1992 (8) TMI 253 - HC - VAT and Sales Tax

Summary

Issues:
1. Classification of "anhydrous ammonia" as either "industrial gas" or "chemical" under the Karnataka Sales Tax Act, 1957.

Detailed Analysis:
The judgment of the Karnataka High Court dealt with the classification of "anhydrous ammonia" sold by the appellant as either "industrial gas" falling under entry No. 121 or as a "chemical" under entry No. 79 of the Second Schedule to the Karnataka Sales Tax Act, 1957. The appellant, a dealer in chemicals, sold anhydrous ammonia in liquid form to various industrial units in the State. Initially, the Commercial Tax Officer levied tax at 8% under entry No. 79, treating it as a chemical. Subsequently, revisional proceedings were initiated proposing to levy tax at 10% under entry No. 121, treating it as industrial gas. The Joint Commissioner, in further proceedings, proposed to tax anhydrous ammonia as industrial gas at 10% under entry No. 121, which was challenged in the appeal.

The appellant contended that since anhydrous ammonia was sold in liquid form to industrial units, it should be classified as a chemical under entry No. 79. On the other hand, the Government Advocate argued that since the product was used as industrial gas by various industrial units, it falls under entry No. 121. The court referred to relevant case laws for interpretation, emphasizing that the classification should be based on the vendor's treatment of the product and its common usage.

The court considered the properties and uses of anhydrous ammonia, noting that it is primarily sold and stored in liquid form, used as a fertilizer, and in some cases as a refrigerant. Despite its industrial applications, the court concluded that the product is essentially a chemical in liquid form and sold as such, irrespective of specific industrial uses by purchasers. The court distinguished previous judgments related to the classification of similar commodities like carbon dioxide and emphasized the importance of vendor's treatment and common usage in determining classification.

Ultimately, the court held that "anhydrous ammonia" sold by the appellant does not fall within the purview of entry No. 121 as an industrial gas for the purpose of levying sales tax, overturning the Joint Commissioner's order. The appeal was allowed, and the impugned order was set aside, ruling in favor of the appellant.