2010 (11) TMI 1081 - HC - Service Tax

Payment of tax at compounded rates - Section 7(1)(b) of the KGST Act - sale of M-sand and granite metals - benefit of compounding to both the main product (granite metal) as well as to the by-product (M-sand) - assessment year 2003-04 - Held that - Section 7 has been incorporated in the statute book as an alternative measure for realization of the tax instead of undergoing the ordeal with reference to the charging provision under Section 5. It is also pertinent to note that such benefit of compounding is not open to all sectors but the same stands confined to two different situations/units as taken care of by Sections 7(1)(a) and 7(1)(b) - While Section 7(1)(a) deals with the dealers of gold/silver ornaments or wares Section 7(1)(b) deals with mechanised crushing units producing Granite metals. Thus the benefits contemplated under Section 7(1)(b) is with reference to the unit and not otherwise - AO has no case that the assessee is not running a mechanized crushing unit producing granite metals and in fact has granted compounding benefit however confining it to the main product Granite metal alone; while the M-sand (by-product) is sought to be reckoned under the residual entry imposing higher rate of tax; which has been rightly interfered by the Tribunal. The finding of the Tribunal that the benefit of compounding has to be given to the unit both in respect of the main product (Granite metal) and in respect of the by-product (M-sand) is perfectly right - Revision Petition is dismissed.

Summary

Issues:
1. Whether the Appellate Tribunal correctly treated M-sand sold by the assessee on par with granite metals for compounding method assessment under Section 7(1)(b) of the KGST Act?
2. Whether the Tribunal over-read the scope of Section 7(1)(b) in extending compounding facility to the assessee for both M-sand and granite metals?
3. Whether M-sand is a distinct commodity from granite metals under relevant provisions, and if only granite metals are covered by Section 7(1)(b) for compounding?

Issue 1:
The revision pertains to the Appellate Tribunal's order granting compounding benefits to both the main product (granite metal) and the by-product (M-sand) of the assessee, contrary to the Revenue's contention that compounding was only applicable to the main product. The assessing authority initially granted compounding for granite metals but not for M-sand, leading to the appeal and subsequent Tribunal proceedings.

Issue 2:
The Revenue challenges the Tribunal's decision, arguing that Section 7(1)(b) of the KGST Act specifically mentions "Granite metal" for compounding benefits without reference to M-sand. The Government Pleader asserts that the assessing authority and appellate authority's decisions align with the law, emphasizing the absence of M-sand in the provision.

Issue 3:
Examining Section 7 provisions, it becomes evident that compounding benefits are tailored to specific sectors or units, such as dealers of gold/silver ornaments under Section 7(1)(a) and mechanized crushing units producing granite metals under Section 7(1)(b). The Tribunal's decision to grant compounding for both the main product and by-product is upheld, emphasizing that the benefit applies to the unit as a whole, including both Granite metal and M-sand.

In conclusion, the High Court dismissed the revision petition, affirming the Tribunal's decision to grant compounding benefits to the assessee for both Granite metal and M-sand. The Court found no legal basis to interfere with the Tribunal's ruling, emphasizing that the compounding benefit extends to the entire unit, encompassing both the main product and the by-product. The judgment clarifies that the classification of M-sand under specific entries was not addressed in the present case.