The Supreme Court has issued notice to Tata Tea on a petition filed by the Karnataka government seeking to levy sales tax of around Rs 25 crore on raw coffee (coffee berries) procured by the company from growers.

A bench headed by Justice S H Kapadia asked Tata Tea to explain why it should not pay sales tax of around Rs 25 crore tax on raw coffee purchased in the financial year 1997-98.

Challenging the Karnataka High Court verdict that turned down sales tax claims, the state government said that coffee for commercial purposes, after undergoing nine separate processes after procuring coffee berries, would attract tax under the Karnataka Sales Tax Act, 1957, and such purchase would not be exempted even under the Central Sales Tax Act.

State counsel Sanjay Hegde argued that "raw coffee and cured coffee are different under commercial parlance. The product has undergone a transformation".

Raw and cured coffee after manufacture are different commodities and the sales, being direct export, would fall under the Central laws, it added.

The state government also submitted that as Tata Tea had exported cured coffee directly to foreign buyers, the sales were in the nature of direct export sales and thus the company would be liable to pay sales tax.