Earthen Roofing Tiles By Khadi Board-Recognised Unit Qualify For VAT Exemption: Kerala High Court

The Kerala High Court on 12 March held that earthen roofing tiles manufactured by a unit recognised and financed by the Kerala Khadi and Village Industries Board are eligible for tax exemption as “pottery” under the KVAT Act.

A Division Bench comprising Justices Devan Ramachandran and Basant Balaji set aside tax demands raised against Annamanada Kalimon Vyavasaya Sahakarana Sangham Ltd., a cooperative society engaged in manufacturing clay products in Thrissur.

The Bench observed:

“We allow these Revisions and set aside all the impugned orders of the learned Tribunal; thus declaring the petitioner to be entitled to the benefit of exemption from tax, under Entry No.55 of the First Schedule of the 'KVAT Act', qua 'earthen roofing tiles', as certified by the 'Khadi Board' – bringing them under the classificational entry of 'pottery'.”

The dispute arose when the tax department denied exemption, holding that the society's “earthen roofing tiles” could not be classified as pottery and were therefore taxable.

The society contended that the tiles were made entirely from clay using traditional methods, and that it was a recognised village industry unit with certification from the Khadi and Village Industries Board. It argued that the products were exempt under Entry No.55(19) of the First Schedule of the 'KVAT Act', as they fall within the ambit of 'pottery'.

The issue before the Court was whether products of recognised Village Industries are eligible for VAT exemption.

The Bench noted that earthen roofing tiles are fundamentally clay products, and there is no justification to exclude them from the category of pottery. It observed that a product made of clay through traditional processes retains the essential character of pottery, regardless of its specific end use. It further held:

“The petitioner manufactures 'earthen roofing tiles' and Annexure A – Certificate of the 'Board' certifies it to be within the protectional umbra of Entry 55 of the First Schedule of the 'KVAT Act', thus to be exempted from tax.”

The Bench emphasised that once a unit is duly certified and the product is made of clay, the benefit of exemption cannot be denied on narrow classification grounds, noting:

“...therefore, the word 'pottery', particularly when it is used in the contextual ambit of Entry No.55 of the First Schedule of the 'KVAT Act'; and when it relates to Manufacturing Units governed, financed and controlled by the 'Boards' under the 'Khadi Act', accepts into its fold all articles 'made of clay and hardened by heat'.”

The Bench invoked Mahatma Gandhi's vision of revitalising the rural economy and fostering “true Swadeshi” through village industries. It emphasised that the exemption serves a social purpose, preventing small village units from being “ingurgitated” by mechanised manufacturing and global competition.

Justice Ramachandran noted the irony of the government supporting these units through the Khadi Board while the tax department attempted to “negate” that support—a case of “one hand giving; and the other hand taking it away.”

Accordingly, the Court set aside the orders of the authorities and upheld VAT exemption for the cooperative society.

For Appellant: Advocates, Mini, A. Kumar, P.J. Anilkumar, P.S. Sree Prasad and Satyajith K. Warrier 

For Respondent: Sr. GP, Thushara James