2024 (2) TMI 294 - HC - VAT and Sales Tax

Taxability of Latex in the Hands of Company - Exclusion of from the scope of Agriculturist - income received by the revision petitioner from out of the rubber trees provided for slaughter tapping to third parties, is taxable or not - Ought not the learned tribunal have held that the receipts of the revision petitioner from out of the slaughter tapping agreements is only a licensee fee and there is no sales tax liability under the provisions of the KVAT Act? - HELD THAT - For the purposes of the Kerala Value Added Tax Act, there is a transfer of the property in the latex that is extracted from the rubber trees from the petitioner to the third party. It is also relevant that the consideration that flowed from the third party to the petitioner was for the latex that was obtained by him and not merely for the right to collect the latex. The reliance placed by the learned counsel on the decision of the Karnataka High Court in MUNINAGAIAH VERSUS STATE OF KARNATAKA AND OTHERS 1996 (6) TMI 321 - KARNATAKA HIGH COURT also cannot come to his aid since we find that, that was a case that concerned the grant of a right to collect tamarind from specified forest areas which was conferred on the forest contractor through a public auction as per the provisions of the Karnataka Forest Act, 1964. While the contractor in the said case was given a permission to collect, remove and dispose tamarind, the court found on a perusal of the agreement that it was not one for the sale of tamarind but more in the nature of the grant of a right of profit a prendre and hence there was no authority for the Karnataka State Government to levy sales tax on the said transaction. We find the agreement in the instant case to be wholly different in nature, more so when it is not in dispute that unlike a Government grant over forest land the right granted in these cases was to collect latex (goods) from rubber trees owned and cultivated by the petitioner Company. The only reason why the petitioner was called upon to pay tax on the sale of latex, despite being an agriculturalist in the general sense of the term, is because the definition of 'agriculturalist' and 'turnover' respectively under the KVAT Act excluded Companies. There are no reason to interfere with the well reasoned order of the assessing authority as affirmed by the 1st Appellate Authority and the Tribunal. These OT revisions are therefore disposed by answering the questions of law raised by the petitioner against the assessee and in favour of the revenue.

Summary

Issues involved: Interpretation of agreement for tapping rubber trees, classification of transaction under KVAT Act, applicability of tax on latex sale.

Summary:

Interpretation of Agreement: The petitioner, a company holding rubber plantations, entered into an agreement allowing a third party to tap and remove latex from rubber trees. The assessing authority proposed to assess the turnover under the KVAT Act, treating the transaction as a sale of latex by the petitioner. The petitioner contended that the agreement was more of a grant of profit a prendre, but the authority confirmed the tax demand, finding that the petitioner had sold the latex disguised as a license fee to evade tax.

Appellate Proceedings: The petitioner's appeals before the 1st Appellate Authority and the Kerala Value Added Tax Appellate Tribunal were unsuccessful. The Tribunal held that the income received by the petitioner from tapping rubber trees for third parties was taxable under the KVAT Act, dismissing the argument that it was only a licensee fee without sales tax liability.

Judgment: The High Court rejected the petitioner's contention that the agreement was a grant of profit a prendre. It was noted that there was a transfer of property in the latex from the petitioner to the third party, and the consideration paid was for the latex obtained. The Court distinguished a previous case involving tamarind collection, emphasizing the nature of the agreement in the present case. The petitioner was liable to pay tax on the sale of latex due to the exclusion of companies from the definition of 'agriculturalist' and 'turnover' under the KVAT Act.

Conclusion: The High Court upheld the order of the assessing authority and the Tribunal, ruling in favor of the revenue. The questions of law raised by the petitioner were answered against the assessee, affirming the tax liability on the sale of latex from the rubber trees.