1991 (8) TMI 307 - HC - VAT and Sales Tax

Issues Involved:
1. Interpretation of sub-item (xv) of item (iv) in section 14 of the Central Sales Tax Act, 1956, and item 2(xv) of the Fourth Schedule to the Karnataka Sales Tax Act, 1957.
2. Taxability of M.S. wires drawn from M.S. wire rods already subjected to tax under the State Act.
3. Application of sections 14 and 15 of the Central Sales Tax Act, 1956, on the State's power to levy sales tax on declared goods.
4. Validity of the clarification issued by the Commissioner of Commercial Taxes, Karnataka, regarding the taxability of M.S. wires.

Detailed Analysis:

1. Interpretation of Sub-item (xv) of Item (iv) in Section 14 of the Central Sales Tax Act, 1956, and Item 2(xv) of the Fourth Schedule to the Karnataka Sales Tax Act, 1957:
The petitioners contended that the interpretation of sub-item (xv) of item (iv) in section 14 of the Central Sales Tax Act, 1956 (Central Act) should be consistent with item 2(xv) of the Fourth Schedule to the Karnataka Sales Tax Act, 1957 (State Act). Section 14 of the Central Act declares certain goods as having special importance in inter-State trade, restricting the State's power to tax these goods as per section 15 of the Central Act. The petitioners argued that M.S. wire rods and M.S. wires should be treated as a single taxable commodity under sub-item (xv), meaning that M.S. wires drawn from tax-paid M.S. wire rods should not be taxed again.

2. Taxability of M.S. Wires Drawn from M.S. Wire Rods Already Subjected to Tax Under the State Act:
The petitioners, who are dealers in M.S. wires, asserted that they purchase M.S. wire rods within Karnataka, which have already been taxed, and subsequently draw M.S. wires from these rods. They argued that these M.S. wires should not be taxed again under the State Act. The court examined whether the transformation of M.S. wire rods into M.S. wires constitutes the creation of a new taxable commodity. The court referred to the Supreme Court's decision in State of Tamil Nadu v. Pyare Lal Malhotra, which emphasized that a new commercial commodity emerging from a manufacturing process could be taxed separately. However, the court distinguished this case by noting that both M.S. wire rods and M.S. wires fall under the same sub-item (xv) of section 14 of the Central Act, and thus should not be treated as separate taxable commodities.

3. Application of Sections 14 and 15 of the Central Sales Tax Act, 1956, on the State's Power to Levy Sales Tax on Declared Goods:
The court noted that sections 14 and 15 of the Central Act aim to minimize the tax burden on declared goods by ensuring that goods falling under the same sub-item are treated as a single taxable commodity. The court referred to several Supreme Court decisions, including State of Punjab v. Chandu Lal Kishori Lal and State of Tamil Nadu v. Mahi Traders, which supported the view that goods falling within the same sub-item should not be taxed multiple times. The court concluded that M.S. wires drawn from tax-paid M.S. wire rods should not be taxed again, as they fall under the same sub-item (xv) of section 14 of the Central Act.

4. Validity of the Clarification Issued by the Commissioner of Commercial Taxes, Karnataka:
The court examined the conflicting clarifications issued by the Commissioner of Commercial Taxes, Karnataka. The earlier clarification in 1975 stated that M.S. wires drawn from tax-paid M.S. wire rods were not taxable, while a later clarification in 1987 stated the opposite. The court held that the earlier clarification, issued shortly after the amendment to section 14 of the Central Act, reflected the correct legal position. The court declared the 1987 clarification invalid and not reflective of the correct legal position.

Conclusion:
The court allowed the writ petitions, declaring that M.S. wires drawn from tax-paid M.S. wire rods cannot be taxed again under the State Act, in accordance with sections 14 and 15 of the Central Act. The court quashed any assessment orders contrary to this declaration and permitted the petitioners to file objections to any ongoing proceedings based on the earlier notices. The court emphasized the importance of minimizing the tax burden on declared goods and ensuring consistency in the interpretation of tax laws.

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