2009 (12) TMI 906 - HC - VAT and Sales Tax

Whether entry 17A in Part C of the Second Schedule as unconstitutional, discriminatory and violative of article 14 of the Constitution of India, so far as the coconut oil sold under the brand name, either in sachets or in bottles? Held that - The learned judge has not taken into account distinction between the hair oil and edible oil. Since this aspect has not been considered, we are of the view the learned judge has committed an error in granting a relief to the assessee in declaring the amendment as unconstitutional in violative of article 14 of the Constitution of India. Considering the facts and background of the amendment brought in, we are of the view that whenever coconut oil is manufactured and sold as hair oil, the same would attract tax at higher rate of 15 per cent and 20 per cent as per the amendment brought to the Karnataka Sales Tax Act, and coconut oil sold as pure coconut oil, as a brand name would attract only four per cent as the same can be used as an edible oil not exclusively as a toilet articles. In view of this distinction, we allow this appeal.

Summary

Issues:
Challenge to legality and correctness of order passed in W.P. No. 28125 of 2002 dated January 3, 2006 regarding the taxation of coconut oil sold under a brand name.

Analysis:
The respondent, a registered dealer under the Karnataka Sales Tax Act, challenged the insertion of "coconut oil sold under the brand name" in the tax schedule, leading to higher tax rates. The court considered whether this amendment was discriminatory and violative of Article 14 of the Constitution. The respondent argued that coconut oil, whether sold under a brand name or not, is used as coconut oil and not solely as hair oil. The government advocate contended that the nature of the product, specifically its use as a toilet article, justified the higher taxation. The court examined samples of coconut oil sold under different brand names to determine if they were meant for edible or cosmetic use.

The court noted that the distinction between coconut oil sold as hair oil and as pure coconut oil for cooking purposes had not been properly appreciated by the legislature. It was argued that coconut oil sold under a brand name should be taxed differently based on its use. However, the court found that the ingredients of the coconut oil samples indicated they were pure coconut oil, suitable for edible purposes. The court emphasized that the judge had erred in not recognizing the difference between hair oil and edible oil, leading to an incorrect relief granted to the assessee.

Considering the background and purpose of the amendment, the court held that coconut oil sold as hair oil should attract higher tax rates, while pure coconut oil sold under a brand name for cooking purposes should be taxed at a lower rate. The court set aside the single judge's order, upholding the validity of the amendment and directing the appellant to assess the taxation based on the distinction between coconut oil sold for cooking and as hair oil.