2012 (8) TMI 905 - HC - VAT and Sales Tax

Demand of tax - Applicability of Entry 69(i) - Held that - Entry 69(i) of the III Schedule covers the papers of all kinds including Ammonia paper blotting paper and straw box triplex boards and like other but excluding photographic paper. - Entry 69(i) is the inclusive definition and it includes all kinds of paper and the like . However it excluded the photographic paper. In the instant case the appellant is importing papers the Customs Authorities have also treated it as paper with adhesive. The appellant cuts the papers into pieces and prepares post-it-paper with adhesive on one side. It is generally used as a flag or used for writing purpose. Entry 69(i) clearly mentions the papers of all kind. The said entry covers post-it-paper manufactured by the appellant. Entry 69(i) includes all kinds of papers without stipulating use or utility to which the said papers are put to. - Since Entry 69(i) covers the papers of all kinds and the like the post-it-paper falls under Entry 69(i). It attracts tax at the rate of 4% and it will not fall under the unscheduled goods under sub-Section 1(b) of Section 4 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Classification of 'post-it-paper' under the Karnataka Valued Added Tax, 2003.
2. Determination of the appropriate tax rate for 'post-it-paper'.
3. Whether 'post-it-paper' constitutes a distinct commercial commodity from paper.
4. Legality of the order passed by the Commissioner of Commercial Taxes.

Issue-wise Detailed Analysis:

1. Classification of 'post-it-paper' under the Karnataka Valued Added Tax, 2003:
The appellant, a registered dealer under the Karnataka Valued Added Tax, 2003 (KVAT Act), engaged in the business of "Gummed or Adhesive Paper or Paper Board" called "Post-it-Paper" and "Scotch-Magic-self-Adhesive Tape," sought clarification from the Authority for Clarification and Advance Ruling (ACAR) regarding the rate of tax applicable to these products. ACAR initially held that 'post-it-paper' falls under the category of non-scheduled goods, liable to tax at 12.5% under Section 4(1)(b), while Scotch-Magic-Self-Adhesive Tapes in rolls not exceeding 20cm were covered under Entry 143 of the Notification dated 30th September 2005, liable to tax at 4% under Section 4(1)(a)(ii) of the Act. The appellant challenged this classification, arguing that 'post-it-paper' should fall under Entry 69(i) of the III Schedule to the Act, which includes "paper of all kinds."

2. Determination of the appropriate tax rate for 'post-it-paper':
The appellant contended that the imported paper rolls, which were cut into different sizes and had adhesive strips, should be classified under Entry 69(i) of the III Schedule, which includes all kinds of paper except photographic paper. The Commissioner of Commercial Taxes, upon reconsideration, concluded that 'post-it-paper' did not fall under Entry 69(i) or Entry 71 (meant for stationery articles) but under the residuary clause of Section 4(1)(b) of the Act, thus attracting a tax rate of 12.5%. The appellant disputed this, asserting that the product should be taxed at 4% as per Entry 69(i).

3. Whether 'post-it-paper' constitutes a distinct commercial commodity from paper:
The Commissioner held that by cutting the paper into different sizes and adding adhesive, a new commercial commodity distinct from the original paper was produced. This view was challenged by the appellant, who cited precedents to argue that the addition of adhesive and cutting into sizes did not change the fundamental nature of the paper. The court noted that 'post-it-paper' is generally used for writing and as flags, and the Customs authorities recognized it as paper, imposing duty accordingly.

4. Legality of the order passed by the Commissioner of Commercial Taxes:
The court examined whether the Commissioner's order, which classified 'post-it-paper' as a distinct commercial commodity and not under Entry 69(i), was legally sustainable. It was found that Entry 69(i) of the III Schedule includes all kinds of paper, and the addition of adhesive does not alter its classification as paper. The court referenced judgments that supported the inclusive nature of Entry 69(i), which covers all kinds of paper without stipulating the use or utility.

Conclusion:
The court concluded that 'post-it-paper' falls under Entry 69(i) of the III Schedule to the KVAT Act, 2003, and is liable to tax at the rate of 4%. The order dated 16-4-2010 by the Commissioner of Commercial Taxes was set aside. The appeal was allowed, and it was held that 'post-it-paper' should be taxed under Entry 69(i) and not as an unscheduled good under Section 4(1)(b) of the Act.

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