2017 (4) TMI 73 - HC - VAT and Sales Tax

Classification of goods - air gun - air pistol - Whether air gun and air pistol are to be taxed under Entry 124 of Schedule-II toys including electronic toys , or is to be taxed as arms and ammunition vide Entry 2 of Schedule IV? - Held that - as dispute regarding the classification was not getting settled, the matter referred to Larger Bench.

Summary

Issues:
1. Classification of 'air gun' and 'air pistol' for taxation under Entry 124 of Schedule-II or Entry 2 of Schedule IV.
2. Justification of the Commercial Tax Tribunal's decision regarding the classification of 'air gun' and 'air pistol'.
3. Tax rate applicability based on the usage of 'air gun' and 'air pistol' for recreational purposes.

Issue 1:
The primary issue in this case revolves around the classification of 'air gun' and 'air pistol' for taxation purposes under Entry 124 of Schedule-II as 'toys including electronic toys' or under Entry 2 of Schedule IV as 'arms and ammunition'. The Commissioner, Commercial Tax, opined that these items should be taxed as 'arms and ammunition'. The Tribunal upheld this decision, leading to the revisionist challenging it. The key questions for consideration include whether the Tribunal was justified in its classification without considering the manufacturing aspects, the potential of bodily injuries, and the recreational use of these items.

Issue 2:
The Court referred to a previous case where the classification of 'air gun' was discussed under the sales tax regime. It was established that even though air guns may not be lethal to the extent of causing death, they are capable of inflicting bodily injuries. The definition of 'arms' was crucial in this context, emphasizing that any article designed or adapted as a weapon for offense or defense falls under this category. The Court upheld the Tribunal's decision based on the understanding that 'arms' encompass items capable of causing bodily harm, which includes air guns.

Issue 3:
The term 'arms' is not explicitly defined in the Act, leading to a debate on its interpretation. The applicant argued that 'arms' should be understood in common parlance as weapons for offense or defense, citing the Arms Act, 1959. However, the contention was that air guns are primarily used for sports or entertainment purposes, making them akin to toys rather than weapons. Reference was made to a Kerala High Court judgment that disagreed with the classification of air guns as 'arms'. The Court acknowledged the differing views on this matter and decided to refer the questions to a Larger Bench for clarification.

This detailed analysis of the judgment highlights the intricate legal arguments and interpretations surrounding the classification of 'air gun' and 'air pistol' for taxation purposes, emphasizing the importance of defining terms like 'arms' in the absence of a specific statutory definition. The Court's decision to refer the matter to a Larger Bench signifies the complexity and significance of the issues raised in this case.