2015 (2) TMI 1307 - HC - VAT and Sales Tax

Imposition of penalty - KVAT Act - mis-classification of a item - sanitary equipments and fittings that are made of brass - HELD THAT - There is no consideration in the said orders of the specific entry that deals with articles of brass, where there is a reference to an eight digit HSN code. Exts.P16 to P20 orders do not indicate as to why the products in question would not merit classification under the specific entry, and would rather be classifiable under the residual entry - In my view, such an exercise has necessarily to be done by an authority who proposes to impose a penalty on an assessee on the ground of mis-classification of an item. The issue of classification being a mixed question of law and fact, it is incumbent upon the taxing authority to correctly determine the classification of the item, before arriving at a finding that the item in question has been misclassified by the assessee dealer. The 1st respondent is required to re-consider the aspect of imposition of penalty on the petitioner, for the assessment years in question - petition allowed in part.

Summary

Issues:
Classification of sanitary equipments and fittings made of brass under the Kerala Value Added Tax Act, 2003 and imposition of penalty for misclassification.

Analysis:
The petitioner, a dealer in water supply and sanitary goods including articles of brass, was penalized under the Kerala Value Added Tax Act, 2003 for allegedly misclassifying sanitary equipments and fittings made of brass. The respondents classified the items under a residual category, imposing a penalty on the petitioner for incorrect tax payment. The petitioner challenged the penalty orders on the grounds of misclassification and lack of prior hearing. The court found that the respondent's classification was erroneous, as it did not consider the specific entry for articles of brass. The court emphasized that the correct classification of items is crucial before penalizing an assessee for misclassification. Therefore, the court quashed the penalty orders and directed the respondent to reconsider the penalty imposition after hearing the petitioner and considering relevant legal provisions, clarifications, and judgments on classification under taxing statutes. The respondent was instructed to pass fresh orders within two months, allowing the petitioner to present necessary documents to substantiate his case.

In conclusion, the court allowed the writ petition, emphasizing the importance of accurate classification under the KVAT Act and the necessity for proper consideration before penalizing an assessee for misclassification.