1992 (6) TMI 173 - HC - VAT and Sales Tax

Summary

Issues:
Identification of formaldehyde as a component part of plywood under the Karnataka Sales Tax Act, 1957.

Analysis:
The appellant, a dealer under the Karnataka Sales Tax Act, purchased formaldehyde at a concessional rate for use in plywood manufacture. The assessing authority alleged misuse and initiated proceedings under section 5(3-B) of the Act, claiming formaldehyde was not a component part of plywood. The appellant argued formaldehyde's necessity in plywood manufacture, supported by expert affidavits. The Additional Deputy Commissioner found formaldehyde to be an identifiable component by chemical test. However, the Commissioner revised this decision, stating formaldehyde was used to prepare an adhesive compound for plywood manufacture.

The appellant contended the Commissioner failed to consider expert materials and the test applied by the Supreme Court to determine a component part. Reference was made to a similar case under the Madras General Sales Tax Act, where groundnut oil in vanaspathi was deemed a component part. The Supreme Court's stance was cited, emphasizing identification by chemical or other test as crucial for concessional tax rates.

Affidavits from experts familiar with plywood manufacture detailed formaldehyde's role as a major component in plywood production. The appellant's counsel highlighted the identification methods by chemical tests, emphasizing formaldehyde's presence in the plywood layers. The Revenue's argument that formaldehyde was not visually identifiable in the final product was countered, citing the Supreme Court's position on identification by chemical tests.

The Court rejected the Revenue's distinction between "component" and "component part," emphasizing the Supreme Court's criteria for identification by chemical test. Amendments in other state tax acts supported this principle, highlighting the need for identifiable constituents in the finished product. Previous decisions were referenced to establish the precedent that a component part need not be visually identifiable but identifiable by chemical analysis. The Commissioner's reliance on a wrong test led to the setting aside of the revisional order, allowing the appeals with no costs incurred.