2017 (4) TMI 1241 - HC - VAT and Sales Tax

Classification of goods - colour boxes, insulating tape and certain specified series of products of Dr. Fixit Series used in building activity for water proofing, binding agent & bonding material - The assessee furnished its return declaring the product being sold classifiable @ 4% of Schedule-IV of the Rajasthan Value Added Tax Act, 2003, however, the Assessing Officer was of the view that the products are not classifiable @ 4% rather they fall in residuary Schedule-V where the rate of 12.5% is applicable - Held that - it would be appropriate to examine entry 69 as referred to and relied upon by the assessee of Schedule-IV. The entry industrial inputs in my view explicitly makes it clear that only industrial inputs are to be incorporated in Part B . Having noticed the salient features of the products being manufactured by the assessee of various Dr. Fixit Series, in my view, the products make it abundantly clear that these are meant for water proofing or as bonding agent as evident from the very features shown by the assessee and considered by the lower authorities. These products have direct bearing on the water proofing and cement binding activities relating to building/civil works and cannot be treated to be industrial inputs under Part B of Schedule-IV of the Act. Once the products do not fall in specific entry 69 as claimed by the assessee or as industrial inputs , it has to fall in Schedule-V. Merely because some chemical is applied, it even otherwise does not prove that it falls in the ambit of industrial inputs . The above Dr. Fixit Series of products as they stand, have in my view been rightly held to be either water proofing materials or binding substances in category of building material used in construction works, like sealant, paints etc. and such products are generally and directly used by the consumers in construction works and could not be covered in the ambit of industrial inputs as contended by the learned counsel for assessee. Having analysed entry no.268 of Part B of the Schedule (supra), the items as are consumed or used in the production or manufacture of new and different commercial viable product, however, the products of the petitioner are already finished goods usable in any given perspective according to the needs of the user. The salient features, does clearly prove that the products do not answer the description of basic entry of chemical. They have on the contrary a description of the utility of products as water proofing/bonding materials used as sealants, plasticizing agents, concrete curing compounds and related works, which makes them in common parlance marketable end products with distinct nomenclature of sealants and plasticizing bonding materials. The assessee is unable to satisfy this court that the products as they stand, fall in entry 69 and 268(Part-B) of Schedule-IV and thus, claim of the assessee being not justified, the finding reached by all the three authorities in unison, is upheld - appeal dismissed - decided against assessee.

Summary

Issues Involved:
1. Classification of Dr. Fixit Series products under Schedule-IV or Schedule-V of the Rajasthan Value Added Tax Act, 2003.
2. Justification of the lower authorities' decision regarding the classification of Dr. Fixit Series products as chemicals.
3. Applicability of penalty under Section 61 of the Act.

Detailed Analysis:

Issue 1: Classification of Dr. Fixit Series Products
The primary issue revolves around whether Dr. Fixit Series products are classified under entry 69 as "industrial inputs" of Schedule-IV or the residual entry no.1 of Schedule-V of the Rajasthan Value Added Tax Act, 2003. The assessee argued that these products, used in civil construction for water proofing and bonding, should be taxed at 4% under Schedule-IV. However, the Assessing Officer (AO) and subsequent authorities classified these products under Schedule-V, taxing them at 12.5% as they did not fall under any specific entries in Schedules I to IV. The court upheld this classification, noting that the products are end products used in construction and do not qualify as "industrial inputs."

Issue 2: Justification of Lower Authorities' Decision
The assessee contended that the products are chemicals, supported by test reports from the National Test House of Government of India, and should be classified under Schedule-IV. However, the court found that the test reports did not conclusively classify the products as chemicals. Instead, the products were identified as water proofing and bonding agents, which are end products used directly in construction. The court emphasized that these products do not meet the criteria of "industrial inputs" and thus fall under Schedule-V.

Issue 3: Applicability of Penalty Under Section 61
The AO imposed a penalty under Section 61, stating that the assessee evaded tax by incorrectly classifying the products. The Deputy Commissioner (Appeals) and the Tax Board upheld the penalty. However, the Tax Board later deleted the penalty, concluding that there was no evidence of intentional tax evasion or concealment by the assessee. The court did not specifically address the penalty issue in the judgment, focusing instead on the classification dispute.

Conclusion:
The court concluded that Dr. Fixit Series products are not "industrial inputs" and should be classified under Schedule-V, taxed at 12.5%. The assessee's arguments, including reliance on test reports and industry publications, were insufficient to reclassify the products under Schedule-IV. The court upheld the decisions of the lower authorities, dismissing the petitions and ruling in favor of the Revenue.