2014 (7) TMI 443 - HC - VAT and Sales Tax

Levy of entry tax - U.P. Tax on Entry of Goods Into Local Areas Act, 2007 - whether rail line scrap which is an item of iron and steel is exempt from entry tax in view of amended notification dated January 15, 2009 or would fall within the clause (xvi) of section 14(iv) of the Central Sales Tax Act, 1956 as has been held by the Tribunal - Held that - It is common acknowledge that scrap is something which is a waste and discarded material or a material which has been worn out or has been declared as useless - Generally, the person filling form 38 and making tax invoices are not technical persons, who may be able to make a distinction between scrap and defective/rejected material and the impact of mentioning it incorrectly. Therefore, the mere entry of the material in form 38/tax invoice as rails (defective/RE) would not be sufficient and conclusive to hold that the material was actually defective or rejected basis of iron steel and not a waste or a scrap material - rail line scrap has been sold in the first instance by the railway authorities and has been subsequently purchased by the dealer in question. The authorities below simply on the basis of the entries made in invoice and form 38 without any physical examination of the material have treated it to be a defective and a rejected material and not a scrap or a waste material - It is therefore, clear that anything which has been rendered useless and worn out or is a waste would be a scrap and it is different from material which is defective or rejected but the real test to distinguish between the two would only be by ascertaining the nature of the material in the hands of the party selling it, i.e., the railways in the present case - Impugned order is set aside - matter remanded back - Decided in favour of assessee.

Summary

Issues involved:
1. Levy of entry tax on rail line scrap under the U.P. Tax on Entry of Goods Into Local Areas Act, 2007.

Detailed Analysis:
The judgment by the High Court of Allahabad pertains to commercial tax revisions under section 58 of the U.P. Value Added Tax Act, 2008, involving a dealer engaged in manufacturing and selling agricultural implements. The dispute centers around the levy of entry tax on rail line scrap purchased by the dealer for manufacturing purposes. The issue arises from the provisions of the U.P. Tax on Entry of Goods Into Local Areas Act, 2007, which specifies the levy of tax on goods brought into a local area for consumption, use, or sale from outside the local area. The Schedule to the Act lists taxable goods, including iron and steel, subject to entry tax not exceeding 5% of the value of the goods.

The Schedule to the Act was amended to exclude certain items from the definition of iron and steel, including iron scrap, cast iron scrap, etc. The amended entry specifies that iron and steel, as defined in the Central Sales Tax Act, 1956, excluding the mentioned goods, are chargeable to entry tax at one percent of the value. The dealer argues that rail line scrap falls under iron scrap and is exempt from entry tax based on the amended entry.

The Tribunal and authorities held that the material purchased by the dealer does not qualify as waste material but rather as defective or rejected material under the Central Sales Tax Act, 1956. The distinction between scrap and waste material is crucial, as established in legal precedents. The Supreme Court's interpretation of "scrap" as discarded material for reprocessing reinforces this distinction.

The judgment emphasizes the importance of how the material is described and sold by the parties involved. The court notes that the authorities did not investigate how the railway authorities treated the material when selling it, crucial for determining its classification as scrap or defective/rejected material. The court criticizes the authorities for relying solely on invoices and form entries without physical examination or consideration of the nature of the material in question.

In light of the above considerations, the court sets aside the previous orders and remands the matter to the assessing authority for a thorough reevaluation to determine whether the purchased material qualifies as iron scrap or defective/rejected material. The parties are granted the opportunity to present new evidence to support their claims in the reassessment process. Ultimately, all the revisions are allowed based on the need for a comprehensive reconsideration of the material's classification and tax implications.