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2011 (4) TMI 1082 - HC - VAT and Sales TaxRevision petitions - assessee collected and paid tax on the sales turnover for the month April and May 2005 at 12.5 per cent and for the subsequent period at four per cent only - AO issued annexure A notice under section 22(3) of the KVAT Act, on the basis that the aforesaid products of the assessee were laundry brighteners and proposing to classify the products under entry 27 of S. R O. No. 82/2006 tax and levy tax at 12.5 per cent - According to the respondent, applying the Rules of Interpretation of Schedules to the Act, the products are liable to be assessed only at four per cent Held that - conclusions of the Tribunal in its order are erroneous and illegal and is set aside, questions of law in favour of the revision petitioner, the State of Kerala and against the assessee and restore the order of the first appellate authority
Issues Involved:
1. Classification of "Ujala Supreme" for tax purposes. 2. Classification of "Ujala Stiff and Shine" for tax purposes. 3. Imposition of penalty under Section 22 of the Kerala Value Added Tax Act. Issue-wise Detailed Analysis: 1. Classification of "Ujala Supreme" for Tax Purposes: The primary issue was whether "Ujala Supreme" should be taxed as an industrial input under List A of the KVAT Act at 4% or as a laundry brightener under entry 27 of SRO No. 82/2006 at 12.5%. The assessee argued that "Ujala Supreme" is "acid violet," a synthetic organic dye classified under HSN Code 3204.12.94, and should be taxed at 4%. The assessing officer classified it as a laundry brightener, taxable at 12.5%, a decision upheld by the first appellate authority but overturned by the Tribunal. The High Court referred to the Division Bench judgment in M.P. Agencies v. State of Kerala, which concluded that "Ujala Supreme" is a laundry whitener and not an industrial input, thus taxable at 12.5%. The High Court agreed with this precedent, finding that the extreme dilution of acid violet paste in "Ujala Supreme" resulted in a new product with different properties and uses, confirming its classification under the residuary entry 103 of SRO No. 82/2006. 2. Classification of "Ujala Stiff and Shine" for Tax Purposes: The issue was whether "Ujala Stiff and Shine" should be taxed as an industrial input under List A of the Third Schedule at 4% or under the residuary entry 103 of SRO No. 82/2006 at 12.5%. The assessee contended that it is a polymer of vinyl acetate, classified under HSN Code 3905, and should be taxed at 4%. The assessing officer classified it under the residual entry, a decision upheld by the first appellate authority but overturned by the Tribunal. The High Court referred to the M.P. Agencies case, which determined that "Ujala Stiff and Shine" is a laundry item used for imparting stiffness and shine to clothes, not an industrial input. The High Court agreed, finding that the product's composition and use differed significantly from its raw material, justifying its classification under the residuary entry 103 of SRO No. 82/2006. 3. Imposition of Penalty under Section 22 of the KVAT Act: The issue was whether the penalty imposed by the assessing officer for alleged willful suppression of turnover was justified. The first appellate authority deleted the penalty, citing a lack of findings of willful suppression or mens rea. The Tribunal upheld this decision. The High Court found no substantial contention or material from the revision petitioner to prove that the findings of the lower authorities were illegal. The High Court also noted the Gauhati High Court's judgment, which supported the assessee's case against the penalty. Consequently, the High Court upheld the Tribunal's decision to delete the penalty. Conclusion: The High Court allowed O.T. (Rev) No. 13 of 2009, classifying "Ujala Supreme" and "Ujala Stiff and Shine" under the residuary entry 103 of SRO No. 82/2006, taxable at 12.5%. It dismissed O.T. (Rev) No. 16 of 2009, upholding the deletion of the penalty imposed on the assessee.
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