2013 (4) TMI 496 - HC - VAT and Sales Tax

Rate of tax on product Himgange Ayurvedic Oil - U.P Trade Tax Act and Central Sales Tax Act - reopen the assessment under section 21(2) of the U.P Trade Tax Act as the commodity in question should have been taxed as unclassified item and not as Ayurvedic preparation - Held that - For the assessment year 2006-2007, this has been held that Himgange Oil falls under the category medicine and not cosmetic. The said judgment is binding on the respondents herein. Moreover there is no denial at any stage by the respondents with regard to the contents of the product or its manufacturing process which leads to the conclusion that the product is an Ayurvedic product. It has been found so even by National Laboratory on examination. The basis of the impugned order dated 2.3.2012 granting sanction under section 21(2) is the survey dated 27.8.2009, conducted by SIB, the product was sent for its testing and in the opinion of the surveying officer, the Himgange Oil does not come under the category of medicine. It was found otherwise. The report of the Laboratory has come and the assessing officer on the basis of the test report has treated Himgange Oil as an Ayurvedic preparation. Upshot of the above discussions is that, except for these two assessment years the product has been treated as Ayurvedic preparation and the said finding has been approved by the High Court inter parties as discussed herein above. Thus absolutely no justification either for granting the permission to reopen the assessment for the assessment year 2006-2007 or to issue any show cause notice under section 21(2) for the assessment year 2005-2006. In favour of assessee.

Summary

Issues:
Rate of tax for 'Himgange Ayurvedic Oil'; Permission to reopen assessment under section 21(2) of U.P Trade Tax Act; Classification of 'Himgange Oil' as Ayurvedic product or unclassified item.

Analysis:
The petitioner, a proprietorship firm dealing in Chemicals and Ayurvedic Herbal Products, challenged the rate of tax for 'Himgange Ayurvedic Oil.' The dispute arose when the assessing authority proposed to reopen the assessment for the product, claiming it should be taxed as an unclassified item, not Ayurvedic preparation. The petitioner argued that the product is Ayurvedic, supported by a drug license and manufacturing process detailed in the Ayurvedic Book "BHAV PRAKASH." The assessing authority's proposal was based on the claim that the product was not examined properly for tax liability, leading to the reopening of assessment.

In defense, the respondents contended that the product should not be classified as a drug/medicine solely based on the granted certificate and that the assessing authority failed to assess the nature of the product accurately. The respondents also mentioned a pending special appeal against a judgment relied upon by the petitioner. The petitioner's counsel argued that subsequent assessments confirmed 'Himgange Oil' as Ayurvedic, supported by a National Laboratory report. The respondents' counter affidavit did not refute the ingredients or manufacturing process of the product, emphasizing its Ayurvedic nature.

The High Court referred to legal precedents, including a Supreme Court decision classifying similar products as Ayurvedic medicaments. It highlighted a case where burden of proof lay on the revenue to establish a product's classification under a specific entry, emphasizing consistent interpretation of entries unless there is a material change. The Court noted that 'Himgange Oil' had always been taxed as Ayurvedic Oil, and for the assessment year 2006-2007, it was classified as medicine, not cosmetic.

Ultimately, the Court found no justification for reopening assessments or issuing show cause notices, as the product had consistently been treated as Ayurvedic. The impugned notices and orders were quashed, ruling in favor of the petitioner. The judgment reaffirmed the Ayurvedic classification of 'Himgange Oil' based on past assessments and legal principles, emphasizing the burden of proof on the revenue to alter established classifications without sufficient evidence of change.

This detailed analysis of the judgment showcases the legal intricacies involved in determining the tax classification of 'Himgange Ayurvedic Oil' and the significance of consistent interpretation of entries in tax assessments.