2009 (2) TMI 792 - HC - VAT and Sales Tax

Appeal on VAT computation for dyeing chemicals loss triggers remand for factual inquiry.

The case involved an appeal under the Karnataka Value Added Tax Act, 2003, challenging an order and seeking clarification on the computation of taxable ... Whether the benefit of chemicals, dyes and colours which get washed out to this extent could be extended to the appellant? Held that:- As the appellant submitted before us a certificate issued by Sri K.P. Bhat, technical consultant of textile processing industry to suggest that in dyeing, about 10 per cent to 20 per cent of the dyes and chemicals are consumed by the fabric and remaining, gets washed out, this certificate requires to be taken into consideration to find out as to how much would be the actual loss of chemicals, dyes and colours while the fabric or textile undergoes various processes as has been mentioned hereinabove. This factual aspect can be considered only by the assessing officer, where both parties can produce evidence in respect of their respective contentions. Instead the matter is remanded to the assessing officer to work out the following details as to how much of chemicals, dyes and colours would get washed out in the process of dyeing and printing of fabrics undertaken by the appellant. Let this factual enquiry be conducted by the assessing officer, after giving liberty of hearing to both the parties to produce evidence before the said authority, in respect of their respective contentions. Issues:1. Appeal against order under Karnataka Value Added Tax Act, 2003.2. Clarification sought on computation of taxable turnover.3. Consumption of chemicals, dyes, and colors in the dyeing process.4. Examination of expert certificate on the loss of chemicals in the process.5. Remand to the assessing officer for factual inquiry and evidence production.6. Consideration of relevant judgments of High Court and Supreme Court.Analysis:1. The appeal was filed under the Karnataka Value Added Tax Act, 2003, challenging an order dated September 29, 2005, passed by the Authority for Clarification and Advance Rulings. The appellant also sought rectification of the order, leading to a subsequent clarification that the tax rate would be four percent. The primary challenge was against the initial order of September 29, 2005.2. The appellant, a registered dealer engaged in dyeing and printing textiles, sought clarification on the computation of taxable turnover due to doubts regarding the usage of dyes, chemicals, and colors in the process. Various expenses incurred by the appellant were also considered, along with the issue of input credit availability used as consumables.3. In the dyeing process, it was argued that a certain percentage of chemicals, dyes, and colors used do not remain embedded in the fabric but get washed out. The final act of dyeing involves processes like desizing, scouring, bleaching, mercerizing, and finishing, where consumable chemicals are used before the fabric is dyed.4. An expert certificate indicated that a significant portion of dyes and chemicals used in dyeing are washed out during the process, leaving a lasting impression on the fabric. This certificate, not previously examined by lower authorities, suggested that a factual inquiry was necessary to determine the actual loss of chemicals during dyeing and printing processes.5. The judgment set aside the impugned order and remanded the matter to the assessing officer for a detailed factual inquiry. Both parties were granted the opportunity to present evidence regarding the retention or loss of chemicals in the fabric. The assessing officer was directed to consider relevant judgments of the High Court and Supreme Court while determining the percentage of chemicals to be added to the turnover.6. The judgment concluded by disposing of the appeal and its connected matter, emphasizing no order as to costs. It instructed the assessing authority to conduct a thorough examination based on evidence presented by both parties and in accordance with applicable legal precedents.