1995 (10) TMI 214 - HC - VAT and Sales Tax

Summary

Issues:
- Challenge to assessment order based on circular issued by Commissioner of Commercial Taxes
- Interpretation of entry in Fourth Schedule of Karnataka Sales Tax Act
- Equivalence of "leco" to charcoal for tax purposes

Analysis:
The judgment pertains to two appeals challenging a common judgment passed by a learned single Judge in two writ petitions. The appellants, registered dealers under the Karnataka Sales Tax Act, were dealing in purchasing "leco" from Neyveli Lignite Corporation. Leco was previously considered as coal subject to duty under entry 1 of the Fourth Schedule to the Act. However, a clarificatory circular was issued by the Commissioner of Commercial Taxes prescribing that leco is taxable at 6 per cent under entry 10 of Part "C" of the Second Schedule, equating it to charcoal. The assessment order based on this circular was challenged, along with a notice demanding payment of duty differentials. The appellants contended that leco should be classified under entry 1 of the Fourth Schedule as coal, distinct from charcoal. The Court found the circular erroneous, emphasizing the distinction between coal and charcoal, and quashed the judgment, circular, assessment order, and notice.

The learned counsel for the appellants argued that the circular equating leco to charcoal was based on a misconception and that leco should be classified as coal under entry 1 of the Fourth Schedule. It was highlighted that charcoal is a refined product from burning wood, while leco is directly from coal mines, making them distinct. The Court agreed with this argument, rejecting the equivalence drawn in the circular and emphasizing that leco cannot be equated to charcoal. The counsel for the Revenue relied on a previous case where the court had interpreted leco as charcoal for exemption purposes, but the Court found this interpretation incorrect, asserting that leco falls under entry 1 of the Fourth Schedule as coal. The Court concluded that the circular and subsequent actions were erroneous, quashing them.

In the final decision, the Court allowed both appeals, quashing the judgment, circular, assessment order, and notice. The Commercial Tax Officer was directed to pass a fresh assessment order in line with the judgment, emphasizing that leco should be classified under entry 1 of the Fourth Schedule as coal. The Court held that the liability to pay duty for leco was under entry 1 and not entry 10 of the Second Schedule, as erroneously stated in the circular. The appeals were allowed, and there was no order as to costs in the circumstances of the case.