Vasu Chemicals vs Commercial Tax Officer and Others

K.P. Sivasubramaniam, J.—The petitioner prays for the issue of a writ of Certiorari to call for the records relating to the order of the third

respondent in M.T.A. No. 528 of 2000 in so far as it relates to levy of tax on the inter-State sale of soaps (metal polishing) for the assessment year

1998-99 and to quash the order of the third respondent dated December 13, 2000.

The petitioner is registered dealer on the files of the first respondent having a factory in Sivagangai District. They have been issued with

certificate of recognition by the Regional Office of Khadi and Village Industries Commission, Madurai, as one of the recognized village industries

under the purview of the Khadi and Village Industries Commission. The petitioner is manufacturing metal polishing soaps which according to him is

included in the Schedule. The petitioner was engaged in the developmental activities of Khadi and Village Industries Commission and it was

therefore recommended that the petitioner''s firm may be extended the fiscal benefits and concessions applicable to the industries engaged in the

development of village industries.

According to the petitioner, they are manufacturing soaps (metal polishing) which is also a commodity included and covered in the Schedule to

the Khadi and Village Industries Commission Act, 1956.

Therefore, the petitioner claimed the exemption in respect of inter-State sales of soap (metal polishing). However, the first respondent rejected

the claim by stating that the product manufactured by the petitioner will not come under the Schedule to Khadi and Village Industries Commission

Act, 1956 and therefore, the exemption claimed was disallowed and tax at the rate of 16 per cent was demanded as the same was not covered by

the Tamil Nadu General Sales Tax Act, 1959.

Thereupon the petitioner filed an appeal before the second respondent both under the Tamil Nadu General Sales Tax Act, 1959 and Central

Sales Tax Act, 1956. The second respondent also confirmed the orders of the assessing authority and held that the petitioner is not eligible for the

exemption by stating that the product manufactured by the petitioner was not covered by the Schedule to Khadi and Village Industries Commission

Act, 1956 but would fall under entry 18 of the First Schedule to the TNGST Act, 1959. Aggrieved by the same, the petitioner filed a further

appeal before the third respondent. The third respondent by their common order dated December 13, 2000, after analysing the entire aspect,

applied the notification issued u/s 17 of the TNGST Act, 1959 and held that the notification issued u/s 17 was fully applicable to the products

manufactured by the petitioner. With the result, the appeal filed by the petitioner to the extent of TNGST Act was allowed. But in so far as the

liability under CST Act is concerned, according to the petitioner, there was no discussion in the said order but at the same time confirmed the

liability of higher rate of tax without any specific reasoning or rendering any specific finding. Hence, the above writ petition by the petitioner.

Learned counsel for the petitioner contends that while the third respondent had held that under the TNGST Act, the product was validly

exempted u/s 17 of the Act, no acceptable reasons have been stated as regards the exemption under the Central Sales Tax Act, 1956 which is in

part materia of the notification issued u/s 17 of the TNGST Act, 1959.

I have heard the learned Counsel for the petitioner who took me through the copy of the certificate of recognition issued by the Khadi and

Village Industries Commission, Madurai, dated August 24, 1998. Entry 4 of the Schedule relates to ""cottage soap industry"".

Learned counsel also referred to the order of the Appellate Assistant Commissioner holding that the soap for metal polishing would differ from

that of ordinary soap and therefore, the Schedule relating to Khadi and Village Industries Commission will not cover the production of metal

polishing soaps.

Learned counsel also took me through the orders of the Tribunal. The Tribunal had found in favour of the petitioner in so far as the exemption

granted u/s 17 of the TNGST Act, 1959. But with reference to CST Act, the only ground stated for confirming the order of the Appellate

Assistant Commissioner is the failure on the part of the appellant in producing the relevant declaration before the Tribunal. In the said background,

the learned Counsel for the petitioner contends that there is no question of producing ""C"" form in respect of exempted commodity, and hence the

order cannot be sustained.

I have also heard the learned Government Pleader (Taxes).

Learned Government Pleader contends that the Tribunal has not considered the issue as regards whether the product would fall under the

category of soap, as enlisted by Khadi and Village Industries Commission. The said issue has been considered in detail by the Appellate Assistant

Commissioner, who has recorded a positive finding that soaps for metal polishing will not fall under the Schedule of the Cottage Industries but

would fall only under entry 18 of the First Schedule to the TNGST Act, 1959. It is therefore, contended that the petitioner has to substantiate that

the product manufactured by him will fall under the exempted category.

I have considered the submissions of both sides.

The ultimate issue relates to the analysis of entry 4 to the Schedule of the certificate issued by the Regional Office of Khadi and Village

Industries Commission. The entry merely states ""cottage soap industries"". Though a specific finding has been given by the Appellate Assistant

Commissioner, to the effect that the product manufactured by the petitioner will not fall under the said category, the appellate order by the Tribunal

does not uphold the said reasoning by the Appellate Assistant Commissioner in view of the fact that the said reasoning of the Appellate Assistant

Commissioner was ignored by the Tribunal. It is pertinent to note that the exemption under TNGST Act has been upheld by the Tribunal and

therefore the Tribunal did not agree with the said finding of the Khadi and Village Industries Commission (sic). The conclusions of the Tribunal can

be only held as accepting the contention of the petitioner that the nature of the product manufactured by the petitioner would fall within entry 4 of

the certificate issued by the Khadi and Village Industries Commission. I am also inclined to hold that the specification in the certificate is only

cottage soap industries"". The purpose for which the soap is to be used is not specified and therefore irrelevant. The only requirement to be

satisfied is that the nature of the industry must satisfy the description or nomenclature of cottage industry. The purpose for which the soap is used is

not the criteria, unless specifically classified. It is fairly admitted by the learned Government Pleader that no appeal has been filed in so far as the

said portion of the order of the Tribunal and the exemption granted under TNGST Act. Therefore the Tribunal having upheld that the product

manufactured by the petitioner would fall within the exempted category, for the same reason, the exemption granted under the CST Act will also

be operative. The only reason stated by the Tribunal for disallowing the claim under the CST Act is non-production of the relevant declaration

before the Tribunal.

I am inclined to hold that the said reason cannot be sustained considering that there is no question of producing any ""C"" form certificate with

reference to a product which is totally exempt from the liability of tax. Therefore, I am unable to sustain the reason stated by the Tribunal for

disallowing the prayer for exemption of tax under the CST Act. Having held that the product falls under the exempted category, the requirement of

production of ""C"" form does not arise for consideration.

With the result, the petitioner is entitled to succeed. The writ petition is allowed as prayed for. No costs.