2018 (12) TMI 1231 - HC - VAT and Sales Tax

Assessment of tax - compounding of tax - whether the M-Sand produced by the various writ petitioners by using a vertical/horizontal shaft impactor machine is liable to separate assessment under the Kerala Value Added Tax Act, 2003 even when the dealers had opted for compounding under Section 8 of the Act? Held that - Section 8(b) is very clear and indicates compounding fee only on the specific machines provided there under with respect to a dealer producing granite metals. True, the legislature never contemplated the introduction of vertical or horizontal shaft impactors for the purpose of producing M-Sand from the granite metal produced by a separate process through an impactor. The exemption granted, did not exclude such production by a separate machine other than that specified in clause (b) of Section 8 - The exemption granted as per the proviso applies across the board to any production of manufactured sand made by the dealers producing granite metals whether it be from the machines as specified in Clause (b) or otherwise. The compounding scheme also is for the dealers or the crushing units and on option exercised, they are absolved from regular assessment of the goods produced in the crusher units whether it be larger or smaller aggregates of granite metal or M-Sand by a VSI/HSI. The legislature having found that there is a loss of tax insofar as the M- Sand produced by a different machine had from the assessment year 2014-15 provided a compounding fee for the VSI/HSI. M-sand, as the provision existed in the subject assessment year was not exigible to tax when compounding has been applied for and sanctioned - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether M-Sand produced by using a vertical/horizontal shaft impactor machine is liable to separate assessment under the Kerala Value Added Tax Act, even when dealers opted for compounding under Section 8 of the Act.
2. Whether a notice issued under Section 67 of the KVAT Act threatening imposition of penalty is valid.

Issue 1: M-Sand Assessment under KVAT Act

The judgment dealt with the issue of whether M-Sand produced by dealers using a vertical/horizontal shaft impactor machine should be separately assessed under the Kerala Value Added Tax Act, despite opting for compounding under Section 8 of the Act. The Single Judge, based on the proviso to Section 8, subsequent amendments, and a previous Division Bench judgment, found that dealers producing M-Sand using impactor machines were not liable for separate assessment. The State challenged this, arguing that only dealers producing granite metals were entitled to compounding under Section 8(b), and any other product should be assessed separately. The Court analyzed the legislative intent behind the proviso and concluded that dealers opting for compounding were not liable for separate assessment of M-Sand produced by them, regardless of the machines used. The introduction of a compounding fee for VSI/HSI from 2014-15 further supported the dealers' entitlement to exemption.

Issue 2: Validity of Notice under Section 67

In W.A No.1927/2016, the appellant challenged a notice issued under Section 67 of the KVAT Act threatening penalty. The Court noted that the notice was related to non-disclosure of using a Vertical Shaft Impactor for M-Sand production and incorrect maintenance of accounts. However, considering the exemption for M-Sand under compounding, the Court set aside the notice, ruling that M-Sand was not taxable when compounding was applied. The judgment in Mar Basil Granites and Metals v. Commercial Tax Officer was referred to, upholding the decision to dismiss the notice under Section 67. Consequently, W.A No.1927/2016 was allowed, and the judgment of the Single Judge was set aside.

In conclusion, the judgment clarified the assessment of M-Sand under the KVAT Act and the validity of a notice under Section 67, providing detailed analysis and legal reasoning for each issue raised.