2019 (7) TMI 113 - SC - VAT / Sales Tax

Validity of Rule 6(4)(m)(i) of the Karnataka Sales Tax Rules, 1957 read with Explanation III to Rule 6(4) of the said rules - interpretation of statute - scope of charging section - whether the condition of use in the same form in which such goods are purchased under Rule 6(4)(m)(i) of the KST Rules expands the scope of charging section i.e. Section 5B under KST Act, 1957? - appellant purchased timber in log forms, plaster of paris, plywood, glass sheets and the said purchases have been manufactured to produce the goods which are necessary for interior decoration - AO denied deduction from purchases from works contract receipts applying Rule 6(4)(m)(i). HELD THAT - Section 5B of the KST Act and Rule 6(4)(m)(i) of the KST Rules operate in different spheres. Section 5B is a charging provision for levy of sales tax whereas Rule 6(4)(m)(i) is a provision for deduction from tax. Under Section 5B, tax can be levied on transfer of property in the goods whether as goods or in some other form whereas Rule 6(4)(m)(i) provides for a deduction in respect of the goods which have already suffered tax and which are used in the same form. Thus, it appears to be in clear consonance with the charging provision and does not militate against Section 5B of KST Act, 1957. This Court in State of Tamil Nadu Vs. Pyare Lal Malhotra and Others 1976 (1) TMI 151 - SUPREME COURT has held that if the separate commercial commodities emerge out of the goods already taxed earlier, the new commercial commodity is liable to sales tax provided there is a law to this effect - It can be inferred from this case that Sales tax can be levied on the same goods only once so long as they retain their identity of goods of a particular type, and If separate commercial commodities emerge out of the (goods already taxed earlier), then the said new commercial commodity is liable to sales tax. What emerges from the scheme of the Act and Rules framed thereunder is that Rule 6(4)(m)(i) purports to grant benefit to the assessee by allowing deductions for the value of goods which have already suffered taxation and which goods substantially retain their original identity while being used in the execution of a works contract. Explanation III to Rule 6(4) clarifies it further by categorically providing that in case the goods are transformed into a different commodity which then is used in the execution of works contract, then the benefit of deduction cannot be availed. It is trite law that tax provisions granting exemptions/concessions are required to be strictly construed as recently held by this Court in M/s. Achal Industries Vs. State of Karnataka 2019 (3) TMI 1483 - SUPREME COURT . There is no variance between Rules 6(4)(m)(i) read with Explanation III and Section 5B of the KST Act, 1957 and what is contended by the appellant in assailing the validity of Rule impugned hereunder is misconceived and without substance. Provisional assessment served under Section 28(6) - HELD THAT - Whether the assessee was eligible under Rule 6(4)(m) (i) is a question of fact which has to be determined in the assessment proceedings and since the provisional assessment has not been finalised due to pendency of the instant proceedings, it may not be advisable for this Court to dilate on the subject issue of the notices served upon the appellant at this stage and leave it open to the appellant to address before the assessing authority in the pending appropriate assessment proceedings, if so advised. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Validity of Rule 6(4)(m)(i) of the Karnataka Sales Tax Rules, 1957.
2. Interpretation of the phrase "use in the same form in which such goods are purchased."
3. Applicability of Section 28 of the KST Act for provisional assessment.
4. Relevance of the judgment in Media Communications Vs. Government of Andhra Pradesh.

Issue-wise Detailed Analysis:

1. Validity of Rule 6(4)(m)(i) of the Karnataka Sales Tax Rules, 1957:

The Supreme Court upheld the validity of Rule 6(4)(m)(i) of the Karnataka Sales Tax Rules, 1957, which allows deductions for goods purchased from registered dealers and used in the execution of works contracts in the same form as purchased. The appellant argued that this rule overstepped the substantive provision of Section 5B of the KST Act, 1957, which is the charging section for sales tax. However, the Court found that Section 5B and Rule 6(4)(m)(i) operate in different spheres, with Section 5B being a charging provision and Rule 6(4)(m)(i) being a provision for deduction. The Court emphasized that Rule 6(4)(m)(i) is in clear consonance with Section 5B and does not militate against it.

2. Interpretation of the phrase "use in the same form in which such goods are purchased":

The Court examined Explanation III to Rule 6(4), which clarifies that "in the same form" does not include goods that are consumed or used in the manufacture of other goods for execution of works contracts. The Court held that goods transformed into a different commodity and then used in a works contract are liable to be taxed as a new commercial commodity. This interpretation aligns with the principle that sales tax can be levied on separate commercial commodities that emerge from goods already taxed earlier.

3. Applicability of Section 28 of the KST Act for provisional assessment:

The appellant contended that provisional assessment under Section 28 could not be invoked unless there was a pending assessment for finalization or for escaped turnover under Section 12A. The Court noted that the assessment for the years 1998-1999 and 1999-2000 had already been finalized, and no notice under Section 12A was issued. Therefore, Section 28(6) could not be invoked for these years. The Court left it open for the appellant to address this issue before the assessing authority in the pending assessment proceedings.

4. Relevance of the judgment in Media Communications Vs. Government of Andhra Pradesh:

The appellant relied on the judgment in Media Communications, where a similar provision in the A.P. General Sales Tax Act was struck down. However, the Supreme Court found this reliance misplaced. The Court clarified that mere rejection of special leave petitions does not constitute approval of the High Court's view. Additionally, the Court noted that the principle from Media Communications was not applicable as the High Court in that case did not consider the distinction between different commercial commodities emerging from already taxed goods.

Conclusion:

The Supreme Court dismissed the appeal, upholding the validity of Rule 6(4)(m)(i) and its interpretation. The Court emphasized that tax provisions granting exemptions or concessions must be strictly construed. The assessing authority was directed to proceed with the pending assessment proceedings independently, without being influenced by the Court's observations, and to conclude them expeditiously in accordance with the law.