2008 (8) TMI 830 - HC - VAT and Sales Tax

Whether rice husk and paddy husk are different commodities? - Whether, on the facts and in the circumstances of the case, the Trade Tax Tribunal was legally justified to hold paddy husk as an unclassified item despite it has made taxable under Government notification issued in this behalf? Held that - The turnover of rice husk and paddy husk as determined by the first appellate authority was justified and the Tribunal was not justified in treating the entire purchase as of rice husk and granting the exemption on the total purchase of ₹ 69,50,000. The dealer is liable to pay purchase tax on the turnover of rice husk amounting to ₹ 29,50,000 as was held by the first appellate authority. No illegality in the order of the Tribunal holding that no tax is payable under section 3F of the Act. The revision succeeds and is allowed in part and it is held that the Tribunal was not justified to knock of the tax on the purchase of rice husk amounting to ₹ 29,50,000. The rest of the order of the Tribunal calls for no interference. The revision succeeds and is allowed in part.

Summary

Issues:
1. Interpretation of law regarding the distinction between rice husk and paddy husk.
2. Taxability of lease amount received for the transfer of right to use plant and machinery.
3. Tax assessment on the sale of coal.

Analysis:

Issue 1: Distinction between Rice Husk and Paddy Husk
The dispute revolved around whether rice husk and paddy husk are different commodities. The assessing authority initially estimated the purchase of rice husk at Rs. 69,50,000. However, the first appellate authority bifurcated the purchase into rice husk and paddy husk based on relevant documents. The Tribunal accepted the claim that all purchases represented paddy husk, disregarding the distinction. The High Court found the Tribunal's decision unjustified, stating that the dealer's own records indicated separate purchases of rice husk and paddy husk. The court emphasized that the dealer is bound by its documents, and the Tribunal erred in accepting an explanation based on employee ignorance. Referring to precedent, the court held that the turnover of rice husk and paddy husk should be differentiated for tax purposes, upholding the first appellate authority's decision to tax the rice husk turnover.

Issue 2: Taxability of Lease Amount for Plant and Machinery
Regarding the lease amount received for plant and machinery, the Tribunal held that tax under section 3F of the Act was not applicable as the machinery was permanently attached to the earth. The High Court examined the lease agreement and relevant facts, concluding that tax under section 3F could only be levied on the turnover of movable property. Citing precedent, the court emphasized that permanently attached machinery is not considered movable property for tax purposes. The court distinguished a Supreme Court judgment cited by the counsel, stating that the facts in the present case did not support the applicability of section 3F. Consequently, the court upheld the Tribunal's decision that no tax was payable under section 3F for the lease of plant and machinery.

Issue 3: Tax Assessment on Sale of Coal
No specific illegality or infirmity was pointed out regarding the tax assessment on the sale of coal. As a result, the High Court found no reason to interfere with this aspect of the Tribunal's order.

In conclusion, the High Court partially allowed the revision, holding that the Tribunal erred in exempting the tax on the purchase of rice husk and upholding the taxability of the lease amount for plant and machinery. The court found no issues with the tax assessment on the sale of coal.