R.M. Jewellary, Bangalore vs State of Karnataka

R. Gururajan, J.-This petition is filed seeking for an answer to the following questions of law:

"1. Is the Tribunal justified in restricting the deductions to the purchase value of the gold bullion under Section 5-B of the Karnataka Sales Tax Act, 1957 read with Rule 6(4)(n)(i) of the Karnataka Sales Tax Rules, 1957 and thus sustaining the presumed gross profit of Rs. 16,02,933/- ?

Is the Tribunal justified in upholding the tax levy on the GP of Rs. 16,02,933/- under Section 5-B at the rate of 4% despite exemption of levy of tax on goods under Rule 6(4)(n)(i)?

Is the Tribunal justified and legal in enhancing the assessment by directing levy of tax for first time on URD purchase of Rs. 2,49,249/- + 28% GP thereon?

Is the order of the Tribunal legal insofar as it sustains levy of Section 5-B tax on gross profit portion and directs enhancement of assessment?"

According to petition averments, petitioner has undertaken job work of converting gold bullion supplied by customers into gold jewelry and return thereof on payment of labour charges. In the process of making jewelry, there is a small percentage of loss of gold bullion by way of burning loss and wastage. With a view to avoid disputes and for a smooth working, petitioner had undertaken to replace the gold bullion lost in the process of manufacture. In other words, the petitioner was to supply the identical quantity of gold jewelry for the gold bullion supplied by customers and the loss of gold bullion in manufacturing process was on account of the petitioner. Petitioner therefore purchased gold bullion from the KST registered dealers by paying KST and made good the processing loss. This was a pure works contract for labour and not an indivisible works contract for supply of material and labour. Petitioner states that the Assessing Authority examined these facts and thereafter he accepted the submission of the petitioner. The Revisional Authority was of the view that the order of the Assessing Authority in accepting the contention of the petitioner is prejudicial to the interest of the revenue and in these circumstances, notice was issued and reply was obtained. Thereafter the Revisional Authority by a detailed order brought to tax the KST suffered gold bullion of Rs. 57,24,762/- + GP thereon at 28% of Rs. 16,02,933/- and accordingly assessed the turnover of Rs. 73,27,695/-. Aggrieved by the order of the Revisional Authority, petitioner filed an appeal before the Tribunal. The Tribunal by a detailed order has chosen to accept the contention of the assessee that the gold wastage is not taxable in terms of Rule 6(4)(n)(i) of the Karnataka Sales Tax Rules. However, the Tribunal did not give any finding with regard to adding of gross profit of 28% on the KST suffered gold bullion at Rs. 16,02,933/- in the order. The Tribunal also taxed the turnover of Rs. 2,49,249/- relating to URD purchases, corresponding to sales turnover after adding 28% GP. He answered this issue in favour of the revenue. Aggrieved by the same, petitioner is before us.

Heard Sri Gandhi, learned Counsel for the petitioner. He would elaborately argue that the Tribunal is wrong in not giving any finding on the presumed earning of GP of Rs. 16,02,933/- in the light of Rule 6(4)(n)(i) of the Rules. According to him, even assuming that it is a profit, the entire sum ought to have been considered in his favour. Learned Counsel even otherwise says that there is no profit at all and therefore the Tribunal is wrong in not giving any finding with regard to adding Rs. 16,02,933/-. Insofar as levy of tax of Rs. 2,49,249/- , learned Counsel says that this finding is totally uncalled for in the light of the acceptance of the statement of the assessee filed before the Assessing Authority and the Revising Authority. He says that the finding on item No. 6 requires to be interfered with.

4.Per contra, learned Government Advocate says that the authorities are justified in levying tax on the profit in the case on hand. According to her there is no question of wastage in terms of Rule 6(4)(n)(i) of the Rules. She says that even though wastage is made good by the petitioner by addition of gold, it is by purchase of gold, as the petitioner has derived profit even on this purchase and that therefore tax is leviable.

After hearing, we have carefully perused the material on record.

From the material on record it is seen that the Assessing Authority has chosen to accept the wastage submission. The Revising Authority on the other hand has chosen to say that this deletion is prejudicial to the interest of the revenue. Further the matter was taken to the Tribunal. The Tribunal accepts the deduction. However it has not given any finding as to whether the profit is taxable or not in the light of Rule 6(4)(n)(i) and in the light of contract between the parties. In these circumstances, we deem it proper to remand the matter only insofar as Rs. 16,02,933/- without answering questions 1 and 2 to the Tribunal for reconsideration on facts with regard to taxability or otherwise of Rs. 16,02,933/- in terms of the sales tax laws.

Insofar as questions 3 and 4 are concerned, Mr. Gandhi, is right in his submission that the Tribunal committed a legal error in ordering to tax Rs. 2,49,249/- in the case on hand. From the material on record it is seen that the Assessing Authority has chosen to say that as regards URD consumables, the same is used for job work. The Revising Authority has not chosen to add this item for the purpose of levy of tax. On the other hand, the Revising Authority has also chosen to accept the finding of the Assessing Authority. When both the authorities have not chosen to tax the URD consumables, the Tribunal on appeal could not have on its own added tax of Rs. 2,49,249/- as has been done in the case on hand. We find force in the argument of Mr. Gandhi. In these circumstances, we deem it proper to answer questions 3 and 4 in favour of the assessee in the case on hand. To that extent, the finding on item No. 6 is set aside by us.

In the result, this petition is partly allowed. The matter is remitted back for reconsideration only insofar as taxability of Rs. 16,02,933/-. Parties are directed to appear before the Tribunal on 24-7-2006 without waiting for any notice. Liberty is reserved to the parties to place additional material if any before the Tribunal. The Tribunal is directed to consider the existing material and the additional material if any to be produced by the parties and thereafter pass orders in accordance with law within four months from the date of receipt of a copy of this order, without in any way being influenced by the earlier order or this order.