2024 (1) TMI 668 - HC - VAT and Sales Tax

Seeking issuance of issuance of a writ of certiorari - calling for the records leading to Exhibits P7, P8 P9 orders issued by the 3rd respondent - seeking to declare that the Multi-Function Printer traded by the petitioner, falls under Entry 69(22)(c)(i) of the 3rd Schedule to the KVAT Act, 2003, attracting tax @ 4%/5% as applicable in the respective year - penalties - HELD THAT - It is not in dispute that the Customs authorities had accepted classification of the machines under HSN Code 8443 3100 under the head 'Digital Multifunctional Device' under the provisions of the Customs Act and the Customs Tariff Act, which is corresponding to Entry 69(22) (c)(i) of the Third Schedule to the KVAT Act. The importer-seller itself had classified the said products under Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act with HSN Code 8443 3100 under the Customs Act and the Customs Tariff Act. When the importer-seller had classified its machine under HSN Code 8443 3100, which falls under Chapter 84 of the Customs Tariff Act corresponding to Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act, the petitioners herein being re-sellers of the machines purchased from the importer-seller could not adopt a different classification. In the present cases, when the importer- seller had classified the said machines as 'Digital Multifunctional Devices' with HSN Code 8443 3100 under the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975 at the time of import and the said HSN Code is identical to Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act, the petitioners cannot be said to have wilfully classified the machines under a wrong head with the intention to evade payment of correct/higher rate of tax at 13.5%. The penalty proceedings has to be initiated when there is wilful or contumacious act on the part of the assessee to evade payment of correct tax. The petitioners had reason to adopt the said classification as 'Digital Multifunctional Devices', as they being re-sellers could not have classified the machines to a different classification. The initiation of penalty proceedings against the petitioners are not justified and therefore, the penalty orders impugned in these cases are hereby set aside. Petition allowed.

Summary

Issues Involved:
1. Classification of "Multi-Function Printer" under KVAT Act.
2. Constitutionality of the Amendment via Kerala Finance Act, 2014.
3. Validity of penalty proceedings under Section 67 of the KVAT Act.

Summary:

1. Classification of "Multi-Function Printer" under KVAT Act:
The petitioners, engaged in the sale of IT products, classified the "Multi-Function Printer" under Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act, attracting a 4%/5% VAT. The Intelligence Officer, however, classified the machines under serial No. 30 in the 'list of goods taxable at 12.5%/13.5%/14.5%', leading to penalty proceedings under Section 67 of the KVAT Act for alleged wilful misclassification. The Court noted that the importer-seller had classified the machines as 'Digital Multifunctional Device' under HSN Code 8443 3100, corresponding to Entry 69(22)(c)(i) of the Third Schedule to the KVAT Act, and the petitioners, as re-sellers, could not have adopted a different classification. The Court referenced the Supreme Court decision in Sarvesh Refractories (P) Limited v. Commissioner of Central Excise and Customs [(2007) 13 SCC 601], affirming that the classification by the manufacturer should be followed by the re-seller.

2. Constitutionality of the Amendment via Kerala Finance Act, 2014:
The petitioners challenged the Amendment via Kerala Finance Act, 2014, which removed the two stages of appellate remedies and the right of revision on a substantial question of law before the High Court, as unconstitutional. The Court did not explicitly address this issue in the judgment, focusing instead on the classification and penalty proceedings.

3. Validity of penalty proceedings under Section 67 of the KVAT Act:
The penalty proceedings were initiated on the premise that the petitioners submitted an untrue or incorrect return by misclassifying the machines to evade higher tax rates. The Court emphasized that for penalty proceedings under Section 67(1) of the KVAT Act, there must be satisfaction of the authority that the return was incorrect and there was an intention to evade tax. The Court found that the petitioners' classification was based on the same classification adopted by the importer-seller and could not be deemed wilful misclassification with intent to evade tax. Consequently, the penalty orders (Exts. P11 to P13 and Exts.P7 to P9) were set aside, and the writ petitions were allowed.

Conclusion:
The Court allowed WP(C) Nos. 22343/2015 & 23630/2016, setting aside the penalty orders against the petitioners. Following this, the penalty orders against the petitioner-importer/seller in WP(C) Nos. 31955, 32003 & 31902 of 2015 were also set aside. The writ petitions were allowed without any order as to costs, and pending interlocutory applications were dismissed.