1990 (8) TMI 371 - HC - VAT and Sales Tax

Issues Involved:
1. Whether the carbon dioxide purchased by the petitioners and resold after removing impurities constitutes the same commodity for tax purposes under entry 106 of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959.
2. Whether the Tribunal's confirmation of the Revenue's view that the carbon dioxide sold by the petitioners is a different commercial commodity from what was purchased is correct.
3. Whether the payment of excise duty by the petitioners affects the sales tax liability on the carbon dioxide sold by them.
4. Whether the price difference between the purchase and sale of carbon dioxide justifies a different tax treatment.

Issue-wise Detailed Analysis:

1. Commodity Identity and Taxation:
The primary issue is whether the carbon dioxide (CO2) purchased by the petitioners and resold after removing impurities remains the same commodity for tax purposes under entry 106 of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959. The petitioners argued that the CO2 they purchased, even after removing impurities, remains CO2 and should not be subjected to tax again. The Tribunal, however, held that the CO2 sold by the petitioners was a distinct and different commercial commodity due to its higher purity and different uses. The Tribunal's view was that the CO2 sold by the petitioners, which met ISI specifications and was used for industrial purposes, was commercially different from the CO2 purchased from Madras Fertilisers and SPIC.

2. Tribunal's Confirmation of Revenue's View:
The Tribunal confirmed the Revenue's view that the CO2 purchased by the petitioners with impurities was different from the CO2 sold by them after purification. The Tribunal observed that the CO2 sold by the petitioners was of a higher grade and used for different purposes, making it a different commercial commodity. The Tribunal also noted that excise duty was paid by the petitioners and not by the sellers, further supporting the view that the CO2 sold was a different commodity.

3. Payment of Excise Duty:
The petitioners contended that the payment of excise duty by them should not affect the sales tax liability on the CO2 sold by them. They argued that the payment of excise duty was due to the process of filling for marketing being considered as "manufacture" under the Central Excise Act. The petitioners submitted that the payment of excise duty was undertaken to avail exemption benefits for supplies to industries, governments, and hospitals, and should not change the position regarding sales tax levy.

4. Price Difference Justification:
The Revenue and Tribunal relied on the price difference between the purchase and sale of CO2 to argue that the CO2 sold by the petitioners was a different commodity. The petitioners explained that the price difference was due to overheads of marketing, transport, holding high-value cylinders, excise duty, and profit margin. They argued that the price difference alone should not justify treating the CO2 sold as a different commodity for tax purposes.

Court's Analysis and Conclusion:
The Court considered the rival submissions and various judgments cited by the petitioners. The Court referred to several Supreme Court and High Court judgments, including Raghbir Chand Som Chand v. Excise and Taxation Officer, Tungabhadra Industries Ltd. v. Commercial Tax Officer, and State of Tamil Nadu v. Pyare Lal Malhotra. These judgments supported the view that mere improvement in quality or processing of a commodity does not make it a different commercial commodity for tax purposes. The Court held that the CO2 purchased by the petitioners and sold after removing impurities remained the same commodity and should not be subjected to tax again under entry 106 of the First Schedule to the Act. The Court also noted that the onus was on the Revenue to establish that the CO2 purchased and sold by the petitioners were different commodities, which the Revenue failed to discharge.

Judgment:
The Court allowed the tax revision case, holding that the Revenue cannot subject the second sales of CO2 by the petitioners to tax under entry 106 of the First Schedule to the Act. The Court found that the CO2 remained the same commodity despite the removal of impurities and that the Tribunal's view was unsustainable. The petitioners' arguments were upheld, and the Tribunal's order was set aside. The Court did not find it necessary to address all the contentions raised by the petitioners in light of its conclusion. The petition was allowed with no order as to costs.

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