2016 (9) TMI 1249 - HC - VAT and Sales Tax

High Court affirms Karnataka Tribunal's tax ruling on iron and steel in works contracts

THE STATE OF KARNATAKA REP. BY THE SECRETARY FINANCE DEPARTMENT VIDHANA SOUDHA BANGALORE Versus S. NARAYANA REDDY

The High Court upheld the Karnataka Appellate Tribunal's decision that iron and steel used in works contracts should be taxed as declared goods at 4%. The ... Question of law - use of declared goods, iron and steel, in the execution of works contract - rate of tax - whether the Karnataka Appellate Tribunal is right in holding that the turnover of iron and steel is transferred in the same form or in different forms? - Held that:- Tribunal has followed the decision of Division Bench of this Court [2013 (12) TMI 1586 - KARNATAKA HIGH COURT] and hence, it cannot be said that any question of l aw would arise for consideration, the fact would further remain that the very decision of Division Bench of this Court has not been interfered with and is affirmed by the Apex Court in the above referred decision. Under the circumstances, in any case, when two questions are already covered by the decision of the highest Court of the law, no question of law would arise for consideration in the present petitions. - Petition dismissed - Decided against the revenue. Issues Involved:1. Whether the Karnataka Appellate Tribunal is justified in holding that the contract turnover relating to iron and steel should be taxed as declared goods at 4%.2. Whether the Tribunal is justified in directing the assessing authority to bifurcate the turnovers of iron and steel transferred in the same form and transferred in other forms.3. Whether the Tribunal is right in holding that the turnover of iron and steel is transferred in the same form or in different forms.Issue-wise Detailed Analysis:Issue 1: Taxation of Iron and Steel as Declared GoodsThe Tribunal had to determine if iron and steel used in works contracts should be taxed as declared goods at a rate of 4%. The Tribunal relied on a previous decision by the Division Bench of the Karnataka High Court, which stated that iron and steel, even when used in construction, do not transform into a new product and therefore remain declared goods. The judgment emphasized that the iron and steel rods used in construction retain their identity and do not undergo any value addition. Consequently, the Tribunal concluded that these materials should be taxed at 4%, as prescribed under Section 15 of the CST Act.Issue 2: Bifurcation of TurnoversThe Tribunal directed the assessing authority to bifurcate the turnovers of iron and steel transferred in the same form and those transferred in other forms. This decision was based on the observation that iron and steel used in construction do not change their form and, hence, should be treated as declared goods. The Tribunal remanded the case to the assessing authority to reassess the turnover details, ensuring compliance with the law laid down by the Division Bench of the Karnataka High Court.Issue 3: Transfer of Iron and Steel in Same or Different FormsThe Tribunal had to decide whether the turnover of iron and steel was transferred in the same form or in different forms. The Tribunal referred to the Division Bench's decision, which clarified that iron and steel used in construction do not change their form. The Tribunal concluded that the materials should be treated as declared goods and taxed accordingly. The judgment emphasized that merely cutting or binding iron and steel does not transform them into a new product, and they retain their identity as iron and steel rods.Additional Observations:The Tribunal's decision was based on the Division Bench's judgment in STR P No.209/2013 and related cases, which was affirmed by the Supreme Court in Civil Appeal No.4149/2007 and allied matters. The Supreme Court held that works contracts involving iron and steel are subject to the restrictions and conditions under Article 286(3) and Section 15 of the CST Act, limiting the tax rate to 4%. The Supreme Court also noted that the incorporation of iron and steel into construction does not constitute a new product, and they remain declared goods.Conclusion:The High Court dismissed the petitions, stating that no question of law arises as the issues are already covered by the decisions of the Division Bench and the Supreme Court. The Tribunal's reliance on these decisions was deemed appropriate, and the reassessment by the assessing authority should be conducted in accordance with the law laid down by the higher courts.