1999 (8) TMI 922 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of Notification No. S.O. 3 dated 3rd January 1998 fixing sales tax at 8% for "slurry and sludge."
2. Definition and classification of "slurry and sludge" as coal.
3. Competence of the State Government to levy tax exceeding 4% on slurry and sludge.
4. Refund of excess tax collected by the respondents.

Issue-wise Detailed Analysis:

1. Legality of Notification No. S.O. 3 dated 3rd January 1998 fixing sales tax at 8% for "slurry and sludge":
The petitioners challenged the notification as illegal, arbitrary, and contrary to the Central Sales Tax Act, 1956. They argued that under Section 15 of the Central Act, the tax payable on declared goods inside the State should not exceed 4%. The State Government, by notification dated December 26, 1977, had fixed the sales tax at 4% on coal, including slurry. The subsequent notification dated January 3, 1998, which amended the earlier notification to fix the rate at 8% for slurry and sludge, was claimed to be without jurisdiction.

2. Definition and classification of "slurry and sludge" as coal:
The petitioners contended that slurry is essentially coal, as it consists of fine coal particles settled in water discharged from washery plants. This classification was supported by the Supreme Court's decision in Bharat Coking Coal Ltd. v. State of Bihar (1990) 4 SCC 557, which held that slurry is a form of coal. The respondents, however, argued that slurry and sludge are residual or by-products of a chemical process and thus different from coal.

3. Competence of the State Government to levy tax exceeding 4% on slurry and sludge:
Section 15 of the Central Sales Tax Act imposes restrictions on the tax rate for declared goods, including coal, limiting it to 4% within the State. The Bihar Finance Act, 1981, under Section 12, also subjects the levy of tax on declared goods to these restrictions. The court found that the State Government's notification fixing the rate at 8% was in violation of these statutory provisions. The Supreme Court's ruling in Bharat Coking Coal Ltd. confirmed that slurry is coal, thereby making it a declared good under the Central Act, and subject to the 4% tax cap.

4. Refund of excess tax collected by the respondents:
The petitioners claimed that coal companies, including respondent No. 7, were charging 8% sales tax on slurry instead of 4%, and an additional 1% tax, despite the State Government's notification exempting declared goods from additional tax. The court directed the respondents to refund the excess amount realized from the petitioners, as the imposition of tax beyond 4% was illegal.

Judgment:
The court quashed Notification No. S.O. 3 dated 3rd January 1998 to the extent that the rate of tax on slurry and sludge cannot exceed 4%. The respondents were directed to refund the excess tax collected from the petitioners. The writ petitions were allowed.