SMT. B. NARASAMMA vs. DY.COMMR.COMMERCIAL TAXES KARNATAKA &ANR

C.A. No.-004149-004149 - 2007Supreme Court11 August 2016Bench: A.K. SIKRI ROHINTON FALI NARIMAN27 pages
For Petitioner: MITTER & MITTER CO.For Respondent: V. N. RAGHUPATHY
AI SummaryPartly Allowed

What were the facts?

This group of appeals concerns the taxability of declared goods, specifically iron and steel reinforcements used in cement concrete for buildings. The cases arise from Karnataka and involve the Karnataka Sales Tax Act, 1957, and the Karnataka Value Added Tax Act, 2003. The core issue is whether iron and steel, when incorporated into an immovable structure through a works contract, lose their character as declared goods and thus their taxability is not restricted by Section 15 of the Central Sales Tax Act, 1956. The Supreme Court is examining various orders passed by the Karnataka High Court and the Appellate Tribunal concerning this matter.

What did the Supreme Court hold?

The Supreme Court held that iron and steel reinforcements used in cement concrete, when incorporated into buildings, do not lose their character as declared goods. The Court referred to the principles laid down in Builders Association of India v. Union of India and M/s. Gannon Dunkerley & Co. v. State of Punjab, stating that commercial goods do not lose their identity if they are merely subjected to processing, finishing, or joined together without a change in their commercial character. Consequently, the taxability of these goods remains subject to the restrictions and conditions stipulated in Section 15 of the Central Sales Tax Act, 1956. The Court set aside the impugned judgments of the High Court and declared that the declared goods in question can only be taxed at the rate of 4%. In one specific appeal (Civil Appeal No.4319 of 2007), the Court found the High Court's judgment correct, dismissing the assessee's appeal because the iron and steel goods were used in the manufacture of other goods (doors, window frames, grills) which were then used in works contracts, and thus were not exempt under Rule 6(4)(m) of the Karnataka Sales Tax Rules, 1957.

What were the issues?

1. Whether iron and steel reinforcements used in cement concrete for buildings lose their character as declared goods, thereby making them taxable without the restrictions of Section 15 of the Central Sales Tax Act, 1956, when incorporated into an immovable structure as part of a works contract? (Question of law turning on Article 286(3) of the Constitution, Section 14 and 15 of the CST Act, and Section 5-B of the KST Act). Assessee's Contention: The assessee argues that iron and steel remain declared goods even when incorporated into buildings, and their taxability is subject to the restrictions under Section 15 of the CST Act. They rely on the principle that goods do not lose their identity if merely processed or joined together without changing their commercial character, citing Builders Association of India v. Union of India and M/s. Gannon Dunkerley & Co. v. State of Punjab. Revenue's Contention: The revenue contends that by being incorporated into cement concrete and becoming part of an immovable structure, the iron and steel products change their form and character, ceasing to be declared goods and thus becoming taxable without the limitations of Section 15 of the CST Act. The High Court's orders, which generally favored this view, are under challenge.

Which sections of the Income-tax Act were involved?

Section 14,Section 15,Section 5(4),Section 5-B

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
Page 1 JUDGMENT REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.4149 OF 2007 SMT. B. NARASAMMA …APPELLANT VERSUS DEPUTY COMMISSIONER COMMERCIAL TAXES KARNATAKA & ANR. ...RESPONDENTS WITH CIVIL APPEAL NO.4318 OF 2007 CIVIL APPEAL NO.4319 OF 2007 CIVIL APPEAL NO. 7400 OF 2016 (ARISING OUT OF SLP(CIVIL) NO.15253 OF 2015) CIVIL APPEAL NOS. 7401-7872 OF 2016 (ARISING OUT OF SLP(CIVIL) NOS.18646-19117 OF 2015) CIVIL APPEAL NOS. 7873-7916 OF 2016 (ARISING OUT OF SLP(CIVIL) NOS.10081-10124 OF 2015)

J U D G M E N T R.F. Nariman, J.

1.

Leave

granted

in SLP(C)

Nos.15253/2015, 18646-19117/2015, 10081-10124/2015. 1

Page 2 JUDGMENT

2.

This group of appeals concerns the rate of taxability of declared goods – i.e. goods declared to be of special importance under Section 14 of the Central Sales Tax Act, 1956. The question that has to be answered in these appeals is whether iron and steel reinforcements of cement concrete that are used in buildings lose their character as iron and steel at the point of taxability, that is, at the point of accretion in a works contract. All these appeals come f

The order continues below.

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