2014 (2) TMI 1144 - HC - VAT and Sales Tax

Rate of tax - Classification of goods - Classification of mosquito and insecticide repellents - Levy of tax @12.5% or 4% - Held that - when the whole of entry No. 29 of Schedule II(a) of the TVATAct is read together, it clearly indicates that the insecticides which have been referred to therein are those used for agricultural purposes. Whereas entry No. 115 of Schedule II(b) specifically deals with mosquito repellents including electric or electronic mosquito repellents and these have been levied taxes at a higher rate. No doubt, the mosquito repellents are also insecticides in a diluted form, but mosquito repellents is a well-known terminology in common parlance and mosquito repellents are not the insecticides which are envisaged under entry No. 29 of Schedule II(a) of the TVATAct. Therefore, on merits we do not find any illegality in the order. No penalty should have been imposed on the present petitioner. The assessee had approached the assessing officer and asked for a clarification. It was the duty of the assessing officer to clarify the matter, but he did not do so and kept sleeping over the matter for two long years. Therefore, the assessee, according to him, has not collected tax at 12 per cent., but has collected tax at four per cent. We have held that the assessee is liable to pay tax at 12.5 per cent. But there is no wilful evasion of tax in this case because he had honestly put forth his case before the taxing authority and if the taxing authority felt that there was no merit in the submission of the assessee, it should have replied to him then and there. This has not been done. - Decided partly in favour of assessee.

Summary

Issues:
1. Clarification sought by assessee on tax rate for insecticides
2. Discrepancy between tax rates for insecticides and mosquito repellents
3. Imposition of penalty on the petitioner

Detailed Analysis:
1. The petitioner, an assessee, challenged the Commissioner of Taxes' order dismissing their appeal and upholding the imposition of tax at 12.5% along with interest and penalty. The petitioner, a dealer of insecticides, sought clarification on the tax rate for their products, which were not explicitly mentioned in the tax schedule. Despite no response to the clarification request, the Department later clarified the tax rate at 12.5%. The petitioner argued that due to the lack of clarification, they collected tax from customers at 4%, and it would be unjust to now impose a higher tax rate.

2. The Court analyzed the relevant tax schedules under the Tripura Value Added Tax Act, 2004. Schedule II(a) listed items like insecticides taxed at 4%, while Schedule II(b) included mosquito repellents taxed at 12.5%. The Court noted that mosquito repellents, including electric or electronic variants, were specifically categorized separately from insecticides. The Court rejected the petitioner's argument that mosquito repellents could be considered under the broader category of insecticides, emphasizing the distinct tax treatment for mosquito repellents under Schedule II(b).

3. The Court found that while the petitioner was liable to pay tax at 12.5%, there was no deliberate tax evasion. The petitioner had diligently sought clarification from the assessing officer, who failed to respond promptly, leading to confusion and the collection of tax at the lower rate. The Court held that the penalty imposed on the petitioner was unwarranted due to the assessing officer's failure to provide timely clarification. Consequently, the Court set aside the penalty while upholding the tax liability at 12.5% for the petitioner's insecticide sales. The revision petition was disposed of with these directions.