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2012 (11) TMI 1055 - HC - VAT and Sales TaxAssessment of gold challenged - Penalty under section 67(1) of the KVAT Act - Held that - Gold bar dealt with by the petitioner-banks cannot be treated as gold bullion coming within entry 1(2) of the Second Schedule to the KVAT Act with HSN Code 7108.12.00. But it can only be considered as semi-manufactured form of gold coming within HSN Code 7108.13.00 as described in the Customs Tariff Act. Hence inclined to follow the decision in HDFC Bank s case 2010 (7) TMI 883 - KERALA HIGH COURT which is binding. Accordingly the challenge against exhibits P5 and P6 series assessments deserves no merit. It is not relevant as to when the assessee had actually paid the tax amount due. But the relevant aspect to be considered is as to whether the assessee had failed in making payment of the tax by mis-classification of the commodity by acting deliberately in a contumacious manner with an attempt to evade payment of tax. The fact that the assessing authority had finalised a best judgment assessment only after the Commissioner of Commercial Tax had clarified the matter, will indicate that the assessee was right in stating that they were under a bona fide belief that appropriate entry under which the commodity is to be included was entry within the Second Schedule. Therefore it is inclined to quash the impugned orders of penalty.
Issues Involved:
1. Validity of the assessment orders for the years 2007-08 and 2008-09 under the KVAT Act. 2. Imposition of penalty under section 67(1) of the KVAT Act for the years 2006-07 and 2007-08. Issue-wise Detailed Analysis: 1. Validity of the Assessment Orders: The petitioner banks challenged the assessment orders for the years 2007-08 and 2008-09, arguing that they had paid tax at one percent on the sale of gold bars, believing the commodity to fall under the category of gold bullions. However, the turnover was assessed at four percent, classifying the commodity under entry 4(4) of the Third Schedule to the KVAT Act. The Commissioner of Commercial Taxes had issued a clarification stating that 10 grams of rectangular gold bars, being semi-manufactured gold, fall under entry 4(4) with HSN Code 7108.13.00. The Division Bench of this court in HDFC Bank Limited v. Assistant Commissioner held that small sizes of minted gold cannot be treated as gold in unwrought form under HSN code 7108.12.00. The court observed that up to March 31, 2009, gold was treated under three descriptions: bullion, semi-finished forms of gold, and gold jewelry. The relevant period in this case falls within the pre-amended period, i.e., before April 1, 2009. The Division Bench concluded that minted rectangular gold bars made with fine finish and markings are not used as raw material for manufacturing other products and thus cannot be treated as gold in unwrought form. The petitioner argued that the clarification and assessment contradict the Supreme Court's decision in Deputy Commissioner of Sales Tax v. G.S. Pai and Co., which defined bullion as gold or silver in the mass. However, the court noted that the KGST Act and the KVAT Act have different entries and specific codes. The Supreme Court's decision did not restrict the State Governments from including gold bars in other categories for VAT purposes. The court upheld the Division Bench's decision, stating that the gold bars sold by the petitioner banks fall under the category of semi-manufactured gold with HSN Code 7108.13.00 and are taxable at four percent. Therefore, the challenge against the assessment orders for 2007-08 and 2008-09 was dismissed. 2. Imposition of Penalty: The petitioner banks also challenged the imposition of penalty under section 67(1) of the KVAT Act for the years 2006-07 and 2007-08. The penalty was imposed on the premise that the banks deliberately misclassified the gold bars to evade payment of tax. The petitioners contended that there was a genuine doubt regarding the applicable tax rate and that they collected and paid tax at one percent in good faith. The court referred to the Supreme Court's decisions in E. I. D. Parry (I) Ltd. v. Assistant Commissioner of Commercial Taxes and Hindustan Steel Ltd. v. State of Orissa, which held that penalty should not be imposed if the omission was based on a bona fide belief and not deliberate or contumacious conduct. The court found that the petitioner banks acted in good faith and there was no conscious attempt to evade tax. The court concluded that the imposition of penalty was not justified as the banks had a bona fide belief regarding the applicable tax rate and paid the tax due after the court's judgment. Therefore, the penalty orders were quashed. Conclusion: (i) W.P (C) No. 4635 of 2009 was dismissed, upholding the assessment orders for 2007-08 and 2008-09. (ii) W.P (C) Nos. 16478 of 2009 and 16479 of 2009 were allowed, quashing the penalty orders for 2006-07 and 2007-08.
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