2011 (2) TMI 1241 - HC - VAT and Sales Tax

Kerala High Court: Imported paper reclassified for taxation under Sales Tax Act

The Kerala High Court ruled on the classification of imported paper for taxation under the Kerala General Sales Tax Act, 1963. The court held that the ... Whether the paper imported by them and sold under the name 'Euro craft waste paper' falls under entry 102 of the First Schedule to the Kerala General Sales Tax Act, 1963 taxable at four per cent or whether the item falls under entry 106 of the same Schedule taxable at eight per cent – Held that:- paper imported and sold by the petitioner was already used up for its primary and intended use for which it was specifically made, i.e., as an absorbent material for use in printing where excess ink in the course of printing currency is removed with the paper and so much so, it is waste paper, no matter it is capable of being used as packing material, claim of the petitioner that the item falls under entry 102 as waste paper and consequently allow the revision by reversing the order of the Tribunal and by restoring the order of the first appellate authority. However, since the Government Pleader expressed doubt about the factual position with regard to prior use, it is open to the Department to ascertain through inspection and examination as to whether the paper was used in the way stated by the petitioner prior to import and if not, to move this court for review of the judgment Issues:Classification of imported paper for taxation under the Kerala General Sales Tax Act, 1963 - Whether imported paper sold as 'Euro craft waste paper' falls under entry 102 taxable at 4% or entry 106 taxable at 8%.Analysis:The revision before the Kerala High Court involved the classification of imported paper for taxation under the Kerala General Sales Tax Act, 1963. The core issue was whether the paper imported and sold as 'Euro craft waste paper' should be taxed at four percent under entry 102 or at eight percent under entry 106 of the First Schedule of the Act. The petitioner argued that the paper, originally craft paper used to remove excess ink from currency during printing, transformed into waste paper suitable for packing after its primary use. On the other hand, the Government Pleader contended that the paper's identity as craft paper remained unchanged despite its prior use, thus falling under entry 106. The Tribunal had ruled in favor of the Department, prompting the petitioner to challenge this decision before the High Court.Upon examining the product samples presented by both parties, the High Court noted that the imported paper was initially craft paper designed for ink absorption. The petitioner asserted that the paper's subsequent use as waste paper for packing justified its classification under entry 102 at the lower tax rate. The Court acknowledged that waste paper is commonly utilized for packing purposes and emphasized that the reusability of paper for packing does not alter its status as waste paper. Despite the Government Pleader's argument that the paper's physical identity remained intact, the Court clarified that once paper is rendered unfit for its original purpose and used as waste paper, it falls under the relevant tax entry.The Court determined that the imported paper, having served its primary function in absorbing ink during currency printing, was indeed waste paper suitable for packing goods. Consequently, the High Court upheld the petitioner's claim that the item should be taxed at four percent under entry 102. The Tribunal's decision was overturned, and the first appellate authority's ruling in favor of the assessee was reinstated. However, the Court allowed the Department the opportunity to verify the paper's prior use through inspection and examination, enabling them to seek a review of the judgment if discrepancies were found.