2008 (6) TMI 556 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the case and on true and correct interpretation of the notification entry 374 issued under section 41 of the Act, read with Schedule C, Part II of entry 35(1) the Tribunal was justified in law in granting prospective effect to the determination order passed by the Commissioner though the said notification entry is quite clear and unambiguous? Held that - After perusal of the earlier order dated March 23, 2001 as well as subsequent judgment and order dated September 30, 2005 passed by the Tribunal, it is explicitly clear that till the judgment was delivered by the Tribunal on March 23, 2001, there was a clear impression that ice-creams would be covered within the meaning of sweets and in fact right from January 1, 1960 till June 30, 1981 and even after July 1, 1981 till the aforesaid decision, every one had an impression that ice-creams were covered within the entry sweets and sweetmeats . Having regard to the facts and circumstances of the case, we do not find any substantial question of law in the above, since the Tribunal had fairly on a rational basis exercised its discretion in favour of the assessee to give prospective effect. Under the aforesaid facts and circumstances of the case, we do not find any ground made out for interfering with the above and the above sales tax application is devoid of merits. Hence, the same stands dismissed.

Summary

Issues:
Interpretation of notification entry 374 under section 41 of the Act regarding tax treatment of ice-creams; Granting prospective effect to the determination order passed by the Commissioner; Justification of the Tribunal's decision in giving prospective effect.

Analysis:
The Commissioner of Sales Tax sought reference on whether the Tribunal was justified in granting prospective effect to the determination order passed by the Commissioner regarding the tax treatment of ice-creams under entry 35(1) of Part II, Schedule C. The Commissioner held that ice-creams would be taxed at eight paise per rupee without the benefit of notification entry 374. The Tribunal concurred with this view, stating that ice-creams were not eligible for tax concession under entry 374 and were liable to tax at eight per cent under Schedule C. The Tribunal considered the historical treatment of ice-creams as "sweets and sweetmeats" from 1960 to 1981 and even after 1981, leading to the decision to grant prospective effect to its ruling.

The Tribunal's decision to give prospective effect was based on the continuous treatment of ice-creams as "sweets" both before and after 1981. The Tribunal observed that the tax rate remained the same post-1981, creating an impression that the treatment of ice-creams as "sweets" had continued. The Tribunal's order directed that its decision would not affect past liabilities of the appellant if taxes were not collected in excess of four per cent from April 1994 onwards. The Commissioner challenged this decision, arguing against the prospective effect granted by the Tribunal.

The High Court upheld the Tribunal's decision, finding that till the Tribunal's judgment in 2001, there was a prevailing impression that ice-creams fell under the category of "sweets." The Court noted the historical treatment of ice-creams and concluded that the Tribunal's exercise of discretion in granting prospective effect was rational and justified. The Court found no substantial question of law to interfere with the Tribunal's decision, dismissing the sales tax application on the grounds that it lacked merit.