2016 (4) TMI 877 - HC - VAT and Sales Tax

Demand of tax - Entitlement for benefit of SRO 641/81 - Whether the Tribunal had erred in fact and in law in holding that rubber compound processed by the assessee is not the same as compound of rubber - Held that - while the State has failed to show that the article manufactured by the assessee is compound of rubber and not a rubber compound , the assessee has succeeded in establishing that what it manufactures through its unit in relation to which the impugned assessments were made is a finished product, by whatever name it is called, and such finished rubber product is one that does not fall within the exclusion made by SRO 1516/90 and hence, the assessee is entitled to reduced rate of tax on the purchase of rubber for the manufacture of that product which is manufactured in its unit within the State of Kerala. Having held as aforesaid, on an interpretation of the notifications and by answering the questions formulated and remitted for consideration through the remand order of the Honourable Supreme Court of India, an independent consideration of the grounds raised in the captioned original petitions are not called for. They also stand concluded by the findings herein. Therefore, the petitioner/assessee is entitled to the benefit of SRO 641/81 notwithstanding SRO 1516/90 and is therefore bound to pay tax only at reduced rate on the purchase of rubber for the manufacture of its product through its unit to which the assessments leading to the captioned sales tax revisions relate; be the product called compound of rubber or rubber compound . - Decided partly in favour of petitioner

Issues Involved:
1. Interpretation and construction of SRO.No.641/81 and SRO.No.1516/90 under the Kerala General Sales Tax Act, 1963.
2. Eligibility for concessional rate of tax on the purchase of rubber used in the manufacture of rubber compound.
3. Determination of whether 'rubber compound' and 'compound of rubber' are distinct articles or the same.
4. Validity of the notifications issued by the Kerala Government.
5. Admissibility and evaluation of additional evidence post-remand by the Supreme Court.

Detailed Analysis:

1. Interpretation and Construction of SRO.No.641/81 and SRO.No.1516/90:
The core issue revolved around the interpretation of SRO.No.641/81, which provided a reduced tax rate on the purchase of rubber by manufacturers of finished rubber products within Kerala. SRO.No.1516/90 introduced an Explanation excluding 'any form of rubber subjected to processing by mixing with chemicals, gas, fumigation, or any similar process to make any compound of rubber' from the definition of 'finished rubber products'. The assessing authority denied the concessional tax rate on the basis that the rubber compound manufactured by the assessee did not qualify as a finished product. The Tribunal initially ruled in favor of the assessee, but the High Court reversed this decision, interpreting the notifications to exclude the rubber compound from the concessional rate.

2. Eligibility for Concessional Rate of Tax:
The Supreme Court remanded the case to the High Court to determine if 'rubber compound' and 'compound of rubber' are distinct articles or the same. The High Court was directed to consider additional evidence to resolve this technical issue. The State argued that the assessee's product was a compound of rubber, not a finished product, and thus not eligible for the concessional rate. The assessee contended that the rubber compound was a finished product and distinct from a compound of rubber.

3. Determination of Distinct Articles:
The High Court examined affidavits and certificates from experts in rubber technology. The overwhelming scientific opinion was that the rubber compound produced by the assessee was a finished rubber product. Experts detailed the manufacturing process, emphasizing that the rubber compound was a commercially and technically distinct product from raw rubber. The court found that the process involved in manufacturing the rubber compound was a manufacturing process resulting in a finished product, corroborated by the affidavits of experts and the lack of rebuttal evidence from the State.

4. Validity of Notifications:
The High Court noted that the interpretation of the notifications should align with the legislative intent and the technical realities of the manufacturing process. The court held that the rubber compound manufactured by the assessee was a finished product and did not fall within the exclusion provided by SRO.No.1516/90. Therefore, the assessee was entitled to the concessional tax rate under SRO.No.641/81.

5. Admissibility and Evaluation of Additional Evidence:
The Supreme Court allowed both parties to submit additional evidence. The State produced documents and affidavits, while the assessee submitted expert opinions and certificates. The High Court evaluated this evidence, giving significant weight to the expert opinions that supported the assessee's claim. The court concluded that the evidence provided by the assessee was credible and outweighed the State's submissions.

Conclusion:
The High Court dismissed the sales tax revisions, confirming the Tribunal's decision in favor of the assessee. The court declared that the assessee was entitled to the benefit of SRO.No.641/81, notwithstanding SRO.No.1516/90, and was thus liable to pay tax at the reduced rate on the purchase of rubber for manufacturing the rubber compound. The original petitions were allowed in part, and the assessments were adjusted accordingly.

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