1state of Karnataka vs Akash Audio, Bangalore

K.L. Manjunath, J.-This petition is filed under Section 23(1) of the Karnataka Sales Tax Act, 1957 challenging the judgment of the Karnataka Appellate Tribunal, Bangalore, dated 10-2-2005 in S.T.A. No. 1517 of 2004 (Akash Audio, Bangalore v State of Karnataka, 2005(58) Kar. L.J. 448 (Tri.) (DB)). The respondent is a partnership firm engaged in marketing and sale of pre-recorded cassettes, compact discs, etc. On 24-6-2002 the business premises of the respondent was inspected and searched by the Investigation Officer. During search, it was found that the respondent was marketing the pre-recorded cassettes of the brand known as Akash Audio. The Investigation Officer distinguished the first sale as the second sale. Certain books of accounts were seized by him and called upon the respondent to pay the tax as first sale under Section 5(3)(a) of the KST Act, contending that the respondent was purchasing the empty cassettes and thereafter selling the same after recording and that the recording of songs amounts to manufacture and attracts tax. Challenging the orders of the Assessing Officer, an appeal was filed before the First Appellate Officer in No. KST.AP.298/03-04/99-2000. The appeal filed by the respondent before the Joint Commissioner of Commercial Taxes (Appeals) was dismissed on 10th March, 2004 by upholding the orders of the Assessing Authority. Challenging the concurrent findings of the Assessing Authority and the First Appellate Authority, respondent filed an appeal before the Karnataka Appellate Tribunal, Bangalore in S.T.A. No. 1517 of 2004 that both the parties have committed an error in calling upon the respondent-assessee to pay the tax on the recorded cassettes.

According to the respondent, recording on the empty cassettes does not amount to manufacture. To support its view, the respondent relied upon the judgment of the Bombay High Court in the case of Commissioner of Sales Tax, Maharashtra State, Bombay v Rajshree Electronics, (1995)98 STC 403 (Bom.) and the judgment of the Hon''ble Supreme Court in Prabhat Sound Studios v Additional Collector of Central Excise, (1997)107 STC 70 (SC). Relying upon some other decision of this Court namely, Bangalore Wood Industries, Gavanahalli, Chickmagalore District v Assistant Commissioner of Commercial Taxes (Assessment), Hassan and Another, 1993(37) Kar. L.J. 447 (HC) (DB) and State of Karnataka v M/s. Chamundeshwari Industries, 1990(34) Kar. L.J. 61 (HC) (DB) contended that the respondent is not liable to pay the tax as assessed since Section 5(3)(a) of the KST Act, does not attract the facts of the case.

The Karnataka Appellate Tribunal after hearing the Counsel for both the parties placing reliance on the judgment of the Bombay High Court in Rajshree Electronics case and the Supreme Court in the case of Prabhat Sound Studios, held that selling of recorded cassettes after purchasing the empty cassettes does not amount to manufacture and allowed the appeal. Challenging the same the present petition is filed.

We have heard the learned Counsel appearing for the State of Karnataka and the Counsels for the respondent.

The learned Government Advocate reiterating the arguments advanced before the Karnataka Appellate Tribunal contends that the respondent is selling the cassettes with a brand name and trademark. Therefore, he contends that Section 5 of the KST Act applies and it amounts to manufacture and request this Court to allow the petition. But the Hon''ble Supreme Court in Prabhat Sound Studios case, as held hereunder:

"A manufacturer of tapes may manufacture and sell blank tapes upon which the purchaser would be free to record such sound as he chose. The manufacturer may go one step forward and record sound itself and sell such tapes. It is to cover the both eventualities that tariff item 59 of the Schedule to the Central Excise and Salt Act, 1944 is categorised as it is. But it is altogether different to say that the recording of sound on blank tapes, on job work basis, is a manufacturing process. Even a pre-recorded tape can have the sound erased from it and it can be used again for recording other sound. No process of manufacture is involved in recording of sound on blank tapes".

In view of the ruling of the Hon''ble Supreme Court in the aforesaid decision, we are not in a position to take a different view than that of the Karnataka Appellate Tribunal. We are of the opinion that the Karnataka Appellate Tribunal was justified in setting aside the order passed by the Assessing Authority as well as the First Appellate Court.

In the circumstances, the petition is dismissed.