1998 (2) TMI 559 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether raw rubber sheets sold by the petitioner constitute agricultural produce under the Karnataka Sales Tax Act, 1987.
2. Whether the processing of raw rubber into sheets changes its character from agricultural to non-agricultural produce.
3. Whether the sale of raw rubber sheets qualifies as an inter-State sale exempt from taxation.

Analysis:

Issue 1:
The petitioner, a public sector undertaking dealing in raw rubber, contended that raw rubber is exempt from sales tax as an agricultural produce. The Government Advocate argued that processing raw latex into rubber sheets with chemicals and acids removes its agricultural character. The Court referred to the Karnataka Sales Tax Act, which exempts agricultural produce from turnover calculations. The Supreme Court precedent established that even processed rubber sheets retain their original agricultural character, as the processing only makes them marketable without changing their nature. The Court concluded that raw rubber sheets remain agricultural produce, as per the Act's definition and the Supreme Court's interpretation.

Issue 2:
The Government Advocate relied on a scientific definition of "processing" to argue that adding chemicals and drying rubber sheets changes their character from agricultural to non-agricultural produce. However, the Court rejected this argument, emphasizing that the character of raw rubber remains unchanged even after processing with acids and smoke. The Court upheld the view that the processing methods do not alter the fundamental nature of raw rubber as an agricultural product.

Issue 3:
The petitioner claimed that the sale of raw rubber sheets constituted an inter-State sale, exempt from taxation under both the Karnataka Sales Tax Act and the Central Sales Tax Act. Despite the Revenue's contention against this claim, the lower authorities had ruled in favor of the petitioner. The Court acknowledged its limited role as a fact-finding authority and declined to interfere with the lower court's decision. Consequently, the Court allowed the revision petition, setting aside the earlier order against the petitioner.

In conclusion, the Court held that raw rubber sheets sold by the petitioner qualified as agricultural produce under the Karnataka Sales Tax Act, emphasizing that processing methods did not change their fundamental character. The Court also noted that the inter-State sale claim was upheld by lower authorities, and as such, the revision petition was allowed, overturning the previous decision against the petitioner.