2009 (7) TMI 1166 - HC - VAT and Sales Tax

Classification - petitioner is a manufacturer and seller of magnesium sulphate which is a chemical fertilizer - Held that - Entry 29 does not visualise any chemical fertilizer to be covered therein. The petitioner has produced various literature from the Agricultural Department proving the nature of use of the item which is only application as a fertilizer, particularly to prevent yellowing of plants. Sales tax being a commodity tax is borne by the customer and a lower rate of tax to fertilizer and plant protection chemicals are provided only to help the farmers who are the only consumers of the same. Admittedly, the entire sales of the petitioner are to a fertilizer company for marketing the product in combination with other fertilizers made by them. Therefore, on merits also the petitioner s claim is well-founded and we, therefore, hold that the product irrespective of the clarification, is assessable under entry 50 of the First Schedule to the KGST Act of the relevant year.

Summary

Issues:
Interpretation of tax entry for magnesium sulphate under Kerala General Sales Tax Act, 1963; Validity of clarification issued by the Government under section 59A; Assessment of tax rate on magnesium sulphate; Rights of manufacturers and dealers following Government clarifications.

Interpretation of Tax Entry for Magnesium Sulphate:
The petitioner, a manufacturer of magnesium sulphate, questioned the tax rate applicable to the product as it was not specifically covered under entry 50 of the Kerala General Sales Tax Act, 1963. Despite being a chemical fertilizer, magnesium sulphate was not included in the tax entry, leading to confusion regarding the applicable tax rate.

Validity of Clarification Issued by the Government under Section 59A:
The Government, through annexure A2 order, clarified that magnesium sulphate is taxable at a rate of 2.5 per cent under the Act. The petitioner, relying on this clarification, collected and remitted tax accordingly. However, subsequent legal challenges and court judgments declared section 59A unconstitutional, raising questions about the validity of the Government's clarification and its impact on tax assessments.

Assessment of Tax Rate on Magnesium Sulphate:
Following court judgments declaring section 59A unconstitutional, the assessing officer assessed the petitioner's turnover of magnesium sulphate at a higher rate of 10 per cent under entry 29, meant for chemicals not specifically covered elsewhere. This assessment was challenged by the petitioner through appeals and revisions, highlighting the impact of conflicting legal interpretations on tax liabilities.

Rights of Manufacturers and Dealers Following Government Clarifications:
The Division Bench acknowledged the petitioner's right to collect tax at the rate specified in the Government's clarification until it was cancelled by the court. The court noted the challenges faced by manufacturers and dealers who followed such clarifications in good faith, emphasizing the need for clarity and consistency in tax regulations to protect the rights of taxpayers.

In conclusion, the court upheld the petitioner's claim that magnesium sulphate should be assessed under entry 50 as a chemical fertilizer, considering its nature and use. The judgment highlighted the importance of honoring Government clarifications until challenged and cancelled through due process, emphasizing the need for fair treatment of taxpayers who rely on official guidance for tax compliance.