Craft Interiors (P) Ltd. Vs. The Joint Commissioner of Commercial Taxes (Intelligence) and Ors. - (Supreme Court) (02 Jul 2019)

If new commercial commodities emerge out of goods already taxed earlier, new commercial commodity is liable to sales tax

MANU/SC/0865/2019

Sales Tax/VAT

Present civil appeal arises out of the judgment of the High Court dismissing the writ petition and upholding the validity of Rule 6(4)(m)(i) of the Karnataka Sales Tax Rules, 1957(KST Rules) read with Explanation III to Rule 6(4) of the said rules. The question which has been raised in the instant appeal is whether the condition of 'use in the same form in which such goods are purchased' under Rule 6(4)(m)(i) of the KST Rules expands the scope of charging Section i.e. Section 5B under KST Act, 1957.

The main thrust of submission of the learned Counsel for the Appellant, is that the condition under Rule 6(4)(m)(i) of goods purchased be used "in the same form" is beyond the charging Section (Section 5B) of the KST Act, 1957. The charging Section does not restrict the form in which the goods are to be transferred in a works contract. However, the Rule restricts the deduction available on the form in which the goods are used in the execution of works contract.

Section 5B of the KST Act and Rule 6(4)(m)(i) of the KST Rules operate in different spheres. Section 5B is a charging provision for levy of sales tax whereas Rule 6(4)(m)(i) is a provision for deduction from tax. Under Section 5B, tax can be levied on transfer of property in the goods whether as goods or in some other form whereas Rule 6(4)(m)(i) provides for a deduction in respect of the goods which have already suffered tax and which are used in the same form. Thus, it appears to be in clear consonance with the charging provision and does not militate against Section 5B of KST Act, 1957.

This Court in State of Tamil Nadu Vs. Pyare Lal Malhotra and Others has held that if the separate commercial commodities emerge out of the goods already taxed earlier, the new commercial commodity is liable to sales tax provided there is a law to this effect.

The exposition of legal principles laid down in Pyare Lal Malhotra and Others, brings out two basic principles governing sales tax law: i. Sales tax can be levied on the same goods only once so long as they retain their identity of goods of a particular type, and ii. If separate commercial commodities emerge out of the (goods already taxed earlier), then said new commercial commodity is liable to sales tax.

Rule 6(4)(m)(i) purports to grant benefit to the Assessee by allowing deductions for the value of goods which have already suffered taxation and which goods substantially retain their original identity while being used in the execution of a works contract. Explanation III to Rule 6(4) clarifies it further by categorically providing that, in case the goods are transformed into a different commodity which then is used in the execution of works contract, then the benefit of deduction cannot be availed.

It is trite law that, tax provisions granting exemptions/concessions are required to be strictly construed as recently held by this Court in M/s. Achal Industries Vs. State of Karnataka. There is no variance between Rules 6(4)(m)(i) read with Explanation III and Section 5B of the KST Act, 1957 and contention of the Appellant in assailing the validity of Rule impugned is misconceived and without substance. It will be open for the assessing authority to proceed with the impugned assessment proceedings initiated pursuant to notices dated 8th November, 2002 independently.

Relevant : State of Tamil Nadu Vs. Pyare Lal Malhotra and Others MANU/SC/0419/1976

Tags : RULE VALIDITY SCOPE