2022 (3) TMI 931 - HC - VAT and Sales Tax

Classification of goods - rate of tax - sale of huggies - taxable @12% or not - claim of deduction of the trade discount - failure to discharge burden to prove - enhancement of turnover by ten times - allowing tax adjustment paid at the check gate in respect of tricycle, freezer, pushcart and stablizer - HELD THAT - It is seen that despite opportunities, the Assessee could not produce evidence to explain the branch transfer in respect of that container. It is seen that the AO has enhanced the turnover by 10 times by treating this as fraud . The Court is of the view that enhancement by 10 times may be disproportionate and, therefore, modifies the impugned assessment order, as affirmed by the ACST and the Tribunal, from 10 times to 5 times the turnover. The Court is unable to agree with the above submissions of the Assessee. Although the RC of the Assessee incorporates ice cream which the Assessee deals in, it does not contain the above 4 items viz., tricycle, freezer, pushcart and stabilizer. While this may be incidental to the selling of ice cream, unless these items are specifically incorporated in the RC, the 3rd proviso to Rule 36 will not stand attracted. Consequently, the Court is unable to agree with the submission of the Assessee and upholds the findings of the AO as affirmed by the Tribunal. The revision petition is disposed of.

Summary

Issues: Classification of product for sales tax, Claim for deduction of trade discount, Alleged purchase suppression, Tax adjustment on goods

Classification of product for sales tax:
The issue revolves around the classification of the product 'huggies' for sales tax purposes. The Assessee argued that huggies should be classified under 'Hosiery goods and Readymade garments' and taxed at 4%. However, the Assistant Commissioner of Sales Tax (ACST) classified huggies as sanitary napkins, subject to 12% tax. The Tribunal upheld the ACST's view. The Court rejected the Assessee's contention, stating that huggies cannot be considered as 'readymade garments' and upheld the classification under sanitary napkins. The Court ruled in favor of the Department, affirming the Tribunal's decision.

Claim for deduction of trade discount:
The Assessee claimed a deduction for trade discount, citing a Supreme Court decision supporting their stance. The Tribunal accepted the plea but upheld the Sales Tax Officer's decision to deny the deduction. The Court found the Tribunal's conclusion internally illogical and ruled in favor of the Assessee, stating that the Tribunal was not justified in denying the trade discount deduction.

Alleged purchase suppression:
Regarding alleged purchase suppression, the Assessee failed to produce evidence for one container out of 45 consignments sent via branch transfer. The turnover was enhanced by the AO, ACST, and Tribunal, treating it as 'fraud'. The Court deemed the 10 times enhancement disproportionate and reduced it to 5 times the turnover, modifying the assessment order accordingly.

Tax adjustment on goods:
The Department refused to adjust tax paid on tricycle, freezer, pushcart, and stabilizer against the admitted tax payable, citing the absence of these items in the Registration Certificate (RC). The Assessee argued for adjustment under the OST Rules. The Court upheld the Department's decision, stating that unless these items are specifically mentioned in the RC, the adjustment rule does not apply. The Court ruled against the Assessee, affirming the AO and Tribunal's findings.

The revision petition was disposed of with the Court's rulings on each issue, providing detailed analysis and legal reasoning for each decision.