2018 (10) TMI 1004 - HC - VAT and Sales Tax

Validity of assessment order - Jurisdiction - Classification of product - Godrej Nupur Mehendi - GVAT Act - classified under the residuary entry 87 of Schedule II to the Gujarat Value Added Tax Act, 2003 or would be covered under Entry 34 of of ScheduleI to the VAT Act? Held that - The Assessing Officer; distinguished it by recording that the petitioners product is used more as a hairdye or as a hairtonic, and whereas, consideration before the Commissioner of the product, it is stated to be used as Mehendi on hands and feet - In our opinion, the Assessing Officer committed serious error in discarding the determination order passed by the Commissioner. Section 80 of the VAT Act pertains to determination of disputed questions. Subsection 1 of Section 80 authorizes the Commissioner to pass an order determining the question inter alia as to whether any tax is payable in respect of any particular sale or purchase or if tax is payable, the rate thereof. Once such a determination order is passed by the Commissioner, it would bind the parties before the Commissioner, which would include the assessee who might have urged the Commissioner to make the determination and necessarily the Department; unless of course either side has chosen to dispute such order in terms of appeal or revision provisions made under the Act. The Division Bench of this Court in the case of West Coast Waterbase Private Limited Anr. vs. State of Gujarat Anr., 2016 (8) TMI 1077 - GUJARAT HIGH COURT , after referring to various judgments, held that the Assessing Officer was bound by the order of determination passed by the Deputy Commissioner and could not have taken a different view unless there had been any material change. Petition allowed.

Summary

Issues:
Classification of product under VAT Act - Entry 34 vs. Residuary Entry 87

Detailed Analysis:
The petitioners challenged an order passed by the Deputy Commissioner of Sales Tax classifying their product, "Godrej Nupur Mehendi," under the residuary entry of the Gujarat Value Added Tax Act instead of under Entry 34 for "Henna Powder {Mehandi}." The petitioners argued that their product should be classified as Henna powder/Mehendi under Entry 34, which attracts no duty. The petitioners contended that the product primarily consisted of Mehendi powder with natural ingredients like amla and jaswant, used for hair, hands, and legs. They highlighted the historical acceptance of their classification by VAT authorities until the sudden change in 2013. The Assessing Officer classified the product as a hair dye or tonic, leading to higher taxation under the residuary clause.

The petitioners challenged the assessment order directly, citing a determination order by the Commissioner of Sales Tax in favor of another distributor of the same product under Entry 34. They argued that the Department cannot ignore the Commissioner's decision, especially when not disputed through appeal or revision. The Assessing Officer distinguished the determination order, emphasizing the product's use as a hair dye or tonic rather than as Mehendi. The High Court criticized this approach, citing Section 80 of the VAT Act, which binds parties to the Commissioner's determination unless challenged through appeal or revision.

Referring to legal precedents, the High Court emphasized the binding nature of determination orders by tax authorities and the prohibition against disregarding such interpretations in subsequent proceedings. The court highlighted that the Department's failure to challenge the Commissioner's order meant it was binding not only on the petitioners but also on the Department. The judgment underscored the importance of consistency in classification, especially when the same product is classified differently for manufacturers and distributors. Such inconsistencies could disrupt the tax credit mechanism and lead to incongruent situations. Consequently, the High Court set aside the assessment order, allowing the petition in favor of the petitioners.