2016 (3) TMI 1094 - HC - VAT and Sales Tax

Classification - Rate of tax on paving bricks/blocks - 4% or 12.5% - distinction between bricks and paving bricks/ blocks - the first appellant issued show cause notices proposing to levy VAT at 12.5% on paving bricks/blocks treating them as falling outside entry No.2 of Schedule III. - KVAT - Revenue submitted that, Entry No.2 of Schedule III is clear in its language to include bricks and only bricks stipulated therein which are used for construction of a building and it cannot include paving bricks since the normal use of paving bricks is mainly for flooring in the compound, garden etc, and not for construction of a building Held that - It can hardly be disputed that the meaning of the word bricks is known to public at large who are consumers of varieties of bricks for various purposes. But, the general use and the general meaning the expression brick is one used for construction purposes. One who is involved in the business of construction or who is desirous to put up construction would use of the bricks for the purpose of construction of a building. Therefore, the common meaning of bricks is that which could be used for construction purposes with the help of cement and sand for outer finishing and also for aligning of bricks. If one thinks, of bricks, at the first instance, country made bricks made out of clay would come within such category but the Legislature intended to include refractory bricks, fly ash bricks in addition to country made bricks. Therefore, it has also used the words all kinds of bricks . It is true that the language used is to include all kinds of bricks and therefore, one may say that the bricks made out of any preparation, other than fly ash bricks or refractory bricks can also be included. But, two aspects need to be emphasized here. One, is that the language used is and the like and the another, is that the general use of bricks is for constructions of various types of building. Under the circumstances, if the product or item is marketed as bricks, it is for the purpose of construction and in common parlance bricks are used for construction and all such bricks used for construction can be said to be included. The attempt on the part of learned counsel for the respondent / assessee to contend that laying the flooring in a compound or in the garden is also a part of construction activity cannot be accepted for the reason that if such a wide meaning is given to the word construction it would result in an absurdity by equating to construction whereas there is no construction, in the strict sense of the term, while paving or laying a flooring with bricks. While giving a meaning to the word construction one would normally consider the general meaning of the word construction to something to be raised above the surface of the earth and it may also be below the earth s surface, but would not include construction on the level of the earth or on the surface of the earth and not raised above the surface of the earth. If the aforesaid aspects are considered, it is not possible to accept the contention of learned counsel for the respondents that the construction should include flooring in the compound or flooring in the garden as sought be canvassed. In view of the examination of the matter by distinguishing between bricks and the floor bricks or pavers we cannot agree with the view taken by the Gujarat Tribunal as well as Karnataka Appellate Tribunal. Hence, we find that the said views of the Tribunal are not correct. Decided in favor of revenue.

Issues Involved:
1. Interpretation of Entry No.2 of Schedule III of the Karnataka Value Added Tax Act (KVAT Act)
2. Applicability of the clarification issued under Section 59 of the KVAT Act
3. Jurisdiction of the assessing authority in light of ongoing audit proceedings
4. Validity of the reassessment orders based on the issued clarification
5. Exercise of power under Article 226 of the Constitution of India

Issue-wise Detailed Analysis:

1. Interpretation of Entry No.2 of Schedule III of the KVAT Act:
The primary issue was whether paving bricks/blocks fall under "all kinds of bricks" as per Entry No.2 of Schedule III of the KVAT Act. The appellants contended that Entry No.2 applies only to bricks used for building construction, not paving bricks, which are used mainly for flooring. The respondents argued that the term "all kinds of bricks" should be interpreted expansively to include paving bricks/blocks due to advancements in manufacturing. The court referred to the principles laid down by the Hon'ble Supreme Court in State of West Bengal vs. Kesoram Industries Ltd., emphasizing that taxing statutes must be interpreted based on clear expressions without presumption. The court also considered the commercial parlance test, which suggests that the meaning of terms in a taxing statute should align with their common understanding in trade and commerce. The court concluded that the term "bricks" in common parlance refers to those used in construction, not paving bricks/blocks.

2. Applicability of the Clarification Issued Under Section 59 of the KVAT Act:
The second appellant issued a clarification stating that certain bricks fell under Entry No.2, while others were taxable under a residuary entry at 12.5%. The court examined whether this clarification was valid and applicable. The respondents argued that the clarification should not apply to paving bricks/blocks, which they claimed were covered by Entry No.2. The court, however, upheld the clarification, stating that paving bricks/blocks do not fall under the category of "all kinds of bricks" used for construction, as understood in commercial parlance.

3. Jurisdiction of the Assessing Authority in Light of Ongoing Audit Proceedings:
The respondents contended that the assessing authority should not interfere with the jurisdiction of the Deputy Commissioner of Commercial Taxes (Audit) since the books of accounts were already under audit. The court did not find merit in this argument, as the reassessment was based on the clarification issued by the second appellant, which was within the jurisdiction of the assessing authority.

4. Validity of the Reassessment Orders Based on the Issued Clarification:
The reassessment orders issued by the first appellant levied VAT at 12.5% on paving bricks/blocks, treating them as falling outside Entry No.2. The respondents challenged these reassessment orders. The court upheld the reassessment orders, stating that the clarification issued by the second appellant was valid and applicable, and paving bricks/blocks were correctly classified under the residuary entry taxable at 12.5%.

5. Exercise of Power Under Article 226 of the Constitution of India:
The respondents approached the court under Article 226, challenging the reassessment orders and the clarification issued by the second appellant. The learned single Judge allowed the writ petitions, setting aside the reassessment orders. However, the appellate court noted that generally, parties should be relegated to alternative statutory remedies, and exceptional circumstances must justify the exercise of power under Article 226. The appellate court found no such exceptional circumstances in this case and set aside the order of the learned single Judge.

Conclusion:
The court concluded that paving bricks/blocks do not fall under "all kinds of bricks" as per Entry No.2 of Schedule III of the KVAT Act. The clarification issued by the second appellant was valid, and the reassessment orders based on this clarification were upheld. The exercise of power under Article 226 of the Constitution was deemed inappropriate in this case. Consequently, the appeals were allowed, and the writ petitions were dismissed.

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