2016 (8) TMI 636 - SC - VAT and Sales Tax

Supreme Court upholds 4% tax rate for iron and steel reinforcements, dismisses Karnataka's appeals

Smt. B. Narasamma Versus Deputy Commissioner Commercial Taxes Karnataka & Another

Smt. B. Narasamma Versus Deputy Commissioner Commercial Taxes Karnataka & Another - 2016 AIR 3778, 2016 (8) JT 73, 2016 (7) SCALE 685 Issues Involved:1. Rate of taxability of declared goods under Section 14 of the Central Sales Tax Act, 1956.2. Whether iron and steel reinforcements lose their character as declared goods when used in works contracts.3. Applicability of Karnataka Sales Tax Act, 1957, and Karnataka Value Added Tax Act, 2003.4. Interpretation of relevant constitutional and statutory provisions.5. Examination of previous judgments and their applicability.6. Specific case facts and their implications on taxability.Detailed Analysis:1. Rate of Taxability of Declared Goods:The primary issue revolves around the rate of taxability of declared goods, specifically iron and steel, under Section 14 of the Central Sales Tax Act, 1956. The contention is whether these goods retain their character and are subject to a tax rate of 4% or if they can be taxed at a higher rate applicable to civil construction works.2. Character of Iron and Steel Reinforcements:The core question is whether iron and steel reinforcements used in buildings lose their identity as declared goods at the point of taxability, i.e., at the point of accretion in a works contract. The judgment concludes that iron and steel products, when used for reinforcement in cement concrete, do not lose their identity as declared goods. They remain the same goods at the point of taxability, and mere cutting and bending do not alter their character.3. Applicability of Karnataka Sales Tax Act and Karnataka Value Added Tax Act:The appeals are divided into two groups: one relating to the Karnataka Sales Tax Act, 1957, and the other to the Karnataka Value Added Tax Act, 2003. The judgment examines the relevant provisions of these Acts concerning the taxability of declared goods involved in works contracts.4. Interpretation of Constitutional and Statutory Provisions:The judgment discusses Article 286(3) of the Constitution, which imposes restrictions on the imposition of tax on declared goods, and Section 15 of the Central Sales Tax Act, which limits the tax rate to 4%. The interpretation of these provisions is crucial in determining the taxability of iron and steel reinforcements.5. Examination of Previous Judgments:The judgment relies on two significant Supreme Court decisions: Builders' Assn. of India v. Union of India and Gannon Dunkerley and Co. v. State of Rajasthan. These cases establish that works contracts involving declared goods are subject to the restrictions of Article 286(3) and Section 15 of the Central Sales Tax Act, meaning they can only be taxed at a single point and at a rate not exceeding 4%.6. Specific Case Facts:The judgment examines the factual scenario where iron and steel products are used in construction without undergoing any manufacturing process that changes their identity. The Karnataka Appellate Tribunal's findings are cited, which describe the use of steel bars/rods in construction and conclude that these processes do not constitute manufacturing, and the goods retain their identity.Conclusion:The Supreme Court concludes that the declared goods in question, specifically iron and steel reinforcements, retain their character and are subject to a tax rate of 4%. The judgment sets aside the previous decisions against the assessees and affirms the Karnataka Appellate Tribunal's detailed judgment favoring the assessees. The appeals by the State of Karnataka are dismissed, and the taxability of declared goods at the rate of 4% is upheld.Separate Judgment:In the case of M/s. Ananth Engineering Works v. State of Karnataka, the appeal is dismissed as the iron and steel goods were used in the manufacture of other goods (doors, window frames, grills) which were then used in works contracts, thus not qualifying for the tax exemption.