2015 (5) TMI 105 - HC - VAT and Sales Tax

Exemption from tax - Whether the commodity in question, i.e., White Oats would be exempted under Entry 16 of the First Schedule of the Karnataka Value Added Tax Act, 2003 or would be subjected to tax under the Act - Held that - First clarification dated 03.06.2006 was issued by the Commissioner itself on a query made by another dealer with regard to the sale of White Oats, which was a product similar, if not identical to the product being dealt with by the assessee herein. When along with the query, the sample of the product had also been furnished by the dealer, it would be presumed that only after examining the said sample, the Commissioner had issued the clarification dated 03.06.2006. Once such clarification had been issued for exempting the product White Oats from payment of tax (even though the clarification order may have mentioned only Oats and not White Oats), then the question of payment of tax on the same would not arise. In fact, not only the assessee but the department itself was under a genuine belief or impression that the product in question was exempted from tax, as the department did not raise any question with regard to the monthly returns filed by the assessee right from April 2006 onwards and it accepted the same, which would amount to deemed assessment . Where the Commissioner itself had issued a clarification dated 03.06.2006 with regard to the commodity in question, the assessee/dealer would be presumed to have a genuine belief that it was exempted from tax and thus, it cannot be said to be a case where the assessee had furnished any wrong information or concealed any material information. It is not the case where the sale of White Oats had not been disclosed by the assessee. It is not the assessee alone but, in the facts of the present case, we can safely say that even the department was under the genuine belief that the commodity in question was exempted from tax, until the second clarification dated 20.01.2010 was issued. After the issuance of the said clarification, the assessee (instead of getting into litigation by raising a dispute regarding the White Oat flakes being subjected to tax or not) started paying taxes on sale of the said commodity. Clarification dated 03.06.2006 was issued under Section 59(4) of the Act. Such clarification is not applicable merely in the case of the applicant seeking clarification, but, to all registered dealers which are liable to pay tax under the Act. The clarification issued under Section 59 is different from the clarification or advanced ruling given under Section 60. In the latter case, the ruling of the authority would be binding only on the applicant which seeks such clarification, whereas in the former case (under Section 59 of the Act), it would be applicable to all registered dealers liable to pay tax. - Impugned orders are set aside - assessee/petitioner shall not be held liable for payment of tax with regard to the commodity in question (i.e., White Oats) till 20.01.2010 i.e., the date when the second clarification was issued by the Commissioner - Decided partly in favour of assessee.

Issues Involved:
1. Tax exemption status of White Oats under the Karnataka Value Added Tax Act, 2003.
2. Validity of reassessment notices issued under Section 39(1) of the Act.
3. Applicability of the Commissioner's clarifications dated 03.06.2006 and 20.01.2010.
4. Liability of the assessee for tax, interest, and penalty for the period before 20.01.2010.

Issue-wise Detailed Analysis:

1. Tax Exemption Status of White Oats:
The primary issue was whether White Oats were exempt under Entry 16 of the First Schedule of the Karnataka Value Added Tax Act, 2003. The assessee relied on a clarification dated 03.06.2006 issued by the Commissioner of Commercial Taxes, which exempted Oats and their flour from tax. The Court noted that the First Schedule exempted "Coarse grains and their flour excluding paddy, rice, and wheat and their flour." The assessee had not paid tax based on this clarification until a second clarification dated 20.01.2010 stated that "Pre Cooked & Processed White Oats" were taxable at 12%.

2. Validity of Reassessment Notices:
Notices under Section 39(1) of the Act were issued to the assessee on 16.02.2010 and 18.08.2010 for reassessment of tax liability for the periods 2006-07 to 2008-09 and 2009-10, respectively. The Court considered whether these notices were valid, given the initial clarification exempting White Oats from tax. The Court concluded that reassessment could only be justified if the assessee had evaded tax by providing wrong particulars or concealing information, which was not the case here.

3. Applicability of the Commissioner's Clarifications:
The Court examined the impact of the clarifications issued by the Commissioner. The first clarification dated 03.06.2006 exempted Oats and their flour, which the assessee interpreted as applicable to White Oats. The second clarification dated 20.01.2010 clarified that processed White Oats were taxable. The Court held that the first clarification led to a genuine belief that White Oats were exempt, and thus, the assessee was not liable for tax before 20.01.2010.

4. Liability of the Assessee for Tax, Interest, and Penalty:
The Court determined that the assessee could not be held liable for tax, interest, and penalty for the period before the second clarification dated 20.01.2010. The Court emphasized that the department did not question the monthly returns filed by the assessee from April 2006 onwards, which amounted to "deemed assessment." The Court concluded that the assessee had a genuine belief in the exemption based on the first clarification and did not evade tax.

Conclusion:
The Court allowed the revision petitions, setting aside the orders passed by the Tribunal and the authorities below. The assessee was not held liable for payment of tax on White Oats until 20.01.2010, the date of the second clarification. The Court clarified that the first clarification applied to all registered dealers, not just the applicant who sought it, thus benefiting the assessee.

Final Order:
The revision petitions were allowed, and the assessee was exempted from tax liability on White Oats until 20.01.2010.

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