2010 (3) TMI 1045 - HC - VAT and Sales Tax

Whether the resin coated sand falls under entry 83 of the Third Schedule or under the residual provision under the Karnataka Value Added Tax Act, 2003? Whether the order passed by the Commissioner, Commercial Tax, exercising his suo motu powers vested under section 64(2) would be prospective or retrospective? Held that - The Advance Rulings Authority without following the judgment of the Tribunal, erroneously has granted an order in favour of the appellant. We are also of the opinion that the Commissioner exercising his power vested under section 64 of the Karnataka Value Added Tax Act having found that, the order of the authority was prejudicial to the interest of the Revenue has rightly exercised his power and ruling of the Commissioner is justified in regard to the classification of the resin coated sand under residuary clause. Question No. 1 has to be answered in favour of the Revenue and against the assessee. Based on the clarification of the Advance Rulings Authority with effect from April 1, 2007, the assessee had collected tax at the rate of four per cent only and not at the rate of 12.5 per cent. In view of the same, we have to answer question No. 2 against the Revenue and in favour of the assessee.

Summary

Issues:
1. Classification of "resin coated sand" under Karnataka Value Added Tax Act, 2003.
2. Retroactive or prospective application of the Commissioner's order under section 64(2).

Issue 1: Classification of "resin coated sand"
The appellant sought clarification on the tax rate for "resin coated sand" under the Karnataka Value Added Tax Act, 2003. The Advance Rulings Authority classified it under entry 83 of the Third Schedule, taxed at four per cent. However, the Commissioner, invoking section 64(2), determined it as an unscheduled commodity, subject to 12.5 per cent tax from June 7, 2005. The appellant argued that "resin coated sand" is akin to "silica sand" and should be taxed at four per cent. Conversely, the respondent contended that the manufacturing process differentiates "resin coated sand," warranting the higher tax rate.

Issue 1 Analysis:
The High Court held that the Tribunal's decision in a previous case established "resin coated sand" as distinct from natural sand due to the manufacturing process involved. Consequently, the Court ruled in favor of the Revenue, classifying it under the residual clause for a 12.5 per cent tax rate.

Issue 2: Retroactive or prospective application of the Commissioner's order
The appellant argued that the Commissioner's order should be prospective, effective from the date of the order, not retroactive to June 7, 2005. The respondent asserted that the Commissioner's decision was justified, considering the awareness of legal precedents by the appellant.

Issue 2 Analysis:
The Court determined that the Commissioner's order should be prospective, not retrospective. It reasoned that the Advance Rulings Authority's failure to consider the Tribunal's decision did not warrant retroactive application. As the appellant had collected tax at four per cent based on the Authority's clarification, the Court ruled in favor of the appellant regarding the prospective nature of the Commissioner's order.

In conclusion, the High Court upheld the classification of "resin coated sand" under the residual clause for a 12.5 per cent tax rate. It also deemed the Commissioner's order as prospective, not retroactive, based on the circumstances surrounding the case.