THE ADDITIONAL COMMISSIONER OF  COMMERCIAL TAXES, BANGALORE versus AYILI STONE INDUSTRIES ETC. ETC.
[2016] 11 S.C.R. 129, Supreme Court of India, 2016
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
[2016] 11 S.C.R. 129 
THE ADDITIONAL COMMISSIONER OF 
COMMERCIAL TAXES, BANGALORE 
v. 
A YILI STONE INDUSTRIES ETC. ETC. 
(Civil Appeal Nos. 1983-2039 of2016) 
OCTOBER 18, 2016 
[DIPAK MISRA AND SHIVA KIRTI SINGH, JJ.] 
Karnataka Sales Tax Act, 1957 - Second schedule [Part S, 
Entry 17 (i) and Part T, Entry 8 ]; and ss. 5, 6B - Exemption from 
sales tax - Polished and unpolished granite stones and Tiles -
Assessing authority allowed exemption on polished granite stone 
but later re-opened the assessment - On reassessment, Assessing 
authority disallowed exemption on ground that polished and 
unpolished granite stones have separate entries in the Entry 17 (i) 
of part S of second schedule -
Propriety of - Held: There is a 
distinction between polished granite stone or slabs and tiles - If a 
polished granite stone is used in a building for any purpose, it will 
come under Entry 17(i) of Part S of the second schedule, but if it is 
a tile, which comes into existence by different process, a new and 
distinct commodity emerges - The process involved is extremely 
relevant - That aspect has not been gone into - The Assessing Officer 
while framing the assessment order has referred to Entry 17(i) of 
Part S but without any elaboration on Entry 8 which carves out 
tiles as a different commodity - A finding has to be arrived at by 
carrying out due enquiry, without which, a final conclusion cannot 
be reached - Matter accordingly remitted back to Assessing officer 
for
re-adjudication. 
Allowing the appeals, the Court 
HELD: There is a distinction between polished granite 
stone or slabs and tiles. If a polished granite stone is used in a 
building for any purpose, it will come under Entry 17(i) of Part S 
of the second schedule appended to the Karnataka Sales Tax 
Act, 1957, but if it is a tile, which comes into existence by different 
process, a new and distinct commodity emerges and it has a 
different commercial identity in the market. The process involved 
is extremely relevant. That aspect has not been gone into. The 
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SUPREME COURT REPORTS 
f2016l 11 S.C.R. 
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Assessing Officer while framing the assessment order has 
referred to Entry l 7(i) of Part S but without any elaboration on 
Entry 8 in Part-T. Entry 8 carves out tiles as a different 
commodity. It uses the words "other titles". A granite tile would 
come within the said Entry if involvement of certain activities is 
B 
established. To elaborate, if a polished granite which is a slab 
and used on the floor, it cannot be called a tile for the purpose of 
coming within the ambit and sweep of Entry 8. Some other 
process has to be undertaken. If tiles are manufactured or 
produced after undertaking some other activities, the position 
would be different. A finding has to be arrived at by carrying out 
C 
due enquiry and for that purpose appropriate exercise has to be 
undertaken. In the absence of that, a final conclusion cannot be 
reached. [Para 28) (148-A-D] 
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Mis. Vishwakarma Granites v. Commissioner of 
Commercial Taxes W.P. No. 13803/05 decided on 21st 
June, 2006 by Karnataka High Court; Poonam Stone 
Processing Industries v. Deputy Commissioner of 
Commercial Taxes, Gulbarga STC Vol. 94 page 182; 
Foredge Granite Pvt. Ltd. v. State of Karnataka STRP 
No. 58/1991 decided on 12.12.1994 by Karnataka 
High Court; State of Karnataka v. Goa Granites 2006 
(60) Kar.L.J. 110; Chowgale and Company Pvt. Ltd. 
v. Union of India AIR (1981) SC 1014 : 1981 (2) 
SCR 271; Aman Marble Industries Pvt. Ltd. v. CCE, 
Jaipur
(2005) 1 SCC 279; Sterling Foods v. State of 
Karnataka (1986] 63 STC 239; Delhi Cloth and 
General Mills Ltd., vs. State of Rajasthan (1980) 46 
STC 256; Rajasthan SEE v. Associated Stone Industries 
(2000) 6 SCC 141: 2000 (3) SCR 1179; Cloth and 
General Mills Co. Ltd. AIR 1963 SC 791 : 1963 Suppl. 
SCR 586; CCE v. Rajasthan State Chemical Works 
(1991) 4 sec 473: 1991 (1) Suppl. SCR 124 ; ITO, 
Udaipur v. Arihant Tiles & Marbles Pvt. Ltd. (2010) 2 
SCC 699: 2009 (16) SCR21; CITv. N.C. Budharaja 
& Co. 1994 Supp (1) sec 280 : 1993 (2) Suppl. SCR 
185 - referred to. 
Case Law Reference 
H STC Vol. 94, page 182 
referred to 
Para3
ADDITIONAL COMMNR. OF COMMERCIAL TAXES, 
131 
BANGALORE v. A YILI STONE INDUSTRIES 
2006 (60) Kar.L.J. 110 
A 
referred to 
Para3 
19~1. (2) SCR 271 
(2Q05) 1 sec 219 
119861 63 STC 239 
(1980) 46 STC 256 
2000 (3) SCR 1179 
1963 Suppl. SCR 586 
1991 (1) Suppl. SCR 124 
referred to 
referred to 
referred to 
referred to 
referred to 
referred to 
referred to 
Para3 
Para 7 
Para 13 
Para 15 
Para 20 
Para 21 
Para 21 
20Q9 (16) SCR 21 
referred to 
Para 22 
1993 (2) Suppl. SCR 185 
referred to 
Para 26 
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. I 983-
2039 of2016. 
From the Judgment and Order dated 04.12.2012 of the High Court 
ofKarnataka Circuit Bench at Dharwad in STA No. 574-575, 581-586, 
543-549, 550-555, 556-557, 558-561, 562-567, 568-573, 576, 577-580, 
587-590, 591-597, 598-599of2011. 
Basava Prabhu S. Patil, Sr. Adv., V. N. Raghupathy, Anirudh 
Sanganeria, Chinmay Deshpande, Parikshit Angadi, Advs., for the 
Appellant. 
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Bhargava V. Desai, Ms. Saumya M_ehrotra, Advs., for the 
E 
Respondent. 
The Judgment of the Court was delivered by 
DIPAK MISRA, J. I. These appeals, by special leave, assail 
the common judgment and order passed by the High Court of Karnataka 
in STA No. 574-575/2011 and other connected matters preferred under 
Section 24(1) of the Karnataka Sales Tax Act, 1957 (for brevity, "the 
Act"), on 4•h December, 2012 whereby it has overturned the order dated 
25.02.2011 passed by the Additional Commissioner of Commercial Taxes, 
Zone-I,
Bangalore in a batch of suo motu revisions under Section 12-
A( I) of the Act whereby the revisional authority has opined that there 
had been an erroneous order in the appeal causing loss to the State 
exchequer and accordingly issued notices to the concerned assesses 
requiring them to participate in the revision petitions and file written 
objections and put forth their stand availing the opportunity of being heard. 
As the factual score in all the cases has the colour of similitude barring 
the numerical figures and the arithmetical computations, we shall advert 
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f2016l ll S.C.R. 
A 
to the facts in the appeal where "Ayili Stone Industries" is the respondent-
assessee. 
B 
c 
2. The respondent-assessee is a dealer under the Act as well as 
the Central Sales Tax Act, 1956 (for short, 'CST Act') and is engaged in 
the business of manufacturing and trading in granite stone. The assessing 
authority finalised the assessment for certain assessment years allowing 
exemption on polished granite stone on the basis that polished granite 
stones were produced from out of the tax suffered from rough granite 
blocks. Thereafter, the assessing authority reopened the assessment. 
While passing the order of reassessment, the Assessing Officer opined 
certain amount had been allowed exemption as second sale mentioning 
in the order of assessment that the granite stones sold within the State 
were polished out of unpolished granite blocks locally purchased on 
demand of sales tax. The said authority referred to Entry No. 17( I) of 
Part S of second schedule appended to the Act which relates to granite 
stones, namely, (a) polished, (b) unpolished and ( c) chips. The Assessing 
D 
Authority observed that the polished and unpolished granite stones are 
under separate entries in the said schedule and such being the case, 
treating of sale of polished granite sold within the State which are obtained 
out ofunpolished granite stones as sales inasmuch as they are suffered 
sales tax was not correct and, therefore, the exemption
had been granted 
E 
F 
erroneously. Being aggrieved by the aforesaid order, the assessee 
preferred an appeal before the appellate authority. After referring to the 
decision in Mis. Vis/1w"k"rm" Grnnites v. Commissioner of 
Commerci"l Taxes1, it opined that the orders passed under Section 
12A of the Act deserves to be set aside and accordingly allowed the 
appeals. 
3. The revisional authority referred to the decision in 
Vtsliwakarma Granites (supra) wherein the High Court had considered 
the judgments rendered in Poon"m Stone Processing Industries v. 
Deputy Commissioner of Commercial Taxes, Gu/harga~. Foredge 
Granite Pvt. Ltd. v. State of Karn"taka3, S1<1te of K"rn"t"k" v. Go" 
G Gr"nites', C/wwg"le (Ind Comp"ny Pvt. Ltd. v. l.[nion of lndi<t5 and 
came to hold as follows:-
1 W.P. No. 13803/05 decided on 21st June, 2006 by Karnataka H.C. 
2 STC Vol. 94 page 182 
3 STRP No. 58/1991 decided on 12.12.1994 
' 2006 (60) Kar.L.J. 110 
H 
' AIR 1981SC1014
ADDITIONAL COMMNR. OF COMMERCIAL TAXES, BANGALORE 133 
v. A YIU STONE INDUSTRIES [DIPAK MISRA, J.] 
"8. In view of the clear dictum laid down by the Division Bench 
of this Court in the case ofForedge Granite Pvt. Ltd., this Court 
deems fitto hold that the activity of cutting and polishing ofrough 
granite block will not amount to manufacturing activity and that 
the polished granite stones could be imposed Sales Tax for the 
second time prior to 1-4-2002 i.e., prior to amendmentto Section 
6B of KST Act. Thus, the circular in so far as it relates to 
clause-3(a) is concerned, as extracted above is just and proper. 
However, the impugned Circular in so far as it relates clause-
3(b) is concerned, is not proper inasmuch as the same is opposed 
to the dictum laid down by the Division Bench of this Court in 
the case of Mis. Foredge Granite's case cited supra. 
9. The Commissioner has referred to Part-S entry No. 17 of II 
schedule to the Karnataka Sales Tax at 1957 to hold that the 
polished and unpolished granite stones are separate commodities. 
But he has failed to appreciate the fact that merely because 
entry No.17, para-5 to II Schedule refers to polished and 
unpolished granites under two separate heads, it cannot be said 
that the ·polished and unpolished granites are two separate 
commodities, as has been held by the Division Bench of this 
Court in the case of Mis. Foredge Granite Pvt. Ltd. As the granite 
block is already taxed at the time of its first sale and the
subsequent sale of cut and polished granite stones derived from 
the original granite block cannot be treated as the first sale and 
that therefore, tax could not be levied on the polished granite 
stones u/s. 5-A and 5-B of the Act prior to amendment of Section 
68 of KST Act. 
10. It is not disputed that the assessment orders in these matters 
are prior to 01.04.2002, on which date, Section 6-B of the Act is 
amended and the provision relating to levy of re-sale tax is· 
submitted. Thus, the provision of Section 6-B of the Act as 
introduced by ActNo.5 of2002 with effect from 01.04.2002 is 
not applicable to the matters on hand, inasmuch as, the 
transactions involved in the cases on hand are much prior to the 
said amendment." 
4. After noting the said decision, the revisional authority opined, 
the question as to whether there is manufacturing activity involved in 
obtaining granite tiles out ofraw granite or rough granite stone is not a 
relevant issue in the case at hand. Thereafter, he concluded thus:-
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SUPREME COURT REPORTS 
[2016] 11 S.C.R. 
"The issue is whether granite tile obtained out of raw granite 
stone results in separate and distinct commercial product from 
raw granite stones which is liable to tax as first dealer. As rough 
granite and granite tiles are separate and distinct as well as 
different commercial products, granite tiles obtained out of rough 
granite stones are liable to tax as first dealer." 
5. The said authority produced a passage from the judgment in 
Goa Granites (supra) which we shall refer to at a later stage. It has 
also reproduced passages from Foredge Granite (supra) and formed 
an opinion which is to the following effect:-
"The aforesaid discussions clearly establish that the appeal order 
is erroneous causing loss of revenue to the state exchequer. It is 
also clear that granite tiles cannot be classified under entry 17(1) 
of para S of second schedule to KST Act 1957 as observed by 
the learned re-assessing authority. This entry covers granite 
stones in the form of polished granite stones, unpolished granite 
stones and granite chips (Entry l 7(i), (ii) and (iii)/part S/second 
schedule and it does not covers granite tiles all. Ther~ is separate 
entry in case of tiles located at entry 8 in part T of second schedule 
to KST Act 1957. At entry 8(iv), the granite tiles are covered. 
After classifying certain tiles under which granite tiles do not 
appear as per entry 8(i), (ii) & (iii) of part T of second
schedule 
to KST Act I 957, all other tiles are classified as under. 
"(iv) Other tiles not covered by items 1-4-88to31-3-96 Fifteen 
percent 
(i), (ii) and (iii) above 
1-4-96 to 31-3-98 
1-4-98 to 31-3-01 
. 1-4-01 to 31-03-02 
1-4-02 to 31-5-03 
From 1-6-2003 
Twelve percent 
Ten percent 
Twelve percent 
Fifteen percent 
(Sixteen percent) 
The granite tiles are covered under the aforesaid entry in entry 
8(iv) of part T of second schedule to KST Act 1957. Thus, the 
rough granite stone and granite tiles obtained out of rough granite 
H 
stone or block are distinct and separate commercial products
ADDITIONAL COMMNR. OF COMMERCIAL TAXES, BANGALORE 135 
v. A YIU STONE INDUSTRIES [D!PAK MISRA, J.] 
and are also separately classified in the respective entries 
A 
explained above". 
· 
6. The High Court in appeal posed the question that arose for 
consideration in the fo.llowing terms:-
" Whether the rough granite purchased by a dealer and the sale, 
the same after cutting and polishing into .granite tiles, whether 
such a process amount to manufacture and that the said product 
constitute a different commodity to attract Sales Tax U/s.5 of 
the Sales Tax Act?" 
7. As the impugned order would show, the High Court after 
passing the question referred to the authority in Anutn Marble Industries 
Pv_l Ltd. v. CCE, Jaipur6,reproduced paragraph 4 of the said judgment 
and thereafter referred to a passage from Foredge Granite (supra) 
and opined that cutting the granite blocks into small sizes and polishing 
them does not amount to manufacturing process to attract sales tax 
under Section 5 of the Act. However, the High Court observed whether 
the transactions attract tax under Section 6B can be looked into and 
considered by the Assessing Officer after giving opportunity to the parties, 
and consequently allowed the appeals. 
8. We have heard Mr. Basava Prabhu S. Patil, learned senior 
counsel for the appellants and Mr. Bhargava V. Desai, learned counsel 
for the respondents. 
9. The factual matrix as noticeable is that the assessing authority 
has allowed the exemption on sale
of polished granite stones on the 
foundation that the same is produced from out of granite slabs that had 
suffered tax as rough granite blocks. After the assessment, the concerned 
authority referred to Entry 17(i) of Part S of the Second Schedule, which 
is as follows:-. 
"Entry No.I ((i) of Part "S" of the second Schedule, appended 
to the K.S.T. Act, 1957, which relates to granite stones reads as 
under 
SI. No. l 7(i) 
I 7(i) Granite stones 
(a) Polished 
(b) Unpolished 
(c) Chips" 
• (2005) 1 sec 279 
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SUPREME COURT REPORTS 
f20161 11 S.C.R. 
I 0. After reference to the said Entry, the assessing authority 
expressed the view that polished and unpolished granite stones have 
separate entries in the said schedule and, therefore, treating of said sale 
of polished granite stone within the State which is obtained out of 
unpolished granite stone as sales suffered would not be correct. The 
appellate authority, as noted earlier, has founded its opinion on the principle 
stated in Vis/1wakarma Gmnites (supra). In Vis/1wakarma Granites 
(supra), the challenge was to the circular No. 19/03-04 (KSA.CR.128/ 
2000-01) dated 11.11.2003 issued by the Commissioner of Commercial 
Taxes in Karnataka Bangalore (hereinafter referred to 'Commissioner' 
for short) and consequent assessment orders and the orders levying 
penalty were called in question. The said circular was under Section 3-
A(2) of the Act in pursuance of certain observations made in Po01um1 
Stone Processing lntlustries (supra) which reads as follows:-
"Cuddaph, Shahabad and marble are stones of special value in 
the market and the marketable quality of these stones is enhanced 
by polishing and cutting. But the substance of the material is not 
altered. The article is made more presentable and attractive for 
the benefit of the users and it cannot be said that the activity is a 
manufacturing activity." 
11. Thereafter, the Division Bench referred to various aspects of 
the circular. It was
contended before the High Court that the activity of 
the assessee in cutting and polishing of granite stone will not come within 
the meaning of manufacturing activity and the circular had been issued 
on an erroneous notion. The High Court in Vis/1wakarma Granites 
(supra) has noted that in Poonam Stone Processing Industries (supra) 
the issue as to whether the act of cutting and polishing of granite stone 
amounts to manufacturing activity was not considered as the Division 
Bench .had held that the said question was unnecessary to be decided in 
the writ appeal. It is worthy to note what has been stated in Poon<mr 
Stone Processing lntlustries (supra):-
"3. On the question whether the petitioner was engaged in a 
manufacturing activity or not, the Tribunal has considered the 
same in great detail in para 13 of its order. The Tribunal has 
taken into consideration the nature of the business carried on. Jl 
is stated therein that the petitioner purchases rough granite blocks 
and with the help of the machines run by electrical energy in his 
unit, cut the granite into required sizes and thickness and polishes
ADDITIONALCOMMNR.OFCOMMERCIAL TAXES, BANGALORE 
137 
v. A YILI STONE INDUSTRIES [DIPAK MISRA, J.] 
the same to the requirement of the customers and sells the same. 
In support of his case, the learned counsel for the petitioner 
pointed out the objections filed by him before the Revisional 
Authority and also produced a brochure before us indicating the 
nature of the activities carried on by him. Neither a perusal of 
the objections filed by the petitioner nor the very attractive 
brochure produced before us would convince us to come to a 
different conclusion from the finding given by the Tribunal. The 
Tribunal has looked into the material and correct perspective. 
The stones are larger granite blocks purchased by the petitioner, 
even when cut to the sizes to the requirement of the customers 
including as regards its thickness or polishing it continues to be 
granite block. May be a smaller or thinner size, but it would 
continue to be a granite block however polished it may be. Even 
though it may be used as a building material. the granite block 
· does not cease to be a granite block. Therefore. no manufacturing 
activity is involved. The finding recorded in this regard is perfectly 
in order. 
5. Merely cutting a rough block of granite into different sizes to 
the requirement of the customers would not involve any 
manufacturing activity. In that view of the matter, we do not 
think the view taken by the Tribunal is wrong in any manner. In 
the view we have taken
non-production of the valuation certificate 
in this case does not assumes any significance". 
[underlining is ours] 
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12. The High Court in Vis/1wakarma Grmrites (supra) had 
referred to the authority in Goa Granites (supra). In Goa Granites' 
F 
case the Division Bench of the High Court posed the following two 
questions which required determination by the High Court:-
"I. Whether the Tribunal was right in holding that the polished 
tiles obtained out of rough granite blocks are to be reckoned as 
the same goods or commercially new commodities for allowing 
G 
exemption under Section 5(3) of the CST Act, 1956? 
II. Whether the ratio of the decision of this Hon'ble Court in the 
case of Foredge Granite v. State of Kamataka in STRP.No.58/ 
1991 rendered with reference to Entry 17 of Part 'S' of the 
Second Schedule to Karnataka Sales Tax Act, as it stond prior 
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SUPREME COURT REPORTS 
(2016] 11 S.C.R. 
A 
to 1.4.1991 was applicable to the facts of the case of the · 
·assesses?" 
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13. While discussing, the Court took note of the fact that w~at is 
sold or supplied by the dealer-assessee, registered both under the Act 
and CST Act, is rough granite block to an 100% export-oriented unit and 
it is also not in dispute that what is exported by the export-oriented unit 
is polished and thin slices of tiles made out of big rough granite.blocks 
supplied by the assessee. The Division Bench referred to Sterli11g Foods 
v. State of Kamataka7 wherein it has been held thus:-
"The test which has to be applied for the purpose of determining, 
whether a commodity subjected to processing retains its original 
character and identity is as to whether the processed conimod ity 
is regarded in the trade by those who deal in it as distinct in 
identity from the original commodity or it is regarded, 
commercially and in the trade the same as the original commodity. 
It is necessary to point out that it is not every processing that 
brings about change in the character and identity of a commodity. 
The nature and extent of processing may vary from one case to 
another and indeed there may be several stages of processing 
and perhaps different kinds of processing at each stage, with 
each process suffered, the original commodity experiences 
change. But it is only when the change or a series of changes 
take the commodity to the point
where commercially it can no 
longer be regarded as the original commodity, but instead is 
recognized as a new and distinct commodity that it can be said 
that a new commodity, <;listinct from the original has come into 
being. The test is, whether. in the eyes of those dealing in the 
commodity or in commercial parlance the processed commodity 
is regarded as distinct in character and identity from the original 
commodity." 
14. While proceeding with the analysis, the Division Bench posed 
a question which we think it apt to reproduce:-
"In other words, whether the rough granite blocks, which were 
sold were the very goods, which were exported? To be further 
precise, the controversy in this revision petition is about the identity 
of the goods purchased and identity of the goods sold." 
H 
' (1986] 63 STC 239
ADDITIONALCOMMNR.OFCOMMERCIAL TAXES, BANGALORE 139 
v. A YILI STONE INDUSTRIES [DlPAK MISRA, J.] 
15. Thereafter, the Court has referred to De/Iii Cloth and Gener<1/ 
Mills Ltd., vs. State of Ra]astltan8, wherein the Court has stated, that 
"it was fairly wel I settled that the words or expressions must be construed 
in the sense in which they are understood in the trade, by the dealer and 
consumer. It is they who are concerned with it and it is the sense in 
which they understand it that constitutes the definitive index of the 
legislative intention when the statute was enacted". Thereafter, the 
Division Bench observed:-
"The question for consideration is, whether this polished tiles 
obtained out ofrough granite blocks would amount to export of 
"those goods", which had been sold by the assessee? It is the 
specific case of the assessee before all the authorities under the 
Act that what is sold in only rough granite blocks to an industrial 
unit, which is an I 00% export oriented unit. lt is also its case 
that the export unit by using heavy machinery, cut these rough 
granite blocks in to thin pieces and thereafter, they have been 
polished and exported not as granite blocks but as polished tiles. 
Under these.circumstances, they are of the view that they are 
entitled to get exemption from payment of tax under the Act, 
since the commodity supplied and the commodity exported are 
one and the same, except forthe diminishing size. 1n aid of their 
assertion, they had
placed reliance on the observations made by 
this Court in the case ofM/s Foredge Granite Pvt. Ltd. vs. The 
State of Karnataka and Another (STRP.No.5811991). At the 
outset, we should notice in this case, firstly, that sub-section (3) 
of Sec. 5 of the CST Act did not fall for consideration of this 
Court. The issue that was raised in the said decision was, mere. 
cutting a rough block of granite into different sizes to the 
requirement of the customer would involve any manufacturing 
activity? The facts which were noticed by the Court in that case 
was, that the petitioner had purchased rough granite blocks and 
with the help of the machines run by electrical energy in its unit, 
cuts the granites into required sizes and thickness and polishes 
the same to the requirement of the customers and sells the same. 
The case of the assessee before the assessing authority was 
that the business activity of the petitioner is a manufacturing 
activity and therefore, would be entitled to the benefit of the 
8 (1980) 46 STC 256 
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SUPREME COURT REPORTS 
[2016] II S.C.R. 
notification dated 15/16.10.1981, which provided for exemption 
from payment of tax under the KST Act, 1956, in respect of 
goods manufactured and sold by new industrial unit. The 
assessing authority had allowed the claim of the dealer and had 
granted exemption from payment of sale tax, treating the business 
activity of the petitioner as a manufacturing activity and therefore, 
entitled to certain incentives and concession flowing from.the 
notification. This order of the assessing authority was revised 
. by the revisional authority by invoking the provisions of Section 
21 (2) of KST Act and the order so passed was confirmed by the 
Kamataka Appellate Tribunal, by rejecting the appeal filed by 
the assessee. It is the correctness or otherwise of this order was 
called in question by the assessee before this Court in Revision 
Petition 58/1991." 
Andagain:-
"On these set of facts, this Court has stated that the stones are 
large granite blocks purchased by the petitioner and even when 
cut into the sizes to the requirement of the customers including 
as regards its thickness or polishing, it continues to be a granite 
block. May be a smaller or thinner size, but it would continue to 
be granite block however polished it may be. Even though it 
may be used as a building material, the granite block does not 
cease to be a granite block and therefore, no manufacturing 
activity is involved. The conclusion the
Court has reached is, 
mere cutting a rough block of granite into different sizes to the 
requirement of the customers would not involve any manufacturing 
activity." 
16. The Division Bench distinguished the finding recorded in 
Foredge Grat1ite (supra) as the question that arose before it pertained 
to whether the export of polished granite tiles obtained out of rough 
granite blocks would amount to export of"those goods" which had been 
sold and supplied. The Court again referred to the principles stated in 
G Sterlit1g Foods (supra), appiied the said test and proceeded to opine.:-
"If this test is applied, neither in common parlance nor in 
commercial parlance. sliced. thin. polished tiles cannot be regarded 
as the rough granite blocks.. When rough granite blocks are 
subjected to process of cutting, slicing into required size and 
H 
polished and exported as tiles, the rough granite blocks ceased
ADDITIONAL COMMNR. OF COMMERCIAL TAXES, BANGAWRE 141 
v. A YIU STONE INDUSTRIES [DIPAK MISRA, J.) 
to be granite blocks and become a distinct and different 
commercial commodity from the original commodity. In the trade 
circle. they are not considered as one and the same commodity. 
If the purchaser goes to the market to buy the polished tiles, he 
will not be given the rough granite blocks. Converse of this is 
also an indication that they do not retain their identity as rough 
granite blocks when they are cut/sliced, polished as tiles and 
therefore, for the purpose of Section 5(3) of the CST Act, it 
cannot be said that the goods sold or supplied were those goods, 
which were exported. The granite stones are extracted from 
the quarry and they are cut into small and large blocks. If they 
are cut or sawn to very specific dimension and sold either as 
smaller blocks or cut sizes of granite blocks to the exporter and 
ifthat exporter exports those small cut sizes of granite.blocks. it 
can definitely be said, that what is sold and what is exported are 
one and the same commodity. But in the present case; the facts 
noticed by the fact finding authorities is that, the exporter before 
exporting the cut sizes of granite blocks, cuts them info slices to 
the actual size of tiles, polishes or effects honing process, which 
is similar to polishing and the end result is a tile that has a stain or 
patina finish or polish finish. If it was a case of mere cutting or 
sawing to a
specific dimension and beveled edges are polished, 
it could be a case of export of the same goods and therefore, 
eligible for tax exemption under Sec. 5(3) of the Act. In our 
view, the 'tiles' are not simply cut or sawn of a granite blocks: 
They undergo further processing of cutting into thin slices, and 
process of polishing and emerge as ~tiles' and ready to be sold 
ill> 'tiles' and in commercial parlance, they are treated as different 
commodity altogether. Even if we have to adopt a value added 
test, then also, in our view, there is substantial transformation of 
the original commodity into different commercial commodity. 
Therefore, what is sold and what is exported is not "those goods" 
or the "same goods", which is eligible for exemption under Sec. 
5(3) of the Act. While considering the issues involved in this 
revision petition, we are not considering whether any 
manufacturing activity is involved while rough granite blocks are 
cut/sliced into thin pieces as tiles and polished or honed." 
17. Eventually, the Div.ision Bench held:-
"Chemical composition of them may continue to remain as stones 
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when they were supplied and cut into thin sizes, polished and 
sold as tiles, but in common parlance or in commercial parlance 
or in trade circles or in value added percentage test, in our view, 
they are not understood as one and the same commodity. The 
rough granites are processed to an extent that they no more 
remain as granites but as tiles ready to be used in building 
construction and other activities. By this process, there is value 
addition to the goods. There would be price variation between 
the rough granite block and cut and polished tiles. Even in the 
trade circles, when a customer asks for polished tiles ofrequired 
size, the dealer shall not supply him with rough granites. The 
converse of this transaction is also an indicative factor how the 
trade circles understands the difference between rough granite 
blocks and polished granite tiles. Therefore, in our view, for the 
purpose of Sec. 5(3) of the CST Act, 1956, it cannot be said that 
what is supplied or sold are those goods which are exported. 
Accordingly, the assesses is not eligible to claim exemption from 
payment of tax under the Act, on the ground that the sale of 
granite blocks to an 100% exported unit is a sale in the course of 
export or deemed sale to be in the course of export." 
18. The decision in Foredge Granite (supra) was distinguished 
by observing that:-
" We further add that the Apex Court in the case of Sterling
Food.s v. The State ofKamataka(l986) 63 STC 239 has observed 
that "the character or identity of the commodity has to be 
determined not on the basis of a distinction made by the State 
Legislature for the purpose of exigibility to state sales tax, 
because even where the commodity is the same in the eyes of 
the persons dealing in it, the State Legislature may make a 
classification determining liability to sales tax. This question for 
the purpose of the Central Sales Tax Act, has to be determined 
on the basis of what is commonly known or recognized in 
commercial parlance". Therefore, in our view, for deciding the 
issue raised in this revision petition, reference to Entry 17 of 
Part 'S' of Second Schedule to the KST Act is wholly irrelevant.'' 
19. In Visllwakarma Granites (supra) the High Court 
distinguished the Division Bench decision by opining that it was not 
specifically dealing with the issue of manufacture and further it was
ADDITIONAL COMMNR. OF COMMERCIAL TAXES, BANGALORE 143 
v. A YIU STONE INDUSTRIES [DIPAK MISRA, J.] 
adverting to the exigibility of tax under Section 5(3) of the CST Act. 
The Court distinguished the two concepts, namely, the "manufacture" 
and the recognised test of "common parlance". 
20. Now, we may look at what has been held in A111a11 Marble 
(supra). The two-Judge Bench was dealing with the issue whether the 
cutting of marble blocks into marble slabs amounts to manufacture for 
the purpose of the Central Excise Act. In that context, the Couit referred 
to the authority in Rajastlum SEB v. Associated Stone lnclustries9 and 
reproduced a passage from the same which is as follows:-
"This apart, excavation of stones from a mine and thereafter 
cutting them and polishing them into slabs did not amount to 
manufacture of goods. The word 'manufacture' generally and 
in the ordinary parlance in the absence of its definition in the Act 
should be understood to mean bringing to existence a new and 
different article having a distinctive name, character or use after 
undergoing some transformation. When no new product as such 
comes into existence, there is no process of manufacture. Cutting 
and polishing stones into slabs is not a process of manufacture 
for the obvious and simple reason that no new and distinct 
commercial product came into existence as the end product still 
remained stone and thus its original identity continued." 
and this position was further reiterated
as follows: (SCC pp. 
14 7-48, para 16) 
"It is also not possible to accept that excavation of stones and 
thereafter cutting and polishing them into slabs resulted in any 
manufacture of goods." 
21 At this juncture, it becomes imperative on our pa11 to analyse 
what has been stated in Associated Stone I11d11stries (supra). In the 
said case, the issue that arose for consideration was whether pumping 
out water from a mine comes within the meaning of manufacture, 
production, processing or repair of goods as to claim exemption from 
duty under notification issued under Section 3 ofRajasthan Electricity 
(Duty) Act, 1962. The Court referred to the authorities in Union of 
India v. Delhi Cloth and General Mills Co. Ltd. 10, CCE v. Rajltstlwn 
State Chemical Works 11 , wherein it has been held that pumping of brine 
• (2000) 6 sec 141 
10 AIR 1963 SC 791 
11 (1991) 4 sec 473 
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and lifting of raw material constituted processes in or in relation to the 
manufacture. In the said case, the Court adverted to the facts in 
Rajastlian State Chemical Works (supra) and ultimately concluded thus:-
" In conclusion, it is said that if any operation in the course of 
manufacture is so integrally connected with the further operations 
which result in the emergence of manufactured goods and such 
operation is carried on with the aid of power, the process in or in 
relation to the manufacture must be deemed to be one carried 
on with the aid of power. Pumping out water, excavation of stones 
and cutting and polishing them into slabs cannot be said to be 
integrally connected in the manufacturing of goods". 
22. At this stage, we think it appropriate to refer to comparatively 
a recent pronouncement in ITO, Udaipur v. Arilumt Tiles & Marbles 
Pvt. Ltd. 12 In the said case, the assessee was engaged in the business 
of manufacture/production of polished slabs and tiles which the assessee 
exported (partly). The question that arose for consideration is whether 
conversion of marble blocks by sawing into slabs and tiles and polishing 
amounts to "manufacture or production of article or thing" so as to make 
the respondent assessee(s) entitled to the benefit of Section 80-fA of 
the Income Tax Act, 1961, as it stood at the material time. Thus, 
manufacture or production was required to be understood
within Section 
80-IA of the Income Tax Act, 1961 . The Court analysed the. various 
steps that is undertaken to reproduce the details of step-wise activity 
undertaken by the assessee. The Court reproduced the same:-
"(i) Marble blocks excavated/extracted by the mine owners being 
in raw uneven shapes have to be properly sorted out and marked; 
(ii) Such blocks are then processed on single blade/wire saw 
machines using advanced technology to square them by 
separating waster material; 
(iii) Squared up blocks are sawed for making slabs by using the 
gang saw machine or single/multi-block cutter machine; 
(iv) The sawn slabs are further reinforced by way of filling cracks 
by epoxy resins and fibre netting; 
(v) The slabs are polished on polishing machine; the slabs are 
further edge cut into required dimensions/tiles as per market 
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" (20IOJ 2 sec 699
ADDITIONALCOMMNR.OFCOMMERCIAL TAXES, BANGALORE 145 
v. A YILI STONE lNDUSTRJES [DIPAK MISRA, J .] 
requirement in prefect angles by edge cutting machine and multi-
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disc cutter machines; 
(vi) Polished slabs and tiles are buffed by shiner." 
23. Thereafter, the three-Judge Bench analysed the distinction/ 
difference between production and manufacture. We need not advert 
to the same. The Comt, however, referred to the authority in Associated 
Stone Industries (supra). Analysing the same, the Court observed:-
"12. The basic controversy which.arose for determination in 
Rajasthan SEE case was whether the activity of pumping out 
water from the mines came within the meaning of the words 
"manufacture", "production", "processing or repair of goods". 
While disposing of the matter, this Court, vide paras I and I 0, 
stated that the specific case of the company was that the electrical 
energy was consumed for pumping out water from mines to make 
mines ready for mining activity. This aspect is very important. It 
needs to be highlighted that the case of the company was that 
pumping out water from mines to make the mines ready for 
mining activity came within the ambit of the term "manufacture". 
This argument was rejected by this Comt, after examining various 
judgments of this Court on the connotation of the word 
"manufacture"." 
24. After so analysing, the Court observed the said decision had 
no application to the facts of the case, for only activity which came up 
for
consideration in Rajastllan SEB case was the activity of pumping 
out water from a mine in order to make the mine functional. The Court 
opined that the controversy it was dealing with, the said activity was not 
required to be considered. Thereafter, the three-Judge Bench adverted 
to the principle stated in Ama11 Marble (supra). The Court distinguished 
the same by holding that the word "production" was not under 
consideration before the Court in the said case and thereafter noted that 
in the said case it had been held that cutting of marble blocks into slabs 
did not amount to manufacture. Explaining the dictum in the said case, 
the Court observed:-
" In our view, the judgment of this Court in Aman Marble 
Industries {P) Ltd. also has no application to the facts of the 
present case. One of the most important reasons for saying so is 
that in all such cases, particularly under the excise law, the Court 
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has to go by the facts of each case. In each case one has to 
examine the nature of the activity undertaken by an assessee. 
Mere extraction of stones may not constitute manufacture. 
Similarly, after extraction, if marble blocks are cut into slabs per 
se will not amount to the activity of manufacture." 
25. Thereafter, the Court proceeded to deal with the process 
undertaken by the assessee and in that context stated:-
"In the present case, we are not concerned only with cutting of 
marble blocks into slabs. In the present case we are also 
concerned with the activity of polishing and ultimate conversion 
of blocks into polished slabs and tiles. What we find from the 
process indicated hereinabove is that there are various stages 
through which the blocks have to go through before they become 
polished slabs and tiles. In the circumstances, we are of the 
view that on the facts of the cases in hand, there is ce1tainly an 
activity which will come in the category of "manufacture" or 
"production" under Section 80-IA of the Income Tax Act." 
26. The Court referred to the decision in C/Tv. N.C. Bm/lumtj" 
& Co. 13 and ruled thus:-
, "25. Applying the above tests laid down by this Court in 
E 
Budharaja case to the facts of the present cases, we are of the 
view that blocks conve1ted into polished slabs and tiles after 
undergoing the process indicated above certainly results in 
emergence of a new and distinct
commodity. The original block 
does not remain the marble block, it becomes a slab or tile. In 
the circumstances, not only is there manufacture but also an 
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activity which is something beyond manufacture and which brings 
a new product into existence and therefore, on the facts of these 
cases, we are of the view that the High Court was right in coming 
to the conclusion that the activity undertaken by the respondent 
assessees did constitute manufacture or production in terms of 
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Section 80-IA of the Income Tax Act, 1961. 
26. Before concluding, we would like to make one observation. 
If the contention of the Department is to be accepted, namely, 
that the activity undertaken by the respondents herein is not 
manufacture, then, it would have serious revenue consequences. 
H 
" 1994 Supp (I) sec 280
ADDITIONAL COMMNR. OF COMMERCIAL TAXES, BANGALORE 
14 7 
v. A YIU STONE INDUSTRIES [DIPAK MISRA,J.] 
As stated above, each of the respondents is paying excise duty, 
some of the respondents are job-workers and the activity 
undertaken by them has been recognised by vari_ous government 
authorities as manufacture. To say that the activity will not amount 
to manufacture or production under Section 80-IA will have 
disastrous consequences, particularly in view of the fact that the 
assessees in all the cases would plead that they were not liable 
to pay excise duty, sales tax, etc. because the activity did not 
constitute manufacture." 
27. We have reproduced in extenso from the aforesaid authority, 
though the exposition of law arose under a different enactment. The 
three-Judge Bench has explained the principle stated in Rajastlw11 SEB's 
case as well as in A.man Marble (supra). In the case at hand, though 
the High Court in the impugned order posed the question correctly and 
placed reliance on A.man Marble (supra), yet it has not correctly applied 
the principle in the correct perspective. In A.man Marble (supra) the 
Court has held that it was not possible to accept that excavation of 
stones and thereafter cutting and polishing them into slabs resulted in a 
manufacture of goods. The decision in Foredge Gnmite (supra) had 
been restricted to the concept of polished granite block. The revisional 
authority, as we perceive, has applied the test of separate and distinct
commercial product that comes into existence from granite stones and 
for the said purpose, it has relied on the pronouncement in Goa Gnt11ites 
(supra). We have copiously referred to Goa Granites (supra). It has 
drawn a distinction between the slabs and tiles. Entry 17(i) of Part S of 
the Act deals with polished granites, unpolished granites and chips. The 
tiles come under Entry 8 in part T of the second schedule to the Act. At 
Entry 8(iv), the tiles are covered. It is noticeable that in Entry 8, certain 
tiles have been classified under Entry 8(i) (ii) and (iii) of Part T. Under 
Entry 8(iv) further tiles are classified. It is as under:-
"( iv) Other tiles not covered by items 1-4-88 to 31-3-96 Fifteen 
percent 
(i), (ii) and (iii) above 
1-4-96 to 31-3-98 
1-4-98 to 31-3-01 
1-4-0 I to 31-03-02 
1-4-02 to 31-5-03 
From 1-6-2003 
Twelve percent 
Ten percent 
Twelve percent 
Fifteen percent 
(Sixteen percent)" 
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28. There is a distinction between polished granite stone or slabs 
and tiles. Ifa polished granite stone is used in a building for any purpose, 
it will come under Entry l 7(i) of Part S of the second schedule, but if it 
is a tile, which comes into existence by different process, a new and 
distinct commodity emerges and it has a different commercial identity in 
the market. The process involved is extremely relevant. That aspect 
has not been gone into. The Assessing Officer while framing the 
assessment order has referred to Entry I 7(i) of Part S but without any 
elaboration on Entry 8. Entry 8 carves out tiles as a different commodity. 
It.uses the words "other titles". A granite tile would come within the said 
Entry if involvement of certain activities is established. To elaborate, if 
a polished granite which is a slab and used on the floor, it cannot be 
called a tile for the purpose of coming within the ambit and sweep of 
Entry 8. Some other process has to be undertaken. If tiles are 
manufactured or produced after undertaking some other activities, the 
position would be different. A finding has to be arrived at by carrying 
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out due enquiry and for that purpose appropriate exercise has to be 
undertaken. In the absence of that, a final conclusion cannot be reached. 
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29. In view of the aforesaid, we allow the appeals, set aside the 
orders passed by the High Court and all the authorities and remit the
matter to the Assessing Officer to re-adjudicate the matter keeping in 
view the observations made hereinabove. There shall be no order as to 
costs. 
Ankit Gyan 
Appeals allowed.