1994 (1) TMI 263 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of steel wires and steel wire rods as different commodities under the Bengal Finance (Sales Tax) Act, 1941, and the Central Sales Tax Act, 1956.
2. Liability of sales tax on the sale of manufactured steel wires.
3. Applicability of section 5(2)(a)(va) of the 1941 Act for tax deduction on the sale of steel wires.

Detailed Analysis:

1. Classification of Steel Wires and Steel Wire Rods:
The primary issue was whether steel wires manufactured from steel wire rods should be treated as a different commodity under the Bengal Finance (Sales Tax) Act, 1941, and the Central Sales Tax Act, 1956. The applicant argued that both steel wires and steel wire rods fall under the same category of declared goods as per section 14(iv) of the 1956 Act and should be treated as the same commodity. The respondents contended that steel wires and steel wire rods are distinct commercial commodities, thereby attracting separate taxation.

The Tribunal concluded that if the raw materials used were mild steel rods and wire rods, the classification would involve different sub-clauses of section 14(iv). Specifically, steel rods fall under sub-clause (iv), while wire rods and wires fall under sub-clause (xv). Thus, wires manufactured from steel rods are different commercial commodities and taxable separately.

2. Liability of Sales Tax on Manufactured Steel Wires:
The applicant claimed that no additional sales tax should be levied on the sale of steel wires manufactured from tax-paid steel wire rods. The respondents argued that a new commodity emerges from the manufacturing process, and thus, fresh tax is applicable.

The Tribunal referenced the Supreme Court decision in Pyare Lal Malhotra [1976] 37 STC 319, which supports the view that a change in the commodity through manufacturing attracts new taxation. The Tribunal held that wires manufactured from steel rods are different commercial commodities and subject to sales tax, subject to the maximum rate of 4% as per section 15(a) of the 1956 Act.

3. Applicability of Section 5(2)(a)(va) of the 1941 Act:
The applicant sought exemption under section 5(2)(a)(va) of the 1941 Act, claiming that tax was already paid on the purchase of steel wire rods. The respondents denied this exemption, asserting that the manufactured steel wires are commercially different from the raw materials.

The Tribunal agreed with the applicant's position that wire rods and wires, both falling under sub-clause (xv) of section 14(iv) of the 1956 Act, should be treated as the same commodity for the purposes of tax exemption. This interpretation was supported by the Karnataka High Court decision in Bahri Steel Wires [1992] 84 STC 418 and the Andhra Pradesh High Court decision in Mohd. Basheer & Co. [1989] 72 STC 185. Therefore, if the wires sold were manufactured from wire rods on which tax was paid, the applicant is entitled to the deduction under section 5(2)(a)(va).

Conclusion:
The Tribunal allowed the application, setting aside the impugned orders of the assessment, appellate authority, and the Tribunal below. It directed the Commercial Tax Officer to reassess the case, considering the observations made in the judgment. Specifically, if the wires sold were manufactured from tax-paid wire rods, the deduction under section 5(2)(a)(va) should be allowed. However, if the wires were manufactured from rods other than wire rods, the tax deduction claim should be disallowed, and sales tax should be levied accordingly.

Final Order:
The application was allowed, and the case was remanded for fresh assessment. The Tribunal's decision emphasized the importance of treating wire rods and wires as the same commodity for tax purposes, provided they fall under the same sub-clause of section 14(iv) of the 1956 Act. The operation of the judgment was stayed for six weeks as requested by the State Representative.