2011 (1) TMI 1286 - HC - VAT and Sales Tax

Amendment brought into the Third Schedule of entry 23 of the Karnataka Value Added Tax Act, 2003 during 2008 permitting imposition of tax on insecticides that are used other than for agricultural purposes at 12.50 per cent instead of at four per cent challenged Held that - Even assuming that the Joint Commissioner would not act other than the way in which instructions were issued by the Commissioner of Commercial Taxes, and it has to be treated as good an order passed by the Commissioner himself in the matter of assessment/reassessment, however, still a reading of the amendment to entry 23 would need interpretation in the background whether, straightaway it falls within the meaning of insecticides only to attract four per cent tax and there could not have been any distinction between using of insecticide for agricultural or horticultural purpose and for domestic purpose, and it is a matter of appreciation of facts as well as question of law is involved. Petitions are disposed of with liberty to the petitioner to approach the Appellate Tribunal and to take all such contentions. The Appellate Tribunal to dispose of the matter within three months from the date of appearance of the petitioner.

Summary

Issues:
Challenge to amendment in Third Schedule of VAT Act for imposition of tax on insecticides, Jurisdiction of Deputy Commissioner of Commercial Taxes, Classification of petitioner's goods as scheduled insecticides, Legislative competence of State, Interpretation of entry 23 of Third Schedule, Applicability of trade parlance in classification for tax imposition, Efficacy of appeal process, Need for interpretation of amendment to entry 23.

Analysis:
The petitioner, a manufacturer of pesticides, challenged the amendment in the Third Schedule of the Karnataka Value Added Tax Act, 2003, which allowed the imposition of tax on insecticides used for non-agricultural purposes at a higher rate of 12.5% instead of 4%. The petitioner contended that the reassessment order by the authority was against principles of natural justice, as it determined a higher tax rate without proper basis.

The petitioner argued that despite specific mention of insecticides in the amended entry 23 of the Third Schedule, his goods were not certified as scheduled insecticides. He claimed that the products were classified and certified by the Ministry of Agriculture under the Insecticides Act, 1968. The petitioner questioned the legislative competence of the State to amend the classification and sought to set aside the reassessment order imposing tax at 12.5%, requesting a 4% tax rate for specific insecticides used for agricultural purposes.

The petitioner relied on a Division Bench judgment to assert that all insecticides fell under entry 23 of the Third Schedule, including mosquito repellants. The Government Pleader argued for classification based on trade parlance, citing Supreme Court precedents. The Government Pleader contended that the previous judgment by the High Court did not consider the principles laid down by the apex court and emphasized the need to interpret the amendment in the context of popular understanding.

The Court acknowledged the petitioner's concerns regarding the efficacy of the appeal process and the likelihood of a futile exercise before the appellate authority subordinate to the Commissioner. The Court allowed the petitioner to approach the Appellate Tribunal with all contentions, directing the Tribunal to decide within three months. It also instructed the respondent authority not to recover the balance tax until the Tribunal's decision, emphasizing that the liberty granted to the petitioner should not set a precedent.

In conclusion, the judgment addressed the various legal issues raised by the petitioner regarding the amendment to the VAT Act, classification of goods, legislative competence, and interpretation of tax imposition. The Court provided a pathway for the petitioner to seek redressal through the Appellate Tribunal while ensuring a fair process and withholding tax recovery pending the Tribunal's decision.