2015 (5) TMI 496 - HC - VAT and Sales Tax

Denial of concessional rate of tax - Assessing Officer, while granting the concessional rate of tax to Air Compressors being capital goods, denied the same in respect of the sale effected by the petitioner through its distributors - Held that - just because of having sold by the manufacturers of machinery and its spares, components and accessories to their buyers being the dealers in such lines for further distribution to the industry, would not alter the legal position and subject these goods for levy at the higher rate of 14.5%. In respect of the identical products as manufactured by the petitioner, namely, Industrial Air Compressors, an application was filed by M/s.Schumak Equipments India Pvt. Ltd., who are manufacturers of Industrial Air Compressors and they sought for clarification as regards the rate of tax for industrial air compressors. Advanced Ruling Authority, by order dated 24.06.2014, clarified that Industrial Air Compressors are liable to tax @ 5% as capital goods within the meaning and scope of Entry 25 of Part-B of First Schedule r/w Section 2(11) of the TNVAT Act, 2006. In the light of the subsequent development, this Court is of the view that the Assessing Officer should take note of the clarification issued by the Advanced Ruling Authority. So far as the rate of tax is concerned, the order of the Advanced Ruling Authority dated 24.06.2014 would be prima facie applicable - Decided in favour of assessee.

Summary

Issues:
Challenging assessment orders for assessment years 2006-2007 to 2011-2012 - denial of concessional rate of tax on air compressors being capital goods and reversal of input tax credit for 2011-2012 due to non-production of 'C' declaration forms.

Analysis:
The petitioner challenged assessment orders for various years, primarily contesting the denial of concessional tax rate on air compressors, asserting they were capital goods. The Assessing Officer refused the concessional rate for sales through distributors, despite the goods being used as capital goods by end-users. The petitioner provided records to support their claim, but the Assessing Officer rejected them. Additionally, the petitioner disputed the reversal of input tax credit for 2011-2012 due to non-submission of 'C' declaration forms, which were available post-assessment. The petitioner sought a fresh opportunity to present these forms.

Regarding the denial of concessional tax rate for sales through distributors, the petitioner cited a ruling stating that goods sold through dealers for industrial use should attract the same lower tax rate as direct sales by manufacturers. An Advanced Ruling clarified that Industrial Air Compressors are taxed at 5% as capital goods. The court emphasized that the Assessing Officer should consider such clarifications. Despite sales through distributors, the legal principles should apply similarly, especially since the petitioner now has the necessary 'C' declaration forms for the disputed year.

Consequently, the court allowed the writ petitions, quashed the impugned orders, and remanded the matter for fresh consideration. The respondent was directed to grant a personal hearing to the petitioner, allowing the submission of relevant records and the Advanced Ruling Authority's decision. The respondent must issue a new order within eight weeks post the personal hearing. No costs were awarded, and connected miscellaneous petitions were closed.