2011 (1) TMI 1231 - HC - VAT and Sales Tax

Whether the goods star anise seeds (sombu) is liable to be taxed under Entry 28 of Part C of the First Schedule or under Entry 2 of Part B of the First Schedule to the TNGST Act, 1959? Held that - While setting aside the orders of the Tribunal as well as the Appellate Assistant Commissioner and the Assessing Authority, insofar as it related to the assessment years 1997-1998 and 1998-1999 in respect of the petitioner in T.C.Nos.642 and 646 of 2006 and assessment year 1998-1999 in respect of the petitioner in T.C.No.643 of 2006, insofar as it related to star anise seeds alone, we remit the matter back to the Assessing Authority to consider the question as to whether the petitioners are entitled for the benefit of the clarification letter dated 21.11.2000 for those relevant assessment years and whether the Assessing Authority should follow its own subsequent assessment order in respect of the very same item in relation to the petitioner in T.C.No.643 of 2006 for the assessment year 1999-2000.

Summary

Issues:
1. Classification of 'star anise seeds' for tax purposes under TNGST Act, 1959.

Analysis:
The revision petitions raised the issue of whether 'star anise seeds' should be taxed under Entry 28 of Part C or Entry 2 of Part B of the First Schedule to the TNGST Act, 1959. The Assessing Authority initially classified the seeds under the residual Entry 67 of Part D, taxable at 11%. The Appellate Assistant Commissioner and the Tribunal upheld this classification. However, a clarification letter issued by the Commissioner of Commercial Taxes stated that 'star anise seeds' should be taxed at 4% under Entry 2 of Part B. The Tribunal, while acknowledging the clarification, deemed it non-binding and classified the seeds as 'country drugs' taxable at 8%.

The petitioners argued that the clarification letter should be binding as per Section 28-A(3) of the Act. They contended that the Tribunal should have remitted the matter to the Assessing Authority to apply the clarification for the relevant assessment years. The Government Advocate, on the other hand, argued that the clarification letter issued in 2000 applied only from its issuance date and not retrospectively. He cited an earlier clarification letter from 1996 taxing 'star anise seeds' at 11% under a different Entry.

The Court found merit in the petitioners' argument, noting that 'star anise seeds' were not initially listed under Entry 2 of Part B. It concluded that the Tribunal's classification as 'country drugs' would prejudice the petitioners and decided to remit the matter back to the Assessing Authority. The Court emphasized the need for the Assessing Authority to consider the applicability of the 2000 clarification letter for the relevant assessment years and to decide the issue expeditiously within three months.

In light of the above analysis, the Court allowed the Tax Revision Petitions, answering the legal question in favor of the petitioners and directing the Assessing Authority to reevaluate the classification of 'star anise seeds' for the specified assessment years.