1983 (7) TMI 290 - HC - VAT and Sales Tax

Issues Involved:
1. Whether RMA rubber can be treated as raw rubber, viz., latex, under item No. 74 of the First Schedule to the Tamil Nadu General Sales Tax Act, and thus be exigible to 5 per cent sales tax.
2. Validity of the assessment and penalty imposed on the purchase turnover of RMA rubber sheets for the assessment years 1974-75, 1975-76, and 1976-77.

Issue-wise Detailed Analysis:

1. Classification of RMA Rubber Sheets:
The primary issue in these tax cases is whether RMA rubber can be classified as raw rubber, viz., latex, under item No. 74 of the First Schedule to the Tamil Nadu General Sales Tax Act, thus making it subject to a 5 per cent sales tax. The court examined the definition and commercial understanding of raw rubber, viz., latex, which is commonly known as rubber milk in its natural liquid form derived from rubber trees. The court noted that item No. 74, as amended by various Acts, specifically referred to "Raw rubber, viz., latex," indicating an intention to tax only latex and not processed forms like RMA rubber sheets.

The court reviewed the legislative history and amendments to item No. 74, which initially included all rubber but was later restricted to "Raw rubber, viz., latex." The court inferred that the State intended to levy sales tax on latex from 7th September 1974 to 11th November 1981, and subsequently on all varieties and grades of raw rubber from 11th November 1981.

The court concluded that RMA rubber sheets, which are processed from natural latex, do not fall under the category of raw rubber, viz., latex, as they are commercially treated as different goods. The court supported this conclusion with evidence from various documents, including invoices, correspondence, and industry standards, which demonstrated that latex and RMA rubber sheets are sold and marketed differently.

2. Validity of Assessment and Penalty:
For the assessment years 1974-75, 1975-76, and 1976-77, the petitioners were assessed to sales tax on the turnover of RMA rubber sheets at 5 per cent, treating them as raw rubber, viz., latex. Penalties were also imposed for not disclosing the turnovers. The Deputy Commercial Tax Officer assessed the petitioners based on the purchase records from the Forest Department, and the assessments were upheld by the Appellate Assistant Commissioner, Tirunelveli.

However, the Sales Tax Appellate Tribunal (Additional Bench), Madurai, had conflicting decisions on the appeals. In M.T.A. No. 442 of 1976, the Tribunal upheld the assessment and penalty, while in M.T.A. Nos. 736 and 737 of 1979, a different bench allowed the appeals, finding that RMA rubber sheets do not fall within the category of raw rubber, viz., latex.

The court agreed with the latter decision, finding that the State had consciously excluded RMA graded rubber sheets from being levied with sales tax during the relevant period. The court held that the purchase turnover of RMA rubber sheets was not liable to sales tax under item 74 as it stood during the assessment years. Consequently, the assessment and penalty imposed by the Sales Tax Appellate Tribunal (Additional Bench) in M.T.A. No. 442 of 1976 were set aside.

Conclusion:
In conclusion, the court dismissed T.C. Nos. 1235 and 1236 of 1980 with costs and allowed T.C. No. 1296 of 1977 with costs. The order of the Sales Tax Appellate Tribunal (Additional Bench), Madurai, in M.T.A. No. 442 of 1976 was set aside, and the revenue was ordered to pay the cost of Rs. 250 to the assessee.

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