Goods And Service Tax India

The Supreme Court has upheld the decision of the Andhra Pradesh High Court in the L&T case.

The Andhra Pradesh Commercial Tax Authorities had demanded VAT from the main contractor on the value sub contracts. The sub contractors were registered dealers and had paid VAT on the value of sub contracts executed by them. The plea of the main contractor that this will result in double taxation was not accepted by the Authorities. The Andhra Pradesh High Court vide its decision dated 12 Oct 2006 upheld the plea of the main contractor. The Andhra Pradesh Government had filed an appeal in the Supreme court against this decision.

In Ponds India Ltd (Merged with HL Ltd) v. Commissioner of Trade Tax, Lucknow , the Supreme Court answered the question, whether petroleum jelly is a “drug” or a “cosmetic”

The tax authorities have been assessing petroleum jelly as a drug (and not as a cosmetic) for a long time. This product is produced under a drug manufacturing licence under the Drugs and Cosmetics Act, 1940. The report of the Chemical Examiner also supported the contention of the appellant that petroleum jelly is a drug.

Therefore, Supreme Court held that white petroleum jelly is a drug and not a cosmetic.

In Peekay Re-rolling Mills (P) Ltd vs The Assistant Commissioner & Anr decided on 20th March 2007, the Supreme Court had to decide whether the assessing officer is justified in seeking to invoke Sec 5A of the Kerala General sales Tax Act, 1963 and levy tax on the dealer in cases where the goods had not suffered tax at the earlier point of sale on account of exemption enjoyed by the seller.

Sec 5A of the KGST Act, 1963 seeks to tax purchases in the hands of the purchaser where the goods have not suffered tax and such goods are consumed in manufacture of other goods by the purchasing dealer.

A number of goods including cereals, coal, cotton, certain cotton fabrics, crude oil, iron and steel, etc are declared to be of special importance in Inter State trade or commerce by Sec 14 of the Central Sales Tax Act, 1956. Collectively these goods are called Declared Goods.

Sec 15 of the CST Act, 1956 imposes certain restrictions on the powers of the states to levy tax on declared goods.

The restrictions are :

01) The tax payable under the local law shall not exceed 4% and the tax shall not be levied at more than one stage.

The SC, in Assistant Commissioner Anti Evasion Commercial Taxes, Bharatpur vs Amtek India Limited, has passed strictures on commercial tax officers who pass arbitrary and unreasonable orders.

The SC said, “…the action of the concerned assessing officer, in overlooking the documents produced coming to the conclusion about manipulation appears to be totally uncalled for and without any reasonable basis. This is a case where the officer should have been more careful and should not have acted in a manner as if he was a bloodhound and not a watchdog of revenue. It is unfortunate that in large number of cases, orders totally bereft of rationality are being passed. They do not in any manner serve public interest, much less the interest of revenue.

In Crane Betel Nut Powder Works vs Commissioner of Customs & Central Excise, Tirupathi & Another the excise assessing officer took the view that crushing of betel nuts into smaller pieces and adding essential/non-essential oils, menthol, sweetening agent etc resulted in a separate product, namely betel nut powder.

However, the Supreme Court decided that no new product is created in the process and said that “In our view, the Commissioner of Customs and Central Excise (Appeals) has correctly analysed the factual as well as the legal situation in arriving at the conclusion that the process of cutting betel nuts into small pieces and addition of essential / non-essential oils, menthol, sweetening agent etc. did not result in a new and distinct product having a different character and use.”

In Federal Bank & ors vs State of Kerala & ors, the Supreme Court decided that banks selling gold that was pledged to them were covered by the definition of “dealer” under the Kerala General Sales Tax Act, 1963 after the amendment by the Kerala Finance Act, 1998.

Date of decision : 21 March 2007

In Sree Durga Distributors vs State of Karnata, the Supreme Court decided that pet food for cats and dogs will not fall under Entry 5 of the First Schedule to the Karnataka Value Added Tax Act, 2003.

The entry reads as under :

“5. Animal feed and feed supplements, namely, processed commodity sold as poultry feed, cattle feed, pig feed, fish feed, fish meal, prawn feed, shrimp feed and feed supplements and mineral mixture concentrates, intended
for use as feed supplements including de-oiled cake and wheat bran.”

These products will not be eligible for exemption from VAT.