Exemption notification for agarbathi sales extends to raw agarbathis when both goods are treated alike for levy purposes.

The Karnataka High Court commentary explains that an exemption notification under section 8(5) of the Central Sales Tax Act, reducing tax on agarbathi sales, could not be denied for sales of raw agarbathis where the taxing statute and the Department had treated raw agarbathis and agarbathis on the same footing for levy purposes. It further notes that a prior division bench ruling on purchase tax under section 6 addressed manufacture into a different commercial commodity and did not control the exemption question. On that reasoning, demand notices seeking differential tax on raw agarbathis were unsustainable and liable to be quashed.

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Issues: Whether the exemption notification issued under sub-section (5) of section 8 of the Central Sales Tax Act, 1956 applies to sales of raw agarbathis, and whether the demand notices seeking differential tax were sustainable.

Analysis: The relevant charging provision under the Karnataka Sales Tax Act, 1957 treated agarbathi as the taxable entry in the Second Schedule and did not create a separate entry for raw agarbathis. The Department had also assessed raw agarbathis and agarbathis on the same footing in earlier assessments. The notification under section 8(5) of the Central Sales Tax Act, 1956 reduced tax on sale of agarbathi to 2 per cent subject to production of C forms. The earlier division Bench decision on purchase tax under section 6 dealt with a different question, namely whether raw agarbathis underwent manufacture into another commercial commodity, and had no application to the present claim for exemption. Since the Department had not drawn any distinction between agarbathis and raw agarbathis for levy purposes, the benefit of the notification could not be denied only at the stage of exemption.

Conclusion: The exemption notification was applicable to sales of raw agarbathis, and the demand notices were unsustainable and liable to be quashed.

Ratio Decidendi: Where the taxing statute and the Department have treated two commodities on par for levy purposes, the benefit of an exemption notification referring to one commodity cannot be denied by drawing a distinction at the stage of exemption unless the notification or statute itself clearly creates such a distinction.

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