1994 (2) TMI 287 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of tax liability on cold rolled steel strips manufactured from hot rolled steel strips.
2. Validity of show cause notice and clarification issued by tax authorities.
3. Application of legal principles regarding grouping of goods for taxation purposes.

Analysis:
1. The petitioner, engaged in manufacturing cold rolled steel strips from hot rolled steel strips, claimed tax exemption based on the belief that the conversion process did not alter the chemical composition of the strips. The assessing authority initially accepted this claim, exempting the turnover from tax. However, a show cause notice was later issued proposing to tax the turnover, arguing that hot rolled and cold rolled strips were distinct commodities. The petitioner challenged this notice, citing legal precedent that goods grouped together in the same sub-item for taxation should be treated as one category, especially when no change in chemical composition occurs during the conversion process.

2. The petitioner relied on a Division Bench judgment to support the argument that tax paid on one type of goods should suffice for related goods produced from it. The court referenced sections 14 and 15 of the Central Sales Tax Act to emphasize the intention to minimize tax burden on declared goods. Additionally, judgments from other High Courts were cited to demonstrate consistent interpretation of tax liability on goods produced from tax-paid raw materials. The court concluded that the show cause notice and clarification, proposing tax on cold rolled strips, were unsustainable and quashed them.

3. The court applied legal principles deduced from previous judgments to the present case. It highlighted that goods grouped in the same sub-item of the Fourth Schedule should be considered one category for tax purposes. Moreover, commercially different goods produced from the same sub-item may not be taxable if the raw materials have already been taxed. The court emphasized that multi-point taxation on declared goods is restricted by law, requiring a strong case from the Revenue to justify taxing related goods separately. In this case, since hot rolled and cold rolled strips were essentially the same except for thickness, and no change in chemical composition occurred during conversion, the court held that they should be treated as the same category for tax payment.

In conclusion, the court allowed the petition, quashing the show cause notice and clarification, and upheld the petitioner's claim for tax exemption on the turnover of cold rolled steel strips manufactured from hot rolled strips.