Compounding exemption for manufactured sand bars separate assessment and invalidates notice premised on taxability.

A compounding proviso under the Kerala Value Added Tax Act was interpreted to cover manufactured sand produced by dealers who had opted for compounding, so separate assessment was not warranted merely because the sand was generated through VSI/HSI machines rather than the crushers expressly listed in the compounding clause. The later introduction of a separate compounding fee for VSI/HSI from 2014-15 was treated as confirming that the earlier regime already covered such manufactured sand. On that footing, a notice under Section 67 based on alleged non-disclosure and taxability of M-sand had no valid foundation and could not stand.

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Issues: (i) Whether manufactured sand produced by dealers who had opted for compounding under Section 8 of the Kerala Value Added Tax Act, 2003 was liable to separate assessment when produced through VSI/HSI machines. (ii) Whether the notice issued under Section 67 of the Kerala Value Added Tax Act, 2003 was liable to be interfered with.

Issue (i): Whether manufactured sand produced by dealers who had opted for compounding under Section 8 of the Kerala Value Added Tax Act, 2003 was liable to separate assessment when produced through VSI/HSI machines.

Analysis: The compounding provision was held to apply to dealers engaged in the production of granite metals who had opted for compounding, and the proviso expressly stated that no separate assessment shall be made in respect of manufactured sand produced by them. The Court held that the exemption was not confined to sand produced only by the specific crushers enumerated in Section 8(b), and that the later introduction of a separate compounding fee for VSI/HSI from 2014-15 supported the conclusion that, for the prior period, such manufactured sand was covered by the existing proviso. The distinction sought between M-sand and manufactured sand was rejected as immaterial in the statutory setting and commercial sense.

Conclusion: Separate assessment on the manufactured sand was not permissible for the relevant period, and the finding was in favour of the assessee.

Issue (ii): Whether the notice issued under Section 67 of the Kerala Value Added Tax Act, 2003 was liable to be interfered with.

Analysis: The notice proceeded on the allegation of non-disclosure of the installation of a Vertical Shaft Impactor and related accounting objections concerning manufacture and sale of M-sand. Since the Court had already held that M-sand was not exigible to tax under the compounding scheme for the subject assessment year, the foundation of the notice failed.

Conclusion: The notice under Section 67 was set aside and the appeal of the assessee was allowed.

Final Conclusion: The State's appeals were dismissed and the assessee's appeal succeeded, leaving the compounding-based exemption for manufactured sand intact for the relevant period and invalidating the impugned notice.

Ratio Decidendi: Where a compounding proviso expressly exempts manufactured sand produced by opted dealers, separate assessment cannot be imposed merely because the sand is produced through a machine not specifically enumerated in the compounding clause, and a notice premised on taxability contrary to that exemption cannot stand.

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