1988 (9) TMI 339 - HC - VAT and Sales Tax

Summary

Issues:
- Determination of tax liability on the purchase of "goat hair" and "goat hair strings" for manufacturing "goat hair patties" for export.
- Interpretation of whether "goat hair patties" and "goat hair" or "goat hair strings" are distinct commodities for tax purposes.
- Application of relevant legal principles to decide if a manufacturing process has taken place.

Analysis:
The High Court of Rajasthan addressed three sales tax revision petitions concerning the tax liability of assessees manufacturing "goat hair patties" for export. The assessees purchased "goat hair" and "goat hair strings" to produce the patties, paying sales tax at full rates. The assessing authority imposed purchase tax under section 5A of the Rajasthan Sales Tax Act, 1954. The Deputy Commissioner (Appeals) reduced the tax rate, leading to appeals by both the assessees and the department before the Rajasthan Sales Tax Tribunal. The Tribunal, in its order, varied the tax rates for different periods, prompting the assessees to file revision petitions challenging the decision.

During the proceedings, the assessees argued that since the sales were for export and the goods retained their original identity, no tax should be charged. They relied on legal precedents such as Deputy Commissioner of Sales Tax v. Pio Food Packers and Sterling Foods v. State of Karnataka to support their position. On the other hand, the department contended that "goat hair patties" were distinct from the raw materials and fell under section 5C of the Act, not section 5(1). The department also argued that the Tribunal's findings were unchallenged and the revision petitions were not maintainable.

The Court examined the arguments presented and the legal principles cited by both parties. It considered whether "goat hair patties" and the raw materials were distinct commodities or the same for tax purposes. Referring to relevant case laws like Commercial Taxes Officer v. Sakariya Textiles, the Court emphasized that if a manufacturing process resulted in a new commercial product with a changed identity, it constituted a different commodity. In this case, the Court found that the manufacturing process transformed "goat hair" and "goat hair strings" into "goat hair patties," creating a new product with a different identity. Therefore, the Court upheld the Tribunal's decision to levy tax at varying rates under section 5C for different periods.

In conclusion, the Court dismissed the revision petitions, ruling that the goods involved were distinct commodities, justifying the differential tax rates imposed by the Tribunal. The Court found no legal infirmity in the Tribunal's decision and rejected the petitions with no costs awarded to either party.