2015 (12) TMI 1337 - HC - VAT and Sales Tax

Demand of tax and interest - Packed masala - AO was of the view that in so far as Asafoetida (Hing) is concerned, the tax of 4% only was being paid but the AO was of the view that it falls in the category of Packed Masala and once it is a Packed Masala, it falls in the entry where levy of tax is @16% - Held that - When Entry No.82 is seen, the word used like after masala and the legislature intended like means mirchi, dhania, sonf, methi, ajwain, suwa, haldi, kathodi, amchoor and asalia jeera (cumin seeds), which, in my view, are illustrative and not exhaustive and therefore, all like items would also fall within the category of Entry No.82. The Entry No.184 prescribes Packed Masala where two or more ingredients are mixed and sold in packed conditions which was clarified by a notification issued by the Dy. Secretary, Finance Department (Tax Division), Government of Rajasthan vide notification dt.12/11/2001 to mean Packed Masala - Jaljira is made with grinding and mixing of different spices so that a new commercial commodity known by a different name comes up whereas in the case of preparing Asafoetida (Hing), spices are not mixed and only Gum Arabic and Wheat Flours are added which in my view are not spices. When spices are not mixed, it remains Asafoetida (Hing) only and no new product emerges. Even if we take common and commercial parlance meaning of the term Masala , in my view, spices/Kirana items being sold singly would not come within the meaning of the term Packed Masala and in common and commercial parlance, Masala is always treated to be mixing of two and more spices and since Asafoetida (Hing) is not mixture of two and more spices, therefore, it cannot be termed as a Masala. It is also worth mentioning that the claim of counsel for the respondent that in most of the States Asafoetida (Hing) finds place in the list of Kirana goods, also supports contention of the Tax Board and the arguments raised by counsel for the respondents and not disputed by the counsel for the Revenue. - Tax Board has correctly analyzed the Entry No.82 and no contrary view can be taken in the facts and circumstances of the instant petitions. When the very levy of rate of tax @ 4% has been found to be properly levied then the question of penalty does not arise. - Decided against Revenue.

Summary

Issues involved:
1. Classification of Asafoetida (Hing) as a Kirana item or Packed Masala.
2. Applicability of tax rate (4% vs. 16%) on Asafoetida (Hing).
3. Legitimacy of penalty imposed by the Assessing Officer (AO).

Issue-wise detailed analysis:

1. Classification of Asafoetida (Hing) as a Kirana item or Packed Masala:

The central issue in the case was whether Asafoetida (Hing) should be classified as a Kirana item or a Packed Masala. The AO contended that Asafoetida (Hing) falls under the category of Packed Masala due to the addition of Gum Arabic and Wheat Flour, thereby attracting a higher tax rate of 16%. The respondent-assessee argued that Asafoetida (Hing), despite the addition of these substances, remains a Kirana item and should be taxed at 4%. The Tax Board supported the respondent's view, stating that the addition of Gum Arabic and Wheat Flour does not transform Asafoetida (Hing) into a Packed Masala. The court upheld the Tax Board's decision, noting that the nature of Asafoetida (Hing) remains unchanged and it does not fall within the definition of Packed Masala.

2. Applicability of tax rate (4% vs. 16%) on Asafoetida (Hing):

The AO's decision to levy a 16% tax on Asafoetida (Hing) was based on its classification as Packed Masala. However, the Tax Board and the court found that Asafoetida (Hing) should be taxed at 4% as it falls under Entry No. 82, which includes Kirana items. The court referred to the relevant entries and a notification clarifying that Packed Masala involves mixing two or more ingredients sold in packed conditions, which was not the case with Asafoetida (Hing). The court concluded that the addition of Gum Arabic and Wheat Flour does not change the essential character of Asafoetida (Hing), thus it should be taxed at the lower rate of 4%.

3. Legitimacy of penalty imposed by the Assessing Officer (AO):

The AO imposed a penalty under Section 65 of the RST/VAT Act, which was upheld by the Deputy Commissioner (Appeals) but later set aside by the Tax Board. The court agreed with the Tax Board, stating that since the correct tax rate was found to be 4%, the penalty was unjustified. The court emphasized that the classification of Asafoetida (Hing) as a Kirana item was correct, and therefore, the imposition of a penalty was unwarranted.

Conclusion:

The court dismissed the revision petitions filed by the petitioner-Revenue, affirming the Tax Board's decision that Asafoetida (Hing) is a Kirana item and should be taxed at 4%. The court also upheld the Tax Board's decision to set aside the penalty imposed by the AO. The judgment emphasized the consistent classification of Asafoetida (Hing) in other states and previous rulings, reinforcing its status as a Kirana item rather than Packed Masala.