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2018 DIGILAW 912 (KER)

State of Kerala v. Amity Rock Products Pvt. Ltd.

2018-11-12

ASHOK MENON, K.VINOD CHANDRAN

body2018
JUDGMENT : K. Vinod Chandran, J. The issue raised in the above Writ Appeals is as to whether the M-Sand produced by the various writ petitioners by using a vertical/horizontal shaft impactor machine is liable to separate assessment under the Kerala Value Added Tax Act, 2003 (for brevity KVAT Act); even when the dealers had opted for compounding under S.8 of the Act. 2. The learned Single Judge based on the (i) proviso to S.8, (ii) the fact that there was a subsequent amendment made bringing in a separate compounded fee for VSI/HIS from the year 2014-15 as also (iii) the judgment of a Division Bench reported in State of Kerala v. Poabs Granites P. Ltd., 2011 (4) KHC 876 found the dealers to be not liable to be separately assessed for the M-Sand produced by VSI/HSI, for the relevant period. 3. The learned Special Government Pleader has put forth compelling arguments in challenge of the findings of the learned Single Judge. It is pointed out that Poabs Granites P. Ltd. (supra) was in the general sales tax regime and has no application to the K.V.A.T. Act. It is also argued, on a reading of S.8(b) that only dealers producing granite metals would be entitled to compounding under the provision. Hence any other product distinct from granite metal would not be covered under the compounding scheme and such products would have to readily concede to assessment under the regular provisions, especially for reason of there being no compounding scheme for that product. The dealers when they produce M-Sand by VSI/HSI are not absolved from the assessment of that product which does not fall under the categorization of granite metals. The proviso, according to the learned Government Pleader, specifically intended that the M-Sand produced with the machines as seen in clause (b) of S.8 alone would be exempted. It is the further argument that the exemption was only on account of such M-Sand obtained as a byproduct, in production of granite metals in the machines specified in sub-s.(b) of S.8 would be of a negligible quantity and also inferior quality. The budget speech for the assessment year in which there was introduction of VSI/HSI also under the compounding scheme, has also been relied on to further buttress the intention of the legislature in having provided the coverage under the scheme only prospectively from the assessment year 2014-15. 4. The budget speech for the assessment year in which there was introduction of VSI/HSI also under the compounding scheme, has also been relied on to further buttress the intention of the legislature in having provided the coverage under the scheme only prospectively from the assessment year 2014-15. 4. We have heard the learned Senior Counsel Sri. Raju Joseph, Sri. T.M. Sreedharan, Senior Counsel, Sri. Harisankar V. Menon, Dr. George Abraham, Sri. K.I. Mayankutty Mather, Sri. K.T. Poulose, Sri. N. James Koshy, Smt. R. Leela, Sri. Philip J. Vettickattu, Sri. Mathew A. Kuzhalnadan and Sri. S. Sreedev for the appellants and the learned Special Government Pleader Sri. C.E. Unnikrishnan for the State. 5. Section 8 has been extracted by the learned Single Judge in the judgment and we deem it appropriate that the proviso alone be extracted herein. “Provided that in the case of dealers, who opted to pay compounded tax under this clause, no separate assessment shall be made in respect of (Manufactured sand) produced by them.” 6. The proviso clearly exempts manufactured sand produced by dealers engaged in the production of granite metals who have opted for compounding based on the specification in sub-clause (i) to (iv) of Clause (b) of S.8. There is no reference to an inferior quality or negligible quantity of M-Sand which alone stands exempted. It cannot also be said that the M-Sand procured from the VSI/HSI are not produced by the machines referred to in S.8(b). The crusher units use different machines for production of granite metal. The quarried metal of large size is first reduced to smaller size in the primary crusher and then crushed to still smaller aggregates in the secondary crushers. The VSI/HSI is used to further crush the smaller aggregates to fine sand which along with the crusher sand obtained from the primary and secondary crushers are called M-Sand. Though they are of different quality the terminology is the same and both are saleable as M-Sand in the market. 7. The learned Single Judge found that it was not in dispute that the products, namely granite metal, crusher sand and manufactured sand are all obtained during the process of production of granite metal using mechanised crushing machines. M-Sand was also found to be a product that is obtained in the process of production of granite metal using mechanised crushing machines. The learned Single Judge found that it was not in dispute that the products, namely granite metal, crusher sand and manufactured sand are all obtained during the process of production of granite metal using mechanised crushing machines. M-Sand was also found to be a product that is obtained in the process of production of granite metal using mechanised crushing machines. It was specifically held that the mere fact that a dealer had obtained a different type of machine for production of a finer size of granite metal or sand was of no consequence. We agree with the findings; on the legislative scheme envisaging the payment of compounded fee on the basis of the number of primary and secondary crushers used within a crusher unit. A different type of machine not specifically noticed by the legislature, if and when used by the crusher units, to produce the same product but of a different constitution, for which no separate compounding fee was provided; would not by such user alone make liable the dealers for a separate regular assessment on the M-Sand produced by such machines in the crusher units; which units have admittedly opted to pay tax under the compounding scheme. We specifically notice the proviso extracted above, which speaks of dealers who opt under the compounding scheme, to be not liable to separate assessment in respect of Manufactured Sand produced by them; i.e.,: produced by the dealers or the specific units. If, as contended by the learned Special Government Pleader the exemption was with respect to the M-Sand produced by the machines referred to in S.8(b) i.e.,: the primary and secondary crusher machines, then the exemption would have been worded otherwise. It would have been specifically with respect to M-Sand produced by the machines and not by the dealers or the units as the proviso is now worded. 8. Section 8(b) is very clear and indicates compounding fee only on the specific machines provided there under with respect to a dealer producing granite metals. True, the legislature never contemplated the introduction of vertical or horizontal shaft impactors for the purpose of producing M-Sand from the granite metal produced by a separate process through an impactor. The exemption granted, did not exclude such production by a separate machine other than that specified in clause (b) of S.8. True, the legislature never contemplated the introduction of vertical or horizontal shaft impactors for the purpose of producing M-Sand from the granite metal produced by a separate process through an impactor. The exemption granted, did not exclude such production by a separate machine other than that specified in clause (b) of S.8. The exemption granted as per the proviso applies across the board to any production of manufactured sand made by the dealers producing granite metals whether it be from the machines as specified in Clause (b) or otherwise. The compounding scheme also is for the dealers or the crushing units and on option exercised, they are absolved from regular assessment of the goods produced in the crusher units whether it be larger or smaller aggregates of granite metal or M-Sand by a VSI/HSI. 9. We also notice that the legislature having found that there is a loss of tax insofar as the M- Sand produced by a different machine had from the assessment year 2014-15 provided a compounding fee for the VSI/HSI. The provision so introduced was also on the following reasoning as available in the budget speech of the Finance Minister: “Due to scarcity of river sand, the new product called manufactured sand, produced by crushing granite stones, is currently being used widely in construction. As per the present provision, a compounded quarry producing granite metals need not pay any tax for quarry dust, a bye-product in the process. Taking advantage of this exemption, many units which primarily produce manufactured sand using dedicated machines, are claiming tax exemption in case of manufactured sand, causing tax loss to the Government. In order to curtail this, it is proposed to introduce a separate compounding provision for manufactured sand. To study the practical issues involved in this matter, a special committee consisting of the Officers of Commercial Taxes Department was set-up. The proposed scheme is based on the study report of the said Committee. It is proposed to introduce an annual compounding scheme for manufactured sand based on the production capacity of the machines used for this purpose, i.e., vertical shaft impactor/horizontal shaft impactor, in the following five slabs.” 10. The speech itself indicates that the Government realised a drain of tax insofar as an exemption provided to manufactured or M-Sand by the proviso. It was then sought to introduce a compounding fee for the VSI/HSI also separately. The speech itself indicates that the Government realised a drain of tax insofar as an exemption provided to manufactured or M-Sand by the proviso. It was then sought to introduce a compounding fee for the VSI/HSI also separately. This in fact further fortifies the contention of the dealers that prior to such introduction they were entitled to the exemption, whether the M-Sand produced in the Units, which opted for compounding, did so from the crushers or the impactors. We do not also see any reason to sustain the distinction sought to be drawn between M-Sand and manufactured sand. M-Sand as it is generally understood is manufactured sand produced from quarried metals. In common parlance as also in commercial parlance M-Sand is manufactured sand produced from metals, as distinguished from natural sand. 11. We have also seen Poabs Granites P. Ltd. (supra) which decision was under the general sales tax regime. The compounding provision under the general sales tax enactment did not have a provision for exemption as is available in the K.V.A.T. Act. Even then a Division Bench of this Court found that there could be no separate assessment for manufactured sand produced from a different machine when such machine was not included under the compounding scheme and provided with a distinct compounding fee. In the present regime under the KVAT Act, there was a specific exemption with respect to manufactured sand produced by the dealers who were primarily engaged in producing granite metals and who had opted for compounding. We hence find no reason to interfere with the judgment of the learned Single Judge. We dismiss the appeals. There will be no order as to costs; which the respective parties shall bear.