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2019 (7) TMI 113

..... condition of ‘use in the same form in which such goods are purchased’ under Rule 6(4)(m)(i) of the KST Rules expands the scope of charging section i.e. Section 5B under KST Act, 1957? - appellant purchased timber in log forms, plaster of paris, plywood, glass sheets and the said purchases have been manufactured to produce the goods which are necessary for interior decoration - AO denied deduction from purchases from works contract receipts applying Rule 6(4)(m)(i). HELD THAT:- Section 5B of the KST Act and Rule 6(4)(m)(i) of the KST Rules operate in different spheres. Section 5B is a charging provision for levy of sales tax whereas Rule 6(4)(m)(i) is a provision for deduction from tax. Under Section 5B, tax can be levied on transfer of property in the goods whether as goods or in some other form whereas Rule 6(4)(m)(i) provides for a deduction in respect of the goods which have already suffered tax and which are used in the same form. Thus, it appears to be in clear consonance with the charging provision and does not militate against Section 5B of KST Act, 1957. This Court in State of Tamil Nadu Vs. Pyare Lal Malhotra and Others [1976 (1) TMI 151 - SUPREME COURT] has he .....

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..... holding the validity of Rule 6(4)(m)(i) of the Karnataka Sales Tax Rules, 1957(hereinafter referred to as KST Rules ) read with Explanation III to Rule 6(4) of the said rules. 2. The question which has been raised in the instant appeal is whether the condition of use in the same form in which such goods are purchased under Rule 6(4)(m)(i) of the KST Rules expands the scope of charging section i.e. Section 5B under KST Act, 1957. 3. The brief facts of the case relevant for the purpose are that the appellant is a private limited company engaged in the business of interior decoration and other types of work. The appellant had purchased various goods from registered dealers under the KST Act, 1957 and used them in the execution of works contracts. The appellant claimed deduction from the total turnover of such purchases in terms of Rule 6(4)(m)(i) of the KST Rules, 1957 as per which all amounts received or receivable in respect of goods purchased from registered dealers and used in the execution of works contracts in the same form in which goods are purchased, can be claimed as deduction from the total turnover. 4. The assessing Officer issued notices for provisional assessment for the .....

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..... e unsuccessful appellant preferred LPA which also came to be dismissed with supportive reasons vide judgment impugned dated 16th September, 2006 which is a subject matter of challenge in appeal before us. 7. The main thrust of submission of the learned counsel for the appellant, Mr. Charanya Lakshmikumaran, is that the condition under Rule 6(4)(m)(i) of goods purchased be used in the same form is beyond the charging section(Section 5B) of the KST Act, 1957. The charging section does not restrict the form in which the goods are to be transferred in a works contract. However, the Rule restricts the deduction available on the form in which the goods are used in the execution of works contract. According to learned counsel, the Rule referred to is overstepping the substantive provision being unconstitutional is liable to be struck down. 8. Learned counsel further submits that the High Court of Andhra Pradesh in the case of Media Communications Vs. Government of Andhra Pradesh 1997(105) STC 227(AP) struck down a pari materia provision (Section 5F of the A.P. General Sales Tax Act, 1957) on the premises that the said levy is contrary to the single point system of tax and cannot be accept .....

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..... ved and has been examined by the High Court in the impugned judgment needs no further consideration by this Court. 12. Learned counsel further submits that Explanation III appended to Rule 6(4) clarifies the expression in the same form used in Rule 6(4)(m)(i) and the same goods can be taxed only once and the same goods cannot be made subject matter of multiple incidence of tax. However, if the goods which have suffered taxation undergoes transformation into a different commodity altogether and is then used in the execution of a works contract, the same being a different commercial commodity, is indeed liable to be taxed and this being in the domain of the legislative competence of the authority cannot be held to be ultra vires as prayed for. 13. Learned counsel further submits that the judgment of Media Communications Vs. Government of Andhra Pradesh(supra) is wholly misplaced. In Media Communications(supra), the High Court relied on Telangana Steel Industries and Others Vs. State of A.P. and Others 1994 Supp(2) SCC 259 and recorded a finding that the first and second proviso to Section 5F of the A.P. General Sales Tax Act are ultra vires of the main provision. The fact is the High .....

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..... ered dealers liable to pay tax under the Act and used in the execution of works contract in the same form in which such goods are purchased. (emphasis supplied) 17. Explanation III to Rule 6(4) of the KST Rules, which clarifies the expression in the same form used in Rule6(4) (m)(i) reads as under: Explanation III: For the purposes of sub-rule (4), the expression in the same form used in sub-clause (i) of clause (m) shall not include such goods which, after being purchased, are either consumed or used in the manufacture of other goods which in turn are used in the execution of works contract. (emphasis added) 18. From the bare perusal of the provision of the KST Act and KST Rules, 1957 indicated above, it clearly envisages that Section 5B of the KST Act is a charging provision which empowers the State to levy tax on the transfer of property in goods involved in works contract. At the same time Rule 6(4)(m)(i) read with Explanation III to Rule 6(4) of the KST Rules clarifies that the same goods can be taxed only once and cannot be made subject matter of multiple incidence of tax and the goods which have suffered taxation undergoes transformation into a different commodity altogether .....

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..... the (goods already taxed earlier), then the said new commercial commodity is liable to sales tax. This is what has been conferred in Rule 6(4)(m)(i) read with Explanation III to Rule 6(4) of which a reference has been made. 22. In Vasantham Foundry Vs. Union of India and Others 1995(5) SCC 289, this Court reiterated the Prare Lal Malhotra and Others(supra) principle in para 25 as under: 25. Therefore, in our view cast iron casting in its basic or rough form must be held to be cast iron . But, if thereafter any machining or polishing or any other process is done to the rough cast iron casting to produce things like pipes, manhole covers or bends, these cannot be regarded as cast iron casting in its primary or rough form but products made out of cast iron castings. Such products cannot be regarded as cast iron and cannot be treated as declared goods under Section 14(iv) of the Central Sales Tax Act. This view is not in conflict with the view taken in the case of Bengal Iron Corpn. [1994 Supp (1) SCC 310: (1993) 90 STC 47], but it is in consonance with the decision in that case. 23. The same principle has been recently reiterated in B. Narasamma Vs. Deputy Commissioner of Commercial T .....

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..... t be considered to be an approval of the view expressed by the High Court of Andhra Pradesh. That apart, para 7 of the judgment in Telangana Steel Industries and Others case(supra) has been noticed by the High Court in Media Communications(supra) and arrived to the conclusion that Telangana Steel Industries and Others(supra) lent support to the reasoning of the High Court. 28. Para 7 of the judgment of this Court in Telangana Steel Industries and Others(supra) in fact disseminate the reasoning recorded by the High Court in Media Communications(supra) to invalidate the first and second proviso to Section 5B. 7. The above shows complexity of the concept of a different commercial product coming into existence because of manufacturing process undertaken. It is because of this that we do not propose to decide the controversy at hand, which is whether iron wires are separate commercial goods from wire rods from which they are produced, by trying to answer whether they are one commercial commodity or separate. The point has however arisen for consideration because we are concerned with a single point sales tax, which would not allow taxing of the same commodity again. It is also not in di .....

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