1981 (6) TMI 114 - HC - VAT and Sales Tax

Issues Involved:
1. Exemption from sales tax on iron and steel scrap as second or subsequent sales of declared goods.
2. Correct tax treatment of the turnover of Rs. 1,13,130.68.
3. Jurisdiction and discretion of the High Court in entertaining new pleas in tax appeals.

Issue-wise Detailed Analysis:

1. Exemption from Sales Tax on Iron and Steel Scrap as Second or Subsequent Sales of Declared Goods:

The assessee, Elgi Equipments (P.) Ltd., manufactures air-compressors and uses iron and steel goods as raw materials. During the manufacturing process, iron and steel scrap emerge as by-products or factory waste. The assessee claimed that the sales turnover of these scrap materials was exempt from sales tax, arguing that they represented second or subsequent sales of declared goods, which had already borne tax at the first sale point in the state. The assessing officer rejected this claim, but the Appellate Assistant Commissioner accepted it, exempting the turnover from tax. The Board of Revenue, however, set aside this exemption, holding that the scrap materials were not the original goods purchased and thus could not be regarded as second or subsequent sales of declared goods.

The court upheld the Board of Revenue's decision, emphasizing that sales tax is a levy on commercial goods at the point of sale or purchase in trade. The court noted that goods might be the same substance but different in terms of commercial exploitation, thus becoming different subjects of charge. The inquiry should focus on whether the same goods carry from one sale transaction to another in a sequence of sales, maintaining their character as the same marketable commodity. The court concluded that both the scrap and the air-compressors are commodities different in kind and character from the original raw material, despite having the same intrinsic substance. Therefore, the scrap cannot be regarded as the self-same commodity purchased as raw material.

2. Correct Tax Treatment of the Turnover of Rs. 1,13,130.68:

The court addressed the correct tax treatment of the turnover in question. The assessing authority had taxed the turnover at the multi-point rate of 3.5% after rejecting the assessee's claim for exemption. The assessee's counsel argued that even if the scrap is not considered second sales of declared goods, it should be assessed as the first sale of scrap, attracting a single point tax rate of 3% under item 4 of the Second Schedule.

The court agreed with this contention, stating that the sale of factory-produced scrap must be the first sale of that scrap in the state. The court noted that iron and steel scrap are distinct commodities falling under sub-items (a) and (c) of item 4 of the Second Schedule, and the single point rate of 3% should apply. The court highlighted that the correct assessment of the turnover must align with the nature of the scrap and its sale, and thus, the turnover should be taxed at the single point rate of 3%.

3. Jurisdiction and Discretion of the High Court in Entertaining New Pleas in Tax Appeals:

The learned Government Pleader objected to the new argument being raised for the first time before the High Court. He cited a previous decision, arguing that the High Court should not entertain new factual contentions not raised at earlier stages. The court, however, rejected this objection, stating that the High Court, as an appellate body under section 37 of the Tamil Nadu General Sales Tax Act, 1959, has the jurisdiction to entertain new legal pleas. The court emphasized that its responsibility is to ensure the correct assessment of tax and that not a pie more is levied or collected than imposed by the Act.

The court held that the plea regarding the correct tax treatment of the turnover was a legal plea and should be entertained. The court noted that the plea did not involve new facts but was a matter of correct legal assessment. The court concluded that the turnover of Rs. 1,13,130.68 should be taxed at the single point rate of 3% under item 4 of the Second Schedule, setting aside the Board of Revenue's order and directing the Board to work out the tax effect accordingly.

Conclusion:

The court allowed the appeal, ruling that the sales of scrap should be taxed at the single point rate of 3% under item 4(a) or (c) of the Second Schedule, rather than the multi-point rate of 3.5%. The Board of Revenue's order was set aside, and the Board was directed to work out the tax effect of the court's decision. The appeal was allowed without any order as to costs.

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