IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE A.K.BASHEER WEDNESDAY, THE 18TH JUNE 2008 / 28TH JYAISHTA 1930 S.T.Rev..No. 186 of 2006 --------------------------------- ORDER DATED 20.12.2005 IN T.A.NO.335/2004 OF THE KERALA SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHIKODE PETITIONER/RESPONDENT IN TA/ASSESSEE ----------------------------------------------------- SAIT NAGIEE PURUSHOTHAM & CO.(P) LTD., POST BOX NO.36, CALICUT-673001, REPRESENTED BY ITS DIRECTOR, MR.RAMESH M.METHA. BY ADV.SRI.ANIL D.NAIR & SRI.A.M.SHAFFIQUE RESPONDENT/APPELLANT IN TA/REVENUE --------------------------------------------------------------- STATE OF KERALA, REPRESENTED BY THE SECRETARY, TAXES DEPARTMENT, THIRUVANANTHAPURAM. BY SR.GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ THIS SALES TAX REVISION HAVING BEEN FINALLY HEARD ON 18/06/2008, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: H.L.DATTU, C.J. & A.K.BASHEER, J. ------------------------------------------ S.T.Rev.No.186 of 2006 ------------------------------------------ Dated, this the 18th day of June, 2008 ORDER H.L.Dattu, C.J. A simple issue has been made complicated by the Tribunal. Appellant is a manufacturer of umbrellas. For its business activity it imports cloth from Taiwan. After the material so imported, it manufactures umbrellas and sells them in the market. It collects tax when the umbrellas are sold. The appellant also effects sale of the cloth so imported to other dealers in the State. 2. For the assessment year 1999-2000 the assessee had filed its annual returns before the assessing authority and in that had conceded a particular turnover as total and taxable turnover. In the returns filed, it had also claimed exemption on the sale of cloth made to the other dealers in the State. The claim of the assessee is rejected by the assessing authority by holding that what is sold by the assessee is water proof cloth and therefore exigible to levy of tax under Entry 10 of the Second schedule to the Kerala General Sales Tax Act, 1963 ('the Act' for short) and accordingly had levied tax at the rate of 4% on the sale of cloth made to the other dealers in the State. 3. The assessee had carried the matter by way of first appeal before the first appellate authority. The assessee had raised two contentions before the S.T.Rev.No.186 of 2006 2 first appellate authority. First was that, it is a registered dealer doing the business from the year 1975 onwards and at no point of time the assessing authority had treated the cloth sold by the assessee as water proof cloth and therefore, there was no reason for the assessing authority, for the assessment year 1999-2000, to take a different view in the matter and secondly, it is stated that the cloth that is sold by the petitioner to the other dealers is ordinary cloth and because of the way the umbrellas are manufactured, water does not seep into the umbrella and therefore, requires to be construed as cloth simplicitor. Before the first appellate authority it had produced the cloth used by it for the purpose of manufacture of umbrellas. After looking into the commodity so produced, the first appellate authority has thought it fit to direct the assessing authority to consider the claim of the petitioner and pass appropriate orders in accordance with law. 4. The first appellate authority while remanding the matter, in its order has observed as under: “The last point urged is whether the levy of tax on umbrella cloth is correct. The learned counsel would contend that the cloth is not “Water proof cloth”, but only water repellant and that the item was being considered only as cloth during all the past years. He S.T.Rev.No.186 of 2006 3 would also high-light that the book on “Taxable terms and Definitions” defines waterproof as “Ability of fabric to be fully resistant to penetration by water” while water- repellant is defined as a “state characterized by the non- spreading of a globule of water on a textile material”. He would also state that in the case of umbrella cloth, it is by reason of the shape in which the cloth is spread that the water washes off the cloth without getting in and that the property therefore is only “Water repellency” and not “water proofing”. Apart from the fact that during all the past years, the cloth was considered as only “Cloth” entitled to exemption, as rightly contended, umbrella cloth is not water proof but only water repellant. The appellant has also produced the materials in question before me with different type of clothes, which also to be used for different purpose other than cloting and were not taxable since it comes under IIIrd Schedule of the KGST Act. Since the appellant had not produced the same before the assessing authority, I direct the assessing authority to verify physically type material and see the acceptability of their claim and grant the claim if found in order.” 5. Even this remand order passed by the first appellate authority was questioned by the Revenue before the Tribunal in T.A.No.335 of 2004. The assessee has also filed cross objections in No.18 of 2004. The S.T.Rev.No.186 of 2006 4 Tribunal by its common order dated 20th December, 2005 has allowed the appeal filed by the Revenue and has rejected the cross objection filed by the assessee. For allowing the appeal filed by the Revenue, the Tribunal at paragraph 5 of its order has stated as under: “5. The next point for consideration is that whether assessment on Umbrella cloth at 4% as the cloth being water proof cloth is correct or not. According to the assessing authority the appellant has not paid any additional Excise duty on the purchase of Umbrella cloth effected from outside the country. Before going into the details first we have to note the difference between water proofing and water repellant. Water proofing means that the water will not poured into or water is not permitted to flow into the cloth. Whereas repellant means resistant. The best example for repellant is magnet. In magnet identical poles will repel; that means the one pole will not enter into the magnetic field of the first. Likewise in the case of mosquitos repellant the smell of the repellant will not permit the mosquitos into the field where the smell spreads. In Umbrella cloth water will fall on the Umbrella cloth like anything but will not penetrate into the cloth. This would sufficiently prove that Umbrella cloth would fall under water proofing cloth. For the above reasons there is no doubt that the Umbrella cloth will fall under water proofing cloth taxable at 4%”. S.T.Rev.No.186 of 2006 5 6. Aggrieved by the reasons assigned by the Tribunal, the assessee is before us in this revision petition. The assessee has framed the following questions of law for our consideration and decision. They are as under: “i) Whether in the facts and circumstances of the case the Hon'ble Tribunal was right in confirming the assessment of umbrella cloth as a water proof cloth as against the case of the petitioner that the umbrella cloth is a water repellant cloth? ii) Whether in the facts and circumstances of the case ought not the tribunal have held that the directions of the first appellate authority was right to enable the proper classification of the product?”. 7. Sri.Anil D.Nair, learned counsel appearing for the assessee, would submit that what is imported by the petitioner is ordinary cloth and used for the purpose of manufacture of umbrellas. A part of the consignment is also sold to the registered dealers in the State. In so far as the cloth used for the manufacture of umbrellas, it has collected tax and has paid the same to the department. In so far as the cloth sold by it to the other dealers in the State, the assessee had claimed exemption from S.T.Rev.No.186 of 2006 6 payment of sales tax. 8. Learned counsel would further submit that the cloth that is sold by the assessee was cloth simplicitor and not water proof cloth and therefore, there was no reason for the assessing authority to have levied tax by holding that the same would fall under Entry 10 of the Second Schedule to the Act and is liable to be taxed at 4%. 9. Learned counsel would further submit that a simple remand order passed by the first appellate authority ought not to have been interfered by the Tribunal even if it has to be done, that can be done only in exceptional cases. 10. Sri.Muhammed Rafiq, learned Senior Government Pleader appearing for the Revenue sought to justify the impugned order. 11. At the outset we would observe that the Tribunal should be slow in interfering with the remand orders passed by the first appellate authority. When we say so, it does not mean that the Tribunal cannot interfere with the remand orders passed by the first appellate authority. It can definitely interfere with the remand orders passed by the first appellate authority provided the remand order passed by the appellate authority is either arbitrary, illegal or irregular. In the instant case, the first appellate authority has taken note of the contentions of the assessee, S.T.Rev.No.186 of 2006 7 that too, after seeing the material that was produced before him. The first appellate authority has stated in its order that the assessee had not produced the cloth which is sold by it to the other dealers in the State. The contention taken before the first appellate authority was that it is not water proof cloth, but a cloth simplicitor and therefore, there was no justification for the assessing authority to have levied tax under Entry 10 of the Second Second to the Act. Since the assessee had not produced the material which was sold by it to the other dealers in the State, the first appellate authority has thought it fit to remand the matter to the assessing authority to verify physically the type of material and see the acceptability of the claim made by the assessee. The first appellate authority has not given its positive finding one way or the other on the conclusion reached by the assessing authority. In our opinion, the Tribunal ought not to have interfered with the orders passed by the first appellate authority and come to a different conclusion. 12. In that view of the matter, we annul the orders passed by the appellate Tribunal in T.A.No.335 of 2005 dated 20.12.2005 and confirm the orders passed by the first appellate authority. It is now for the assessing authority to comply with the orders and directions issued by the first appellate authority in S.T.A.No.11 of 2004 after notice to the assessee S.T.Rev.No.186 of 2006 8 and take an independent decision in the matter. 13. Before parting with the case, we observe that we have not expressed any opinion on the merits or demerits of the case pleaded by the assessee before us. Ordered accordingly. (H.L. DATTU) CHIEF JUSTICE (A.K. BASHEER) JUDGE vns/dk.