2011 (1) TMI 1293 - HC - VAT and Sales Tax

Whether the phrase all kinds of bricks occurring in entry 2 of the Third Schedule to the Act be declared as exhaustive n so far as the petitioners are concerned? Whether the clarification No. CLR CR.91/2006-2007 dated September 8, 2006 at annexure A issued by the second respondent be quashed? Whether reassessment orders at annexures C and D for the assessment periods 2007-08 and 2008-09 bequashed? Held that - It is a fit case wherein the impugned orders of the assessment officer passed at annexures C, D and G, respectively, directing the petitioners to pay 12.5 per cent of VATexercising the power under section 4(l)(b) of the Karnataka Value Added Tax Act, 2003, could be quashed and they are accordingly quashed. It is made clear that the clarification issued in the circumstances, by the Commissioner at annexure A would not be made applicable to the tiles which are in the form of paving bricks and are held to be covered under the exhaustive definition of all kinds of bricks/ asphalt tiles . It is directed to collect the tax for the said assessment years only at four per cent as provided under entry 2 of the Third Schedule to the KVAT Act. Appeal allowed.

Summary

Issues:
Challenge to clarification on tax rate for specific bricks; Interpretation of entry 2 of the Third Schedule; Validity of reassessment orders; Applicability of appellate remedy.

Clarification Challenge:
The petitioners sought to quash a clarification issued by the second respondent regarding the tax rate applicable to specific types of bricks, including paving bricks. They argued that the entry in the Third Schedule, mentioning "all kinds of bricks," should be considered exhaustive, covering various types of bricks. The petitioners contended that the paving bricks they manufactured fell within this entry, allowing them to collect VAT at four percent. The clarification issued by the Commissioner in 2006 specified certain brick sizes for the lower tax rate, leading to a dispute.

Interpretation of Entry 2:
The petitioners asserted that the entry in the Third Schedule encompassed all types of bricks, eliminating the need for further interpretation by the second respondent. They challenged the reassessment orders that imposed a higher tax rate on paving bricks, arguing that such tiles should be considered bricks under the existing entry. The petitioners argued that the Commissioner's clarification was ultra vires and did not fall within the powers granted under the Third Schedule.

Validity of Reassessment Orders:
The reassessment orders for different assessment periods were contested by the petitioners, claiming that the higher tax rate imposed on paving bricks was incorrect. They argued that the reassessment authority misinterpreted the law by applying a higher tax rate based on a circular that did not specifically address paving bricks. The petitioners sought the quashing of these reassessment orders.

Applicability of Appellate Remedy:
The Government Pleader contended that the reassessment orders were appealable, suggesting that the petitioners should pursue the appellate route instead of challenging the orders directly. However, the court noted that the reassessment officer's misinterpretation of the law, leading to the higher tax rate on paving bricks, warranted immediate intervention. The court held that the impugned orders were an abuse of statutory powers and proceeded to quash them, directing the tax collection at the lower rate specified in the Third Schedule for the relevant assessment years.

This detailed analysis of the judgment highlights the key issues raised, arguments presented by the parties, and the court's decision regarding the clarification challenge, interpretation of entry 2 of the Third Schedule, validity of reassessment orders, and the applicability of the appellate remedy in the context of tax rates for specific types of bricks.