2017 (7) TMI 1022 - HC - VAT and Sales Tax

Classification of goods - Ujala Supreme Fabric / Laundry Whitener - Entry 119 of Schedule-IV Part-B instead of Schedule-V - classifiable under Tariff Entry No.3204.12.94 of the Central Excise Tariff Act, 1985? - Held that - Both the Appellate Authorities have given a finding that the said product Ujala Supreme is classifiable under Entry 69, Sub-Entry 119 of Part-B of Schedule-IV of the Act of 2003. From the facts noticed hereinbefore and analysed earlier, the Entry starts with Synthetic Organic Colouring Matter and, therefore, any preparation based on Synthetic Organic Colouring Matter , should in my opinion, will also fall in the said Sub-Entry 119 referred to hereinbefore. The Apex Court, time and again, in the cases of Western India Plywood Ltd v. Collector of Customs 2005 (10) TMI 90 - SUPREME COURT OF INDIA , Dunlop India Ltd. v. Union of India 1975 (10) TMI 94 - SUPREME COURT OF INDIA , has reiterated the well settled proposition that resort to Residuary Tariff Entry can only be made if a product does not squarely fall within any of the specified Entries, and a good deal of caution is required to be undertaken in the matter of classification, identification of an Entry and a description thereof would be relevant for assigning it to a particular Tariff Entry, and lodgment of an item in Residuary Category is approvable only if by no conceivable reasoning which can be brought within the purview of any other tariff item, and the burden always lie on the Revenue, if it intends to carry it to the Residuary Schedule. Penalty u/s 61 - Held that - no case of penalty is made out. Merely because an addition was made by the AO, is no reason for initiating penalty proceedings or even levying penalty. Admittedly, it is a case where the assessee claimed a lower rate and claiming to be falling in a specific Entry and Revenue intended to carry it to Residuary Entry, that does not mean that a case of concealment has been made out by the Revenue - the Apex Court in the case of Sree Krishna Electricals v. State of Tamil Nadu & Another 2009 (4) TMI 428 - SUPREME COURT OF INDIA , has held that in a case of classification of Entries, two views being possible, question of levy of penalty does not arise. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Classification of "Ujala Supreme" under the Rajasthan Value Added Tax Act, 2003.
2. Legality of deleting tax, interest, and penalty imposed by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Classification of "Ujala Supreme" under the Rajasthan Value Added Tax Act, 2003:

The primary issue was whether "Ujala Supreme" should be classified as an industrial input/synthetic coloring matter under Entry 119 of Schedule-IV Part-B, attracting a lower tax rate of 4/5%, or under the Residuary Schedule-V, attracting a higher tax rate of 12.5/14%.

The respondent, a Limited Company trading in "Ujala Supreme," argued that the product is made by diluting Acid Violet Paste (AVP) with water, retaining the character and use of AVP, and thus should be classified under Entry 69, Sub-Entry 119 of Part-B of Schedule-IV. The Assessing Officer (AO) disagreed, stating that "Ujala Supreme" is not covered by any specific entries and should fall under the Residuary Schedule-V.

The Appellate Authority and the Rajasthan Tax Board sided with the respondent, referencing the Supreme Court's decision in M.P. Agencies v. State of Kerala, which held that "Ujala Supreme" is a diluted form of AVP and does not constitute a new product. The Supreme Court's judgment emphasized that the product retains its classification under HSN Code 3204.12.94, covering industrial inputs.

The High Court upheld this view, noting that the product "Ujala Supreme" is indeed a preparation based on synthetic organic coloring matter and should be classified under Entry 119. The court also emphasized that the Revenue failed to prove that a different product emerged from the dilution process.

2. Legality of Deleting Tax, Interest, and Penalty Imposed by the Assessing Officer:

The AO had imposed tax at a higher rate, along with interest and penalty, arguing that the product fell under the Residuary Schedule-V. The respondent appealed, and both the Appellate Authority and the Tax Board ruled in favor of the respondent, deleting the additional tax, interest, and penalty.

The High Court affirmed these decisions, stating that the AO's reliance on the Kerala High Court's judgment, which was later reversed by the Supreme Court, was misplaced. The court also referenced various judgments, including those from the Gauhati High Court, which consistently ruled in favor of classifying "Ujala Supreme" under the specific entry rather than the residuary category.

Regarding the penalty under Section 61, the court found no grounds for concealment or evasion of tax. The dispute was purely about the classification of the product, and no unrecorded or unvouched sales were found during the survey. Citing precedents, the court ruled that in cases where two views on classification are possible, imposing a penalty is not justified.

Conclusion:

The High Court dismissed the petitions, ruling in favor of the respondent on both issues. "Ujala Supreme" was classified under Entry 119 of Schedule-IV Part-B, and the deletion of additional tax, interest, and penalty was upheld. The court emphasized that the product's classification as an industrial input was supported by the Supreme Court's judgment and other relevant case law.