Mangalore Minerals (P.) Limited vs State of Karnataka

K.L. Manjunath, J.—Though the matter is posted for admission by consent of parties, the appeal is heard on merits. Before hearing the appeal on merits, we are of the view that the following substantial questions of law arises in this appeal:

(i) Whether the ''resin coated sand'' falls under entry 83 of the Third Schedule or under the residual provision under the Karnataka Value Added Tax Act, 2003?

(ii) Whether the order passed by the Commissioner, Commercial Tax, exercising his suo motu powers vested u/s 64(2) would be prospective or retrospective?

Heard the learned counsel for the parties.

The facts leading to this case are as hereunder:

The appellant is engaged in the business of selling "silica sand'''' and "resin coated sand". Considering the doubt entertained by him in regard to the rate of tax on the "resin coated sand", the assessee approached the Authority for Clarification and Advance Rulings, u/s 60 of the Karnataka Value Added Tax Act, 2003. The Rulings Authority after examining came to a conclusion that the "silica sand" and "resin boated sand" falls within the meaning of "sand and grits" as specified under entry 83 of the Third Schedule as per the notification dated April 30, 2005, in No. FD 197 CSL 2005 and held that with effect from June 7, 2005, it is to be taxed at four per cent. This order was passed on March 29, 2007. The Commissioner of Commercial Taxes having noticed the order passed by the Authority for Clarification and Advance Rulings, is prejudicial to the interest of the Revenue exercising the powers vested u/s 64 of the Karnataka Value Added Tax Act, 2003, issued a notice to the appellant-assessee and after hearing it came to the conclusion that the resin coated sand is liable to be taxed at 12.5 per cent u/s 4(1)(b) of the Act, treating it as unscheduled commodity with effect from June 7, 2005. Being aggrieved by the divergent findings, the present appeal is filed.

Sri S.P. Bhat, learned counsel for the appellant, submits that "resin coated sand" cannot be treated as a different varieties of sand. According to him, the Advance Rulings Authority rightly held that "silica sand" and "resin coated sand" are nothing but sand and grits. Accordingly, it was justified to rule that it attracts a tax at four per cent. He alternatively contends that even if the contention of the assessee is negatived in regard to the first question, the Commissioner has committed a serious error in giving effect to its order with effect from June 7, 2005 by reversing the order passed by the Authority for Clarification and Advance Rulings u/s 60 of the KVAT Act. He contends that the order of the Commissioner has to be prospective in nature and it cannot be retrospective in nature. In the circumstances, he requests the court to allow the appeal.

Per contra, Smt. Geetha Menon, learned High Court Government Pleader appearing for the respondent submits that, the "resin coated sand" is entirely different from original sand. Therefore, it falls under residual clause attracting the rate of 12.5 per cent. The Advance Rulings Authority, even though, was aware of the decision of the Karnataka Appellate Tribunal in Vijayashree Shell-Sands, Davanagere v. State of Karnataka reported in [2002] 53 KLJ 10, could not have entertained the clarification application filed by the appellant-assessee and she further contends that the ruling of the Tribunal was also within the knowledge of the appellant and that there was no occasion for the appellant to approach the Advance Rulings Authority. In the circumstances, relying upon the aforesaid judgment, she contends that "resin coated sand" would not fall under entry 83 of the Third Schedule, but it would fall under residual clause as held by the Commissioner. She further contends when this legal position was known to the assessee, the order passed by the Commissioner stating that the "resin coated sand" is liable to be taxed at 125 per cent with effect from June 7, 2005, is justified.

Having heard the learned counsels for the parties, we are of the view that question No. 1 has to be answered in favour of the Revenue and question No. 2 has to be answered in favour of the assessee for the following reasons:

In the case of Vijayashree Shell-Sands, Davanagere v. State of Karnataka [2002] 53 KLJ 10, the Tribunal has ruled that "resin coated sand" is altogether different than the original sand, as it involves manufacturing process. The order of the Tribunal has become final order and therefore, we are of the view that question No. 1 has to be answered in favour of the Revenue and against the assessee.

According to us, the Advance Rulings Authority without following the judgment of the Tribunal, erroneously has granted an order in favour of the appellant. We are also of the opinion that the Commissioner exercising his power vested u/s 64 of the Karnataka Value Added Tax Act having found that, the order of the authority was prejudicial to the interest of the Revenue has rightly exercised his power and ruling of the Commissioner is justified in regard to the classification of the "resin coated sand" under residuary clause. So far as the second point is concerned, we are of the opinion that the order of the Commissioner cannot be retrospective and it could be prospective only for the following reasons:

The arguments advanced by the learned Government Advocate is that the ruling of the Tribunal was within the knowledge of the assessee and that there was no occasion for the assessee to approach the Advance Rulings Authority, seeking clarification. There is no basis for hearing the argument to show that, the assessee was aware of the order of the Tribunal. Even if it is true, the Advance Rulings Authority has failed to exercise their power properly. When the Government Advocate would contend that the decision of the Tribunal was known to the assessee, she cannot contend that the same decision was not known to the Advance Ruling Authority. They are the officers of the same Department. Therefore, we are of the view that when the order of the Advance Rulings Authority has been set aside by the Commissioner, it can be prospective and not retrospective.

Sri S.P. Bhat, learned counsel appearing for the appellant, contends that, based on the clarification of the Advance Rulings Authority with effect from April 1, 2007, the assessee had collected tax at the rate of four per cent only and not at the rate of 12.5 per cent. In view of the same, we have to answer question No. 2 against the Revenue and in favour of the assessee. With the above observation, this appeal stands disposed of.