Case Law Details

Case Name : Robo Silicon Pvt. Ltd. Vs State of Karnataka (Karnataka High Court)
Appeal Number : S.T.R.P.No.24/2019
Date of Judgement/Order : 23/09/2021
Related Assessment Year :

Robo Silicon Pvt. Ltd. Vs State of Karnataka (Karnataka High Court)

Conclusion:  ‘Common Parlance Test, ‘Marketability Test; ‘Popular Meaning Test’ were tools for interpretation to arrive at a decision on the proper classification of tariff entry. Therefore, ‘manufactured sand’ would certainly fall under the entry ‘sand’, as it stood during the relevant period. The Notification dated 31.03.2015 was only clarificatory and that would not disentitle assessee to claim the reduced rate of tax at 5/5.5% under Entry 83 of the Third Schedule of the KVAT Act.

Held: Assessee was a registered dealer under the provisions of the KVAT Act and was engaged in the manufacture and sale of sand which was marketed as ‘Robo Sand’ during the tax period April 2014- March 2015. It was collecting and discharging the VAT on the sales of ‘manufactured sand’ (M-sand) at the rate of 5.5% by classifying it under Entry 83 of the Third Schedule of the KVAT Act. The reassessment proceedings for the tax periods under consideration were concluded classifying the M sand under Entry 83 of the Third Schedule of the KVAT Act. Additional Commissioner of Commercial taxes exercising the powers under Section 63A of the KVAT Act initiated the proceedings and rejected the claim of assessee and raised additional demand. Being aggrieved, assessee preferred appeal before the Tribunal which was thereby dismissed. The issue arose for consideration was whether Tribunal was right in holding that Manufactured Sand (M-Sand) was not covered under Entry 83 of Schedule III to the Karnataka Value Added Tax Act, 2003?. It was held that the common parlance test’, ‘marketability test’, popular meaning test’ were all tools for interpretation to arrive at a decision on proper classification of a tariff entry. The test, as to what a common man viewing or dealing with the article would understand it to be, would be relevant. The Hon’ble Apex Court has held that while interpreting the entry for purpose of taxation recourse should not be made to the scientific meaning of the terms or expressions used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them. Either viewed from common parlance/trade parlance/popular meaning test, applying the user theory, ‘manufactured sand’ would certainly fall under the entry ‘sand’, as it stood during the relevant period. The Notification dated 31.03.2015 was only clarificatory and that would not disentitle assessee to claim the reduced rate of tax at 5/5.5% under Entry 83 of the Third Schedule of the KVAT Act. On the other hand, to classify it under the residuary entry different from the claim by assessee, the department had to discharge the burden of proof. Except relying on the Notification dated 31.03.2015, no further material was relied on by the revenue to bring the ‘manufactured sand’ under the residuary entry. Thus, the question of law was decided in favour of the assessee and against the revenue.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

This revision petition is filed by the assessee under Section 65(1) of the Karnataka Value Added Tax Act, 2003 (‘KVAT Act’ for short) challenging the judgment dated 03.01.2019 passed in STA No.313/2017 by the Karnataka Appellate Tribunal at Bengaluru (‘Tribunal’ for short) relating to the tax periods April 2014 to March 2015.

Proper classification of tariff entry of manufactured sand depends on common parlancepopular meaning test

2. This revision petition was admitted to consider the following question of law:-

“Whether the Tribunal was right in holding that Manufactured Sand (M-Sand) is not covered under Entry 83 of Schedule III to the Karnataka Value Added Tax Act, 2003?”

3. The assessee, a registered dealer under the provisions of the KVAT Act was engaged in the manufacture and sale of sand which is marketed as ‘Robo Sand’ during the tax periods under consideration. The assessee was collecting and discharging the VAT on the sales of ‘manufactured sand’ (M-sand) at the rate of 5.5% by classifying it under Entry 83 of Third Schedule of the KVAT Act.

4. The re-assessment proceedings for the tax periods under consideration were concluded classifying the M-sand under Entry 83 of Third Schedule of the KVAT Act. Additional Commissioner of Commercial Taxes exercising the powers under Section 63A of the KVAT Act initiated the proceedings and concluded vide order dated 22.03.2017, rejecting the claim of the assessee and raised additional demand. Being aggrieved, the assessee preferred appeal before the Tribunal, which came to be dismissed. Hence, this revision petition.

5. Learned counsel for the petitioner – assessee submits that Entry 83 of Third Schedule of the KVAT Act is wide enough to cover all types of sands. Merely relying upon the Notification dated 31.03.2015 issued by the Government of Karnataka in exercise of powers under Section 4(3) of the KVAT Act, reducing the rate of tax on M-sand to 5%, Revisional Authority has revised the assessment order. The Notification ought to be seen as clarificatory and has to be given retrospective effect.

6. Learned counsel for the revenue would submit that the Tribunal has rightly rejected the appeal filed by the assessee confirming the order of the revisional authority since M-sand sold by the assessee is understood in common parlance as ‘manufactured sand’ and not as ‘ordinary sand’ i.e., ‘river sand’. The Notification dated 31.03.2015 would make it sample clear that prior to the said date, the ‘manufactured sand’ was liable to be taxed under the residuary entry at 14.5%. In order to reduce the rate of tax on sale of M-sand, the Government of Karnataka has issued a Notification dated 31.03.2015, thereby reducing the rate of tax to 5.5%. Thus, sought for the dismissal of the revision petition.

7. We have carefully considered the arguments advanced by the learned counsel for the parties and perused the material on record.

8. Entry 83 of Third Schedule to the KVAT Act reads thus:-

Goods Taxable at Five and One Half Per Cent;

1 to 82.     xxxx

Sand and grits”.

9. Had the intention of the Legislature was to exclude ‘manufactured sand’, certainly it would have made it clear in the entry itself. Legislature with all its wisdom has brought ‘sand and grits’ under Entry 83 of Third Schedule, fixing the rate of tax at 5/5.5%. It is well settled law that common parlance test is the best way to classify the goods vis-à-vis the determination of rate of tax. The revisional authority as well as the Tribunal proceeded to levy higher rate of tax bringing the M-sand under residuary entry under Section 4(1)(b)(iii) of the KVAT Act primarily for the reason that the Government of Karnataka has issued a Notification dated 31.03.2015 reducing the rate of tax on M-sand at 5.5%.

10. The Assessing Authority while arriving at a decision that the ‘manufactured sand’ and ‘river sand’ are construed as sand and there is no difference between them like the purpose or use, has discussed as under:-

Natural or river sand are weathered and worn out particles of rocks and are of various grades or sizes depending upon the amount of wearing. The artificial sand produced by proper machines can be a better substitute to river sand. Manufacturing of sand process involves three stages, crushing of stones in to aggregates by VSI, and then fed to Rotopactor to crush aggregates into sand to required grain seizes (as fines). Screening is done to eliminate dust particles and Washing of sand eliminates very fine particles present within. The end product will satisfy all the requirements of IS:383 and can be used in Concrete & Construction. The artificial sand produced by proper machines can be a better substitute to river sand. The sand should be sharp, clean and course. The grains should be of durable material. The grain sizes must be such that it should give minimum voids. The presence of clay and silt retards the setting of the cement and makes the weaker and the walls or the slab leaks and holds dampness.

Comparison of artificial sand with river sand.

Sand manufactured by Vertical Shaft Impactor is of cubical shape. Such sand can be used for all types of construction work, Concreting, Plastering etc. and is better substitute to river sand.

Followings are the actual result of Concrete Designed with river sand and Artificial sand proportions are by weight Mix Design M 15 M 55 concrete is designed for River sand and artificial sand. Results are as follows:

1) With using River sand:
* Cement one bag……… 50 Kg
* Sand 135 Kg
* Agg. 20 mm 135 Kg
* Agg 12 mm 67.5 Kg
* Water 27.5 ltrs.

2) With using Artificial sand: Proportions are
by weight
* Cement one bag 50 Kg
* Sand (artificial m/c made) 125 Kg
* Agg. 20 mm 137 Kg
* Agg 12 mm 75 Kg
* Water 27.5 ltrs.

Strength         achieved        after          7         days
curing……….. 186.67 Kg/Cmsq.

Result are as follows:

1) With using River sand: All proportions are
by weight
* Cement 50 Kg
* River Sand 75 Kg
* Agg. 20 mm 75 Kg
* Agg 12 mm 37.5 Kg
* Water 19 ltrs.

Strength achieved after 7 days curing……. 441 Kg per Sq.cm.

2) With using Artificial sand: All proportions
are by weight
* Cement 50 Kg
* Artificial Sand 70 Kg
* Agg. 20 mm 80 Kg
* Agg 12 mm 35 Kg
* Water 19 ltrs

.

Strength achieved after 7 days curing……. 468.14 Kg per Sq.cm.

Source : Journal of Engineering Computers and Applied Science (JEC&AS) Volume – 2 No.2 Feb-12.

From the above design results it can be observed that the river sand and artificial sand are equally strength for Concrete and increases the workability and gives more sound Concrete. The slabs, using Artificial sand, are more leak proof than by river sand. Further I have relied the following judgments in the strength of the above opinion.”

Further noticed that the Commissioner of Commercial Taxes, Bengaluru in the case of a different assessee has clarified that the manufactured sand attracts tax of 5% as per Entry 83 of the Third Schedule of  the KVAT Act vide clarification No. CLR/CR/134/2011-12 dated 03.02.2012.

11. It is true that the clarification issued by the Advance Ruling Authority shall be binding, only on the applicant who seeks clarification and only in respect of the goods or transaction in relation to which a clarification is sought and also only in the proceedings before the officers of the department (other than the Commissioner) and the Appellate Tribunal in terms of sub-section (4) of Section 60 of the KVAT Act. But the same can throw some light while considering the classification of the same goods though may not be binding.

12. In the case of Annapurna Biscuit Manufacturing Co. Kanpur vs. Commissioner of Sales Tax, U.P., Luknow reported in (1981) 48 STC 254, the Hon’ble Apex Court has held that it is well settled rule of construction that if an expression is capable of a wider meaning as well as narrower meaning, the question whether the wider or the narrower meaning should be given depends on the context and the background of the case.

13. It is trite that the commodity could be classified based on how ordinarily or commonly it is known and its purpose and use. It is not disputed by the revisional authority and the Tribunal that the ‘manufactured sand’ is used for construction activity. The ‘Robo Sand’ i.e., ‘manufactured sand’ and the ‘river/natural sand’ is found to be having similar physical properties as per the report of a project sponsored by the Department of Mines and Geology, Government of Karnataka and conducted by the Department of Civil Engineering of the Indian Institute of Science placed on record by the assessee. As could be seen from the material on record, the M-sand cannot be considered as excluded from Entry 83 of Third Schedule of the KVAT Act.

14. ‘The common parlance test’, ‘marketability test’, popular meaning test’ are all tools for interpretation to arrive at a decision on proper classification of a tariff entry. The test, as to what a common man viewing or dealing with the article will understand it to be, would be relevant. The Hon’ble Apex Court has held that while interpreting the entry for purpose of taxation recourse should not be made to the scientific meaning of the terms or expressions used but to their popular meaning, that is to say, the meaning attached to them by those dealing in them.

15. The Hon’ble Apex Court in the case of Union of India vs. Garware Nylons Ltd., reported in (1996) 10 SCC 413, observed that the burden of proof is on the taxing authorities to show that the particular case or item in question is taxable in the manner claimed by them. There should be material to enter appropriate finding in that regard and the material may be either oral or documentary. It is for the taxing authority to lay evidence in that behalf even before the first adjudicating authority.

16. In the case of Bharat Forge and Press Industries (P) Ltd vs. Collector of Central Excise, Baroda, Gujarat reported in (1992) 84 STC 414, the Hon’ble Apex Court has reiterated that only such goods as cannot be brought under the various specific entries in the tariff should be attempted to be brought under the residuary entry.

17. The Hon’ble Apex Court in the case of Ramavatar Budhaiprasad vs. Assistant Sales Tax Officer, Akola reported in 1961 (12) STC 286, held that the word “vegetables” must be construed not in any technical sense nor from the botanical point of view but as understood in common parlance. Everyday use it must be construed in its popular sense meaning “that sense which people conversant with the subject matter with which the Statute is dealing would attribute to it”. Consequently, it has been held that “betel leaves” are not vegetables under the Berar Sales Tax Act, 1947.

18. In the light of these judgments, applying the principle of common parlance, ‘sand’ includes ‘manufactured sand’ in whatever name it would be called.

19. Either viewed from common parlance/trade parlance/popular meaning test, applying the user theory, ‘manufactured sand’ would certainly fall under the entry ‘sand’, as it stood during the relevant period. The Notification dated 31.03.2015 is only clarificatory and that would not disentitle the assessee to claim the reduced rate of tax at 5/5.5% under Entry 83 of the Third Schedule of the KVAT Act. On the other hand, to classify it under the residuary entry different from the claim by the assessee, the department has to discharge the burden of proof. Except relying on the Notification dated 31.03.2015, no further material was relied on by the revenue to bring the ‘manufactured sand’ under the residuary entry.

20. For the reasons aforesaid, we answer the question of law in favour of the assessee and against the revenue.

21. Hence, we pass the following

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