Case: M/S CRAFT INTERIORS (P) LTD Vs. THE JOINT COMMISSIONER OF COMMERCIAL TAXES(INTELLIGENCE), BANGALORE

3. The brief facts of the case relevant for the purpose are that the appellant is a private limited company engaged in the business of interior decoration and other types of work. The appellant had purchased various goods from registered dealers under the KST Act, 1957 and used them in the execution of works contracts. The appellant claimed deduction from the total turnover of such purchases in terms of Rule 6(4)(m)(i) of the KST Rules, 1957 as per which all amounts received or receivable in respect of goods purchased from registered dealers and used in the execution of works contracts in the same form in which goods are purchased, can be claimed as deduction from the total turnover.4. The assessing Officer issued notices for provisional assessment for the years 1998¬99, 1999-2000, 2000¬2001, 2001¬ 2002 and 2002¬2003 to deny the deduction of the value of timber, purchased from the local registered dealers claimed under Rule 6(4)(m)(i) on the ground that the timber was not used in the same form in which such goods were purchased, while executing the works contract. It was further observed that for carrying out the interior decoration, the appellant purchased timber in log forms, plaster of paris, plywood, glass sheets and the said purchases have been manufactured to produce the goods which are necessary for interior decoration. The Assessing Officer further observed that as per Rule 6(4)(m)(i), the registered dealer purchases deductible from the works contract receipts is limited to transfer of the purchased goods in the same form. As per Explanation III of the said Rule ?in the same form? do not include the registered dealer purchases which are either consumed or manufactured of other goods which are used in the execution of the works contract. Hence, there shall be no deductions as claimed.5. It has been informed to this Court that five notices were issued by the Assessing Officer on 8 th November, 2002 for different assessment years under Section 28(6)(iii) of the KST Act, 1957 and reply was submitted by the appellant but the matter has not been proceeded thereafter any further because of pendency of the litigation. Being aggrieved, the appellant preferred writ petition, assailing the five show cause notices served upon the appellant/assessee and also the constitutional validity of Rule 6(4)(m)(i) read with Explanation III to Rule 6(4) of the said rules.6. The writ petition came to be dismissed by the learned Single Judge of the High Court vide its Order dated 7 th January, 2003 placing reliance on the judgment of E.C.I.E. Pvt. Ltd. Vs. Additional Deputy Commissioner, Commercial Taxes(Kar.) and Another 1999(114) STC 309 in which the High Court of Karnataka has upheld the constitutional validity of the said Rule. So far as the order of the Joint Commissioner of Commercial Taxes (Intelligence) dated 6 th November, 2002 is concerned, granted permission to the authority to take up the provisional assessment in furtherance to the notices dated 8 th November, 2002 and to pass an appropriate order after hearing the parties in accordance with law. Against the Order of the learned Single Judge dated 7 th January, 2003, the unsuccessful appellant preferred LPA which also came to be dismissed with supportive reasons vide judgment impugned dated 16 th September, 2006 which is a subject matter of challenge in appeal before us.

Court's reasoning:
18. From the bare perusal of the provision of the KST Act and KST Rules, 1957 indicated above, it clearly envisages that Section 5B of the KST Act is a charging provision which empowers the State to levy tax on the transfer of property in goods involved in works contract. At the same time Rule 6(4)(m)(i) read with Explanation III to Rule 6(4) of the KST Rules clarifies that the same goods can be taxed only once and cannot be made subject matter of multiple incidence of tax and the goods which have suffered taxation undergoes transformation into a different commodity altogether and is then used in the execution of a works contract, the same being a different commercial commodity is liable to be taxed. The justification which has been tendered by the appellant in reference to five notices impugned in the instant proceedings for the assessment years 1998¬1999 to 2002-2003 is a question of fact to be examined by the assessing authority who has served him the notices.19. We are clear, in our view, that Section 5B of the KST Act and Rule 6(4)(m)(i) of the KST Rules operate in different spheres. Section 5B is a charging provision for levy of sales tax whereas Rule 6(4)(m)(i) is a provision for deduction from tax. Under Section 5B, tax can be levied on transfer of property in the goods whether as goods or in some other form whereas Rule 6(4)(m)(i) provides for a deduction in respect of the goods which have already suffered tax and which are used in the same form. Thus, in our view, it appears to be in clear consonance with the charging provision and does not militate against Section 5B of KST Act, 1957.What emerges from the scheme of the Act and Rules framed thereunder is that Rule 6(4)(m)(i) purports to grant benefit to the assessee by allowing deductions for the value of goods which have already suffered taxation and which goods substantially retain their original identity while being used in the execution of a works contract. Explanation III to Rule 6(4) clarifies it further by categorically providing that in case the goods are transformed into a different commodity which then is used in the execution of works contract, then the benefit of deduction cannot be availed.In our considered view, there is no variance between Rules 6(4)(m)(i) read with Explanation III and Section 5B of the KST Act, 1957 and what is contended by the appellant in assailing the validity of Rule impugned hereunder is misconceived and without substance.27. The judgment in Media Communications(supra) of which the learned counsel for the appellant has placed heavy reliance is of no assistance for the reason that mere rejection of special leave petitions by this Court at the motion stage would not be considered to be an approval of the view expressed by the High Court of Andhra Pradesh. That apart, para 7 of the judgment in Telangana Steel Industries and Others case(supra) has been noticed by the High Court in Media Communications(supra) and arrived to the conclusion that Telangana Steel Industries and Others(supra) lent support to the reasoning of the High Court.So far as the submissions made by the learned counsel for the appellant on merits in reference to the five impugned notices of provisional assessment served under Section 28(6) is concerned, whether the assessee was eligible under Rule 6(4)(m) (i) is a question of fact which has to be determined in the assessment proceedings and since the provisional assessment has not been finalised due to pendency of the instant proceedings, it may not be advisable for this Court to dilate on the subject issue of the notices served upon the appellant at this stage and leave it open to the appellant to address before the assessing authority in the pending appropriate assessment proceedings, if so advised.