1995 (1) TMI 319 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of tax liability on ragi flour under the Karnataka Sales Tax Act, 1957 based on entry 40A of the Fifth Schedule.

Analysis:
The petitioner, a registered dealer under the Karnataka Sales Tax Act, challenged the tax assessment on ragi flour for the year 1993-94, which was taxed at 8% with an additional turnover tax of 1.25%. The Commissioner of Commercial Taxes issued a clarification stating that ragi flour is taxable under section 5(1) of the Act, based on the distinction between ragi and ragi flour in the market, akin to wheat and wheat flour. This interpretation was influenced by the Supreme Court's decision in Rajasthan Roller Flour Mills Association v. State of Rajasthan [1993] 91 STC 408.

The petitioner argued that under section 8 of the Act, goods mentioned in the Fifth Schedule, including ragi, are exempt from tax. Citing the decision in Alladi Venkateswarlu v. Government of Andhra Pradesh [1978] 41 STC 394, it was contended that the transformation of rice into parched rice did not alter its tax-exempt status, similar to ragi flour's relationship with ragi. The petitioner emphasized that ragi, being tax-exempt, should extend the exemption to ragi flour as well.

The Government Pleader, opposing the petitioner's contentions, relied on the Supreme Court's ruling in Rajasthan Roller Flour Mills' case [1993] 91 STC 408, asserting that wheat and wheat flour are distinct commodities. The Government Pleader argued that the economic concept of consumption leading to the emergence of a new commodity with higher utility supports taxing ragi flour separately, as per the principles in State of Karnataka v. Raghurama Shetty [1981] 47 STC 369.

The court, analyzing the enumeration of goods for taxation purposes, referred to the decision in State of Tamil Nadu v. Pyare Lal Malhotra [1976] 37 STC 319, emphasizing that the listing of goods in a statute must signify distinct classes subject to taxation. The court concluded that since ragi was tax-exempt under the Fifth Schedule and no specific entry existed for ragi flour, the principles from Alladi Venkateswarlu's case should apply, treating ragi flour as another form of ragi.

Considering a subsequent notification exempting ragi flour from tax, the court allowed the petition, quashing the assessment order and circular by the Commissioner of Commercial Taxes. The court held that ragi flour should receive the same exemption as ragi under the Fifth Schedule, rendering the demand for tax on ragi flour invalid.