2021 (11) TMI 3 - HC - VAT and Sales Tax

Classification of goods - Manufactured Sand (M-Sand) - covered under Entry 83 of Schedule III to the Karnataka Value Added Tax Act, 2003 or not? - revisional authority as well as the Tribunal proceeded to levy higher rate of tax bringing the M-sand under residuary entry under Section 4(1)(b)(iii) of the KVAT Act primarily for the reason that the Government of Karnataka has issued a Notification dated 31.03.2015 reducing the rate of tax on M-sand at 5.5% - HELD THAT - It is trite that the commodity could be classified based on how ordinarily or commonly it is known and its purpose and use. It is not disputed by the revisional authority and the Tribunal that the manufactured sand is used for construction activity. The Robo Sand i.e., manufactured sand and the river/natural sand is found to be having similar physical properties as per the report of a project sponsored by the Department of Mines and Geology, Government of Karnataka and conducted by the Department of Civil Engineering of the Indian Institute of Science placed on record by the assessee. As could be seen from the material on record, the M-sand cannot be considered as excluded from Entry 83 of Third Schedule of the KVAT Act. The Hon ble Apex Court in the case of RAMAVATAR BUDHAIPRASAD VERSUS THE ASSISTANT SALES TAX OFFICER, AKOLA AND ANOTHER 1961 (3) TMI 55 - SUPREME COURT held that the word vegetables must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance. Everyday use it must be construed in its popular sense meaning that sense which people conversant with the subject matter with which the Statute is dealing would attribute to it . Consequently, it has been held that betel leaves are not vegetables under the Berar Sales Tax Act, 1947 - applying the principle of common parlance, sand includes manufactured sand in whatever name it would be called. The Notification dated 31.03.2015 is only clarificatory and that would not disentitle the assessee to claim the reduced rate of tax at 5/5.5% under Entry 83 of the Third Schedule of the KVAT Act. On the other hand, to classify it under the residuary entry different from the claim by the assessee, the department has to discharge the burden of proof. Except relying on the Notification dated 31.03.2015, no further material was relied on by the revenue to bring the manufactured sand under the residuary entry. The question of law is answered in favour of the assessee and against the revenue.

Summary

Issues Involved:
Classification of manufactured sand (M-sand) under Entry 83 of Third Schedule to the Karnataka Value Added Tax Act, 2003.

Detailed Analysis:

1. Issue of Classification under Entry 83: The revision petition challenges the Karnataka Appellate Tribunal's judgment regarding the classification of M-sand under Entry 83 of the KVAT Act for the tax periods from April 2014 to March 2015. The petitioner, a registered dealer, contended that M-sand should be taxed at 5.5% under Entry 83, while the revenue argued that it should be taxed at 14.5% under the residuary entry prior to a notification reducing the rate to 5.5% on March 31, 2015.

2. Legislative Intent and Common Parlance Test: The High Court analyzed Entry 83 of the KVAT Act, emphasizing that the Legislature included 'sand and grits' without excluding manufactured sand explicitly. The court applied the common parlance test to determine the classification, stating that the purpose and use of the goods should be considered. It noted that the M-sand and river sand have similar physical properties, supporting the classification under Entry 83.

3. Judicial Precedents and Interpretation: Referring to legal precedents, the court highlighted the importance of interpreting tariff entries based on common understanding and trade practices. It cited cases such as Annapurna Biscuit Manufacturing Co. and Union of India vs. Garware Nylons Ltd. to emphasize that taxing authorities must provide evidence to support their classification of goods.

4. Burden of Proof and Residuary Entry: The court reiterated that goods should be classified under specific entries before resorting to the residuary entry. It emphasized that the burden of proof lies with the taxing authorities to justify the classification, especially when a specific entry like Entry 83 exists. The court found that the revenue failed to provide sufficient evidence apart from the notification to support the classification of M-sand under the residuary entry.

5. Decision and Order: Ultimately, the High Court ruled in favor of the assessee, holding that M-sand falls under Entry 83 of the KVAT Act and should be taxed at 5/5.5%. The court allowed the revision petition, set aside the Tribunal's judgment, and directed the assessing authority to recompute the tax on M-sand accordingly for the relevant tax periods.

This detailed analysis of the judgment provides insights into the legal reasoning, interpretation of statutes, application of precedents, and the burden of proof in tax classification disputes, culminating in a clear decision by the High Court.