2006 (7) TMI 623 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of sales tax assessment for the years 1994-95, 1995-96, and 1996-97 regarding the classification of bleaching powder as either a "chemical" or "lime and dehydrated lime" for tax purposes.

Analysis:
The primary issue in this case revolves around the classification of the product, bleaching powder, for sales tax assessment purposes. The petitioner, engaged in manufacturing and selling bleaching powder, argued that the product should be classified under "lime and dehydrated lime" and taxed at a reduced rate of 2.5%. On the other hand, the respondent contended that the product falls under the category of "chemical" and should be taxed at 10% under entry 29 of the First Schedule to the Kerala General Sales Tax Act, 1963.

The court analyzed the manufacturing process of bleaching powder, which involves calcium, chlorine, and oxygen, leading to the formation of a compound known as chloride of lime. It was established that bleaching powder is not equivalent to lime or dehydrated lime, as claimed by the petitioner. The product undergoes a transformation during manufacturing, resulting in distinct characteristics and chemical composition, making it ineligible for classification as lime or dehydrated lime.

Regarding the classification as a "chemical," the court referred to entry 29 of the First Schedule to the KGST Act, which includes various substances like caustic soda, soda ash, and chemical components not classified elsewhere. The court emphasized that bleaching powder is a chemical product manufactured through a chemical process involving chlorine, lime, and water. The product aligns with the dictionary definition of a chemical and is commonly recognized as such, even though it is used for disinfection purposes in water treatment.

Ultimately, the court upheld the Tribunal's decision that bleaching powder qualifies as a "chemical" under entry 29 of the First Schedule, subject to a tax rate of 10%. However, the petitioner may still be eligible for a concessional rate if supplying to specific organizations like the Water Authority or Government Department. As a result, the tax revision cases were dismissed, affirming the classification of bleaching powder as a chemical for sales tax assessment purposes.