2023 (11) TMI 212 - HC - VAT and Sales Tax

Classification of goods - rate of tax - Wire Nails - to fall within the meaning of Fastener as per entry 79 Part-II of Schedule II of VAT Act or under residuary entry in part IV of Schedule? - tax chargeable in entry 79 Part II of Schedule II is 5% and 14% in residuary entry Part IV of Schedule II? HELD THAT - In case of Bharat Forge and Press Industries (P) Ltd. 1990 (1) TMI 70 - SUPREME COURT the Supreme Court held that only such goods which cannot be brought under the various specific entries in the tariff schedule should be attempted to be brought under the residuary entry. In other words, unless the department can establish that the goods in question can by no conceivable process of reasoning be brought under any of the tariff items, resort can be had to the residuary item. Fasteners means is a device that mechanically joins or affixes two or more objects together. It is a device to attach especially by pinning, tying or nailing. Nuts, bolts, screws and fasteners are included in Entry 79 Part II of Schedule II of VAT Act. The function of Screw and Wire Nails is more or less similar and are normally used to attach two or more items. The respondent has to show as to why wire nails are put in residuary entry and not in Entry 79 Part II of Schedule II of VAT Act. What are the distinguishable features of wire nails to put it in the residuary entry has not been placed. There is nothing cogent on record that the wire nails cannot be put to any other entry than to residuary entry. With due respect the case law cited by the state is not applicable in the facts of the present case. The impugned order Annexure P/1 and P/6 are set aside holding that wire nails would fall within the meaning of fasteners under entry 79 of PART II of Schedule II of VAT Act - Petition allowed.

Summary

Issues involved:
The main issue in this case is whether "Wire Nails" should be classified as "Fasteners" under a specific entry in the VAT Act or under the residuary entry, which determines the applicable tax rate.

Facts and Arguments:
The petitioner, a registered dealer manufacturing HV wires and wire nails, sought clarification on the tax rate for wire nails under Section 70 of the VAT Act. The petitioner argued that wire nails should be classified under entry 79 Part-II of Schedule II, which includes fasteners taxed at 4%, rather than the residuary entry taxed at 12.5%. The petitioner cited judgments from other states supporting the categorization of wire nails as fasteners. The state contended that wire nails are hardware items and should be taxed under the residuary entry.

Legal Precedents:
The Supreme Court's rulings in Mauri Yeast India Pvt. Ltd. v. State of Uttar Pradesh and Bharat Forge and Press Industries (P) Ltd. v. Collector of Central Excise emphasize interpreting entries to match the description before resorting to the residuary entry. The burden of proving correct classification lies with the revenue authority, as established in Puma Ayurvedic Herbal (P) Ltd. v. Commissioner, Central Excise. The onus is on the state to justify placing an item in the residuary entry, as per Commissioner of Central Excise, Calcutta v. Sharma Chemical Works.

Decision:
The High Court held that wire nails should be classified as fasteners under entry 79 Part-II of Schedule II of the VAT Act, based on the definition and function of fasteners as devices that join objects together. The court found no sufficient justification for placing wire nails in the residuary entry and set aside the orders rejecting the petitioner's clarification request.

Conclusion:
The writ petition was allowed, and the impugned orders were set aside, determining that wire nails fall within the category of fasteners under the specific entry in the VAT Act. No costs were awarded in this judgment.