2015 (11) TMI 1578 - HC - VAT and Sales Tax

Completion of assessment - imposition of penalty - Kerala Value Added Tax Act - clarification sought for classification of the items for the purposes of taxation - Held that - as the proposed assessment and imposition of penalty are based on a classification dispute, in respect of which, the petitioner has sought for a clarification, the interests of justice would require to dispose writ petition by directing the respondent to consider and pass orders preferred by the petitioner within a period of two months, after hearing the petitioner. It will be open to the petitioner to produce materials before the respondent to substantiate his contentions regarding the correct classification of the product in question at the time of hearing. Further proceedings shall be kept in abeyance till such time as orders are passed by the respondent, as directed in the clarification application, and communicated to the petitioner - petition disposed off.

Summary

Issues:
1. Classification dispute for taxation purposes
2. Validity of Exts.P1 and P2 notices
3. Relief sought by the petitioner

Classification Dispute for Taxation Purposes:
The petitioner, a dealer of energy drinks under the brand "Red Bull," challenged Exts.P1 and P2 notices proposing assessment and penalty under the Kerala Value Added Tax Act for 2014-2015. The petitioner had submitted Ext.P7 clarification application to the 2nd respondent regarding the classification of items for taxation. The petitioner argued that if the clarification aligns with their submission, the notices would be unnecessary. The High Court, after hearing both parties, noted that the assessment and penalty notices were based on a classification dispute for which the petitioner sought clarification. In the interest of justice, the court directed the 2nd respondent to consider and decide on the Ext.P7 application within two months after hearing the petitioner. The petitioner was allowed to present evidence supporting their classification claims during the hearing. The court ordered that proceedings related to Exts.P1 and P2 notices be suspended until the 2nd respondent's decision is communicated to the petitioner.

Validity of Exts.P1 and P2 Notices:
The High Court scrutinized the circumstances and submissions of both parties and found that the issuance of Exts.P1 and P2 notices was premature since the petitioner had sought clarification on the classification issue before the 2nd respondent. The court emphasized that justice required the clarification process to be completed before any further action on the notices. By directing the 2nd respondent to address the petitioner's application promptly and allowing the petitioner to provide supporting materials, the court ensured that the validity and necessity of the notices would be determined based on the clarified classification.

Relief Sought by the Petitioner:
The petitioner's primary grievance was against the premature issuance of assessment and penalty notices without awaiting the clarification sought through Ext.P7 application. The court acknowledged the petitioner's concerns and granted the relief by instructing the 2nd respondent to expedite the clarification process and make a decision within two months. The petitioner was also given the opportunity to present evidence supporting their position during the clarification proceedings, ensuring a fair assessment of the classification dispute. The court's order effectively suspended any further actions based on Exts.P1 and P2 notices until the clarification process was completed and communicated to the petitioner.