2021 (1) TMI 66 - HC - VAT and Sales Tax

Classification of goods - point of levy of tax - tax to be levied as they exist at the time of sale or based upon how the goods are used or to what purpose the goods are put to use by the buyers after purchase? - steel structural handles, mineral fiber ceiling tiles / boards, PVC floorings, metal ceilings and axioms - respondent declared the turnovers relating to sales of iron and steel tees, angles and channels in monthly returns in Forms VAT-100 as sales of declared goods of iron and steel covered by Sl.No.30 of third schedule to the Act and paid tax at the rate of 4%. The other goods were treated as unscheduled goods and turnovers relating to sale of other goods was declared as liable to output tax at 12.5% - case of respondent is that iron and steel tees, angles and channels dealt in by the respondent were manufactured out of galvanized steel and they were different from structural steel and the goods therefore, cannot be regarded as iron and steel declared goods specified in Section 14(iv) of the Central Sales Tax Act, 1956 for levy of tax at 4% in terms of Sl.No.30 of third schedule to the Act. HELD THAT - The levy of tax is permissible under the Act is on the goods as they exist at the time of sale and it is immaterial how the goods are used or to what purpose the goods are put to use by the buyers after purchase - In the instant case, the respondent had sold steel structure of tees, angles and channels in the same form in which goods were purchased and that goods sold by the respondent were not grid systems in any assembled form. This fact was noticed by the prescribed authority itself in paragraph 8 of the order of re-assessment. A bench of this court has already taken a view in Steel Tech Industries 2013 (12) TMI 1496 - KARNATAKA HIGH COURT that if good acquired are declared goods and it continue to be declared goods even at the time of sale, may be in a different form, the levy of tax should only be as declared goods and not as residuary in nature - From close scrutiny of the judgment passed by the Karnataka Appellate Tribunal, it is found that the tribunal has neither decided any question of law erroneously nor has failed to decide any question of law. Petition dismissed.

Summary

Issues:
1. Interpretation of goods under the Karnataka Value Added Tax Act, 2003.
2. Classification of goods as declared goods or unscheduled goods for tax purposes.
3. Application of tax rates based on the nature of goods sold.
4. Judicial review of tribunal's decision on the classification of goods.

Issue 1: Interpretation of goods under the Karnataka Value Added Tax Act, 2003.
The case involved a dispute regarding the interpretation of goods under the Karnataka Value Added Tax Act, 2003. The respondent was engaged in the business of selling various items, including steel structural handles and mineral fiber ceiling tiles. The prescribed authority held that certain goods sold by the respondent were not classified as iron and steel declared goods, leading to a reassessment of tax liability.

Issue 2: Classification of goods as declared goods or unscheduled goods for tax purposes.
The main contention revolved around whether the goods sold by the respondent, specifically steel structural handles, should be classified as declared goods or unscheduled goods for tax purposes. The respondent had initially declared these goods as iron and steel covered by the Act and paid tax at a lower rate. However, the prescribed authority reclassified the goods as unscheduled items, subject to a higher tax rate.

Issue 3: Application of tax rates based on the nature of goods sold.
The dispute further delved into the appropriate tax rate applicable to the goods in question. The respondent argued that the goods should be taxed as declared goods, while the authorities contended that the goods were not covered under the specified category, warranting a higher tax rate. The tribunal's decision played a crucial role in determining the correct tax treatment of the goods.

Issue 4: Judicial review of tribunal's decision on the classification of goods.
The petitioner challenged the tribunal's decision, highlighting that the tribunal did not adequately address the grounds raised by the first appellate authority regarding the classification of goods. The petitioner argued that the tribunal erred in solely relying on purchase invoices for classification without considering the subsequent changes to the products. However, the court upheld the tribunal's decision, emphasizing that the tax levy should be based on the goods as they exist at the time of sale.

In conclusion, the High Court dismissed the petition, affirming the tribunal's decision. The court found that the goods sold by the respondent, though potentially undergoing changes, were still considered declared goods at the time of sale. The court clarified that the levy of tax should align with the nature of the goods at the point of sale, regardless of their eventual use. The judgment underscored the importance of correctly classifying goods for tax purposes under the relevant legislation.