2015 (3) TMI 1046 - HC - VAT and Sales Tax

Levy of tax u/s 6 of the Karnataka Sales Tax Act, 1957 - assessee are dealing in diamond, gold jewelry studded with diamond, platinum jewelry studded with diamond besides sale of gold jewelry studded with diamond - assessing authority noticed the diamond, which was used in the manufacture of gold jewelry studded with diamond and platinum jewelry studded with diamond were purchased from a unregistered dealer. Therefore, the authority held as these diamonds lose their identity once they have been consumed in the manufacture of jewelry, articles studded with diamond, the said goods are liable to tax under Section 6 - Held that - every dealer who in the course of his business purchases any taxable goods in the circumstances, in which no tax under Section 5 of the Act is leviable on the sale price of such goods and either consume such goods in manufacture of other goods or sale or consumes otherwise or disposes of such goods in any manner other than by way of sale in the state then he shall be liable to pay tax on the purchase price of such goods at the same rate it would have been leviable on the sale price of such goods under Section 5 of the Act. When the article purchased by the assessee are being used in bringing out a different commodity known as jewelry, article, there is a consumption of diamonds and bullions in the process of manufacture of a different commercial commodity i.e., diamond embedded jewelry article. It is not a case where the diamonds purchased by the assessee is sold as such to a buyer. When once the diamond is used in making the jewelry and it is embedded in the jewelry, it changes into another commercial commodity and therefore, such a commercial commodity has come into existence on absorption of the diamond and therefore, the test prescribed under Section 6 of the Act is attracted and the Commissioner was justified in holding that Section 6 of the Act attracts. - No merit in appeal - Decided against assessee.

Summary

Issues:
1. Interpretation of Section 6 of the Karnataka Sales Tax Act, 1957 regarding the levy of purchase tax on goods consumed in manufacturing jewelry.
2. Jurisdiction and authority of the Commissioner of Commercial Taxes to initiate revision proceedings.
3. Compliance with principles of natural justice in the appellate process.

Issue 1: Interpretation of Section 6 of the Karnataka Sales Tax Act, 1957

The case involved a registered dealer engaged in the manufacturing and sale of diamond, gold, and platinum jewelry. The assessing authority initially held that diamonds purchased from an unregistered dealer and used in manufacturing jewelry were liable to tax under Section 6 of the Act. The appellate authority, however, ruled in favor of the assessee, stating that the diamonds were not consumed in making the jewelry and thus, Section 6 was not applicable. Subsequently, revision proceedings were initiated, and the Commissioner held that the diamonds were indeed consumed in making the jewelry, attracting Section 6. The Commissioner referred to various judgments, including a constitution bench judgment, to support this interpretation. The court upheld the Commissioner's decision, emphasizing that once the diamonds were used in creating jewelry, they transformed into a different commercial commodity, thus meeting the criteria for taxation under Section 6.

Issue 2: Jurisdiction of the Commissioner of Commercial Taxes

The Commissioner's authority to initiate revision proceedings under Section 22 (a) (ii) of the Act was challenged by the assessee. The court clarified that this provision empowered the Commissioner to correct errors in previous orders, as demonstrated in this case where the Commissioner intervened based on the interpretation of the law and the applicability of Section 6. The court upheld the Commissioner's exercise of power under Section 22 (a) (ii) as a means to rectify erroneous decisions by lower authorities, emphasizing the legislative intent behind introducing this provision.

Issue 3: Compliance with Principles of Natural Justice

The assessee raised concerns regarding the fairness of the proceedings, alleging a lack of opportunity to present arguments and a violation of natural justice principles. However, the court dismissed these arguments, noting that the assessee had ample opportunity to respond to the show cause notice and present objections during the proceedings. The court highlighted that the issue of natural justice was not raised at an earlier stage and deemed the objections unsubstantiated. Consequently, the court found no merit in the appeals and dismissed them, emphasizing the importance of timely and substantive arguments in legal proceedings.

In conclusion, the judgment clarified the interpretation of Section 6 of the Karnataka Sales Tax Act, affirmed the Commissioner's authority to initiate revision proceedings, and emphasized the significance of complying with principles of natural justice throughout the appellate process.