2011 (7) TMI 1062 - HC - VAT and Sales Tax

Whether coconut oil which is mainly and popularly used as hair oil and not as edible oil in Assam would be taxable at the rate of 12.5% under 5th Schedule to the VAT Act? Held that - The petitioner company is liable to tax @ 4% under the provision of 2nd Schedule to the Act and not 12.5 % prescribed under 5th Schedule. We set aside and quash the impugned orders dated 11.10.2007 and 16.1107 (Annexure-VII and VI respectively). Writ petition accordingly stands allowed

Issues Involved:
1. Classification of coconut oil for tax purposes under the Assam Value Added Taxes Act, 2003.
2. Application of common parlance and commercial parlance tests.
3. Validity of the unilateral decision by the tax authorities without a survey or hearing.
4. Burden of proof regarding the usage of coconut oil.
5. Application of principles from relevant case laws.

Issue-wise Detailed Analysis:

1. Classification of Coconut Oil for Tax Purposes:
The petitioner, a registered company manufacturing edible grade coconut oil, challenged the tax authorities' decision to classify coconut oil under the 5th Schedule of the Assam VAT Act, making it taxable at 12.5%. The petitioner argued that their product falls under Entry 24(i) of the 2nd Schedule, which is taxable at 4%.

2. Application of Common Parlance and Commercial Parlance Tests:
The court examined whether coconut oil is primarily used as hair oil or edible oil in Assam. The respondents argued that in common and commercial parlance, coconut oil is predominantly used as hair oil in Assam, justifying the 12.5% tax rate. They cited the case of Commissioner of Trade Tax UP vs. Associated Distributors Ltd., which emphasized common parlance in determining tax classifications.

3. Validity of the Unilateral Decision by the Tax Authorities:
The petitioner contended that the decision was presumptive, unreasonable, and taken without a survey or hearing. The court agreed, stating that such unilateral decisions without proper investigation or opportunity for the petitioner to be heard are not sustainable under the law.

4. Burden of Proof Regarding the Usage of Coconut Oil:
The court noted that the burden lies on the state to prove that coconut oil is mainly used as hair oil and not as edible oil. The respondents failed to provide evidence or conduct a survey to support their claim. The court referred to the case of HPL Chemicals Ltd. vs. Commissioner of Central Excise, which emphasizes the state's responsibility to justify tax classifications.

5. Application of Principles from Relevant Case Laws:
The court discussed various tests for interpreting tax statutes, including the common parlance test, commercial parlance test, and user test. It cited the case of Chittaranjan Saha vs. State of Tripura, which supports the application of common parlance and commercial parlance tests. The court also referred to the case of Assistant Commissioner, Circle-E, Commercial Taxation Department vs. Merico Industries Ltd., which held that the benefit of doubt in tax classification should favor the taxpayer.

Conclusion:
The court concluded that coconut oil manufactured by the petitioner qualifies as edible oil under Entry 24(i) of the 2nd Schedule to the VAT Act, taxable at 4%. The respondents' decision to classify it under the 5th Schedule and tax it at 12.5% was arbitrary and lacked proper justification. The court quashed the impugned orders and allowed the writ petition, directing that the petitioner is liable to pay tax at the rate of 4% as per the 2nd Schedule.

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