STATE OF KARNATAKA Vs. HONEY COMB INTERNATIONAL INC.

JUDGEMENT

(1.) The Revenue has preferred these petitions challenging the order passed by the Karnataka Appellate Tribunal holding that the honeycomb partition frames supplied by the assessee to the railways, form part of a railway coach and therefore, it falls under specific entry at Sl. No. 76 and liable to tax at 5% only and it cannot be taxed under unscheduled goods at 13.5%. The assessee is a dealer registered under the provisions of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as 'the KVAT Act', for short) and Central Sales Tax Act, 1956 (hereinafter referred to as 'the CST Act', for short). The assessee is in the business of manufacture of general honeycomb partition frames to Rail Coach Factory, Indian Railways, Kapurthala, Punjab State. The assessee filed monthly returns and paid tax at the rate of 5% for the assessment year 2010-2011 in respect of sale of honeycomb partition frames to Indian Railways. The Assistant Commissioner of Commercial Taxes, after verification of the returns, proposed to pass a reassessment order on the ground that the claim made by the assessee that supply of honeycomb partition frames is liable to be taxed at the rate of 5% as per Entry 76 of Third Schedule to the KVAT Act, is not correct. It has to be taxed as an unscheduled goods under Section 4(1)(b) of the KVAT Act at 13.5%. Accordingly, a proposition notice was issued and the assessee filed his objections. However, overruling the objections of the assessee, the Assessing Authority rectified the order passed on 18-10-2012 and passed rectification order on 22-10-2012 under Section 69 of the KVAT Act read with Section 9(2) of the Central Sales Tax Act, 1956. Aggrieved by the said order, the assessee preferred an appeal before the Joint Commissioner for Commercial Taxes who dismissed the appeal. The assessee preferred a second appeal to the Karnataka Appellate Tribunal. The Karnataka Appellate Tribunal, on careful consideration of the rival contentions and after taking note of the various judgments on which reliance was placed, held that it is conclusive from the material on record that the honeycomb partition frames manufactured by the assessee and supplied to the Rail Coach Factory, Indian Railways, Kapurthala are parts of rail coaches falling under Sl. No. 76 of Third Schedule to KVAT Act which specifies rail coaches, engines, wagons and parts thereof. It does not call for applying any user or of common parlance understanding or commercial parlance understanding for determining the nature of the goods. The assessee did not sell merely honeycomb boards but manufactured honeycomb partition frames and sold the honeycomb partition frames exclusively to the railways. The honeycomb partition frames were manufactured to the specifications and drawings provided by the railways and were meant for use as parts in the construction of railway coaches and not for any other use. The assessee did not place the honeycomb partition frames in the open market catering to the customers for different uses so that it could be said that commercial parlance or common parlance understanding was applicable for construction of the correct nature of the goods. Even if the commercial parlance understanding is to be applied, the honeycomb partition frames manufactured by the assessee and supplied to the Rail Coach Factory for exclusive use for the construction of rail coaches are to be held as part used in the construction of the rail coaches and not differently. Therefore, it allowed the appeal and set aside the orders passed by the lower authorities and held that the tax paid at 5% is what is legally due. Aggrieved by the said order, the revenue has preferred this appeal.

(2.) The learned Government Advocate, assailing the impugned order, contended that the honeycomb partition frames are available in the market. Merely because the said partition frames are used in the construction of rail coaches, it does not become a part of a rail coach as it is not a scheduled item. It has to be taxed as an unscheduled goods and the rate of tax payable is 13.5% and the order passed by the Karnataka Appellate Tribunal is erroneous and requires to be set aside.

(3.) Per contra, the learned Counsel for the assessee reiterated the grounds which he urged before the Tribunal.