SCR Wire Products vs The Commissioner of Commercial Taxes

N. Kumar, J.—These appeals are filed by the assessee challenging the orders passed by the authorities levying tax at 12.5% on the sale of enamel, fiberglass yarn and paper. These appeals were admitted on 26-7-2012 to consider the following substantial questions of law:

(1) Whether for assessment period 2005-2006 in the contract work, the assessee does the work of insulation in respect of copper wire furnished by the customer and delivers the same to the customer. Whether in respect of such contract work, tax could be levied under residuary Section 4(1)(b) of the Karnataka Value Added Tax Act, 2003 or whether it is taxable at 4% under Entry 51 of Third Schedule?

(2) Whether the order of rejection of application for rectification u/s 69 of the K.V.A.T. Act filed by the assessee is bad in law?

We have heard the learned Counsel for the parties.

The undisputed facts are, the assessee, under a contract receives copper metal and after receipt of the copper metal, it draws the wire and then it is insulated with enamel, fiberglass yarn and paper and returned to the customer. The relevant assessment year is 2005-2006. It is only from the year 2006 onwards, works contract has been recognised. The tax payable is 4% on copper wire and if there is a sale of insulated copper wire, the tax liable is only 4%. In the instant case, there is no sale of copper wire. What is sold is enamel, fiberglass yarn and paper which is used in the manufacturing process. The tax leviable is 12.5% on enamel, fiberglass yarn and paper as all these three materials are used in the conversion of copper wire into insulated copper wire and as there is no specific entry of all these three materials, the residuary clause is invoked and 12.5% tax is levied.

Learned Counsel for the assessee, assailing the assessment order, contend that in terms of the notification dated 30-4-2005 and also subsequent clarificatory notifications issued by the authorities, the tax payable for insulated copper wire is 4% and therefore, the authorities were not justified in levying 12.5%. If the assessee was in the business of sale of insulated copper wire, then the said notification applies. Admittedly, in the instant case, the assessee is not selling the copper wire. He receives the copper wire from the customers, uses enamel, fiberglass yarn and paper and converts it into insulated copper wire and delivers the finished product to the customer. In the process, what is sold is enamel, fiberglass yarn and paper. These are the three materials which are used in the manufacturing process to convert copper wire into insulated copper wire. There is no separate entry in the Schedule prescribed for the tax leviable for these three items. Thus, residuary clause is invoked and 12.5% is charged. In the facts of this case, we do not find any justification to interfere with the orders passed by the Tribunal. Accordingly, there is no merit. Appeals are dismissed.