2022 (7) TMI 1172 - HC - VAT and Sales Tax

Requirement of petitioner s authorized representative to make an appearance on the date stipulated - seeking direction for a refund of Rs. 2 crores which was made over as a pre-deposit for the purposes of having its objection heard by the Special Commissioner-I, Department of Trade and Taxes, GNCTD - also seeking grant of interest on the delayed release of pre-deposit i.e., Rs.2 crores - error in classification of goods - Apple Watches/transmission devices - HELD THAT - The error concerning classification cannot be separated from the facts obtaining in the case - it is also noted that the concern that this decision would impact revenue collections in the future, has been neutralized, as watches now attract a uniform tax rate of 12.5%. Entry 11 obtaining in the Fourth Schedule at the relevant point in time, stands deleted w.e.f. 09.05.2016 - the revenue implications are confined to three quarters i.e., two quarters of Financial Year (F.Y.) 2015-2016 and the first quarter of F.Y. 2016-2017. Application disposed off.

Summary

Issues Involved:
1. Legality of the show-cause notice dated 15.11.2018 issued under Section 74A(2) of the Delhi Value Added Tax Act, 2004.
2. Classification of "Apple Watch" for tax purposes.
3. Refund of Rs. 2 crores pre-deposit and interest thereon.

Issue-wise Detailed Analysis:

1. Legality of the Show-Cause Notice:
The primary issue was whether the respondent correctly invoked Section 74A of the Delhi Value Added Tax Act, 2004, by issuing the show-cause notice dated 15.11.2018. The petitioner argued that the reasons furnished by the respondent did not satisfy the twin test prescribed under Section 74A for triggering the revisionary jurisdiction, which requires demonstrating that the orders were both erroneous and prejudicial to the interests of the revenue. The court noted that the reasons provided by the respondent did not indicate any specific error in the underlying orders and primarily focused on potential revenue implications. Consequently, the court held that the twin test was not met, and the show-cause notice could not be sustained.

2. Classification of "Apple Watch":
The dispute centered on whether the "Apple Watch" should be classified under the residual entry attracting a tax rate of 12.5% or as a "Watch" under Entry No. 12 of the Fourth Schedule attracting a tax rate of 20%. The Assessing Officer initially classified it as a "Watch," leading to a higher tax demand. However, the Objection Hearing Authority (OHA) reversed this decision, concluding that "Apple Watches" were essentially transmission devices and should be taxed at 12.5%. The court agreed with the OHA's classification, emphasizing that it was a mixed question of fact and law. The court also noted that the respondent had the option to appeal the OHA's decision but chose not to.

3. Refund of Rs. 2 Crores Pre-deposit and Interest:
The petitioner sought a refund of Rs. 2 crores, which was made as a pre-deposit for having its objection heard by the Special Commissioner-I, along with interest on the delayed release of the pre-deposit. During the pendency of the proceedings, the court ordered the refund of the amount along with interest, satisfying the petitioner's claims under prayer clauses (b) and (c).

Conclusion:
The court set aside the impugned show-cause notice dated 15.11.2018, holding that the respondent failed to demonstrate the orders were erroneous as required under Section 74A. The court upheld the OHA's classification of "Apple Watches" as transmission devices taxable at 12.5% and noted that the respondent missed the opportunity to appeal the OHA's decision. The petitioner's request for a refund of the pre-deposit amount with interest was also resolved in their favor. The writ petition was disposed of accordingly.