2019 (5) TMI 121 - HC - VAT and Sales Tax

Rate of tax - Pre-painted Galvanized Steel Metal Sheets - Section 4(1)(b)(iii) of the Karnataka Value Added Tax Act, 2003 - HELD THAT - It is not in dispute that Galvanized Steel Metal Sheets comes within the ambit of clause (vi) of Section 14(iv). Now the question would be whether Pre-painted Galvanized Steel Metal Sheets would come within the ambit of the said entry or not. Pre-painted Galvanized Steel Metal Sheets are construed to be a different commodity other than Galvanized Steel Metal Sheets by the Commissioner of Commercial Taxes based on the commercial and common parlance theory, but the same is not substantiated except holding that Pre-painted Galvanized Steel Metal Sheets are ready to use than just Galvanized Steel Metal Sheets. Merely painting the iron and steel enumerated under different clauses of Section 14(iv) would not disqualify it as a declared goods . The pre-painting of iron and steel may be for different reasons mainly, to protect the iron and steel from rusting, that itself would not be construed as a different commodity altogether different from Galvanized Steel Metal Sheets. Where commercial goods without change of their identity as such goods if merely subjected to some processing or finishing, they do not cease to be goods of original description. Hence, the decision of the Commissioner of Commercial Taxes cannot be approved and the same deserves reconsideration. Petition allowed by way of remand.

Summary

Issues:
Challenge to tax rate clarification on pre-painted galvanized steel sheets under KVAT Act based on CST Act interpretation.

Analysis:
The petitioner, a partnership firm manufacturing and selling pre-painted corrugated iron and steel sheets, challenged a clarification by the Commissioner of Commercial Taxes that pre-painted galvanized steel sheets are taxable at 14.5% under Section 4(1)(b)(iii) of the KVAT Act from 01.08.2012. The petitioner sought clarification under Section 59(4) of the KVAT Act regarding the applicable tax rate. The petitioner argued that pre-painted steel sheets fall under Section 14(iv) of the CST Act as "declared goods," contrary to the Commissioner's view that they are a different commodity. The petitioner cited the judgment of the Hon'ble Apex Court in a relevant case to support their position.

In a similar case before the Court, it was observed that the Commissioner did not consider the effect of Section 14(vi) of the CST Act, and the classification of the commodity under the Act was not addressed. The Court disposed of the matter, directing the petitioner to approach the relevant authorities with suitable replies and representations. However, in the present case, the petitioner directly challenged the tax rate clarification on pre-painted galvanized steel sheets under the KVAT Act.

The Court examined Section 14 of the CST Act, which deals with "declared goods" taxed at 5% during the relevant period. Referring to a specific case, the Court analyzed the phrase "that is to say" within the Act, emphasizing that when a commercial commodity alters its identity, it becomes a new commodity for sales tax purposes. The Court noted that pre-painting steel sheets for protection from rust does not change the identity of the original goods. Therefore, the decision of the Commissioner to tax pre-painted sheets differently was deemed incorrect.

Consequently, the Court set aside the impugned order and remanded the proceedings to the Commissioner of Commercial Taxes for reconsideration. The petitioner was granted the liberty to provide additional material to support their claim. The Court directed the Commissioner to make a decision in accordance with the law promptly.

In conclusion, the Court's judgment favored the petitioner's argument that pre-painted galvanized steel sheets should not be taxed differently under the KVAT Act based on the interpretation of the CST Act. The case highlights the importance of correctly interpreting statutory provisions to determine the tax liability of specific goods.