M/S.S.K.Dal Industries vs. State Of Orissa

Held

The Court decided that the rejection of the claim for export sales exemption under Section 5(3) of the CST Act was not sustainable. While Form 'H' is mandatory, the Court noted that the judgment did not explicitly state that the agreement between the exporter and foreign buyer was a prerequisite for claiming exemption under Section 5(3) when Form 'H' was duly furnished. The Court held that decorticating groundnut pods to produce kernels does not constitute manufacturing. Relying on various precedents, the Court reasoned that while there is a change in form, the essential characteristic and type of the commodity (groundnut kernel) remain the same, and no new commercial commodity is brought into existence. Therefore, the petitioner was not entitled to the concessional rate of tax under the Finance Department notifications. The Court remitted the matter to the Assessing Authority to re-examine the Form 'H' and other documents to determine the tax liability afresh.

Facts

The petitioner, M/s. S.K. Dal Industries, challenged an order of the Odisha Sales Tax Tribunal which upheld the rejection of their claim for exemption on export sales under Section 5(3) of the Central Sales Tax (CST) Act, 1956. The tax periods in question were from 01.04.2006 to 30.06.2006. The petitioner, engaged in decorticating groundnut pods and selling kernels, had supplied groundnuts to exporters and provided Form 'H' declarations and bills of lading. However, the Assessing Authority rejected the exemption because the petitioner could not produce the export order or agreement between the foreign buyers and Indian exporters. The Assessing Authority also disputed the petitioner's claim for a concessional tax rate of 1% on the inter-State sale of groundnut kernels, deeming decortication not a manufacturing activity and applying a 4% tax rate. The Deputy Commissioner and the Tribunal affirmed these orders.

Key Issues

1. Whether the rejection of the claim for export sales exemption under Section 5(3) of the CST Act, despite the petitioner furnishing Form 'H' declarations and bills of lading, is legally sustainable? The petitioner argued that furnishing Form 'H' as prescribed under Rule 12(10) of the CST (Registration and Turnover) Rules, 1957, should suffice, and the Revenue had no justification to demand the agreement between the exporter and foreign buyer. The Revenue contended that Form 'H' requires details of the agreement, making its submission indispensable to prevent false claims. 2. Whether the disallowance of the tax rate of 1% for inter-State sales of groundnut kernels is lawful, given the petitioner's status as a small-scale industrial unit? The petitioner argued that being a certified small-scale unit entitled them to the concessional rate under Finance Department notifications issued under Section 8(5) of the CST Act. The Revenue argued that decorticating groundnut is not manufacturing, as no new commodity is formed, and thus the standard rate of 4% under Section 8(2) of the CST Act is applicable.