2004 (1) TMI 654 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of damaged wheat and rice under the Karnataka Sales Tax Act.
2. Validity of the demand for payment of tax under section 5(1) of the Act.
3. Liability of the first respondent (FCI) to refund the sales tax paid on the purchase of damaged wheat and rice.

Issue-wise Detailed Analysis:

Re: Point No. (i):
The primary issue was whether damaged wheat and rice fall under entry 15 of the Fifth Schedule (entries 64 and 40A of the Fifth Schedule prior to April 1, 1998) or under section 5(1) of the Act. The petitioner argued that damaged wheat and rice, despite being unfit for human consumption, should still be classified as "wheat" and "rice" and thus be exempt from tax under the relevant entries of the Fifth Schedule. The court examined various dictionary definitions and legal precedents to determine the meaning of "cereals." It concluded that "cereals" in common parlance include grains like wheat and rice, even if they are unfit for human consumption but still fit for livestock feed. The court referenced decisions from other jurisdictions, which supported the interpretation that the edibility for human consumption is not a necessary criterion for classification under the term "cereals." Thus, the court held that damaged rice and wheat sold by FCI as fit for cattle/poultry feed fall under "cereals" and are exempt from tax under entry 15 of the Fifth Schedule.

Re: Point No. (ii):
The court addressed the validity of the demand for payment of tax under section 5(1) of the Act as per FCI's letter dated May 30, 2000. Given the court's decision on the first point, it was held that FCI is not entitled to claim any tax on damaged rice/wheat sold for use as cattle/poultry feed. Therefore, the demand for payment of sales tax at 10 percent plus 5 percent cess was deemed invalid and quashed.

Re: Point No. (iii):
The final issue was whether the first respondent (FCI) should refund the sales tax collected from the petitioner. The court noted that FCI acted in a bona fide manner based on the clarification issued by the Commissioner of Commercial Taxes. Since the tax collected had already been remitted to the State Government and FCI had been assessed to tax for the relevant years, the court did not find it appropriate to direct FCI to refund the amount. However, the petitioner was granted the liberty to seek a refund from the State Government under section 18-AA(4) of the Act, with the expectation that any such application would be considered and disposed of in accordance with the law.

Conclusion:
The court allowed the writ petition in part, declaring that damaged wheat and rice sold by FCI as fit for cattle/poultry feed are exempt from tax under entry 15 of the Fifth Schedule. The demand for additional tax made by FCI was quashed, and the petitioner was given the liberty to seek a refund from the State Government. Each party was ordered to bear its respective costs. The petition was thus partly allowed.