1995 (6) TMI 186 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the demand notices and assessment orders.
2. Classification of sawn timber and logs as different taxable items.
3. Allegation of double taxation.
4. Discrimination in tax treatment.
5. Validity of retrospective application of amended tax provisions.

Detailed Analysis:

1. Legality of the Demand Notices and Assessment Orders:
The petitioner challenged the orders dated June 20, 1986, passed by the Assistant Commissioner of Taxes and the subsequent assessment orders dated July 24, 1986. The orders were issued under section 20(1) of the Assam Finance (Sales Tax) Act, 1956, directing the Superintendent of Taxes to revise the assessment and issue fresh demand notices. The petitioner argued that these orders were "illegal, arbitrary, unfair, unreasonable, capricious and violative of the rights of the petitioner."

2. Classification of Sawn Timber and Logs as Different Taxable Items:
The core issue was whether sawn timber and logs should be treated as separate taxable items. The Assistant Commissioner of Taxes concluded that logs and sawn timber are "two different and separate items," and thus, tax was payable on both. The petitioner contended that sawn timber is not a different article from logs, asserting that "both are timbers or wood only." The petitioner supported this argument by citing the Supreme Court decisions in [1988] 70 STC 314 (SC); AIR 1988 SC 1164 [Collector of Central Excise v. Kutty Flush Doors & Furniture Co. (P.) Ltd.] and [1985] 60 STC 213; AIR 1985 SC 1293 (State of Orissa v. Titaghur Paper Mills Co. Ltd.), which established that sawing timber into different sizes does not amount to manufacturing a new item.

3. Allegation of Double Taxation:
The petitioner argued that the impugned orders imposed "double taxation" and were ultra vires of the Principal Act, which stipulates under section 3(2) that tax shall be payable at the stage of the first sale of taxable goods in Assam. The petitioner had already paid tax at the time of purchasing logs, and thus, taxing the sale of sawn timber constituted double taxation.

4. Discrimination in Tax Treatment:
The petitioner claimed that other sawmills were not subjected to similar tax treatment, alleging discrimination. This argument was part of a broader assertion that the tax orders were "illegal, arbitrary, and unfair."

5. Validity of Retrospective Application of Amended Tax Provisions:
The petitioner noted that in 1987, the Act was amended to treat logs and sawn timbers as separate taxable goods. The petitioner argued that applying this amendment retrospectively to periods before its enactment was improper.

Judgment:
The court held that the conversion of timber logs into sawn timber does not result in a new product. It relied on the Supreme Court's rulings, which clarified that "timber logs and sawn timbers are the same commodity." Consequently, the court quashed the finding that logs and sawn timber are different and separate items. As a result, the demand notices and assessment orders based on this incorrect finding were also quashed.

The writ application was allowed, and the impugned orders (annexures G, H, I, J, K, L, M, and N) were quashed. The court did not find it necessary to address the issue of discrimination separately, as the primary finding resolved the matter. The parties were directed to bear their own costs.