2014 (2) TMI 51 - HC - VAT and Sales Tax

Levy of tax on sale of copper - Whether in respect of contract work of insulation in respect of copper wire furnished by the customer, tax could be levied under residuary entry 4(1)(b) of the K.V.A.T. Act, 2005 - Held that - If the assessee was in the business of sale of insulated copper wire, then the said notification applies. Admittedly, in the instant case, the assessee is not selling the copper wire. He receives the copper wire from the customers, uses enamel, fiberglass yarn and paper and converts it into insulated copper wire and delivers the finished product to the customer. In the process, what is sold is enamel, fiberglass yarn and paper. These are the three materials which are used in the manufacturing process to convert copper wire into insulated copper wire. There is no separate entry in the Schedule prescribed for the tax leviable for these three items. Thus, residuary clause is invoked and 12.5% is charged. In the facts of this case, we do not find any justification to interfere with the orders passed by the Tribunal - Decided against assessee.

Summary

Issues:
1. Assessment of tax on the sale of enamel, fiberglass yarn, and paper under the K.V.A.T. Act, 2005.
2. Rejection of application for rectification under Section 69 of the K.V.A.T. Act.

Analysis:

Issue 1: Assessment of tax on the sale of enamel, fiberglass yarn, and paper under the K.V.A.T. Act, 2005:
The appeals were filed challenging the tax levied at 12.5% on the sale of enamel, fiberglass yarn, and paper. The main questions of law considered were whether the tax should be levied under the residuary entry of the K.V.A.T. Act or at 4% under a specific entry for the assessment period 2005-06. The assessee received copper metal, drew wire, insulated it with enamel, fiberglass yarn, and paper, and returned the finished product to the customer. The tax payable on copper wire was 4%, but as there was no sale of copper wire, the materials used in the manufacturing process were considered for taxation. Since there was no specific entry for enamel, fiberglass yarn, and paper, the residuary clause was invoked, leading to a 12.5% tax levy. The notification specifying 4% tax for insulated copper wire was deemed inapplicable as the assessee was not selling copper wire but the materials used in the manufacturing process. The High Court upheld the tax assessment at 12.5%, dismissing the appeals.

Issue 2: Rejection of application for rectification under Section 69 of the K.V.A.T. Act:
The rejection of the application for rectification under Section 69 of the K.V.A.T. Act was also challenged. The assessee contended that based on notifications, the tax payable for insulated copper wire should be 4%, not 12.5%. However, since the assessee was not engaged in the sale of copper wire but in the manufacturing process of insulated copper wire using enamel, fiberglass yarn, and paper, the 12.5% tax was deemed appropriate. The High Court found no justification to interfere with the Tribunal's orders, leading to the dismissal of the appeals. Therefore, the rejection of the rectification application was upheld.

In conclusion, the High Court affirmed the tax assessment at 12.5% on the sale of enamel, fiberglass yarn, and paper, as these materials were crucial in the manufacturing process of insulated copper wire. The court rejected the appeals challenging the tax levy and the application for rectification, emphasizing the applicability of the residuary clause for taxation in the absence of specific entries for the materials used.