2012 (2) TMI 459 - HC - VAT and Sales Tax

Liability to pay any tax on the sale of used equipments, viz., metal detectors, water coolers and lockers - failure to declare the impugned turnover in the return - penalty levy - Held that - it is very clear that the assessee is in the business of sale of food articles, snacks and beverages. He is registered dealer under the Act. He has opted for composition scheme and he has paid four per cent tax on the total turnover of sale of food articles, snacks and beverages. In November, 2006, he has sold used equipment, viz., metal detectors, water coolers and lockers. The said sale consideration was not reflected in VAT returns filed by the assessee. The aforesaid sale is a onetime sale by which the discarded goods were sold. The assessee is not in the business of the sale of metal detectors, water coolers and lockers. He is not a dealer of those articles. Therefore, the consideration received from the sale of said goods is not leviable to tax under the Act. Appeal allowed. Levy of tax on the sale of discarded goods totally in a sum of ₹ 1,06,612 is without authority of law.

Summary

Issues:
1. Interpretation of the Karnataka Value Added Tax Act, 2003 regarding the liability to pay tax on the sale of used equipment.
2. Application of the composition scheme under section 15 of the Act.
3. Determination of turnover for tax calculation purposes.
4. Validity of penalty and interest levied under sections 72(2) and 36 of the Act.
5. Consideration of whether a one-time sale of discarded goods constitutes a taxable event under the Act.

Issue 1: Interpretation of the Karnataka Value Added Tax Act, 2003 regarding the liability to pay tax on the sale of used equipment:
The appellant, a canteen operator registered under the Act, sold used equipment like metal detectors, water coolers, and lockers. The assessing authority proposed reassessment, leading to a dispute over the tax rate applicable to this sale. The appellate authority reduced the tax rate from 12.5% to 4%, considering the sale as part of the total turnover. However, the revisional authority upheld the higher tax rate and imposed penalties. The High Court analyzed the nature of the appellant's business and concluded that since the sale of the equipment was a one-time event and not part of the regular business, the consideration received from this sale was not subject to tax under the Act.

Issue 2: Application of the composition scheme under section 15 of the Act:
The appellant had opted for the composition scheme under section 15 of the Act, paying a flat tax rate on the turnover of food articles, snacks, and beverages. The dispute arose when the sale of used equipment was not included in the VAT returns. The court examined whether the composition scheme covered such sales and determined that since the equipment sale was not part of the appellant's regular business activities, it fell outside the scope of the composition scheme.

Issue 3: Determination of turnover for tax calculation purposes:
The controversy centered on whether the turnover from the sale of used equipment should be included in the total turnover for tax calculation. The appellate authority considered it part of the total turnover, leading to a reduction in the tax rate. However, the revisional authority disagreed, resulting in a higher tax rate and penalties. The High Court, after analyzing the appellant's business activities and the nature of the equipment sale, concluded that the consideration from the one-time sale of discarded goods should not be part of the total turnover for tax purposes.

Issue 4: Validity of penalty and interest levied under sections 72(2) and 36 of the Act:
The assessing authority levied penalties and interest under sections 72(2) and 36, respectively, which were reduced by the appellate authority but later reinstated by the revisional authority. The High Court, upon determining that the sale of used equipment did not attract tax liability, quashed the penalties and interest imposed, as they were based on an incorrect interpretation of the Act.

Issue 5: Consideration of whether a one-time sale of discarded goods constitutes a taxable event under the Act:
The High Court referred to a previous case to establish that for a sale to attract tax liability under the Act, it must be part of the regular business activities conducted with a profit motive. Since the sale of used equipment was a one-time occurrence and not part of the appellant's core business of selling food items, the consideration from this sale was deemed non-taxable. Consequently, the High Court allowed the appeal, quashing the orders passed by the lower authorities and ruling in favor of the appellant.