The Karnataka High Court while directing the recomputation of the Sales Tax held that the ‘Common Parlance Test, ‘Marketability Test; ‘Popular Meaning Test’ are tools for interpretation to arrive at a decision on the proper classification of tariff entry.
The assessee, Robo Silicon Pvt. Ltd. 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 period April 2014- March 2015. 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 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 the assessee and raised additional demand. Being aggrieved, the assessee preferred appeal before the Tribunal which was thereby dismissed. Assailing this, the present revision petition was filed.
Mr. Ravi Raghavan and Mrs. Mahwash Fatima Counsel for the petitioners submitted that Entry 83 of the Third Schedule of the KVAT Act is wide enough to cover all types of sands. Merely relying upon the notification dated 30-03-2015 issued by the Government of Karnataka in the exercise of powers under Section 4 (3) of the KVAT Act, reducing the rate of tax on M Sand to 5%, Revisional Authority revised the assessment order. The Notification ought to be seen as a clarification and has to be given retrospective effect.
On the other hand, counsel for the respondents Mr. Jeevan J. Neeralgi submitted that the Tribunal has rightly rejected the appeal since M sand sold by the assessee is understood in common parlance as ‘manufactured sand’ and not as ‘ordinary sand’ i.e. ‘river sand’. It was further submitted that prior to the date of the notification the ‘manufactured sand’ was liable to be taxed under the residuary entry at 14.5%. In order to reduce the rate of tax on the sale of M sand, the Government of Karnataka has issued a Notification, thereby reducing the rate of tax to 5.5%.
The Division Bench of Justice S. Sujatha and Justice Ravi V Hosmani observed that the ‘common parlance test, ‘marketability test; ‘popular meaning test’ are all tools for interpretation to arrive at a decision on the 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 Court noted that using the common parlance/trade parlance /popular meaning test and 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.
The Court directed the assessing authority to recompute the tax on the ‘M-sand’ sold by the assessee as the goods falling under Entry 83 of the Third Schedule of the KVAT Act for the relevant tax periods in question.
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