2008 (4) TMI 694 - HC - VAT and Sales Tax

What should be the rate of tax applicable on maize powder which has been termed as maize starch and whether maize starch falls under the category of kirana goods or under cereals? Held that - Maize powder is not maize starch and maize starch falls under the category of kirana.

Summary

Issues:
1. Determination of the applicable tax rate on maize powder, categorized as maize starch, under the Bihar Finance Act, 1981.

Detailed Analysis:
The case involved a reference made by the Commercial Taxes Tribunal, Bihar, regarding the tax rate applicable to maize powder categorized as maize starch. The assessee, a dealer and commission agent, initially paid tax at four percent on maize powder for the year 1985-86. However, the assessing officer levied tax at nine percent treating it as kirana goods. The appellate authority upheld this decision, but the Commercial Taxes Tribunal overturned it, stating that maize powder should be taxed at four percent, not nine percent. This led to the Commissioner of Commercial Taxes filing a reference application under section 48 of the Bihar Finance Act, 1981, seeking clarification on the tax rate applicable to maize powder termed as maize starch.

The main question referred to the court was whether maize starch should be taxed at four percent as a cereal or at nine percent as kirana goods. The court analyzed the definitions provided in the relevant notifications under the Act. It was noted that if maize starch falls under the category of cereals, it should be taxed at four percent, and if it falls under kirana goods, the tax rate would be nine percent. The court examined the definitions of cereals and kirana goods as per the notifications issued by the State Government under the Act.

The court considered the distinction between maize powder and maize starch. It was observed that maize starch is utilized in various ways, including industrial, food, and laundry purposes. The court highlighted that while maize powder may contain starch, they are not the same commodity. Maize starch is used in food preparations and laundry, making it distinct from maize powder. The court emphasized that the mere presence of maize starch in an item does not automatically classify it as a cereal for taxation purposes.

Ultimately, the court concluded that maize powder and maize starch are different commodities. Even though maize starch could indirectly fall under the category of cereals, it should be taxed at nine percent as starch falls under a specific entry for kirana goods. Therefore, the court determined that maize starch should be taxed at nine percent and not at the lower rate of four percent applicable to cereals. The judgment provided a comprehensive analysis of the classification and taxation of maize starch, resolving the issue raised in the reference made by the Commercial Taxes Tribunal.

The judgment was delivered by Chandramauli Kr. Prasad and Dr. Ravi Ranjan, JJ. C.K. Prasad J. provided a detailed analysis and conclusion, while Dr. Ravi Ranjan J. concurred with the decision. The case was disposed of accordingly, and the court directed the forwarding of its opinion to the Commercial Taxes Tribunal, Bihar, for further action.