2014 (4) TMI 178 - HC - VAT and Sales Tax

Goods in question are motor vehicle or not - earth moving machinery, parts and accessories - Rectification of order Submissions not considered Examination of nature of goods Held that - Revenue had formed an opinion that the goods in question attracted tax at 14% there had to be realistic determination as to whether capital goods noted in the Third Schedule and notified by the Government as per notification at Annexure-A, includes the goods sold by the petitioner and then he had to take a decision on it - The Commissioner has already issued the clarification u/s 59(4) of the KVAT Act, it was necessary that the revenue should have taken into consideration that clarification to consider the rectification application filed by the petitioner - Merely because machinery sold by the petitioner is mounted on the wheels for mobility would not make it a vehicle as defined in the Motor Vehicles Act - It has not been done in the present case the revenue is directed to consider the clarification issued by the Commissioner and examine the nature of goods Decided in favour of Assessee.

Summary

Issues:
Challenge to endorsement and reassessment order under Karnataka Value Added Tax Act, 2013.

Analysis:
The petitioner, a dealer under the KVAT Act, challenged an endorsement and a reassessment order issued by the 2nd respondent. The petitioner contended that it dealt with capital goods such as earth moving machinery, spare parts, and accessories, which were liable for tax at a reduced rate of 5% as per the Third Schedule of the Act. The 2nd respondent, however, concluded that the goods were not covered under the Third Schedule and thus imposed a tax liability at a higher rate of 14%. The petitioner filed returns and statements claiming to deal with specific machinery and parts, seeking the lower tax rate. Despite the petitioner's submissions, the 2nd respondent proceeded with a reassessment, levying tax at a rate higher than 5% and imposing a penalty. The petitioner sought rectification, which was rejected, leading to the writ action.

The crux of the issue revolved around the classification of the goods sold by the petitioner. The petitioner argued that the Commissioner had issued a clarification stating that the goods were earth moving machinery and should be taxed at 5%. The petitioner contended that this clarification should have been binding on the 2nd respondent, leading to a lower tax liability. However, the 2nd respondent maintained that the goods were vehicles registered under the Motor Vehicles Act, attracting a tax rate of 14%. The disagreement stemmed from whether the goods should be considered earth moving machinery or vehicles under the relevant tax provisions.

In the judgment, it was highlighted that the 2nd respondent failed to consider the Commissioner's clarification while deciding on the rectification application. The court emphasized that the clarification issued under Section 59(4) of the KVAT Act was binding and should have been taken into account in determining the tax liability. The court noted that the mere fact that the machinery was mounted on wheels did not automatically classify it as a vehicle under the Motor Vehicles Act. Consequently, the court set aside the rejection of the rectification application and directed the 2nd respondent to reconsider the clarification issued by the Commissioner and reassess the nature of the goods to decide on the rectification application. The petitioner was instructed to appear before the 2nd respondent for further proceedings.