2011 (7) TMI 1030 - HC - VAT and Sales Tax

Whether the appellant s product, namely, fan hooks made of stainless steel rods, fall under any of the specific entries of the Third Schedule as claimed by the appellant? Held that - We uphold the impugned clarification declaring the rate of tax on the stainless steel fan hooks as 12.5 per cent under section 6(l)(d) of the Act. However, the learned Government Pleader referred to the amendment made with effect from April 1, 2008, whereunder the proviso to section 94(8) providing for prospective effect of clarification is taken away. So much so, the appellant s contention that the clarification has to be applied prospectively cannot be accepted. However, since the clarification is issued only pursuant to the judgment after relevant year, we direct the respondents to waive the interest, provided the appellant clears the arrears of tax within three months from now. However, the waiver granted need not be treated as a proceedings for the Department in other cases.

Summary

Issues:
Rate of tax payable under Kerala Value Added Tax Act on stainless steel fan hooks.

Analysis:
The appellant, an industrial unit manufacturing stainless steel fan hooks, initially paid tax at four percent under specific entries in the Third Schedule. However, the assessing officer assessed the item at 12.5 percent based on a circular treating it as hooks and eyes. A previous judgment directed the appellant to seek clarification from the Commissioner, resulting in a clarification that the product falls under the 12.5 percent tax bracket. The appellant challenged this clarification.

Upon examining samples of the product, the court noted that the fan hooks were simple products made from stainless steel rods, shaped in a U form for fixing fans. Since the item did not fall under any specific schedule entry, the tax rate was determined under section 6(1)(d) of the Act at 12.5 percent. The court highlighted that even if an item is not explicitly listed in the notification, it would attract the 12.5 percent tax rate as per the residual entry in Notification SRO No. 82/2006.

The appellant argued that the fan hooks fell under entry 22 of the Third Schedule, which covers bars and rods of stainless steel. However, the court clarified that the entry pertained to basic products obtained through specific manufacturing processes like hot-rolling or extrusion, which did not include the appellant's shaped fan hooks. As a result, the court upheld the 12.5 percent tax rate on the stainless steel fan hooks.

Regarding the prospective application of the clarification, the court noted an amendment removing the prospective effect provision from the Act. However, considering the timing of the clarification post-judgment, the court directed the waiver of interest if the appellant cleared the tax arrears within three months. This waiver was specific to the appellant and should not set a precedent for other cases.

In conclusion, the court upheld the 12.5 percent tax rate on the stainless steel fan hooks, dismissed the appellant's contention for prospective application, and directed the waiver of interest upon timely tax arrears clearance.