2008 (7) TMI 886 - HC - VAT and Sales Tax

Whether, on the facts and in the circumstances of the case, Commercial Tax Tribunal is legally justified in holding that maize flakes are covered under the term kachri which is an exempted item under Schedule I of the Value Added Tax Act and hence exempted from tax? Whether, on the facts and in the circumstances of the case, Commercial Tax Tribunal is legally justified in giving direction for release of the goods without any demand of security whereas the imported goods are liable to tax and not exempted under Schedule I of the Value Added Tax Act? Held that - The question whether maize flakes is kachri and, therefore, exempt or is an unclassified item shall obviously be gone into by the assessing authority while framing the assessment order. The Tribunal, to safeguard the interest of the Department, has provided in its order that sample of the goods in question be preserved for the purposes of final assessment. The Tribunal has refrained itself, and rightly so, from making any comment about the taxability of the goods in question. The Tribunal has rightly observed that a dispute about the rate of tax can be properly adjudicated in a regular assessment proceeding and not in an ancillary or incidental proceeding such as under section 48(7) of the U.P. Value Added Tax Act. There appears to be no legal infirmity in the order of the Tribunal on this score. By way of clarification it is added that release of the goods and setting aside of the seizure order will not in any manner be construed as an order holding that maize flakes is a non-taxable item and is included in kachri . The said point shall be open for adjudication by the authority concerned in appropriate proceeding. Revision dismissed.

Summary

Issues:
1. Interpretation of whether maize flakes are covered under the term "kachri" and exempted from tax under the U.P. Value Added Tax Act.
2. Legality of the Commercial Tax Tribunal's direction for the release of goods without demanding security when the imported goods are taxable.

Analysis:
1. The case involved a dispute regarding the classification of maize flakes as either "kachri" (exempted from tax) or an unclassified taxable item. The Tribunal held that the question of taxability should be determined during the assessment process and not at the seizure stage. The Tribunal ordered the release of the goods, with a provision to preserve a sample for final assessment. The Tribunal rightly refrained from making a conclusive decision on the taxability of maize flakes, leaving it to the assessing authority during the assessment proceedings. This approach was deemed appropriate, and the Tribunal's decision was found legally sound.

2. The Department argued that a previous court decision established the taxability of similar goods, while the dealer-opposite party contended that the taxability issue should be addressed during the assessment. The Tribunal's decision to release the goods without demanding security was based on the understanding that the taxability issue should be resolved during the assessment process. The Tribunal's order did not conclusively determine the tax status of the goods but ensured that the matter would be appropriately addressed during the assessment. The Tribunal's decision to release the goods without security was upheld as legally justified, considering the procedural stage of the case.

In conclusion, the High Court dismissed the revision, emphasizing that the release of goods and setting aside of the seizure order did not imply a final decision on the taxability of maize flakes. The Court affirmed that the taxability issue should be resolved during the assessment proceedings, and the Tribunal's approach to preserve a sample for assessment was appropriate. The decision highlighted the importance of addressing tax disputes in the proper assessment framework rather than ancillary proceedings.