Compounding under Kerala VAT excluded separate assessment of manufactured sand from VSI/HSI processing under the earlier scheme.

Dealers opting for compounding under Section 8(b) of the Kerala VAT Act were treated as taxed on the basis of the specified crushing machines used for producing granite metal, with manufactured sand generated in that process not subject to separate assessment. The use of VSI/HSI machines to further process or shape the material did not change this position, because those machines were not included in the compounding scheme then in force. A later amendment prescribing specific rates for VSI/HSI machines was regarded as substantive and prospective, confirming that such machines were not covered earlier. On that basis, separate assessment and the demand notices were unsustainable.

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Issues: Whether dealers opting for compounding under Section 8(b) of the Kerala Value Added Tax Act were liable to separate assessment of manufactured sand produced through VSI/HSI machines not reckoned for compounding.

Analysis: The compounding scheme under Section 8(b) was held to compute tax on the basis of specified crushing machines used in producing granite metal. The provision contemplated exemption from separate assessment in respect of manufactured sand generated in the course of that production. The fact that VSI/HSI machines were also used to shape or further process the material did not alter the position, because those machines were not among the machines taken into account for compounding under the then-existing provision. The later amendment introducing specific rates for VSI/HSI machines was treated as substantive and prospective, supporting the conclusion that such machines were not intended to be covered earlier.

Conclusion: The petitioners were entitled to exemption from separate assessment for the manufactured sand produced through VSI/HSI machines, and the demand notices and assessment orders were unsustainable.

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