1999 (11) TMI 838 - HC - VAT and Sales Tax

Summary

Issues:
1. Tax liability on defective coils and steel pipes not subjected to manufacturing process.
2. Justification of taxing defective pipes and coils purchased locally.
3. Set-off on purchases of defective goods.
4. Classification of end cuttings and their tax liability.
5. Manufacturing activities and tax implications on defective goods.
6. Applicability of tax on goods already subjected to tax.
7. Proper notice requirement for decisions by revising authority.

Analysis:
1. The petitioners, manufacturers of steel tubes, faced assessment for the periods of 1987-88 and 1988-89. The assessing authority granted exemption for sales of defective coils and sheets as second sales in Karnataka. However, revisional proceedings were initiated, challenging the set-off allowed and the exemption given on defective goods. The revising authority held that defective goods were separate taxable items, citing a relevant judgment.

2. The Karnataka Appellate Tribunal rejected the contention that end cuttings are not new commodities and should not be taxed again. It also dismissed the plea for set-off on local purchases. Both arguments were based on the Fourth Schedule's explanation II. The Tribunal upheld the tax liability on defective goods and rejected the set-off claim.

3. The Court analyzed that the sold items were not manufactured by the petitioners but were end cuttings or rejects from the manufacturing process. Since no manufacturing activity was involved in obtaining these items, the Tribunal rightly denied the set-off. However, the question arose whether goods already taxed can be taxed again based on their classification.

4. Relying on the Pyare Lal Malhotra case, the Court clarified that if raw materials have already been taxed and no further manufacturing is done, the goods cannot be taxed again. The nature of goods does not change merely due to defects or rejections. The Court emphasized that if tax is paid at the first point in Karnataka, subsequent sales should not attract additional tax.

5. The Court noted the revising authority's decision on steel tubes without proper notice to the petitioners, suggesting a review by the revising authority. Consequently, the Tribunal's order was set aside, and the matter was referred back to exclude local purchases of defective goods from tax liability. However, tax liability remained for purchases from outside Karnataka sold within the state. Ultimately, the petitions were allowed.