2019 (12) TMI 427 - HC - VAT and Sales Tax

Levy of purchase tax - timber in log - timber in chiran - rate of tax - whether taxable at 16 % during period 01.02.2000 to 31.03.2000? - revisionist submitted that neither tax can be levied twice i.e. one as purchase tax and the other on its sale nor the rate of tax can be enhanced to 16% instead of 15 % - scope of Section 2(e1) of UP Trade Tax Act - HELD THAT - No new commercial commodity come into existence which could be said to be a different commodity. Wooden log (timber) will remain wooden log (timber) in its original character even after cutting the same into sizes. Section 2 (e-1) of the UP Trade Tax Act shows that the process of cutting is not being included within the definition of manufacturing. Thus the process of cutting the wood from different sizes and converting the wood log into plank, no new commercial commodity comes into existence. Timber remain timber and after cutting the timber it does not loose its original identity of timber and it does not undergo any physical/commercial or any kind of change. The identity of timber remains same. Thus the process of cutting and converting timber for log does not come under the definition of manufacturing as provided under Section 2 (e-1) of the UP Trade Tax Act. Thus, the position of law, which emerges, is that after processing, some new commercial commodity must come into existence which may be identified differently from its original - In the case in hand, timber logs were purchased and the same were sliced converting into veneer (chiran) and the same were sold by cutting the wood log converting into veneer (chiran), no new commercial commodity come into existence. The Tribunal was not justified in confirming imposition of tax at the time of purchase of timber (as purchase tax), which has not been challenged by the revisionist and has accepted even in the best judgement assessment, by which its turnover was enhanced, the veneer (chiran), which has been obtained after cutting wood log into small sizes and have been sold, cannot be taxed again - the process of cutting and converting timber from wood log does not come under the definition of Manufacturing as provided under section 2(e- 1) of the Act. Revision allowed.

Summary

Issues Involved:
1. Whether the tribunal was justified in law to impose tax both on timber in log and timber in chiran (veneer).
2. Whether the tribunal was justified in law to impose tax on timber at 16% during the period from 01.02.2000 to 31.03.2000.

Issue-Wise Detailed Analysis:

1. Imposition of Tax on Both Timber in Log and Timber in Chiran:
The revisionist, a registered dealer engaged in the business of timber and the manufacture and sale of veneer (chiran), contended that the imposition of tax on both the purchase of timber logs and the subsequent sale of veneer constituted double taxation, which is impermissible under the law. The counsel for the revisionist argued that, according to the provisions and notifications, tax could be levied either at the point of import or manufacturing but not both. The revisionist accepted the levy of tax on the purchase of timber logs even on the best judgment assessment but contended that no tax should be charged on the subsequent sale of veneer.

The court referred to several judgments, including the Supreme Court's decision in Deputy Commissioner of Sales Tax Vs. Pio Food Packers, which established that a commodity does not lose its original identity through processing unless it becomes a commercially distinct article. The court also cited similar views from other cases, such as Commissioner of Sales Tax Vs. Murlidhar and Sons and State of Tamil Nadu Vs. C. Kanchanamala, which held that slicing timber into planks or veneer does not change its essential identity as timber.

The court concluded that timber remains timber even after being cut into smaller sizes or processed into veneer. Therefore, the imposition of tax on both the purchase of timber logs and the sale of veneer was unjustified. The tribunal's confirmation of the tax imposition at both stages was thus erroneous.

2. Imposition of Tax at 16% from 01.02.2000 to 31.03.2000:
The revisionist also challenged the imposition of tax at 16% during the period from 01.02.2000 to 31.03.2000, arguing that the rate of tax should be as per the notification in effect at the time. The court referred to Notification No. T.I.F.-2-2375/XI-9(251)/97-U.P. Act-15-48-order-98 dated 23.11.1998, which specified a tax rate of 15% for timber. This notification was later modified by Notification KA. NI. -2-101/XI-9(231)/94-UPAct-15-48-order-2000 dated 15 January 2000, which increased the tax rate to 20% for imported timber and 16% for other timber sales.

The court noted that the subsequent notification came into effect on 17 January 2000, and the enhancement of the tax rate to 16% was not relevant for the assessment year in dispute. Therefore, the imposition of tax at 16% for the period from 01.02.2000 to 31.03.2000 was not justified.

Conclusion:
The court held that the imposition of tax on both the purchase of timber logs and the sale of veneer constituted double taxation and was unjustified. Additionally, the enhancement of the tax rate to 16% for the period from 01.02.2000 to 31.03.2000 was not applicable for the assessment year in question. The impugned order was modified accordingly, and the revision was allowed in favor of the assessee.