2025 (4) TMI 687 - HC - VAT / Sales Tax

Dismissal of the appeal against the levy of VAT @ 13.75% as against the claim of 5% - Capital goods or not - failure to appreciate that mechanical bodies and pre-fab shelters sheets metals parts etc. is capital goods and taxable @ 5% - applicability of residual entry when once good falls under any of Harmonized System of Nomenclature (HSN) classification - levy of penalty is totally against the basic principles of interpretation of provision of Act and law - HELD THAT - It would be noticed that the goods manufactured by the petitioner do not fall within the definition of capital goods therefore these goods cannot be charged @5% under Part-II- A of Schedule A and are required to be charged @13.75% of Part-III of the above schedule. Therefore the authorities below have rightly held the petitioner to be liable to pay an additional demand in respect of the differential amount of VAT @8.75% for the year 2012-13 and 2013-14 upto 30.06.2013. Additionally it is found that the petitioner while making a declaration in form VAT-XXVI-A had described the goods as sheet metal parts and was thus rightly assessed under the residuary articles as it was the petitioner s case itself that goods supplied by him were highly specialized goods made to order and therefore in this manner while not mentioning the same in the invoice and giving it a different nomenclature the petitioner obviously has concealed the particulars of sale of these goods and had also furnished false and incorrect information in his returns as well as in the declarations submitted by him in form VAT-XXVI-A. Conclusion - The goods manufactured by the petitioner do not fall under the capital goods so as to attract tax @5% and were rightly taxed under the residuary entry. The authorities below have correctly interpreted the provisions of the Act and law and thereby rightly imposed not only the tax liability but also the penalty upon the petitioner. Petition dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the H.P. Tax Tribunal erred in law by not recognizing mechanical bodies and pre-fab shelters, sheets, metals, parts, etc., as capital goods taxable at 5%.

(b) Whether the Tribunal erred in law by not appreciating that once goods fall under any Harmonized System of Nomenclature (HSN) classification, the residuary entry is not applicable.

(c) Whether the Tribunal erred in law by not appreciating that the order regarding the levy of penalty was against the principles of interpretation of the Act and law, as the taxability was based on interpretation issues.

ISSUE-WISE DETAILED ANALYSIS

Issue (a) - Classification of Goods as Capital Goods

- Relevant Legal Framework and Precedents: The VAT Act defines "capital goods" as plant, machinery, or equipment used in manufacturing, processing, and packing goods for sale, excluding civil structures.

- Court's Interpretation and Reasoning: The Court found that the goods manufactured by the petitioner did not fall within the definition of capital goods. The goods, including smart tables and display counters, were not used in manufacturing processes as defined under the VAT Act.

- Key Evidence and Findings: The petitioner had sold goods like smart tables and display counters to M/s Samsung India Ltd. These goods were not included in the petitioner's Registration Certificate (RC) as capital goods.

- Application of Law to Facts: The Court applied the definition of capital goods from the VAT Act and concluded that the goods in question did not qualify as capital goods.

- Conclusions: The Court concluded that the goods were not capital goods and were thus not taxable at 5% but at the residuary rate of 13.75%.

Issue (b) - HSN Classification and Residuary Entry

- Relevant Legal Framework and Precedents: The VAT Act includes a schedule of goods with specified tax rates. Goods not specified fall under a residuary entry, attracting a higher tax rate.

- Court's Interpretation and Reasoning: The Court held that the goods did not fall under the specified entry for IT products, which would have allowed a 5% tax rate. The goods did not resemble any listed IT products.

- Key Evidence and Findings: The petitioner argued that their goods should be classified under entry No.60 for IT products. However, the goods, such as display counters and smart tables, were not listed in the entry.

- Application of Law to Facts: The Court determined that the goods did not fit within the specified entry and were correctly taxed under the residuary entry.

- Conclusions: The Court concluded that the goods were not covered by the HSN classification for IT products and were subject to the residuary tax rate.

Issue (c) - Penalty Imposition and Interpretation of Law

- Relevant Legal Framework and Precedents: Section 16(8) of the VAT Act allows for penalties if a dealer maintains false accounts or conceals sales particulars.

- Court's Interpretation and Reasoning: The Court found that the petitioner had described the goods as "sheet metal parts" in declarations, which was misleading. The penalty was imposed for concealing sales particulars and providing false information.

- Key Evidence and Findings: The petitioner had not included the goods in their RC and had provided incorrect descriptions in VAT declarations.

- Application of Law to Facts: The Court applied Section 16(8) and found that the petitioner had breached the provisions by concealing sales particulars.

- Conclusions: The Court upheld the penalty, finding that the petitioner had provided false and incorrect information.

SIGNIFICANT HOLDINGS

- The Court held that the goods manufactured by the petitioner did not qualify as capital goods under the VAT Act and were subject to the residuary tax rate of 13.75%.

- The Court found no error in the authorities' interpretation that the goods did not fall under the specified entry for IT products, thus attracting the higher tax rate.

- The Court upheld the penalty imposed under Section 16(8) of the VAT Act, finding that the petitioner had provided false information and concealed sales particulars.

Final Determinations on Each Issue: The Court dismissed the petition, affirming the decisions of the lower authorities and upholding both the tax liability and the penalty imposed on the petitioner.