2009 (2) TMI 791 - HC - VAT and Sales Tax

Eligibility for second sale exemption for the respondent confirmed by Tribunal - Held that - Products made of copper, zinc, manganese, brass, bronze, magnesium, etc., are covered by entry 121 of the First Schedule which provide for tax on metallic products because the specific entries providing for the rate of tax on these items of metals cover only metal as such whatever be the form in which it is sold and not products made out of such metal. We therefore hold that the metal produced by the respondent in the form of sheets, rounds, circles, etc., from out of scrap metal cannot be treated as the raw material, viz., scrap purchased by them by paying tax. On the other hand the metal recovered from scrap purchased is a different product taxable at the relevant entries referred above. In fact utensils are a final product made out of metal recovered in various forms and so the utensils are not even comparable with the original metal, viz., scrap used for the production. We therefore hold that the respondent is not entitled to exemption on the sales turnover of copper and brass sheets, aluminium sheets, circles and utensils made and sold by them from out of scrap purchased by them because these commodities are different from raw materials, viz., scrap. We therefore reverse the order of the Tribunal and that of the first appellate authority and restore the assessment on the items sold by the respondent.

Summary

Issues:
Interpretation of tax exemption on second sales of metal products and utensils made from scrap metal under the Kerala General Sales Tax Act, 1963.

Analysis:
The judgment pertains to a revision filed by the State against an order of the Tribunal in a litigation involving the purchase of scrap metal, recovery of metal from it, and subsequent sale of metal products and utensils. The respondent claimed exemption on the sale of metal in various forms and utensils, arguing that these were second sales and had already suffered tax at the first sale point. The court noted that the Tribunal had not considered the relevance of entry 121 of the First Schedule, which provided for a separate tax rate on metal scrap not covered under the Second Schedule. Despite a remand by the court, the Tribunal upheld its earlier decision granting exemption for second sales to the respondent, leading to the State filing this revision.

The assessment in question was for the year 1986-87 under the Kerala General Sales Tax Act, 1963. The key entries relevant to the case were entry 121A, which dealt with metal scraps not specified in the Second Schedule, and rule 32(13) of the Kerala General Sales Tax Rules, 1963, allowing exemption on the purchase and sale of the same goods. The court observed that while the respondent purchased scrap, what they sold was not considered scrap, making them ineligible for exemption on second sales as per the rules.

The court delved into the distinction between metal scrap and the metal recovered from it, emphasizing that the tax entries covered the metal in its pure form, irrespective of the form in which it was sold. It clarified that the metal recovered from scrap, such as sheets, circles, or utensils, was a different product taxable under specific entries. The judgment highlighted that products made from metals like copper, zinc, brass, etc., fell under entry 121 of the First Schedule, which taxed "metallic products" and not the raw materials themselves. Consequently, the court concluded that the respondent was not entitled to exemption on the sales turnover of various metal products and utensils made from scrap, overturning the Tribunal's decision and reinstating the assessment on the items sold by the respondent.