2010 (10) TMI 1165 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of de-oiled rice bran (DORB) under the Karnataka Value Added Tax Act, 2003.
2. Applicability of tax exemption for DORB as animal feed or feed supplement.
3. Validity of the Commissioner of Commercial Taxes' order versus the Advance Ruling Authority's order.

Summary:

Issue 1: Classification of DORB
The primary issue was whether DORB falls under the First Schedule or Third Schedule of the Karnataka Value Added Tax Act, 2003. The First Schedule exempts animal feed and feed supplements from tax, while the Third Schedule taxes "Husk and bran of cereals and pulses" at 4%. The assessee argued that DORB, used as poultry and cattle feed, should be classified under the First Schedule as an exempt commodity. The Commissioner of Commercial Taxes classified DORB under Entry 30 of the Third Schedule (up to 6-6-2005) and Entry 45 of the Third Schedule (from 7-6-2005 onwards), making it liable to tax at 4%.

Issue 2: Applicability of Tax Exemption
The assessee sought clarification from the Advance Ruling Authority, which initially classified DORB under Entry 45 of the Third Schedule, making it taxable. This was challenged, and the High Court remanded the case for reconsideration. Upon rehearing, the Authority classified DORB as an animal feed and feed supplement under Entry 8 of the First Schedule (from 1-4-2005 to 6-6-2005) and Entry 5 of the First Schedule (from 7-6-2005 onwards), thus exempting it from tax. The Commissioner later revised this decision, reinstating the tax liability.

Issue 3: Validity of Orders
The High Court examined the statutory provisions and relevant case law, including the Supreme Court's interpretation of "animal feed" and the nature of DORB as a processed commodity. The Court found that DORB, after undergoing a manufacturing process, is used as an animal feed or feed supplement and should be classified under the First Schedule. The Court noted that the Commissioner's reasoning was flawed, as it did not consider the processed nature of DORB and its use in animal feed.

Conclusion:
The High Court allowed the appeal, setting aside the Commissioner's order and restoring the Advance Ruling Authority's decision. The Court held that the assessee is entitled to the tax exemption under the First Schedule for DORB as an animal feed and feed supplement.