2013 (12) TMI 1441 - HC - VAT and Sales Tax

Applicable rate of tax of concrete cover blocks - Whether the cement block manufactured by the appellant is covered by entry 10(3)(a) of SRO No. 82/2006 taxable at the rate of 12.5 per cent. or does it come under entry 18(5) of the Third Schedule, attracting only four per cent. tax. - Held that - Entry 18 relates to hollow bricks and other type of bricks, roofing tiles, etc., and specific entries are provided for bricks, blocks, therapeutic goods, etc. The learned senior counsel appearing for the appellant specifically referred to cement bricks, including hollow bricks which is entry 18(5). Hollow bricks are apparently used for constructing walls. The entry also takes care of blocks, cement bricks. Cement bricks again can be used for constructing walls and this product can be termed as a cement brick, though not used for construction of walls. It is used for the purpose of providing a space in between steel structure and the shutter. When flooring tiles are included in the entry, we are of the view that the item can possibly come under entry 18(5) of the Third Schedule. - Decided in favour of assessee.

Summary

Issues:
Interpretation of entry 10(3)(a) of SRO No. 82/2006 under the Kerala Value Added Tax Act, 2003.
Classification of the product manufactured by the appellant as per tax rate - 12.5% or 4%.
Determining if the product falls under entry 18(5) of the Third Schedule to the KVAT Act.

Interpretation of Entry 10(3)(a):
The appellant challenged an order clarifying the tax rate on concrete cover blocks under entry 10(3)(a) of SRO No. 82/2006. The appellant argued that the product is not a pre-fabricated structural component for building or civil engineering. The court examined the nature of the product and found it to be a small concrete block used between steel rods and concrete structures. It was concluded that the product did not qualify as a prefabricated structural component and could be considered a small-scale activity. The court analyzed the relevant entries and determined that the product did not fall under entry 10(3)(a).

Classification of Tax Rate:
The key question was whether the cement block manufactured by the appellant should be taxed at 12.5% under entry 10(3)(a) or at 4% under entry 18(5) of the Third Schedule. The Department argued for the higher tax rate based on the product being a pre-fabricated structural component. However, the court observed that the product was more akin to a cement brick used for creating space between steel structures and shutters. By referencing entry 18(5) which covers cement bricks, the court determined that the product should be taxed at 4%.

Application of Entry 18(5) of Third Schedule:
Entry 18 of the Third Schedule includes various types of bricks, blocks, and tiles. The appellant's product, although not a conventional brick, was found to serve a similar purpose by creating space between steel structures. The court reasoned that since the product was functionally similar to cement bricks and served a specific purpose, it could be classified under entry 18(5). Consequently, the court allowed the appeal, declaring that the product fell under entry 18(5) of the Third Schedule, thereby setting aside the respondent's clarification and permitting the lower tax rate of 4%.

This detailed analysis of the judgment from the Kerala High Court provides a comprehensive understanding of the issues involved, the arguments presented, and the court's reasoning leading to the final decision in favor of the appellant.