2017 (12) TMI 626 - HC - VAT and Sales Tax

Rate of tax - cake gel - taxable at 4% or 12%? - Held that - The general rule pertaining to classification of a product is to see as to whether the product will fall under any of the specific entry, which specifically prescribe a product and when the product does not fall under any of the specific entry, the Authority would be justified in classifying the product under the residual or general entry - Though the petitioner had approached the first respondent for clarification, the Authority should specifically state as to why the petitioner s product should be classified under Entry 49 in Part D of first schedule to the Act, when according to the petitioner, the product is a vegetable oil consisting of admixture of other substances and through a process that is being used for human consumption - petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to a clarification issued by the first respondent regarding the tax rate classification of a product under the Tamil Nadu General Sales Tax Act, 1959 and Central Sales Tax Act, 1956.

Analysis:
The petitioner, a registered dealer, challenged a clarification issued by the first respondent regarding the tax rate classification of cake gel. The petitioner contended that the product should be classified under Entry 68 Part B of the first schedule to the TNGST Act at a tax rate of 4%, not under the residuary entry No.40 in Part-D at 12%. The petitioner had submitted materials showing the product's composition as a combination of Propylene Glycol, glycerin, and demineralized water with vegetable oil. The petitioner argued that the first respondent issued the clarification without providing reasons and without giving an opportunity to establish facts.

The petitioner made a representation to the first respondent, requesting a reconsideration of the classification, but it was not considered. The petitioner emphasized that the product is a vegetable oil product for human consumption and should not be classified under the residuary entry. The court noted that when a product does not fall under a specific entry, it may be classified under the residual or general entry. However, the court found the impugned clarification to be a non-speaking order, lacking justification for the classification under the residual entry.

The court held that the impugned clarification was unsustainable due to the lack of reasoning provided by the first respondent. Consequently, the court allowed the writ petition, setting aside the order and the revision of assessment. The respondents were given the opportunity to proceed in accordance with the law after providing the petitioner with a fair opportunity.

This judgment highlights the importance of providing reasons for administrative decisions, especially in tax classifications, to ensure transparency and fairness in the application of tax laws.