2012 (2) TMI 462 - HC - VAT and Sales Tax

Joint Commissioner order exercising appeal jurisdiction - whether erroneous for the reason that the dealer/assessee who had claimed as an export sale insofar as manufacture of mould is concerned for which the dealer had received payment in advance called as tool development charges amounts to a sale transaction attracting section 4 of the Act for the reason that the goods i.e. the moulds were never actually exported but remained with the dealer? Permanent wire tightener manufactured - whether classifiable within the scope of entry No. 67 of the Third Schedule to the Act as aluminium extrusions or as residuary entry taxable at the general rate of tax in terms of section 4(1) (b) of the Act? Held that - In the instant case though it is contended the goods never left the premises of the assessee and therefore no sale in the eye of law we find it difficult to accept this submission for the reason that the assessee has received payment and the moment the goods have come into existence the payment is with reference to the goods so finished and the transaction gets completed and therefore the assessee holds the goods on behalf of the buyer. View taken by the Additional Commissioner on this aspect in restoring the assessment order by setting aside the order is perfectly justified as the moment the assessee had received the payment and payment is appropriated with reference to the identified goods the sale has taken place The words or phrase aluminium extrusion is one of many forms. Aluminium metal amongst many items described under this entry and what one can notice here is that several items in this entry are one fitting into a basic presentation of aluminium metal as a commodity either in moulds or in billets or in aluminium extrusion etc. In fact the assessee also has described that and sells it as permanent wire tightener and not as aluminium extrusion or any form of aluminium. May be the mould used is aluminium but that in no way detracts from the end-product which is distinctly identified as a product and not merely as a form of aluminium in which the aluminium metal can be sold. It is for this reason we reject the argument that it should have been brought within the scope of entry 67 of the Third Schedule to the Act. Decided against assessee.

Summary

Issues Involved:
1. Correctness of the order of the Commissioner regarding the taxability of tool development charges.
2. Classification and tax rate applicable to permanent wire tighteners.
3. Input-tax rebate and rate of tax on injection moulds (briefly mentioned but remanded for further consideration).

Detailed Analysis:

1. Correctness of the order of the Commissioner regarding the taxability of tool development charges:

The appeal by the dealer challenges the Additional Commissioner of Commercial Taxes' decision, which revised the appellate order concerning the taxability of tool development charges received by the dealer. The dealer argued that the moulds manufactured for the foreign buyer, for which they received payment termed as "tool development charges," should not be considered a sale since the moulds were never exported but remained with the dealer. The dealer contended that the absence of physical delivery or movement of goods negates the transaction as a sale under the Karnataka Value Added Tax Act, 2003.

The dealer relied on the Madras High Court judgment in State of Tamil Nadu v. Govel Plastic Pvt. Ltd., which held that no tax liability arises if goods do not move out of the state. However, the court found this reliance misplaced as the issue in the present case was not about inter-State sale but about local sale under the Act.

The court concluded that since the dealer received payment and the goods were identified and appropriated to the foreign buyer, the transaction constituted a sale. The goods, although not physically delivered, were symbolically delivered and used by the dealer on behalf of the foreign buyer, thus attracting tax under section 4 of the Act.

2. Classification and tax rate applicable to permanent wire tighteners:

The dealer contended that permanent wire tighteners should be classified under entry No. 67 of the Third Schedule to the Act, which pertains to aluminium extrusions, and thus be taxed at a lower rate of 4%. The Commissioner, however, classified the permanent wire tighteners under the residuary entry, subjecting them to the general rate of tax.

The court upheld the Commissioner's view, noting that permanent wire tighteners are distinct products sold under that name and not merely forms of aluminium extrusion. The court emphasized that the product's market identity as a permanent wire tightener precludes its classification under entry No. 67, which lists basic forms of aluminium metal.

3. Input-tax rebate and rate of tax on injection moulds:

Though briefly mentioned, these issues were remanded to the assessing authority by the Commissioner. The dealer is pursuing these matters before the first appellate authority.

Conclusion:

The court dismissed the appeal, affirming the Additional Commissioner's order. The court held that the tool development charges constituted a taxable sale and that permanent wire tighteners were correctly classified under the residuary entry, attracting the general rate of tax. The issues of input-tax rebate and tax rate on injection moulds were left for further consideration by the assessing authority.