1984 (11) TMI 299 - HC - VAT and Sales Tax

Issues Involved:

1. Classification of "firewood" vs. "timber pieces of specified sizes"
2. Inclusion of transport charges in the taxable turnover
3. Interpretation of contractual terms and their impact on classification

Detailed Analysis:

1. Classification of "firewood" vs. "timber pieces of specified sizes":

The primary issue in these revisions under section 41 of the Kerala General Sales Tax Act, 1963, is whether the "firewood" sold by the assessees to the Gwalior Rayon Silk Manufacturing Company Ltd. should be assessed at the concessional rate of 1% under item 55 of the First Schedule to the Act. The Sales Tax Officer had rejected the assessees' claim for the concessional rate, arguing that the supplied goods were not "firewood" for fuel purposes but rather "timber pieces of specified sizes" intended for the manufacture of rayon pulp. This view was initially upheld by the Appellate Assistant Commissioner and the Tribunal.

Upon remand, the Tribunal, influenced by the decision in Deputy Commissioner v. Western India Plywoods (P.) Ltd. [1980] 46 STC 331, concluded that the goods should be treated as "firewood" and thus eligible for the concessional rate. However, the Tribunal failed to address whether the subject matter of the bargain was indeed "firewood" or something else, as required by the precedent set in Kutty and Company v. State of Kerala [1978] 42 STC 291.

The Court emphasized that the term "firewood" carries the concept of a well-known use, specifically as fuel. It was noted that the agreement between the assessee and Gwalior Rayons included specifications such as debarking and splitting into certain sizes, which are not typical for firewood used for fuel. The Court reasoned that the transaction was for raw material suitable for manufacturing rayon pulp, not for firewood.

2. Inclusion of transport charges in the taxable turnover:

The Sales Tax Officer had included transport charges in the taxable turnover, arguing that the sale was completed at the factory site. However, the Tribunal, following the decision in Kutty's case, excluded transport charges from the computation of turnover, as rule 9(f) of the Kerala General Sales Tax Rules indicated that transport charges should not be included.

3. Interpretation of contractual terms and their impact on classification:

The Court examined the contractual terms in detail, noting that the agreement specified the supply of "approved varieties" of wood, debarked and split to specific sizes, and excluded certain types of wood like rubber wood. These specifications indicated that the goods were not intended for use as firewood but as raw material for manufacturing rayon pulp. The Court held that the nature of the goods sold should be determined based on the subject matter of the bargain and the intentions of both parties, rather than the mere possibility of the goods being used as firewood.

Conclusion:

The Court set aside the orders of the Tribunal in T.R.C. No. 62 of 1983 and T.R.C. No. 120 of 1983, restoring the orders of the assessing authorities, as confirmed by the Appellate Assistant Commissioner. In T.R.C. No. 73 of 1981, the direction of the Tribunal to assess the transaction under entry 55 was vacated. The Court concluded that the goods sold were not "firewood" but timber pieces of specified varieties, prepared for use as raw material for manufacturing rayon pulp, and thus not eligible for the concessional rate of tax. No costs were awarded.

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