Kurlon Limited, Bangalore vs State of Karnataka

V. Gopala Gowda, J.-These revision petitions are filed by the petitioner questioning the common judgment passed by the Karnataka Appellate Tribunal (hereinafter called as "KAT" for short), dated 5-1-2006 in S.T.A. Nos. 2391, 2394 and 1850 of 2004 dismissing the appeals of the assessee for the assessment years 1998-99, 1999-2000 and 2000-01 respectively, by affirming the order of the Assessing Officer, framing the question of law and requested to answer the same against the assessee. The same reads thus:

"Whether the orders passed by the Assessing Authority as upheld by the First Appellate Authority in subjecting to tax as first seller on the sale of pillows with covers with the brand name attached is justifiable?"

In support of the said question of law, it is contended by Sri R.V. Prasad, the learned Counsel on behalf of the petitioner that the affirming order passed by the First Appellate Authority in relation to the assessment years is bad in law, as the findings are erroneous in law. Therefore, the questions framed in these revision petitions would arise for consideration. Further, the order passed in S.T.A. No. 1850 of 2004 which is impugned in S.T.R.P. No. 58 of 2006 is in gross violation of the principles of natural justice, as the KAT has not examined and answered the grounds of appeal despite the fact that the assessee produced documentary evidence such as purchase invoices to show that the goods purchased by it from the registered dealers in the State of Karnataka as being bare pillows and not bare latex sheets as observed by both the Assessing Authority and First Appellate Authority. This aspect of the matter has not been discussed and considered at all by the KAT in its common order and therefore the findings recorded in the impugned judgment is erroneous in law and therefore the same are liable to be set aside.

From a bare reading of the proviso to Section 5(3), clause (a) of the Karnataka Sales Tax Act, 1957 (hereinafter called as "the Act" for short), which provision makes it clear that if a person gets the goods manufactured under his trademark by another person then the sale effected by the persons who manufactures the goods to the person who owns the trademark does not become a first sale and the sale effected by the person who owns the brand name to any other person would constitute first sale in the State of Karnataka and liable to sales tax under the provisions of the Act. It is the case of the petitioner that it does not get goods manufactured by any other person under its brand name. Instead, after purchasing bare pillows from the registered dealers, it supplies the pillows along with covers and labels with its brand name to a job worker who undertakes the job of stitching the covers and the brand name, price labels to the pillows, carried on by the Job Contractor stitching charges are paid to the job work and further the assessee does not purchase any bare latex pillow sheets and only bare pillows are purchased from the registered dealers situated within the State of Karnataka as well as in course of inter-State trade and commerce. The same does not amount to manufacture of different and distinct goods and therefore the same are not liable for sales tax.

Learned Counsel for the petitioner in support of his legal submissions has placed reliance upon the various decisions of the Supreme Court and this Court which are as follows.-

Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v M/s. Shiphy International, Alleppey, 1988(32) Kar. L.J. 75 (SC);

M/s. Sterling Foods v State of Karnataka and Another, 1986(2) Kar. L.J. 242 (SC);

Sri Lakshmi Coconut Industries v State of Karnataka and Another, 1980(2) Kar. L.J. 76 (DB);

Ram Bhadur Takkur, Takkur (Private) Limited v Coffee Board, Bangalore and Others, (1991)80 STC 199 (Mad.) (DB).

With reference to the first case referred to above, he has contended that the assessee in the above case purchased fresh frog legs and after removing the skin, washing and removing dirt, etc., and freezing them for the purpose of avoiding decomposition, exported them, claimed exemption from purchase tax under the provisions of Section 5(3) of the Central Sales Tax Act, 1956, the Apex Court held that frozen frog legs and fresh frog legs were essentially the same commodity and therefore not liable to pay tax, the said view is taken by the Supreme Court after interpretation of Section 5(3) of the Central Sales Tax Act. By placing reliance upon another decision of the Apex Court in the case of Sterling Foods, where the Apex Court in the said case held that frozen shrimps, prawns and lobsters were commercially regarded as the same commodity as raw shrimps, prawns and lobsters and there was no essential difference between the raw shrimps, prawns and lobsters and processed or frozen shrimps, prawns and lobsters. The same principle is laid down in the cases decided by this Court and the Andhra Pradesh High Court in respect of the commodities referred in those cases. Therefore, the learned Counsel for the petitioner submits that the questions of law as framed in this case required to be answered in favour of the assessee.

Smt. S. Sujatha, learned Additional Government Advocate placed strong reliance on the following decisions of the Supreme Court, viz., in the cases of Aspinwall and Company Limited v Commissioner of Income-tax, 2002(52) Kar. L.J. 68 (SC); M/s. Ujagar Prints v Union of India and Others6; Vadilal Chemicals Limited v State of Andhra Pradesh and Others, (1989)74 STC 401 (SC) and in the Division Bench decision of this Court in the case of M/s. Brooke BondLipton India Limited, Bangalore v State of Karnataka, 1998(44) Kar. L.J. 90 (HC) (DB). In support of her legal submissions placed strong reliance upon the Constitution Bench decision of the Supreme Court in the case of Ujagar Prints, wherein the Apex Court has examined the provisions of the Central Excise and Salt Act, 1944, with reference to the definition of manufacture under Section 2(f) of the Central Excise and Salt Act examining the items 19-I, 21 and 22 of the said Act. Under the provisions of the said Act, the definition of "Manufacture" has been examined at length and interpreted the provisions by the Apex Court with reference to its earlier various decisions and held that the process like bleaching, dyeing and printing has got manufacturing process. Therefore, it is held in the said case that the process of bleaching, dyeing, printing, sizing, shrink-proofing, water proofing, rubberising and organdie processing carried on in respect of cotton or man-made Grey fabric amount to "manufacture". This decision and another decision of the Apex Court which is referred to in Ujagar Prints case, the case of Empire Industries Limited and Others v Union of India and Others, (1987)64 STC 42 (SC), have been referred to by the Division Bench decision of this Court in Brooke Bond Lipton India Limited''s case, at paragraphs 47 and 48 referred to supra and held that the petitioner in Brooke Bond Lipton India Limited''s case produced tea packages by the operation of modern automatic machines ensuring unadulterated blended tea in order to maintain its basic qualities and properties like colour and flavour for a longer period and the packaged blended tea had different price structure which is higher than the blended tea available in loose or packing. The aforesaid decisions with all fours are applicable to the fact situation of the case on hand in favour of revenue. Further, having regard to the undisputed fact that the petitioner herein has purchased either the latex pillow sheets or bare pillows from the registered dealers, both of them are situated within the State of Karnataka. For the purpose of inter-State trade and commerce, got the covers stitched with its brand name, to either latex pillow sheets or bare pillows, which will be totally different and distinct commodity in the commercial parlance. Therefore, she has contended that the sale of pillows by the petitioner in the market is subjected to sales tax in view of entry at Sl. No. 6 in Part ''F'' to the Second Schedule of the Act. Therefore, it is contended that the concurrent finding of fact recorded by the KAT in its judgment is based on proper appreciation of facts and legal evidence on record and same is in conformity with the decisions of the Supreme Court, this Court and the High Court of Madras Judicature referred to supra. She further submits that the petitioner has got right of filing revision petition only if it is shown from the findings and reason recorded by either the Assessing Officer, Appellate Authority and KAT are shown to be either erroneous in law or error in law. Then only the questions of law would arise in this case, then such questions are required to be framed and answered. In the instant case, the learned Counsel for the revenue with reference to the above said legal submissions. Submits that no questions of law much less the questions of law framed by the petitioner would arise for consideration for the reason that the First Appellate Authority''s findings are concurred by the KAT on the contentious points and recorded its reasons by accepting the finding of fact recorded by the Assessing Authority on facts and material evidence and therefore requested this Court to dismiss these petitions.

With reference to the above said rival legal contentions we have examined the same very carefully with a view to find out the correctness of the concurrent findings and reason recorded by the KAT in the impugned judgment and to answer the questions of law framed by the petitioner in these petitions.

We have heard the learned Counsel for both sides at length, perused the original records of the Assessing Officer and also the documents of Xerox copies of invoices which are made available to us by the assessee in justification of their case to show to us that the findings and reasons recorded by the KAT are erroneous in law for lack of evidence on record in support of the findings and reasons recorded on the contentious prints framed by it and evidence in favour of the assessee on record is not properly appreciated and considered by the Assessing Officer at the time of passing the order. The First Appellate Authority and KAT have erroneously referred to the documents produced by the assessee in the reasoning portion of the order and stated that the assessee purchased the latex pillow sheets, which is contrary to the documentary evidence produced by it before the Assessing Authority. On the other hand, the assessee has not purchased bare latex pillows from the dealers. The said pillows purchased by the petitioner from the registered dealers got the covers with its brand name stitched to goods purchased by it in the market and thereafter sold in the market. Therefore, it is not a sale of a different and distinct commodity, hence the same are not liable for tax under the Part ''F'' of Sl. No. 6 in the Second Schedule of the Act, as it has already suffered sales tax. We have to answer the above questions of law framed in these cases against the assessee for the following reasons.-

It is not the case of the assessee that the third proviso to Section 5 of the Act is attracted to their case. It is their case that they have purchased the bare latex pillows from the registered dealers within the State of Karnataka as well as in the inter-State trade and commerce and after purchase, they have entrusted the same to job workers for stitching with the cotton cover and its brand and price labels. In this regard, it is the case of the petitioner that bare latex foam pillows were purchased by it from the registered dealers and thereafter the same were entrusted to the job workers that is M/s. Pany Tailoring House, Mysore, with certain terms and conditions mutually agreed between the assessee and the tailoring house to stitch the covers with Company''s brand labels and price tags to the bare pillows and thereafter sold the goods in the market. It is the case of the petitioner that the above work does not involve any manufacturing activity in producing a totally different and distinct goods, which are liable for sales tax under the relevant entry and Second Schedule. This factual contention is examined by us with reference to the findings and reason recorded by the Karnataka Appellate Tribunal in its judgment. No doubt, the KAT instead of referring to the bare pillows purchased by the assessee from the registered dealer, it has referred to the latex pillow sheets. On the basis of evidence on record, the KAT has concurred with the finding of fact recorded by the First Appellate Authority. The purchase of bare pillows by the petitioner will be undergoing the change at the hands of the assessee by getting the covers with its brand name stitched to the bare pillows or the pillow sheets which will become a different and distinct commodity in commercial parlance from the bare pillows purchased by the petitioner from its dealers. Therefore, the sale of branded pillows by the petitioner in the market in State of Karnataka by the petitioner is taxable under the Entry at Serial No. 6, Part ''F'' of the Second Schedule to the Act. In this regard, reliance placed upon the decisions of the Supreme Court by the learned Additional Government Advocate, viz.,Ujagar Prints case and other judgment of the Supreme Court, namely, Empire Industries Limited''s case, which relevant portion of the above decisions is extracted by the Division bench of this Court in the case of Brooke Bond Lipton India Limited, justifies the findings and reason recorded by the fact finding authorities in their orders/judgment wherein they have stated that the petitioner is not selling the goods purchased from its dealer directly to the customers in the market, but the goods of either bare pillows or pillow sheets same are got stitched with covers and its brand name through its tailor on contract basis, which goods will undergo a different and distinct goods in commercial parlance from the bare pillows or sheets purchased from the registered dealers. Therefore, the reliance placed upon the decisions of the Supreme Court and this Court by the petitioner''s Counsel referred to supra do not apply to the fact situation, but on the other hand, the decisions of the Apex Court and this Court referred to supra upon which strong reliance placed by the learned Additional Government Advocate in support of her contentions, the change of goods from their original form amounts to manufacturing process and therefore those goods will become different and distinct goods, hence those decisions would support the case of the revenue. Therefore, we are in respectful agreement with the concurrent finding of fact recorded by the KAT in the impugned judgment in answer to the contentious Point No. 1. Therefore, the questions of law framed at Serial Nos. 1 and 3 to 6 in these petitions do not arise for our consideration in these revision petitions. Insofar as, issue 2 is concerned, with reference to the legal contentions urged by the learned Counsel for the petitioner that Section 5(3)(a) of the Act is not applicable to the case on hand, is examined by us with reference to the third proviso to the above section of the Act. As we have already stated the third proviso of Section 5 of the Act has no application to the fact situation and the sale of pillows by the petitioner after purchasing either the bare pillows or pillow sheets from the registered dealers and got the cover and the label with the brand name of the petitioner stitched from the tailors on job work contract and sold the goods in the market. In view of the entry found in Serial No. 6 of Part ''F'' in the Second Schedule to the Act, the sale of pillows by the petitioner after they got stitched covers with its branded name will be different and distinct commercial goods and therefore they are liable for sales tax. Therefore, the observation made by the KAT in its judgment has answered the contentions Point No. 1 framed by it in paragraphs 11 and 12. Therefore, the same does not require to be considered by us and answer in this petition.

For the reasons stated supra and in view of the finding of fact and reasons recorded by the KAT in the impugned judgment is legal and valid and the same are supported with the decisions of the Apex Court and Division Bench of this Court referred to supra. Accordingly, the questions framed in these petitions are answered against the assessee.

Accordingly, the petitions are dismissed.