2019 (2) TMI 1087 - HC - VAT and Sales Tax

Classification of goods - Ayurvedic Medicine or Food supplement? - rate of tax - the stand taken by the Revenue is that what was imported is put into capsules and marketed and there is no manufacturing work - Held that - The product which was imported is not the product, which was marketed. The Court also took into consideration the various licenses obtained by the said assessee under the various enactments which showed that the product is an Ayurvedic Proprietary Preparation - The decision in the case of M/s. DXN Herbal Manufacturing (India) Pvt. Ltd. 2017 (11) TMI 608 - CESTAT CHENNAI is a clear answer on which the petitioner was non-suited that the product is an imported product. The tribunal holds that it is not an Ayurvedic Medicine to Food Supplement - Held that - This finding is not supported by any document, but it appears to be the view of the Tribunal. This finding is incorrect because of the various licenses obtained by the manufacturer namely M/s.DNEX Herbal Manufacturing (India) Pvt.Ltd. which was taken note of in the afore mentioned decision. Furthermore, the literature also clearly described the product as an Ayurvedic Proprietary Medicine. Therefore the tribunal could not have adopted the common parlance test - the product is Ayurvedic Proprietary Medicines and direction was issued to the Assessing Authority to treat the items as Ayurvedic preparations and tax accordingly. We have informed that the order passed by the Kerala Sales Tax Tribunal has attained finality and the appellant therein, the person who purchased the product from the petitioner before us has also been granted refund. Since the product is same, the factual finding will bind the respondent department, though the decision was rendered by a tribunal in the State of Kerala. The revenue has not been able to bring down any material to dislodge the factual finding recorded by the Tribunal duly supported by expert opinion. Therefore, the second ground on which the tribunal refused the relief to the petitioner deserves to be set aside. Third and the last ground is that the product is marketed through multi level marketing and not sold in all the shops - Held that - This can hardly be a reason to determine the rate of tax payable on the product when it is sold. The manner in which the product is sold cannot be a test to determine the nature of the product of that matter at what rate it has to be taxed. Therefore, the Tribunal misdirected itself in referring to the method of marketing as a reason for imposing a higher rate of tax. It is common knowledge that now a days all products are available through online purchaser. Therefore, the method of purchase at a stretch of imagination cannot be a reason to impose a higher rate of tax. The Tax Case Revisions are allowed - the Substantial Questions of Law are answered in favor of the appellant.

Summary

Issues:
1. Classification of goods as Ayurvedic Medicine or Food supplement
2. Rate of tax on imported goods for different assessment years
3. Imposition of penalty

Analysis:

Issue 1: Classification of goods as Ayurvedic Medicine or Food supplement
The petitioner imported Ayurvedic Bulk Reishi Gano Powder and Gano Celium Powder, which were later filled into capsules and sold. The dispute centered around whether the product should be taxed as Ayurvedic Medicine or Food supplement. The Tribunal considered the product as falling under the residuary deal due to being imported, not being sold in medical shops, and marketed through multi-level marketing. However, the High Court found that the product underwent a manufacturing process and held various licenses supporting its classification as an Ayurvedic Proprietary Preparation. The Court referred to expert opinions and previous judgments to support the classification as Ayurvedic Medicine, rejecting the Tribunal's reasoning based on common parlance and marketing method.

Issue 2: Rate of tax on imported goods for different assessment years
The Assessing Officer levied different tax rates on the imported goods for various assessment years. The petitioner contended for a lower tax rate based on the classification as Ayurvedic Medicine. The High Court, after examining the manufacturing process and licenses obtained by the petitioner, concluded that the product should be treated as Ayurvedic preparations and taxed accordingly. The Court emphasized the importance of expert opinions and technical knowledge in determining the tax rate, rejecting the Tribunal's reasoning based on the method of marketing or sales channel.

Issue 3: Imposition of penalty
The question of imposing a penalty was also raised in the case. The High Court did not find any grounds for imposing a penalty based on the facts and circumstances presented. As the Tribunal's decision was deemed incorrect regarding the classification and tax rate of the goods, the Court allowed the Tax Case Revisions, answering the substantial questions of law in favor of the appellant. No costs were awarded in this matter.

In conclusion, the High Court's judgment clarified the classification of the imported goods as Ayurvedic Medicine, determined the appropriate tax rates based on expert opinions and manufacturing processes, and rejected the imposition of a penalty. The decision highlighted the importance of technical knowledge and expert opinions in tax assessments, ensuring a fair and accurate determination of tax liabilities.