01.2002 FOR AY 2000-01
ANNEXURE-C TRUE COPY OF ASSESSMENT ORDER DATED
31.01.2003 FOR AY 2001-02
ANNEXURE-D TRUE COPY OF ASSESSMENT ORDER DATED
31.03.2007 FOR AY 2003-04
ANNEXURE-E TRUE COPY OF ASSESSMENT ORDER DATED
31.03.2007 FOR AY 2004-05
ANNEXURE-F TRUE COPY OF THE APPELLATE ORDER DATED
22.10.2008 FOR AY 2003-04 & 2004-05
ANNEXURE-G TRUE COPY OF THE ORDER DATED 24.04.2009
PASSED BY THE APPELLATE TRIBUNAL
ANNEXURE-H TRUE COPY OF THE SALES TAX REVISION
NO.41/2010.
ANNEXURE-I TRUE COPY OF THE SALES TAX REVISION
NO.42/2010.
ANNEXURE-J TRUE COPY OF THE INTERIM ORDER DATED
28.10.2010 IN S.T.REV.NO.41 & 42/2010
ANNEXURE-K TRUE COPY OF THE INSPECTION REPORT DATED
14.12.2010
ANNEXURE-L TRUE COPY OF THE JUDGEMENT DATED 20.01.2011
IN S.T.REV. NO.33, 41 & 42/2010.
ANNEXURE-M TRUE COPY OF THE ARGUMENT NOTE DATED
15.02.2013.
ANNEXURE-N TRUE COPY OF IMPUGNED ORDER DATED
22.02.2013.
S.T.Rev.Nos.41/2013 &
APPENDIX OF ST.Rev. 56/2013
PETITIONER'S EXHIBITS:
ANNEXURE-A TRUE COPY OF A CERTIFICATE DATED 19.04.1989
ISSUED BY THE DEPARTMENT OF INDUSTRIES AND
COMMERCE, MYSORE
ANNEXURE B TRUE COPY OF THE ASSESSMENT ORDER DATED
19.01.2002 FOR AY 2000-01.
ANNEXURE C TRUE COPY OF ASSESSMENT ORDER DATED
31.01.2003 FOR AY 2001-02
ANNEXURE D TRUE COPY OF ASSESSMENT ORDER DATED
31.03.2007 FOR AY 2003-04
ANNEXURE E TRUE COPY OF ASSESSMENT ORDER DATED
31.03.2007 FOR AY 2004-05
ANNEXURE F TRUE COPY OF THE APPELLATE ORDER DATED
22.10.2008 FOR AY 2003-04 & 2004-05
ANNEXURE G TRUE COPY OF THE ORDER DATED 24.04.2009
PASSED BY THE APPELLATE TRIBUNAL
ANNEXURE H TRUE COPY OF THE SALES TAX REVISION
NO.41/2010.
ANNEXURE I TRUE COPY OF THE SALES TAX REVISION
NO.42/2010.
ANNEXURE J TRUE COPY OF THE INTERIM ORDER DATED
28.10.2010 IN S.T.REV. NO.41 & 42/2010.
ANNEXURE K TRUE COPY OF THE INSPECTION REPORT DATED
14.12.2010
ANNEXURE L TRUE COPY OF THE JUDGEMENT DATED 20.01.2011
IN S.T.REV. NO.33, 41 & 42/2010
ANNEXURE M TRUE COPY OF THE ARGUMENT NOTE DATED
15.02.2013.
ANNEXURE N TRUE COPY OF IMPUGNED ORDER DATED
22.02.2013.
