2022 (1) TMI 254 - HC - VAT and Sales Tax

Classification of goods - steel strip (shoe-shank) used in between the insole and sole of the shoe as iron and steel - covered under the Entry No. 40 of schedule -II Part -A of the U.P. VAT Act 2008 and taxable @ 4 % or to be included in the Lower of Shoes as mentioned in the Entry No. 150 of Schedule II Part C of the U.P. VAT Act 2008 taxable @ 4 % and treating it as an unclassified item taxable @ 12.5? - HELD THAT - Entry No. 150 of Schedule II Part C of the U.P. VAT Act 2008 shows that various items of shoe i.e. upper and lower of shoes sole ilet shoe laces are mentioned in the aforesaid entry. Had the intention of the legislature to exempt all component used in manufacture of lower of shoe which consists the lower of shoes shank and heel there was no requirement for specifically mentioning the sole in the entry no. 150 - The item sold by the applicant is only one of the component of lower of shoe which cannot be covered in the nature of lower of shoe because lower of shoe consists of three items i.e. outsole shank and heel. Admittedly the applicant is selling only shank as such it is not covered under the said entry i.e. Entry no. 150 because the entry does not refer lower of shoe and all its component. So far as the contention of the learned counsel for the applicant to that extent is rejected. In the alternative learned counsel for the applicant submitted that admittedly the goods sold by the applicant has been manufactured by the iron strip as defined under Section 14 of Central Sales Tax Act 1956 where iron strips has specifically been mentioned - the said ground has not only been taken before the Tribunal but also before the first appellate authority and same has not been considered by the authorities below. The Tribunal being the last Court of fact in para 4 of its order has referred the argument of the counsel for the applicant but has not whispered a word about the said contention in its finding. The matter is remanded to the Tribunal for fresh consideration as to whether the item sold by the applicant can fall under the iron and steel as defined under Section 14 of the Central Sales Tax Act, 1956 of Serial no. 40 - revision disposed off.

Summary

Issues:
1. Classification of item manufactured and sold by the applicant under U.P. VAT Act.
2. Applicability of tax rates on the item sold by the applicant.

Analysis:

Issue 1: Classification of item under U.P. VAT Act
The revisionist challenged the order of the Commercial Tax Tribunal, which treated the steel strip (shoe-shank) sold by the applicant as an unclassified item and imposed a tax rate of 12.5%. The revisionist argued that the shoe shank should be classified under Entry No. 150 of Schedule II, Part C of the U.P. VAT Act, taxable at 4%. The revisionist contended that the shoe shank is a component of the lower of the shoe, consisting of the outsole, shank, and heel. However, the court found that the entry specifically mentions various items of shoes but does not include all components of the lower of the shoe. As the applicant only sold the shank, it was not covered under Entry No. 150. The court rejected this argument.

Issue 2: Applicability of tax rates
The revisionist alternatively argued that the shoe shank should be taxed under Entry No. 40, which covers iron and steel as defined under the Central Sales Tax Act. The revisionist claimed that the shoe shank was manufactured from iron strips, similar to the raw material. This argument was not considered by the lower authorities. The court noted that the Tribunal did not address this contention in its findings. Therefore, the court remanded the matter back to the Tribunal for fresh consideration to determine if the item sold by the applicant falls under the definition of iron and steel under Section 14 of the Central Sales Tax Act, 1956, under Serial No. 40.

In conclusion, the court disposed of the revision and remanded the matter to the Tribunal for further consideration regarding the classification and tax treatment of the item sold by the applicant. The questions of law were answered accordingly.