2015 (3) TMI 1337 - HC - VAT and Sales Tax

Payment of tax at compounded rate - section 8(b) of KVAT Act - assessment years from 2008-09 to 2013-14 - whether the petitioners, who are admittedly dealers engaged in the production of granite metal with the aid of mechanized crushing machines, are entitled to claim exemption from separate assessment, in respect of the M-sand produced by them using VSI/HSI machines, that have not been reckoned for the purposes of compounding under Section 8(b) of the K.V.A.T. Act? Held that - The provisions of S. 8(b) of the K.V.A.T., as they stood during the relevant period, envisaged a payment of tax at compounded rates, as an alternative to the regular payment of tax under Section 6 of the Act, for dealers producing granite metal using the aid of mechanized crushing machines. The scheme of the compounding provision suggests that dealers could opt to pay a tax, that was computed as the sum total of the amounts chargeable on specified machines that were used by the dealer in the production of granite metal. It was envisaged that once the dealer paid tax in accordance with the scheme, by paying a tax computed on the basis of the number of specified machines used by him, he would be entitled to an exemption from separate assessment in respect of the M-sand that was produced in the course of production of granite metal. The legislative scheme envisaged the payment of compounded tax by reckoning only certain specified machines, from among the various machines that were used in the production of granite metal, and the VSI/HSI machine was not one of them - The demands made on the petitioners, in connection with a separate assessment of the M-sand or Manufactured sand obtained through the use of VSI/HSI machines, cannot be legally sustained - The notices and orders, impugned in these Writ Petitions, are consequently quashed. Petition allowed.

Summary

Issues Involved:
1. Entitlement to exemption from separate assessment for M-sand produced using VSI/HSI machines under S. 8(b) of the Kerala Value Added Tax Act (KVAT Act).
2. Interpretation of the term "Manufactured sand" or "M-sand".
3. Applicability of amendments introduced by the Kerala Finance Act, 2014.

Issue-wise Detailed Analysis:

1. Entitlement to Exemption from Separate Assessment for M-sand Produced Using VSI/HSI Machines:
The petitioners, dealers in granite metal, opted to pay tax at compounded rates under S. 8(b) of the KVAT Act for various assessment years from 2008-09 to 2013-14. They claimed an exemption from separate assessment for M-sand produced during the manufacture of granite metal. The revenue authorities objected, noting the use of separate VSI machines for shaping granite metal, leading to the production of M-sand. The authorities demanded differential tax for M-sand produced using VSI machines, which was not taxed under S. 8(b). The court held that the legislative scheme of S. 8(b) envisaged compounded tax based on specified machines used in granite metal production. The VSI/HSI machines were not included in these specified machines. Therefore, the demands for separate assessment of M-sand produced using VSI/HSI machines were not legally sustainable.

2. Interpretation of the Term "Manufactured Sand" or "M-sand":
The court examined the definition and production process of M-sand. The petitioners argued that M-sand is a by-product obtained during granite metal manufacture, specifically from shaping granite metal from secondary crushers. The respondents described the production process, distinguishing between granite metal, crusher sand, and M-sand, emphasizing that M-sand produced using VSI machines is a main product, not a by-product. The court concluded that all products, including M-sand, are obtained during granite metal production using mechanized crushing machines. Hence, the installation of additional machines for shaping granite metal did not affect the entitlement to exemption under S. 8(b).

3. Applicability of Amendments Introduced by the Kerala Finance Act, 2014:
The court noted that S. 8(b) was amended by the Kerala Finance Act, 2014, introducing specific provisions for compounded tax on VSI/HSI machines. These amendments were substantive and prospective, indicating that prior to these amendments, VSI/HSI machines were not included in the reckoning for compounded tax under S. 8(b). The court inferred that the legislature did not intend to include VSI/HSI machines in the compounded tax scheme for the period before the amendments.

Conclusion:
The court allowed the Writ Petitions, declaring the impugned notices and orders issued by the respondents as illegal and legally unsustainable, and quashed them. The court emphasized that the legislative scheme of S. 8(b) did not envisage separate assessment for M-sand produced using VSI/HSI machines before the 2014 amendments. There was no order as to costs.