(Prayer: TAX CASE under Section 37 of the Tamil Nadu General Sales Tax Act, 1959 to revise the order of the Joint Commissioner in Ref.No.M1/79997/97 in SMR.No.342/98 dated 05.7.2005)
T.S. Sivagnanam, J.
1. This tax case has been filed by an industrial cooperative society, which is registered with the Tamil Nadu Khadi and Village Industries Board and engaged in the manufacture of steel and furniture and other industrial products.
2. The members of the appellant society are artisans, who manufacture products, which are marketed through the appellant society. In this case, the society is aggrieved by an order passed by Joint Commissioner- III, Department of Commercial Taxes, Chennai dated 05.7.2005 in exercise of his suo motu revisional powers under Section 34 of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the Act).
3. The facts leading to the filing of this case could be summarized as follows: For the assessment year 1994-95, the appellant reported a total and taxable turnover of Rs.1,60,11,357/- and NIL respectively. They claimed exemption in terms of G.O.Ms.No.272 Revenue Department dated 11.2.1967 and the proceedings of the Khadi and Village Industries Board in B.P.No.70 dated 13.3.1969. The claim for exemption was rejected by the Assessing Officer on the ground that the society was not authorized to effect sales of E.B. line materials and RTS grills to the Tamil Nadu Electricity Board and accordingly, the total and taxable turnover for the relevant year was determined at Rs.2,69,80,643/- and Rs.2,68,12,967/- respectively. The Assessing Officer also levied penalty under Section 12(3)(b) of the Act.
4. While completing the assessment and determining the total and taxable turnover and imposing penalty, the objection raised by the appellant was that their society falls within the jurisdiction of the Khadi and Village Industries Commission in accordance with Sections 2(h) and 3(1) of the Khadi and Village Industries Commission Act, 1956 and blacksmithy is one of the items, which falls within the Schedule under the said provisions and the products supplied to the Electricity Board are blacksmithy items and that therefore, the society is entitled for exemption.
5. Aggrieved by the order of assessment and imposition of penalty, the appellant filed an appeal before the Appellate Assistant Commissioner (CT), Virudhunagar. The First Appellate Authority accepted the stand taken by the appellant and allowed the appeal by order dated 27.2.1997. After about a year, the Joint Commissioner (SMR-II), Chennai issued a show cause notice to the appellant under Section 34 of the Act, calling upon the appellant to show cause as to why the order passed by the Appellate Assistant Commissioner should not be set aside and the order passed by the Assessing Officer be restored. The reason assigned in the show cause notice was that G.O.Ms.No.3131 Revenue Department dated 26.10.1963 was relied upon by the Appellate Assistant Commissioner wherein the Government granted exemption for Madras State Khadi and Village Industries Board and the units attached to it in respect of their sales of all goods produced by the Board and its units and that the appellant assessee had purchased finished goods and sold, which were not considered by the Appellate Assistant Commissioner and there is a violation of the conditions stipulated in the Government Order.
6. The appellant society submitted their reply along with a letter from the Assistant Director, Khadi and Village Industries, Virudhunagar addressed to the Joint Commissioner requesting to drop the proceedings. The Joint Commissioner, by the impugned order, set aside the order passed by the Appellate Assistant Commissioner and restored the order passed by the Assessing Officer. Aggrieved by the same, the appellant society has filed this case.
7. The questions of law, which arise for consideration in this appeal, are as follows:
(i) Whether on the facts and in the circumstances of the case, the Joint Commissioner was right in restoring the levy of sales tax at 8% on the sales of RTS grills to an extent of Rs.35,99,444/- ?
(ii) Whether on the facts and in the circumstances of the case, the Joint Commissioner was right in modifying the penalty regarding the turnover of Rs.35,99,444/- on the sales of RTS grills at 8% ? and
(iii) Whether on the facts and in the circumstances of the case, the Joint Commissioner was right in holding that RTS grills and items supplied to the Electricity Board will not be a product of Khadi and Village Industries and do not fall under the item 'blacksmithy' ?
8. We have heard Mr.S.Karunakar, learned counsel for the appellant and Mr.R.Karthikeyan, learned Additional Government Pleader (Taxes) for the respondent Department and carefully perused the materials placed on record.
9. As noticed above, the Assessing Officer had determined the total and taxable turnover and levied penalty under Section 12(3)(b) of the Act. Before we proceed to consider the question as to whether the appellant was entitled for the benefit of exemption, we first propose to consider as to whether the Assessing Officer was justified in levying penalty.
10. Admittedly, the entire turnover has been culled out from the books of accounts. If such is the situation, the settled legal position is that no penalty can be levied under Section 12(3)(b) of the Act. The Appellate Assistant Commissioner was right in vacating the levy of penalty on the ground that the entire turnover was culled out from the books of accounts produced by the appellant/dealer.
11. We may, at this juncture, refer to the decision of the Honourable Division Bench of this Court in the case of Appollo Saline Pharmaceuticals (P) Ltd. Vs. CTO (Fac.) [reported in (2002) 125 STC 505]. Therefore, question No.2 is answered in favour of the appellant and against the Revenue.
12. Question Nos.1 and 3 are interlinked in the sense that we have to decide as to whether the appellant, a cooperative society engaged in industrial activity, is entitled to claim exemption on the product sold by it to the Tamil Nadu Electricity Board. The undisputed facts are that the appellant industry is registered under the Tamil Nadu Khadi and Village Industries Board and to the said effect, a certificate has been issued by the Assistant Director on 09.12.1996.
13. Furthermore, the Assistant Director of Khadi and Village Industries, Virudhunagar had addressed to the Joint Commissioner of Commercial Taxes, when a show cause notice was issued to the appellant under Section 34 of the Act. In the said communication, it was mentioned that Khadi and Village Industries Commission is a quasi body of the Government of India and the Commission is a funding agency and does not have any power over the administrative matters of the society registered by the Tamil Nadu Khadi and Village Industries Board. It was further stated that the Tamil Nadu Khadi and Village Industries Board is a statutory body of the Government of Tamil Nadu, administered by an Executive Officer by virtue of the powers conferred on him under Section 89(1)(i) of the Tamil Nadu Cooperative Societies Act, 1983 and he is the ex officio Registrar of the Khadi Board Cooperative Societies. It was further stated that the appellant society is a unit of the Tamil Nadu Khadi and Village Industries Board and in terms of By-law No.D, the society is authorized to purchase finished goods from the members of the society and sell, so that the members are benefited. With the above opinion, the Joint Commissioner was requested to drop further proceedings on the show cause notice.
14. The appellant, in their reply, placed heavy reliance on the observations made by the Appellate Assistant Commissioner while allowing the appeal and reversing the order passed by the Assessing Officer as to how they are entitled for exemption and the products, which were sold by the society to the Tamil Nadu Electricity Board, are blacksmithy items and the observation of the Assessing Officer that it involves painting and welding is of no consequence as essentially the product is developed by blacksmithy. Apart from that, the appellant also relied upon the letter given by the Khadi and Village Industries Board and the certificate issued by them and stated that the proposed revision as contemplated by the Joint Commissioner is not warranted.
15. We may notice that in the show cause notice dated 26.2.1998, the Joint Commissioner proposed to set aside the order of the Appellate Assistant Commissioner on the ground that the appellant had purchased finished goods and sold them and it is in violation of the Government Order. In our considered view, this proposal made by the Joint Commissioner is without appreciating the fact that the appellant is a cooperative society, registered under the provisions of the Tamil Nadu Cooperative Societies Act and the society has been established for the welfare of its members. In other words, if the society is an agricultural cooperative society, the members would be agriculturists, who would market their produce through their society. the appellant society is an industrial cooperative society registered for manufacture of steel as well as furniture.
16. Section 2(h) of the Khadi and Village Industries Commission Act, 1956 defines 'village industries' to mean all or any of the industries specified in the schedule and includes any other industry deemed to be specified in the schedule by reason of a Notification issued under Section 3 of the said Act. The schedule so notified lists out the various village industries and one among them is blacksmithy. Section 17 of the Act provides for exemption of a class or category of industries or products. The Notification issued under Section 17 exempts sale of all products of village industries, which would mean that products made of iron, which is essentially a blacksmithy item, would also be entitled for the benefit of exemption. If such is the exemption Notification, which does not qualify the product to cover the sale of products of village industries, the appellant society would be entitled for the benefit of exemption.
17. The Assessing Officer rejected the claim for exemption on the ground that the process involves painting and welding. The Appellate Assistant Commissioner, while testing the correctness of the said finding, took into consideration the dictionary meaning of 'weld' and also the illustrative examples to show that blacksmithy involves welding and painting. Furthermore, the Appellate Authority took into consideration the Notification issued in G.O.P.No.74 Commercial Taxes dated 30.1.1985 vide Notification CTRE/3085 dated 13.2.1985 wherein the words 'subject to condition that they shall deal only in products of village industries specified in schedule to the Central Act 61 of 1956' have been omitted with effect from 06.10.1982 and held that the manufacture and supply of items to the Tamil Nadu Electricity Board are blacksmithy items and eligible for exemption.
18. Further, it is not in dispute that the appellant is one of the institutions certified by the Khadi and Village Industries Board and this stand has been reiterated by the Assistant Director to the Joint Commissioner vide letter dated 06.12.2004. It is important to note that in the said letter, the Khadi and Village Industries Board specifically certified that the society, which is a unit of the Board, is authorized to purchase finished goods from the members of the society and sell the same for the benefit of its members. This aspect of the matter was not considered by the Joint Commissioner while passing the impugned order. There was no material available with the Joint Commissioner to come to a conclusion that the product supplied by the appellant society to the Tamil Nadu Electricity Board would not fall under the category 'blacksmithy items'. The organization namely the Khadi and Village Industries Board is the best person to certify on this aspect, which had, in no uncertain terms, certified that the product is a blacksmithy item. Therefore, m
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erely because the product supplied by the society, which is being utilized by the Electricity Board for the purpose of supporting high voltage electrical cables, cannot make the product to fall outside the classification of blacksmithy product. The own use of the product is of no consequence to consider a claim for exemption of product, which was sold by the appellant society. 19. As observed by us earlier, painting and welding would be necessary to make the finished product. But, the essential character of the product does not change from that of a blacksmithy product. Further, the fact that the members of the appellant society are village artisans has not been denied by the Joint Commissioner nor there was any other material available before him to come to a different conclusion. 20. In view of the above discussion, it is held that the products, which were sold by the appellant society to the Tamil Nadu Electricity Board, are essentially blacksmithy products and are entitled for exemption in terms of the Notification issued under Section 17 of the Act. For all the above reasons, question Nos.1 and 3 are also answered in favour of the appellant dealer and against the Revenue. 21. In the result, all the questions are answered in favour of the appellant and against the Revenue. The above tax case is allowed. No costs.