2014 (12) TMI 45 - HC - VAT and Sales Tax

Rate of tax - classification of artificial flower petals - Karnataka Value Added Tax Act, 2003 - item No. 7 in entry 78 - Held that - In so far as the question of understanding and interpreting entries is concerned, general rule of interpretation is if any particular item or goods fits into any one of the entries mentioned or figuring in any of the Schedules, it necessarily remains there and does not get into the residuary clause or goods of general description in respect of which a uniform rate of tax, viz., 12.5 per cent becomes applicable. It is because goods figuring in the Third Schedule to the Act attract tax at lower rate than general rate, a dealer or an assessee will be keen to get into any one of the entries if is possible and remain there, as tax liability is lower. A mere desire or inclination is not the criterion, but it is the nature of the goods and the description of the goods as figures in the Schedule. If the particular product which is having its origin in textiles or fabrics, but is marked in the shape of artificial flower petals is not so either shaped or marked, but sold as fabric and it remains as an exempted item. But, it has lost its characteristic of cloth and fabric or textile, because of being marketed as artificial flower petals and in a particular shape, though made of textiles or fabric. In the present case, the assessee himself having claimed that it is an item fitting into entry 78 figuring in the Third Schedule, we find no need to remand the matter but proceed to accept the submissions and the stand taken by the assessee that the item known as artificial flower petals is used extensively in readymade garments. In the wake of our examination as above, we find that artificial flower petals having its origin in textile or fabrics, necessarily fits into the description of clothing accessories figuring as item No. 2 in entry 78 of the Third Schedule to the Act. - Decided in favor of assessee.

Issues Involved:
1. Validity of the order passed by the Additional Commissioner of Commercial Taxes.
2. Classification and tax rate applicable to "artificial flower petals" under the Karnataka Value Added Tax Act, 2003.
3. Jurisdictional objection regarding the reassessment order.

Issue-wise Detailed Analysis:

1. Validity of the Order Passed by the Additional Commissioner of Commercial Taxes:
The dealer appealed against the order dated October 31, 2009, by the Additional Commissioner of Commercial Taxes, who exercised suo motu revisional powers under section 64 of the Karnataka Value Added Tax Act, 2003. The Additional Commissioner set aside the appellate order of the Joint Commissioner of Commercial Taxes and restored the original assessment order. The appellate order was deemed erroneous and prejudicial to the interest of the Revenue.

2. Classification and Tax Rate Applicable to "Artificial Flower Petals":
The core issue was the appropriate tax rate for "artificial flower petals." The dealer argued that these goods should be taxed at 4% under entry 78 of the Third Schedule to the Act, which includes "Readymade garments, clothing accessories, and other made-up textile articles." The Revenue contended that "artificial flower petals" did not fit into any entries of the Third Schedule and should be taxed at the general rate of 12.5% under section 4(1)(b) of the Act.

The dealer's claim was initially accepted by the Joint Commissioner of Commercial Taxes (Appeals), who found that the artificial flower petals, made of textiles and used as decorative accessories on garments, fit the description of "clothing accessories" under entry 78. However, the Additional Commissioner, upon exercising suo motu revisional jurisdiction, disagreed and restored the assessment order, arguing that the artificial flower petals did not directly fit into the description of "clothing accessories" as they were not used directly on the human body.

3. Jurisdictional Objection Regarding the Reassessment Order:
The dealer raised a preliminary objection regarding the jurisdiction of the authority who passed the reassessment order, arguing that the reassessment was unauthorized as the Commissioner had not nominated the reassessing authority. The court rejected this objection based on section 67 of the Act, which stipulates that objections to jurisdiction must be raised before the first authority and cannot be entertained at a later stage.

Court's Findings:
- The court examined the nature and usage of artificial flower petals, concluding that they are made from textiles and used as decorative accessories on garments, fitting the description of "clothing accessories" under entry 78 of the Third Schedule.
- The court noted that the artificial flower petals, though not directly used on the body, are extensively used in readymade garments to enhance their appearance, thus qualifying as "clothing accessories."
- The court also considered the legislative intent behind entry 78, which aims to include all items that can be described as "clothing accessories" made from textiles or fabrics.

Conclusion:
The court allowed the appeals, set aside the order of the revisional authority, and restored the order of the Joint Commissioner of Commercial Taxes (Appeals). The court held that artificial flower petals are to be taxed at 4% under entry 78 of the Third Schedule as "clothing accessories," rather than at the general rate of 12.5%.

← Previous Next →