2011 (1) TMI 1251 - HC - VAT and Sales Tax

Whether rate of tax on the inter-State sales of iron kamani which is a declared commodity under section 14 of the Central Act whether it is liable to tax at the rate of four per cent or at the rate of two per cent? Held that - The submission of learned counsel for the assessee that in view of section 15(b) of the Central Act the tax has rightly been levied at the rate of two per cent is misconceived. Section 15(b) does not apply in the present case for the reason (1) that it contemplates the reimbursement of the tax paid under the State law and (2) in the present case the assessee is the manufacturer of kamani. Kamani has not been sold at any stage in the State of U. P. and no tax was levied and paid on the turnover of kamani under the U. P. Trade Tax Act. In the result the order of the Tribunal is liable to be set aside and the order of the assessing authority is liable to be restored so far as it levies the tax on the inter-State sale of kamani at the rate of four per cent. Accordingly the revision is allowed

Summary

Issues:
Rate of tax on interState sales of iron kamani - whether liable at 2% or 4%.

Analysis:
The dispute in this case revolves around the rate of tax applicable to the interState sales of iron kamani, a declared commodity under the Central Sales Tax Act, 1956. The Tribunal held that the iron kamani is liable to tax at the rate of two per cent. The assessing authority, however, rejected the claim of the assessee and levied tax at the rate of four per cent, citing a specific notification. The assessee appealed the decision, leading to two revisions against the Tribunal's order for the assessment years 1996-97 and 1997-98.

The contention of the standing counsel was that the tax rate of two per cent on kamani was conditional under a specific notification, and the Explanation to section 8(2A) of the Central Act did not apply, warranting a tax rate of four per cent. Additionally, another notification issued under the Central Act specified a tax rate of four per cent for the declared commodity, irrespective of Form C coverage. On the other side, the counsel for the assessee argued that the tax rate should be two per cent based on the notification from 1994 and section 8(2A) of the Central Act, emphasizing entitlement to tax reimbursement under section 15(b) of the Central Act.

The High Court analyzed the notifications and legal provisions in detail. It concluded that the tax rate of two per cent was conditional and not a general tax on the commodity. Therefore, the Explanation of section 8(2A) precluded the assessee from benefiting from the lower tax rate. The Court also dismissed the argument regarding tax reimbursement under section 15(b) as inapplicable since the kamani was not sold within the State of U. P., and no tax was levied or paid on its turnover under the U. P. Trade Tax Act.

Consequently, the High Court allowed the revision, setting aside the Tribunal's order and restoring the assessing authority's decision to levy tax on the interState sale of kamani at the rate of four per cent. The costs were assessed at Rs. 500, and the order of the assessing authority was reinstated.