Sales tax classification of leco as coal, not charcoal, invalidated the circular, assessment and demand notice.

Leco was held to be commercially distinct from charcoal because charcoal is obtained by burning wood, while leco is derived from coal. Applying the schedule entries strictly, the Court classified leco as coal under Entry 1 of the Fourth Schedule and not as charcoal under Entry 10 of Part C of the Second Schedule. As the Commissioner's circular rested on the classification, the assessment order and demand notice based on it also could not stand. The revenue action was quashed.

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Issues: Whether leco is classifiable as charcoal under Entry 10 of Part C of the Second Schedule to the Karnataka Sales Tax Act or as coal under Entry 1 of the Fourth Schedule, and whether the assessment order, circular, and notice demanding differential tax could be sustained.

Analysis: Leco was held to be distinct from charcoal both in origin and commercial identity. Charcoal is a product obtained by burning wood, whereas leco is derived from coal and is not a refined article. The Court rejected the earlier view treating leco as charcoal for exemption or higher tax purposes and held that taxing entries must be applied according to the clear distinction made in the schedules. Once leco was held to fall within the coal entry, the circular issued by the Commissioner on that mistaken premise could not stand, and the consequential assessment and demand notice also failed.

Conclusion: Leco is taxable as coal under Entry 1 of the Fourth Schedule and not as charcoal under Entry 10 of Part C of the Second Schedule. The appeals were allowed and the impugned circular, assessment order, and demand notice were quashed.

Final Conclusion: The assessee succeeded in establishing that leco did not attract taxation as charcoal, and all consequential revenue action based on that classification was set aside.

Ratio Decidendi: For purposes of sales tax classification, leco cannot be equated with charcoal and must be treated according to its distinct commercial identity as coal.

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