2008 (3) TMI 636 - HC - VAT and Sales Tax

Mosquito repellent - whether be taxed at 12.5 per cent? - learned single judge declining to interfere with the combined reassessment and penalty orders Held that - Mosquito repellent is an insecticide . Further, it is not in dispute that the mosquito repellents were manufactured by the said company, viz., Godrej Sara Lee Ltd., of which the assessee has been an agent, under the licence obtained under the provisions of the Insecticides Act, 1968 and insecticide is listed under List 23 of the Third Schedule to the KVAT Act. Therefore, we are of the considered view that the mosquito repellent squarely falls within the ambit of entry 23 of the Third Schedule annexed to the KVAT Act and as such, the learned assessing authority committed serious error in law in holding that the turnover in respect of the sales of mosquito repellents has to be taxed at 12.5 per cent on the ground that the mosquito repellents fall within the residuary entry of clause (b) of sub-section (1) of section 4 of the KVAT Act. Therefore, the orders impugned in the said writ petition at annexures A and A1 to A6 deserve to be quashed so far they relate to levy of tax and penalty on the sales of mosquito repellents at 12.5 per cent. In the result, the present writ appeal is allowed. The impugned order of the learned single judge dated April 2, 2007 passed in W.P. No. 5507 of 2007 is hereby set aside.

Issues Involved:
1. Correctness of the combined reassessment and penalty orders.
2. Applicability of the tax rate on mosquito repellents under the Karnataka Value Added Tax Act, 2003 (KVAT Act).
3. Efficacy of the alternative remedy available to the appellant.
4. Interpretation of the term "insecticide" within the context of the KVAT Act.

Issue-wise Detailed Analysis:

1. Correctness of the combined reassessment and penalty orders:
The appellant challenged the reassessment and penalty orders dated January 29, 2007, issued by the Deputy Commissioner of Commercial Taxes, which taxed the turnover of mosquito repellents at 12.5% under the KVAT Act. The appellant contended that the mosquito repellents should be taxed at 4% as they fall under entry 23 of the Third Schedule of the KVAT Act, which covers insecticides.

2. Applicability of the tax rate on mosquito repellents under the KVAT Act:
The assessing authority issued notices proposing to tax the turnover of mosquito repellents at 12.5%, arguing that entry 23 covers commodities used in agricultural operations and not those used for domestic purposes. The appellant argued that mosquito repellents, being insecticides, should be taxed at 4%. The court examined the relevant provisions of the KVAT Act and the Insecticides Act, 1968. It noted that mosquito repellents contain allethrin, an insecticide listed under the Insecticides Act, and therefore fall within entry 23 of the Third Schedule of the KVAT Act. The court concluded that the mosquito repellents should be taxed at 4%, not 12.5%.

3. Efficacy of the alternative remedy available to the appellant:
The appellant argued that the alternative remedy of appealing to the Joint Commissioner of Commercial Taxes was not efficacious due to a circular issued by the Commissioner of Commercial Taxes, which clarified that mosquito repellents should be taxed at 12.5%. The court agreed, citing the decision in Balaji Computers v. State of Karnataka, which held that filing objections before the appellate authorities would be an empty formality when the Commissioner had already issued clear instructions. The court concluded that the alternative remedy was not effective, and the learned single judge was not justified in dismissing the writ petition on this ground.

4. Interpretation of the term "insecticide" within the context of the KVAT Act:
The court examined the definition of "insecticide" under section 3(e) of the Insecticides Act, 1968, and noted that allethrin, a chemical in mosquito repellents, is listed as an insecticide. The court also referred to decisions from the Madras, Kerala, and Allahabad High Courts, which held that mosquito repellents are insecticides. The court concluded that mosquito repellents, being insecticides, fall within entry 23 of the Third Schedule of the KVAT Act and should be taxed at 4%.

Conclusion:
The court allowed the writ appeal, setting aside the order of the learned single judge and quashing the reassessment and penalty orders to the extent they related to the levy of tax on mosquito repellents at 12.5%. The matter was remitted back to the assessing authority to pass appropriate orders in light of the judgment.

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