Karnataka High Court
Raja Brick And Tile Industries, Rep. By ... vs The Addl. Commissioner Of Commercial ... on 18 November, 2004
Equivalent citations: ILR2005KAR34, [2006]146STC124(KAR)
Author: H.L. Dattu
Bench: H.L. Dattu, Manjula Chellur
JUDGMENT H.L. Dattu, J.
1. These appeals are filed against the orders passed by the Additional Commissioner of Commercial Taxes, Zone-II, Bangalore, in SMR. CST/64/98-99 and in No. SMR. CST/65/98-99 dated 14.1.1999. By these orders, the revisional authority has revised the orders passed by the first appellate authority in appeal Nos. KST. AP. 147/97-98 and CST. AP. 38/97-98 dated 9.6.1998 and has restored the assessment orders passed by the Deputy Commissioner of Commercial Taxes (Assessments), Tumkur, passed both under the Karnataka Sales Tax Act, 1957 ('KST Act' for short) and the Central Sales Tax Act, 1956 ('CST Act' for short) for the assessment year 1993-1994.
2. The appellant is a partnership firm and is engaged in the business of manufacture of bricks and tiles. The assessee is a dealer registered both under the KST Act and the CST Act. The assessing authority after rejecting the annual returns filed by the assessee for the assessment year 1993-1994, has passed the assessment order under Section 12(3) of the KST Act and Section 9(2) of the CST Act on the sales turnover of decorative tiles, glass tiles, flooring tiles, etc., at 15% taking a view that the goods in question would fall under Entry 8(iv) of Part T of Second Schedule to the KST Act.
3. Aggrieved by the aforesaid assessment orders, the assessee had carried the matter in appeals before the first appellate authority, who by his order dated 9.6.1998 has allowed the appeals filed both under the KST Act and the CST Act, taking a view that the turnover relating to 'roofing tiles' is liable to tax at 5% and further taking a view that the 'decorative tiles' are also 'roofing tiles' had directed the assessing authority to levy Tax at 5% under KST Act and at 10% on CST turnover in the absence of 'C' forms, by treating the commodity in question as an item falling under entry 8 (iii) of part 'T' of Second Schedule to the Act.
4. The Additional Commissioner of Commercial Taxes, who is the revising authority, has taken exception to the order passed by the first appellate authority, on the ground, that the order passed by the first appellate authority is erroneous and prejudicial to the interest of the revenue. Therefore, has initiated proceedings under Section 22-A (1) of the KST Act by issuing a show cause notice dated 7.11.1998, interalia directing the dealer to show cause why the order passed by the first appellate authority dated 9.6.1998 both under the KST Act and the CST Act should not be revised and set aside and the order passed by the assessing authority should not be restored. In the show cause notice he points out the omissions said to have been committed by the first appellate authority. In that, he notices that Sl. No. 8 of Part -T of Second Schedule to the Act relates to rate of tax on tiles; Sub-entry (iii) relates to roofing tiles other than country tiles and the rate of tax is only 5%. The sub-entry (iv) relates to other tiles liable to tax at 15% during the assessment year in question. The assessing authority understanding the meaning of the expression 'roofing tiles' as tiles used for roofing purpose only had levied tax at 5% only on a total turnover of Rs. 56,67,170/-. However, tiles other than roofing tiles amounting to Rs. 39,49,398/- have been rightly taxed at 15%. According to the revisional authority, the first appellate authority without properly considering the meaning of the expression 'roofing tiles' as understood in the common parlance or commercial circles, has allowed the appeals and has directed the assessing authority to levy tax on the entire turnover of the dealer in tiles under sub-entry (iii) of Entry 8 of Part-T of Second Schedule to the Act. The order so made by the first appellate authority, according to the revisional authority is not only erroneous but also prejudicial to the interest of the revenue.
5. The assessing authority in his assessment order notices the following factual aspects from the books of accounts produced by the dealer for verification at the time of assessment proceedings. They are:
I. The assessee concern has maintained two sales registers separately one for the sales of roofing tiles and ridges and the other for the sale of 'decorative tiles' such as weather proof tiles, flooring tiles, mini Spanish tiles, hexagon tiles, helmet tiles, torino tiles, glass tiles, etc, but for the purpose of sales tax returns, the assessee has not shown such bifurcated sales of roofing tiles and other tiles such as decorative tiles, instead has clubbed the two together and has filed the returns and admitted to tax only at 5%, instead of different rate of tax at 5% for roofing tiles under entry 8(iii) of Part -T of the Second Schedule to the Act and at 15% for other tiles under sub-entry (iv) of Entry 8 of Part -T of the Second Schedule to the Act.
II. The Intelligence Officer, who had inspected the business premises of the assessee had concluded the provisional assessments upto the date of assessment treating that the sales turnover of the assessee includes the ordinary roofing tiles and also decorative tiles which would fall under entry 8(iv) of Part -T of the Second Schedule to the Act.
6. After noticing these factual aspects, the assessing authority applying common parlance theory proceeds to hold as follows:
" In view of the above, the roofing tiles as per entry 8(iii) of the II Schedule of the KST Act 57 means the tiles normally used on wooden rafters basically to cover from sunlight, rain & wind. The tiles classified by the assessee as roofing tiles are the ones coming under the above category, whereas the tiles classified as decorative tiles by the assessee like weather tiles, bamboo tiles, floor tiles, torino tiles, mini Spanish 4 x 4 walls tiles, helmet tiles, hexagon tiles, etc. are the tiles which are used to given extra appearance to the building which fall under tiles other than roofing tiles under entry 8(iv) of II schedule of the KST Act 57. Therefore, the said tiles at rightly classified by the assessee as decorative tiles attract 8 x 8 at 15%. In view of the above, the request of the assessee to drop the proposal of levy tax at 15% on the sales turnover of decorative tiles at Rs. 39,318.00 is rejected."
7. The first appellate authority while allowing the appeals filed by the assessee against the order passed by the assessing authority, applies primarily the end use, manufacturing process and the cost of the articles to determine the classification of the goods in question. It is this order of the first appellate authority is set aside by the revising authority invoking his powers under Section 22-A(1) of the Act on the ground that the order passed is not only erroneous but also prejudicial to the interest of the revenue. It is the correctness or otherwise of these orders are called in question by the assessee in these appeals filed under Section 24(1) of the Act.
8. For our considerations and decision, the appellant has raised two important questions of law. They are:
I. Whether on the facts and circumstances of the case, the Additional Commissioner of Commerical Taxes was right in the manner attributed by him to the expression 'roofing tiles'?
II. What is the meaning of the expression 'roofing tiles' in the absence of any definition in the Act?
9. To answer the issues raised, entry 8 of Part -T of the Second Schedule as it existed for the relevant assessment year requires to be noticed. Therefore, they are extracted and it is as under:
"8. Tiles -
(i) Mosaic tiles 1.4.88 to 31.3.95 Thirteen percent
and chips 1.4.95 to 31.3.96 Fifteen percent
1.4.96 to 31.3.98 Twelve percent
From 1.4.98 (Ten percent)
(ii) Ceramic and 1.4.88 to 31.3.95 Thirteen percent
glazed floor 1.4.95 to 31.3.96 Fifteen percent
and wall tiles 1.4.96 to 31.3.98 Twelve percent
From 1.4.98 [Ten percent]
(iii)Rooting tiles 1.4.88 to 31.3.95 Five percent
other than
Country tiles From 1.4.95 [Four percent]
(iv) Other tiles 1.4.88 to 31.3.96 Fifteen percent
not covered 1.4.96 to 31.3.98 Twelve percent
by items From 1.4.98 [Ten percent]
(i), (ii) and (iii)above
(v) Jointing powder 1.4.88 to 31.3.95 Thirteen percent
(other than cement 1.4.95 to 31.3.96 Fifteen percent
and situ - mixture 1.4.96 to 31.3.98 Twelve percent
for laying tiles From 1.4.98 [Ten percent]
and chips
specified above."
10. The first principles which requires to be kept in view while interpreting the Schedule to any Fiscal Laws, are, that there is a functional difference between the body of a Statute on the one hand and the Schedule, which is attached thereto, on the other hand. The Sections in the Act are enacting provisions. In contrast, the Schedules in an Act merely sets down things and objects and contains their names and descriptions. The Schedules does not enact anything else. They can neither enlarge nor cut down the meanings or articles or things specifically named in the list. The function of the Schedule is to denote the precise commodities, which are subjected to levy under fiscal enactments. It is now well settled that ordinary rules of interpretation to Sections in the Act requires to be adopted to construe the meanings of the entries in the Schedules of taxing Statutes.
11. The Apex Court and this Court in several decisions has stated that the terms and concepts appearing in the taxing Statutes requires to be understood the way in which they have been defined in the Statute and in the absence of such definitions in the Statutes, they should be understood in their popular meaning and as understood in commercial or common parlance. The end use and manufacturing process do not determine the classification of goods but they can be taken into consideration if they agree with the commercial or common parlance. They only fortify the understanding in the market parlance, but if they differ from common parlance then the latter will prevail. The Supreme Court in the case of ANNAPURANA BISCUIT COMPANY v. COMMISSIONER OF SALES TAX, 58 STC 254 had an occasion to deal with a notification issued by Uttar Pradesh Government under U.P. Sales Tax Act, 1948, wherein it was provided concessional rate of tax on 'cooked food'. The question before the Court was whether biscuits can be brought with in the description of 'cooked food'. The Supreme Court while considering this issue has observed:
"The words used in a law imposing a tax should be construed in the same way in which they are understood in ordinary parlance in the area in which the law is in force. If an expression is capable of a wider meaning as well as a narrower meaning, the question whether the wider or narrower meaning should be given depends on the context and the background of the case."
12. Sri Sarangan, learned Senior Counsel appearing for the appellant placing heavy reliance on the dictionary meaning of the word 'tiles' would submit that all types of tiles manufactured out of clay are 'roofing tiles' and the assessing authority and the revisional authority could not have drawn a thin line between the roofing tiles made out of clay and also decorative tiles made out of clay to levy different rate of tax.
13. The expression 'roofing tiles' is a combination of two words viz., 'roof' and the 'tiles'. Neither the 'roof' nor the 'tiles' is defined under the Act. In common parlance, 'roof' is understood as the cover of any building and the term includes the materials that support the roof. The expression 'tiles is defined in the Random House Dictionary of the English Language Edition as 'thin slab or bent piece of baked clay, sometimes painted or glazed used for various purpose, as to form one of the units of a roof covering, pavement or revetment.' In the World Book of Encyclopaedia the word 'tiles' is defined to mean 'thin sheets of clay pressed or moulded into shape and fired in kilns in the same process as is used for making bricks'. The tiles may be left in its rough state. It may also be given a smooth surface called glazing, by dipping or spraying the tile with a material that joins with the clay. Finer grades of clay are used in making tiles for roofs, for walls and floors. Roofing tiles are made in various shapes and colours.
14. The word 'roofing tiles' is not defined in the Act. Therefore, recourse will have to be taken to the dictionary meaning and the sense in which roofing tiles is ordinarily understood by persons dealing in sales and purchases thereof. In the present case, the dictionary meaning will not be very useful to determine the exact nature of the commodity in question. Therefore, the meaning of the commodity requires to be understood in common parlance and the way it is understood by persons who carry on in this trade has to be accepted.
15. Now coming back to Entry 8 of part-T of the Second Schedule to the Act, it speaks of tiles and the rate of single point tax leviable on the first or earliest of successive dealers in the State. The tiles are classified into mainly three categories and the fourth category is in the nature of a residuary item. The entry speaks of mosaic tiles and chips, ceramic and glazed floor and wall tiles roofing tiles other than country tiles. Sub-entry (iv) of Entry 8 of the Second Schedule to the act speaks of any other tiles not covered by items (i), (ii) and (iii) above. Sub-entry (i) of Entry 8 of the Second Schedule to the Act speaks of mosaic tiles and chips. In the modern architecture, mosaic tiles has different types and sizes but they are mainly used for the flooring purposes. Similarly, ceramic and glazed floor and wall tiles only mean ceramic and glazed tiles which are primarily used for the purpose of floor and wall of a building. The Legislature in its wisdom, when it enumerates mosaic tiles does not restrict the use for which the article is used in construction of a building but when it comes to ceramic and glazed tiles, the Legislature specifically specify the use for which it is made, and when it comes to entry 8(iii), it specifically states that the tiles are used for roofing purpose. The use for which the commodity is made is taken into consideration for the purpose of levy of tax and if the tiles are used for any other purpose other than roofing, it may not fall under sub-entry (iii) of Entry 8 of Part -T of the Second Schedule to the Act. The intention of the legislature, in our opinion, appears to be, the use to which the goods are put requires to be kept in view while interpreting the entries and sub-entries of part -T of Second Schedule to the Act. In our view, the Legislature intends to levy a lower rate of tax, if the tiles are used by the consumer for the purposes of using it as a roofing tiles and this may be, keeping in view the present trend that the common man or the persons who are below the poverty line may think of using tiles made of clay to make shelter for them by using ordinary tiles. The persons, who belong to affluent class may use tiles made out of clay to give better appearance while building their houses and they use the decorative tiles to give appearance to their building rather than to protect themselves from rain and shelter as the assessing authority notices in its order. Nodoubt it is true that the roofing tiles and decorative tiles arc manufactured by using a particular type of clay and may be using more or less similar process to obtain the end product. In our view, that cannot be the only criteria for deciding whether decorative tiles which are made of clay is the same as roofing tiles. Here the intention of Legislature which is paramount not only requires to be taken note of but also the purpose for which the Legislature intends to levy tax on 'roofing tiles' at a reduced rate of tax. In view of all these, in our view, the 'roofing tiles' simplicitor cannot be equated with the 'decorative tiles' which cannot fit into the meaning of the expression 'roofing tiles'.
16. The other factors which requires to be taken note of by us is that, the assessee himself who manufacturers and effects sale of clay tiles keeps two different set of accounts books, one for sale of 'roofing tiles' and other for 'decorative tiles' and charges different rate of tax on the sales turnover of these commodities but for tax purposes chooses to include the sales turnover of both these commodities as sales turnover of 'roofing tiles'. The assessing authority and also the Intelligence Wing of the department after noticing these aspects and keeping in view sometimes the intention of the manufacturer as also one of the determinative factor, rightly in our view, has treated the commodity sold by the assessee under two different heads and this, in our view, is not only justified but also the correct approach made by the assessing authority for quantification of the tax liability of the assessee/appellant.
17. In conclusion, going by ordinary connotation as also its meaning as understood in commercial parlance and reference to the commodity to which the commodity is put to use, in our view, 'roofing tiles' which are exclusively used for the purpose of 'roofing' and those tiles which are used for 'decorative purpose' in a building cannot be brought under the same entry.
18. We, accordingly, do not find any merit in these appeals. Accordingly, they are dismissed but in the facts and circumstances of the case, there will be no order as to costs. Ordered accordingly.