2008 (7) TMI 874 - HC - VAT and Sales Tax

Whether Deluxe Janatha Cem sold by the assessee is a lime product classifiable as an item falling under entry 74 of the First Schedule to the Kerala General Sales Tax Act, 1963, as claimed by the Revenue or under entry 28 of the Second Schedule of Notification SRO No. 1728/93 dated November 3, 1993, issued by the State Government in exercise of its powers under section 10 of the KGST Act, which speaks of lime and dehydrated lime as claimed by the assessee? Held that - The assessee in the present case effects purchase of Janatha Cem and effects the sale of the said commodity within the State. The commodity dealt with by the assessee under the brand name Janatha Cem is lime powder packed in gunny bags, mainly and primarily used for coating surfaces, walls and structures. Janatha Cem or Snow Cem which is the normal usage in the trade circle, is a product having major ingredient of lime. Alternatively, Janatha Cem is a product with a lime base. Therefore, it requires to be treated as dehydrated lime and the benefit of the notification requires to be extended to the assessee and requires to be taxed at the lesser rate of tax at 2.5 per cent and not at the higher rate of 10 per cent under entry 74 of the First Schedule to the KGST Act. Revision allowed.

Issues Involved:

1. Classification of "Deluxe Janatha Cem" under the Kerala General Sales Tax Act, 1963.
2. Applicability of reduced tax rate under Notification SRO No. 1728/93.
3. Interpretation of "lime" and "dehydrated lime" in the context of the KGST Act.
4. Validity of the "user test" in determining the tax rate.
5. Reliance on judicial precedents for interpretation of tax statutes.

Issue-wise Detailed Analysis:

1. Classification of "Deluxe Janatha Cem" under the Kerala General Sales Tax Act, 1963:

The primary question was whether "Deluxe Janatha Cem" sold by the assessee is a lime product classifiable under entry 74 of the First Schedule to the Kerala General Sales Tax Act, 1963 (KGST Act), or under entry 28 of the Second Schedule of Notification SRO No. 1728/93. The assessing authority and the Tribunal classified it under entry 74, making it taxable at 10%, while the assessee claimed it should fall under entry 28, taxable at 2.5%.

2. Applicability of reduced tax rate under Notification SRO No. 1728/93:

The State Government issued Notification SRO No. 1728/93, reducing the tax rate for certain goods, including "lime and dehydrated lime," to 2.5%. The assessee argued that "Deluxe Janatha Cem" should benefit from this reduced rate. The court emphasized that exemption notifications must be interpreted to give them true import and meaning, not to make them purposeless.

3. Interpretation of "lime" and "dehydrated lime" in the context of the KGST Act:

The court examined whether "Deluxe Janatha Cem" falls within the description of "lime and dehydrated lime." It noted that "lime" and "dehydrated lime" should be interpreted in their ordinary parlance, meaning as understood by people conversant with the commodity. "Lime" is a product derived from baking sea-shell or limestone, and "dehydrated lime" is lime without water content. The court concluded that "Deluxe Janatha Cem" is a dehydrated lime, i.e., a product with a lime base.

4. Validity of the "user test" in determining the tax rate:

The assessing authority used the "user test" to determine the tax rate, considering the nature of the dealer's business and the commodity's use. The court rejected this approach, stating that the user test is inconclusive and not determinative of the nature of goods. The court emphasized that the nature of goods should not be determined by the use to which they are put or the dealer who sells them.

5. Reliance on judicial precedents for interpretation of tax statutes:

The court referred to several judicial precedents to support its interpretation. It cited the Full Bench decision in Kevi Hardwares v. State of Kerala, which stated that the levy of sales tax is not dependent on the use of goods. The court also referred to the apex court's decision in Kedia Agglomerated Marbles Ltd. v. Collector of Central Excise, which emphasized that product classification in fiscal statutes should be understood in their popular sense. The court concurred with these principles but found the specific precedents cited by the parties not directly applicable to the issue at hand.

Conclusion:

The court concluded that "Janatha Cem" is a lime powder or dehydrated lime and is entitled to the reduced tax rate of 2.5% as per Notification SRO No. 1728/93. It set aside the orders of the assessing authority and the Appellate Tribunal, holding that "Janatha Cem" should not be taxed at the higher rate of 10% under entry 74 of the First Schedule to the KGST Act. The revision petitions were allowed, and there was no order as to costs.

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