2005 (7) TMI 616 - HC - VAT and Sales Tax

Classification of Elastic Rail Clips for Taxation

Opera Arts Industries Versus Registrar, Tamil Nadu Taxation Special Tribunal, Chennai and another

The court held that elastic rail clips were not classified as forgings but as a distinct commodity, not falling under declared goods, and thus taxed at ... - Issues Involved:1. Classification of Elastic Rail Clips under the Tamil Nadu General Sales Tax Act, 1959.2. Applicability of Surcharge, Additional Surcharge, and Additional Sales Tax.3. Legality of the Penalty Imposed.Detailed Analysis:1. Classification of Elastic Rail Clips:The petitioner, a dealer in elastic rail clips, contended that these clips should be classified as 'forgings' under entry 4(viii) of the Second Schedule to the TNGST Act, 1959, and thus be taxed at 4%. The C.T.O. disagreed, treating the clips as a different commercial commodity from their raw materials, classifying them under entry 63, Part D of the First Schedule, and taxing them at 8%. The petitioner argued that the clips were produced by a simple process of heat treatment and forging, maintaining their original character as forgings. The court, however, found that the entire process involved in manufacturing elastic rail clips could not be termed as forging. The clips were considered a distinct commodity, not just forgings, and thus not classified as declared goods.2. Applicability of Surcharge, Additional Surcharge, and Additional Sales Tax:The C.T.O. levied a 15% surcharge, 5% additional surcharge, and 1.5% additional sales tax on the petitioner. The petitioner contested these levies, arguing that as declared goods, the clips should not attract these additional taxes. The court upheld the lower authorities' decision, stating that since the clips were not classified as declared goods, the additional taxes were applicable.3. Legality of the Penalty Imposed:The C.T.O. imposed a penalty of Rs. 37,881 under section 12(3)(b) of the TNGST Act. The Appellate Assistant Commissioner deleted the penalty, but sustained the additional tax levies. The court did not find any further discussion on the penalty, implying agreement with the deletion of the penalty but upholding the additional tax levies.Judgment Analysis:The court examined the manufacturing process of the elastic rail clips, referencing the decision of the larger Bench of CEGAT in Sikka Heat Treatment Centre v. Collector of Central Excise, New Delhi, which described the process as involving multiple steps beyond simple forging. The court also referenced the Supreme Court decision in Vasantham Foundry v. Union of India, which distinguished between basic cast iron and products made from cast iron castings, applying this logic to forgings and the final product of elastic rail clips. The court concluded that the elastic rail clips, being a distinct commercial commodity, could not be classified as forgings and thus were not declared goods under the TNGST Act. Consequently, the court dismissed the writ petition, upholding the classification and additional tax levies imposed by the lower authorities.