Judgment:
1. Sri B.G.Chidananda Urs, learned Counsel appeared for the appellant Smt. Geetha Menon, learned Government Advocate appeared for the respondent.
2. This order shall also govern disposal of S.T.A. No. 17/ 2006 as in both the appeals common questions of facts and law are involved. Thus they were heard analogously and are being disposed of by this common consolidated judgment.
3. This and the connected appeal have been preferred under Section 66 of Karnataka Value Added Tax Act 2003 (hereinafter for brevity shall be called as 'the Act'), against the order dated 29.09.2005 passed by Authority for Clarification and Advance Rulings created under Section 60 of the Act (hereinafter referred to as the Authority). The appellant had also filed an application for rectification of the order dated 29.09.2005 by moving another application before the authority on 27.10.2005. By subsequent order passed by the Authority, clarification has been issued mentioning therein that the rate of tax would be 4%. As far as this aspect of the matter is concerned, appellant has no objection to it. Therefore in this appeal, the basic challenge by the appellant is to the earlier order passed by the Authority on 29.09.2005.
4. For the purpose of disposal of these appeals, the facts as enumerated in S.T.A. No. 16/6 are taken into consideration.
5. Appellant is a dealer duly registered under the provisions of the Act and is engaged in the business of dying and printing of textiles both on own account and also on job work basis. For the said purpose appellant procures materials within and outside the State in dyes, chemicals and colours besides using husk and agro-based fuels and diesel to run the boiler.
6. According to the appellant, it incurs expenses on salary, electricity, repairs, administrative and selling expenses. !t has further been the contention of appellant that the dyes, chemicals and colours used in the work of dying and printing are not consumed in full but certain percentage thereof would get washed away in the process of final product Since there was some doubt with regard to computation of taxable turnover on such work besides the issue of input credit available but used as consumables, the appellant sought clarification by moving an appropriate application before the Authority by filing an application under Section 60 of the Act.
7 The dyeing work undertaken by the appellant on cotton fabrics manufactured by them is the final act, but prior to this act of dyeing, various processes are undertaken for making the fabric fit for dyeing. The processes normally undertaken are as follows: (1) Desizing (2) Scouring (3) Bleaching (4) Mercerizing (5) Dyeing and finishing.
While the textile undergoes the aforesaid processes, certain chemicals are used in the process which are consumables and which do not hold on to the cotton fabrics. After completion of aforesaid processes, dyeing is undertaken which holds on to the cotton fabric giving lasting impression and ultimately converts the grey fabric into printed fabric which is marketed in the markets.
8. It was contended by the learned Counsel for the appellant that in the process of dyeing, as also in the process of printing, certain amount of chemicals, dyes and colours are washed out and they do not remain embedded on the textile or fabric. Thus the benefit of chemicals, dyes and colours which gets washed out to this extent could be extended to the appellant.
9. During the course of hearing, learned Counsel for appellant submitted before us that a certificate issued by Sri K.P.Bhat, Technical Consultant of textile processing industry to suggest in dyeing, about 10% to 20% of the values of dyes and chemicals are consumed on the fabric and remaining, gets washed out. Normally, for dyeing it has been mentioned that roughly around 20% colours and 10% of chemicals of the total value of chemicals are used and remaining gets washed out. Ultimately, the conclusion of expert is as follows:
As everyone is aware, the fabric is used by human beings and traces of chemicals, enzymes, acids and alkalis and excess colours must be removed to make it harm free to wear by human beings. Ultimately, dyed or printed fabrics will have and carry a small portion of colours on it and nothing else.
10. Copy, of the said certificate has also been given to learned Government Advocate. Admittedly, in the light of this certificate the matter has not been examined by any of the authorities below. According to us, this certificate requires to be taken into consideration to find out as to how much would be actual loss of chemicals, dyes and colours while the fabric or textile undergoes various processes as has been mentioned herein above. This factual aspect can be considered only by the Assessing Officer, where both parties can produce evidence in respect of their respective contentions.
11. In fact, Smt. Geetha Menon, learned Government Advocate who has been served with a copy of the said certificate prayed for lime, but when the aforesaid situation was clarified to her, then she agreed that the matter can be remanded to the Assessing Officer so as to work out the details as mentioned herein above.
12. In the light of this, the impugned order passed by the Authority is hereby set aside and quashed. Instead the matter is remanded to the Assessing Officer to work out the following details:
As to how much of chemicals, dyes and colours would get washed out in the process of dyeing and printing of fabrics undertaken by the appellant. Let this factual enquiry be conducted by the Assessing Officer, alter giving liberty of hearing to both the parties to produce evidence before the said Authority, in respect of their respective contentions. After completing the aforesaid exercise, the Assessing Officer would he at liberty to proceed in the matter and to add to the value of turnover, in accordance with law, the actual percentage of chemicals, dyes and colours which are retained or embedded on the textile or fabric as the case may be.
While doing so, the Assessing Authority shall also consider various judgments of High Court and Supreme Court touching the issues involved in the matter
13. With the aforesaid direction, this and connected appeal stand finally disposed of, but with no order as to costs. A copy of this order be retained in the connected S.T.A. No. 17/2006.