2004 (4) TMI 568 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of "Shrinkkomp" as "cement" under entry 7 of Part "C" of the Second Schedule to the Karnataka Sales Tax Act, 1957.
2. Inclusion of the cost of packing material, specified and charged separately, in the total turnover for tax under section 6B of the Act.

Detailed Analysis:

Issue 1: Classification of "Shrinkkomp" as "Cement"
The primary question was whether "Shrinkkomp," a grouting material manufactured by the petitioner, should be classified as "cement" under entry 7 of Part "C" of the Second Schedule to the Karnataka Sales Tax Act, 1957, thereby attracting a single point tax at 13%.

The petitioner argued that "Shrinkkomp" is distinct from cement, highlighting differences in composition and usage. However, the department contended that "Shrinkkomp" is essentially a special quality cement, used for specific purposes such as grouting, and should be classified as cement. The court noted that the term "cement" covers a wide variety of binding materials, including portland cement, slag cement, high aluminium cement, gypsum cement, and expansion cement. The court emphasized that assigning a specific brand name does not change the fundamental nature of the product. It concluded that "Shrinkkomp," an expanding cement used for grouting, falls under the category of cement as per entry 7 of Part "C" of the Second Schedule to the Act. Thus, it is subject to the single point tax applicable to cement.

Issue 2: Inclusion of Packing Material Costs in Total Turnover
The second issue was whether the cost of packing materials, specified and charged separately in the sales invoices, should be included in the total turnover for the purpose of levying turnover tax under section 6B of the Act.

Section 6-B of the Act stipulates that every dealer with a total turnover exceeding five lakh rupees is liable to pay turnover tax. The proviso to section 6B(1) explicitly excludes "charges for packing materials and cost of labour" from the total turnover if they are specified and charged separately. The assessing authority had included these charges in the turnover, arguing that they form an integral part of the sale price. This view was upheld by the appellate authority and the Tribunal.

However, the court clarified that section 6B is an independent charging section, and the principles of section 5, relating to sales tax, do not apply to it. The court referenced multiple decisions, including those from the Supreme Court, to assert that deductions provided in rule 6 of the Karnataka Sales Tax Rules, 1957, do not apply to section 6B. It emphasized that the proviso to section 6B(1) clearly excludes charges for packing materials specified and charged separately from the total turnover.

The court rejected the argument that section 5(3D), which deals with the tax on containers and packing materials, should influence the interpretation of section 6B. It held that section 5(3D) is inapplicable to section 6B, as the latter has a clear provision excluding packing charges from the total turnover.

Conclusion
The petitions were allowed in part. The court confirmed the Tribunal's decision to tax "Shrinkkomp" under entry 7 of Part "C" of the Second Schedule to the Act. However, it set aside the decisions of the assessing authority, appellate authority, and the Tribunal regarding the inclusion of packing material costs in the total turnover. The assessing authority was directed to reassess the turnover for the years 1989-90 and 1990-91, excluding the specified and separately charged packing material costs from the total turnover.