M/s. Mulgund and Co. vs State of Karnataka.

Jagannatha Shetty, J.-This revision petition is directed against the order dated October 31, 1978 made by the Appellate Tribunal in S.T.A. No. 3/78. It relates to the scope and ambit of S. 5(3A) of the Karnataka Sales Tax Act (''Act'').

The petitioner firm filed a return for the accounting period from 20-10-1971 to 5-11-1972 stating that its total, exempted and taxable turnovers for the year are Rs. 13,27,230.01, Rs. 4,59,161-88 and Rs. 8,68,158-13 respectively. It also contended that the latter turnover was liable to tax at 2% under S. 5(3A). The assessing authority rejected that contention and assessed the turnover to tax at 3% and 31/2% under S. 5(1) of the Act.

On April 21, 1977 the petitioner claimed that its sale transactions had the support of Form No. 37 and therefore liable to be taxed at the concessional rate provided by S. 5(3A) and the levy at the rates prescribed under S. 5(1) was an apparent mistake which demands rectification. But the assessing authority rejected that claim for rectification stating thus:

"As per the decision of the Sales Tax Appellate Tribunal in Karnataka, Bangalore, dt. 12-3-1975 for 1967-68 and 1968-69 and 1969-70 it has been clearly pronounced that bolts, nuts, screws etc., manufactured by you as per the specfication and drawings given by your purchasers are not ''component parts'' of the goods manufactured by them in the State for sale.

So, tax levied at 3% and 31/2% on the sale of such goods ignoring Form 37 submitted by you is correct. There is no mistake apparent from the record for 1971-72 and there is nothing to rectify."

It may be stated that the appellate Tribunal, in the assessment of the same assessee, relating to the previous years, has held that the bolts, nuts and screws etc., manufactured by the petitioner as per the specifications and drawings given by the purchasers were not component parts of the goods manufactured. Relying upon the said decision, the assessing authority rejected the request of the petitioner for rectification of the assessment order.

Against the order of the assessing authority, the petitioner appealed to the Deputy Commissioner of Commercial Taxes (Appeals). It was urged before the Deputy Commissioner that under S. 5(3A) of the Act the assessee was required to prove only that he has sold the goods for use as component parts of the items mentioned in the second Schedule and since it was proved by filing declarations in Form 37, the assessing authority ought to have levied the concessional rate of tax prescribed thereunder. The Deputy Commissioner however, did not accept that submission. He maintained that the goods supplied by the petitioner were not component parts of the goods set out in the Second Schedule.

Being aggrieved by the order of the Deputy Commissioner, the assessee appealed to the Tribunal. The Tribunal also rejected the appeal without examining the real controversy in the case. Hence this revision petition.

The Primary question that arises for consideration in this revision petition is, whether the authorities below were justified in rejecting Form No. 37 produced by the petitioner for earning concessional rate of tax prescribed under S. 5(3A).

S. 5(3-A) provides that not withstanding anything contained in sub-S. (1) of sub-S. (3), the tax payable by a dealer in respect of any sale of goods by such dealer to a registered dealer for use by the latter as component part of any other goods mentioned in second Schedule which he intends to manufacture inside the State for sale, shall be at the rate of four per cent on the turnover relating to such sale. (The rate of tax during the relevant period, i.e, 1971-72 was only 3 per cent).

Proviso to S. 5(3-A) sets out the particulars required to be furnished by the assessee in order to claim the benefit of concessional rate of tax. The assessee has to furnish to the assessing authority declaration duly filled in and signed by the dealer to whom the goods are sold.

R. 38-A of the Karnataka Sales Tax Rules, framed under S. 5(3-A), provides that the declaration shall be in Form No. 37. A dealer who wishes to sell goods to another on payment of tax at the rate specified in S. 5(3A) shall obtain such blank forms on payment of two rupees per book from the assessing authority and shall furnish to the purchasing dealer the original and duplicate portions of the declarations duly filled in and signed by him. The Rule also states that a dealer who claims that a sale is liable to tax at the concessional rate shall attach to his return of turnover the original of the declaration received by him from the purchasing and also produced for inspection the portion of it marked ''duplicate'' if the assessing authority directs him so to do.

Explanation to S. 5(3-A) clarifies the meaning of ''component parts'' for the purpose of the said sub-section. The Explanation reads thus: "For the purpose of this sub-section ''component'' part, means an article which forms an identifiable constituent of the finished product and which along with others goes to make up the finished product".

The scope of S. 5(3-A) came up for consideration before this Court in two decisions,- (i) In Kishindas Agencies v. State of Mysore (1974 (1) Kar. L.J. 149) a bench of this Court (Govinda Bhat, C.J., and Srinivasa Iyengar, J), has held that ''the component parts sold by the dealer must be one of the goods mentioned in the second schedule of the Act and the component part must be an identifiable constituent of the finished product and the benefit of concessional rate of tax provided under S. 5(3-A) is not available to a dealer who manufactures or sells a component part of a component part of the finished product.

This decision is silent as to the effect of R. 38-A and the declaration then required to be furnished by the Assessee in Form 37.

ii) In Gajaraj Enterprises v. State of Karnataka (43 STC 271) another Bench of this Court (E.S. Venkataramaiah and M.K. Srinivasa Iyengar, JJ). while examining the scope of S. 5 (3-A) as it then stood observed that if the goods sold by the dealer are identifiable constitutent of the finished product, then the dealer would be entitled to concessional rate of tax.

4. S. 5(3-A) was amended by Act 78 of 1976 with effect from April 1, 1972 incorporating liberal provisions for claiming concessional rate of tax. The section, as it now stands, requires only that the dealer must sell the component parts to a registered dealer for use by the latter as a component part of some other goods mentioned in column 2 of Second Schedule, which he intends to manufacture inside the State for sale. The explanation there to further clarifies the meaning of ''component part'', which means an article which forms an identifiable constitutent of the finished product and it along with others goes to make up the finished product.

In State of Madras v. R.M. Krishnaswami Naidu (26 STC 42) the Supreme Court had an occasion to consider the scope of an analogous provision under the Madras General Sales Tax Act, 1961. As to the scope of ''component part'' it was observed thus:

"In our judgment, if the component is capable of identification by a chemical or other test as a component of a finished product falling . within the Schedule, it would be an identifiable constitutent within the meaning of S. 3(3), Explanation, and the sale of the component would qualify for the concessional rate of tax".

The Supreme Court rejected the contention regarding the test of visual identification of a component.

The scheme of S. 5(3-A) of the Act and the explanation thereto, as we understand, in the light of the decisions to which we have called attention is this:

The dealer who sells an article which form an identifiable constitutent of the finished product and which along with others goes to make up the finished product mentioned in Second Schedule is entitled to a concessional rate of tax provided he furnishes the declaration in Form 37 in accordance with the procedure prescribed under R. 38-A of the Rules. When once the declaration is made by the buyer in the prescribed form and the same is furnished by the assessee in the assessment proceedings, no other proof of any other circumstance could be insisted upon by the assessing authority to extend the benefit of the concessional rate of tax. If the assessee furnishes the required declaration, he will automatically be entitled to the concessional rate. Such declaration which are in accordance with S. 38-A shall be binding on the assessing authority.

Our view finds support from the following decisions of the Madras High Court, viz,, (i) Elten Engineering Corporation Private Ltd. v. The Commercial Tax officer, Avanashi Road Division, Coimbatore (30 STC 146) and (ii) Premier Electro Mechanical Fabricators, Madras-2, v. The State of Madras (22 STC 269).

In the instant case, it is not in dispute that the petitioner has furnished the declaration in Form No. 37 as required under the Rules. They must, therefore, be held binding on the assessing authority.

In the result, this revision petition is allowed, the order of the authorities below are set aside and the assessing officer is directed to do the assessment in accordance with law after perusing the declaration furnished by the assessee.

The petitioner must appear before the assessing authority on February 6, 1984 to receive further notice.

In the circumstances of the case, we make no order as to costs.