2015 (3) TMI 959 - HC - VAT and Sales Tax

Rate of tax - Levy of tax on aluminum powder - Held that - It is clear that the residuary entry would not be applicable when a specific rate of tax has been prescribed on a particular commodity. In the present case, the rate of tax on aluminium has been prescribed as four per cent. The Revenue is not permitted to levy the tax at 12.5 per cent on the ground that the petitioner has been selling aluminium granules (aluminium powder) because nature of the product has not been changed. It is the aluminium granules which have been supplied by the petitioner to the railways. It is used as aluminium. There is no different use. Hence, in our opinion, the petitioners are liable to pay tax at four per cent. - question is of interpretation of aluminium mentioned in the entry. Hence, the petition is maintainable. - respondents are directed to re-assess the tax liability of the petitioner after calculating the payment of rate of tax payable by the petitioner at four per cent on aluminium granules (powder) - Petition disposed of.

Summary

Issues:
1. Assessment of tax at 12.5% on aluminium powder.
2. Applicability of specific tax rate entry vs. residuary entry.
3. Interpretation of product transformation for tax liability.
4. Availability of alternative legal remedy for tax assessment disputes.

Analysis:
1. The petitioner challenged the assessment of tax at 12.5% on aluminium powder, contending that the correct rate should be 4% as per Entry No. 36 of Schedule II, Part II of the VAT Act. The assessing authority argued that the petitioner produced aluminium granules (powder), falling under a residuary entry, hence liable for the higher tax rate. The court referred to relevant precedents to establish the correct interpretation of the product and tax liability.

2. Precedents cited by the court emphasized that when a specific tax rate is prescribed for a commodity, the residuary entry should not be applied. In this case, since the nature and use of the product remained the same, the court ruled that the petitioner should pay tax at 4% as specified for aluminium in the relevant entry, rejecting the higher rate assessment under the residuary entry.

3. The assessing authority argued that the petitioner transformed aluminium into a new product (aluminium powder), justifying the higher tax rate. However, the court distinguished this case from precedents cited by the authority, emphasizing that the question was about the correct tax rate for aluminium specifically, not the transformation of the product. As the product's nature and use remained unchanged, the court upheld the 4% tax rate.

4. Regarding the availability of an alternative legal remedy, the court acknowledged that for writ of certiorari, the alternative remedy is not a bar. Citing relevant Supreme Court judgments, the court highlighted exceptions to the exhaustion of statutory remedies rule, emphasizing that the petition was maintainable for interpretation of the tax liability on aluminium, as it did not fall under the exceptions barring the writ jurisdiction.

In conclusion, the court directed the reassessment of the petitioner's tax liability at 4% on aluminium granules (powder) and disposed of the writ petition accordingly, emphasizing the correct interpretation of tax rates and the maintainability of the petition despite the availability of alternative legal remedies.