2018-TIOL-1111-HC-KERALA-CT + Case Story

FABINDIA OVERSEAS PVT LTD Vs ACCT: KERALA HIGH COURT (Dated: June 6, 2018)

Kerala Surcharge on Taxes Act, 1957 - Writ - Sections 3 (1A) & 6 (1) & (2) & Constitution of India - Articles 14 & 301.

Keywords: Additional surcharge - Constitutional validity - Indigenous and local business - Intelligible differentia - Multinational companies - Unfavourable bias.

The assessee-company is a dealer under the Kerala VAT Act and is engaged in the retail sale of branded apparels, imitation jewellery, hand bags, wallets and belts through its retail outlets spread across the State. The goods are stock transferred by the assessee into the State from other States and sold in the State upon payment of taxes under the Kerala VAT Act. However, by placing reliance on section 3 (1A) of the Act, the assessing authority issued a notice to the assessee demanding surcharge at the rate of 10 % on the output tax collected by them for the year 2015-16, amounting to Rs.14,82,716/-. The assessee objected the demand on the ground that sub section (1A) of Section 3 of the Act is unconstitutional. However, the assessing authority rejected the the objection raised by the assessee. Therefore, the notice issued by the assessing authority is straight away challenged in the writ petition on the ground that sub section (1A) of Section 3 of the Act is unconstitutional.

Sub-section (1A) of Section 3 of the Act provides that the tax payable under sub-sections (1) and (2) of Section 6 of the Kerala VAT Act shall, in the case of national or multinational companies functioning in the State as retail chains or direct marketing chains, who import not less than 50 % of their stock from outside the State or country, and not less than 75 % of whose sales are retail business, and whose turnover exceeds Rs.5 crores per annum, be increased by a surcharge at the rate of 10 percent. Explanation I to the said provision clarifies that retail chains and direct marketing chains mentioned therein mean retail sales outlets or part of retail sales outlets of companies which share a registered business name or commercial name by way of franchise agreements or otherwise with standardized sales, purchase and promotional activities. Explanation II to the said provision clarifies that retail business mentioned therein shall mean, sales to persons other than registered dealers.

The case of the assessee was that dealers who do not import into the State more than 50 percent of their stock, but nevertheless fulfilling all the remaining conditions mentioned in the provision, were not subjected to the levy under the said provision and therefore the said levy was also a levy on the goods imported into the State. According to the assessee, such a levy should conform to clause (a) of Article 304 of the Constitution and in so far as the levy does not conform to clause (a) of Article 304 of the Constitution, the same was in violation of Article 301 of the Constitution and hence liable to be struck down.

On hearing the matter, the High Court held that,

Whether discriminatory levy of additional surcharge u/s 3(1A), among the dealers registered under Kerala VAT Act, on the basis of goods manufactured in the State as against outside State, can be said to be constitutionally valid by virtue of Article 14 & 301 of the Constitution - NO: HC

Whether contention of State that such levy of additional surcharge was introduced to promote indigenous and local business, cannot be accepted, specially in the absence of any reference in respective Budget Speech - YES: HC

++ the tax payable by a class of dealers registered under the Kerala Value Added Tax Act is increased by a surcharge at the rate of ten percent. As explicit from the provision, the same would apply only to dealers satisfying cumulatively the conditions namely, (i) that they shall be a company incorporated in India or abroad (ii) that they shall be functioning in the State as retail chains or direct marketing chains, (iii) that they shall import not less than 50 percent of their stock from outside the State or country, (iv) that not less than 75 percent of their sales shall be to persons other than registered dealers and (v) that their turnover shall be more than five crore rupees per annum. In the light of the decision of this Court in Ernakulam Radio Company v. State of Kerala and the decisions in which the ratio therein was followed, there cannot be any dispute to the fact that the levy is nothing but an additional tax on the goods sold by the dealers to whom the provision would apply. As noted, according to the assessee, in so far as the provision imposes an additional tax on dealers importing goods into the State from other States and fulfilling the remaining criteria mentioned in the provision, the same has to conform to the provisions of Part XIII of the Constitution. It is their specific case that the provision does not conform to clause (a) of Article 304 and hence violative of Article 301 of the Constitution. It is the further case of the petitioners that taxing statutes also have to conform to the principles of equality enshrined in Article 14 of the Constitution and the provision does not satisfy the requirements of Article 14 as well;

++ part XIII of the Constitution, consisting of Articles 301 to 307, is intended to ensure that inter-state barriers, both economic and political, are minimised, to protect the freedom of trade, commerce and intercourse for the economic unity of the nation. The said part of the Constitution also discourages growth of sectional and local interests of the States which would compromise the development of the nation as a whole. Among the Articles in Part XIII, Article 301 declares that subject to the other provisions of Part XIII, trade, commerce and intercourse throughout the territory shall be free. The power of the State to impose taxes on goods imported from other States cannot be doubted. Of course, the said power is subject to the limitation that such taxes shall not discriminate against the goods imported from other States. In other words, the proposition that levy of non-discriminatory tax would not infringe clause (a) of Article 304 and therefore, such levy would not violate Article 301 of the Constitution is affirmed;

++ the provision would apply only to dealers satisfying cumulatively the conditions namely, (i) that they shall be a company incorporated in India or abroad (ii) that they shall be functioning in the State as retail chains or direct marketing chains, (iii) that they shall import not less than 50 percent of their stock from outside the State or country, (iv) that not less than 75 percent of their sales shall be to persons other than registered dealers and (v) that their turnover shall be more than five crore rupees per annum. In other words, a dealer other than a company is not liable to pay surcharge under the provision even if they fulfil conditions (ii) to (v). Likewise, a dealer who fulfils condition No.(i), but not functioning in the State as a retail chain or direct marketing chain is also not liable to pay surcharge under the provision even if they fulfil conditions (iii) to (v) referred to above. Again a dealer, who effects more than 25 percent of the sales to registered dealers, but satisfies conditions (i) to (iii) and (v) is not liable to pay surcharge under the provision. Likewise, a dealer who satisfies conditions (i) to (iv), but does not satisfy condition No.(v) as regards the turnover is also not liable to pay surcharge under the provision. As far as the first three instances mentioned above are concerned, the dealers are absolved from the liability to pay surcharge irrespective of the value of the goods imported by them into the State. As such, the case of the assessee that the differentiation made among the dealers registered under the Kerala Value Added Tax Act in terms of the provision is intended or inspired by an element of unfavourable bias in favour of the goods produced and manufactured in the State as against those imported from outside, cannot be accepted;

++ the fact that the provision differentiates between dealers who do not import goods into the State from other States, but fulfils the remaining conditions made mention of in the provision and dealers, who fulfil all the conditions made mention of in the impugned provision, is not disputed. Now, the question to be examined is whether the differentiation made among the dealers registered under the Kerala Value Added Tax Act in terms of the provision is supported by valid reasons. This question is relevant also for the reason that though the legislature is given a greater latitude in tax matters and empowered even to pick and choose the subject matter of tax, it is trite that any classification that is effected by the legislature must conform to the mandate of Article 14 of the Constitution;

++ the object of the legislation as evident from the Budget Speech is that the same was introduced with a view to augment the revenue for the purpose of implementing social security measures. Though in the counter affidavit filed by the State it is contended that the levy was introduced with the specific objective of promoting indigenous and local business as well, such an object is absent in the Budget Speech of the Minister. Had the same been one of the objectives of the legislation, the same would have certainly reflected in the Budget Speech of the Minister with supporting empirical data. In the absence of such an objective in the Budget Speech, the stand taken by the State in the counter affidavit that the levy was introduced with the objective of promoting indigenous and local business cannot be accepted as a bonafide one. Further, the stand that the levy is intended to promote indigenous and local business is too vague as the State has not divulged in the counter affidavit as to what they propose to do with the revenue generated for the promotion of indigenous and local business. If the objective of the legislation is augmentation of revenue, the question is whether there can be a differentiation between dealers who are importing goods into the State from other States and who are not, for the said purpose;

++ in Digvijay Cement Co. v. State of Rajasthan, the Apex Court held that prescription of different rates of tax for interstate and intrastate sales of cement on the basis that the same would lead to increase in sales and consequent increase in the revenue earnings of the State, cannot be accepted as sufficient justification for making such a differentiation. Even otherwise, it is trite that a classification can only be based on an intelligible differentia that bears a rational nexus with the object sought to be achieved by the legislation. Such classifications shall be founded on pertinent and real differences as distinguished from irrelevant and artificial ones. It must be based on some qualities or characteristics which are to be found in all the persons put together and not in others who are left out and those qualities or characteristics must have a reasonable relation to the object of the legislation. Article 14 forbids class discrimination in the matter of imposing liabilities upon persons arbitrarily selected out of a large number of persons similarly placed. In the instant case, as noted, the object sought to be achieved is augmentation of revenue. If the object of the legislation is augmentation of revenue, a classification of the dealers based on the criterion viz., whether they import goods into the State is per se unjustifiable and unintelligible. Therefore, the levy is discriminatory and violative of Article 301 r/w clause (a) of Article 304 as also Article 14 of the Constitution;

++ the contention that the levy is only an additional tax on multi national companies falling within the criteria provided therein, and the same, therefore, does not in any way impede trade or business cannot be accepted, for the liability to pay surcharge applies only to multi national companies who import goods into the State from other States. The contention of the Government Pleader that Article 301 is not attracted in the instant case as the levy is only a levy based on the turnover of the dealer also cannot be accepted. The turnover of the dealer is not the sole criterion for the levy. The dealers who have more turnover than what is mentioned in the provision are not liable to the levy if they do not import into the State goods from other States. True, for the purpose of achieving economic parity, the States are empowered to enact legislations imposing surcharge. But, the same shall not go against the provisions of the Constitution. Economic parity and increase in revenue are certainly legitimate objects for a legislation providing for surcharge as in the instant case and an intelligible differentia can certainly be created in such a legislation by confining surcharge only to large business houses. Had it been the situation, whether this Court would have interfered with the legislation is a totally different matter. As noted, in the instant case, the legislation classifies dealers on the criterion as to whether they import goods into the State from other States. The arguments of the Government Pleader, therefore, hold good in a case of this nature.

Assessee's writ petition allowed

2018-TIOL-845-ITAT-MUM + Case Story

NEHA SARAF Vs ACIT: MUMBAI ITAT (Dated: May 16, 2018)

Income Tax - Sections 17(iii)(c), 17(2)(viii) & 36; Rule 3(7)(i)

Keywords - Employer-employee relation - Income from salary - Interest-free loan - Perquisite - TDS - Unsecured loan.

THE assessee, an individual, returned income from salary as well as income from other sources. On assessment, the AO noted that apart from her salary, the assessee had also obtained interest-free unsecured loan from her employer. Considering her monthly salary, the AO proposed to treat the value of benefit received by way of such interest-free loan as a perquisite and thus taxable under head income from salary. In her defence, the assessee claimed to have not been an employee of the firm and that the employer-employee relationship was missing, owing to which the unsecured loan received by her was not taxable. The AO further noted that the employer-firm had deducted TDS on the salary. The AO proceeded to determine value of the perquisites under Rule 3(7)(i) of the Income Tax Rules 1962. The AO further estimated interest @ 15% on such loan and added such amount to the assessee's income.

Later, the CIT(A) partly allowed the assessee's appeal. Regarding the value of perquisite towards interest-free loan, the CIT(A) held that the value of interest-free unsecured loan had to be assessed as perquisite and the allowability or otherwise of the interest in the hands of the employer was not relevant to the nature of benefit enjoyed by the assessee. The CIT(A) further held that the AO was correct in determining the value of perquisites in respect of interest-free loan but failed to follow Rule 3(7)(i) while determining the quantum of perquisite which is based on rate charged by SBI as on 1st day of the previous year in which year the assessee had received loan from the employer. Hence the CIT(A) re-determined the value of perquisite.

On appeal, the Tribunal held that,

Whether interest free unsecured loan can be treated as perquisite where it is proven that the assessee took such loan from the assessee's employer - YES: ITAT

Whether when there is a specific rule prescribing the method to determine the value of perquisites, the AO can be allowed to get away with ad hoc determination u/s 17(iii)(c)- NO: ITAT

++ the fact with regard to employment with M/s. Teej Impex Pvt. Ltd. is although disputed by the assessee, the AO has brought out clear facts to establish that the assessee is employed with M/s. Teej Impex Pvt. Ltd. and drawn salary of Rs 24 lakhs per annum. It is also an admitted fact that the assessee has taken interest free unsecured loan from her employer. Therefore, the AO was right in determining the value of perquisite in respect of interest free unsecured loan. Although the AO has determined value of perquisite as per the provisions of section 17(iii)(c), while calculating the value of perquisite he has adopted ad hoc 15% on outstanding loan amount instead of determining the value as per the prescribed rule provided under rule 3(7)(i) of IT Rules, 1962. The CIT(A) has determined the value of perquisites as per rule 3(7)(i) for Rs.20,64,938/- and allowed partial relief to the assessee. Facts remain unchanged. The assessee did not appear to controvert the findings of facts recorded by the CIT(A). Therefore, the CIT(A) was right in determining the value of perquisite as per rule 3(7)(i) and hence we are inclined to uphold the findings of CIT(A) and dismiss the appeal filed by the assessee.

Assessee's Appeal Dismissed

2018-TIOL-1105-HC-MAD-IT

YEGAMMAI Vs CIT: MADRAS HIGH COURT (Dated: April 26, 2018)

Income tax - Writ - Section 10(10C) & Rule 2BA

Keywords - exemption benefit - voluntary retirement scheme

The present assessee is the wife and legal heir of the deceased assessee, who was an employee of ICICI Bank. During the relevant year, the Bank had introduced Voluntary Retirement Scheme, by which, a consolidated payment was made to the employees. According to the Income Tax Department however, the VRS Scheme issued by the ICICI Bank was not in conformity with the Rules, and therefore, the employees were not entitled to any exemption u/s 10(10C). Therefore, the AO issued demand notice of Rs.1,93,054/-, which had been challenged under present appeal.

On Writ, the HC held that,

Whether bank employees availing voluntary retirement scheme are eligible for claiming exemption u/s 10(10C) - YES: HC

++ it is seen that Voluntary Retirement Scheme was put to judicial scrutiny in view of Rule 2BA. There were different views by various High Courts. Ultimately, in the judgment of Commissioner of Income Tax vs. Koodathil Kallyatan Ambujakshan - 2008-TIOL-427-HC-MUM-IT, the Bombay High Court dealt with Voluntary Retirement Scheme framed by RBI and held that the exemption u/s 10(10C) was applicable to the employees, who had taken benefit of the Scheme framed by RBI and observed that merely because the scheme may not expressly set out that the posts will not be filled in cannot result in the scheme not being a scheme falling u/s 10(10C) r/w r.2BA, bearing in mind the procedural nature of the rules. It will have to be read in harmonious construction with the substantive provisions of the Act so as not to render it ultra vires the provisions of the substantive provisions of the Act." Against the judgment of the Bombay High Court, the Income Tax Department has not preferred any appeal and the judgment has attained finality. However, in the case of Chandra Ranganathan & Ors. vs. Commissioner of Income Tax, Chennai, in Civil Appeal Nos.6997 - 7002 of 2009, the Supreme Court declared that the retiring employees of the RBI would be eligible for exemption u/s 10(10C) and set aside the order passed by Madras High Court, based on the circular issued by the Income Tax Department;

++ it is pertinent to note that pursuant to the judgment of the Bombay High Court in Commissioner of Income Tax vs. Koodathil Kallyatan Ambujakshan - 2008-TIOL-427-HC-MUM-IT, the Income Tax Department issued a circular that the retiring employees of RBI would be eligible for exemption u/s 10(10C). While the matter stood thus, the Division Bench of this Court in Tax Case (Appeal) Nos.1210, 1217, 1249 and 1250 of 2009, [Mr.S.Parthasarathy vs. The Assistant Commissioner of Income Tax Salary Circle III, Chennai-34], has held that if the tax effect is below Rs.2,00,000/-, which has been prescribed as a monetary limit by the circular of the Central Board of Direct Taxes in Instruction No.2/2005, the Department need not have to file an appeal to the Tribunal and the Tribunal also has not taken the circular into consideration and hence set aside the demands. The Supreme Court as well as Bombay High Court have categorically held that the employees are eligible for exemption u/s 10(10C). Rule 2BA cannot exceed the provisions of the Act. Therefore, the demand made by the Income Tax Department is per se illegal and is not sustainable any further.

Assessee's petition allowed

2018-TIOL-1104-HC-KERALA-VAT

STATE OF KERALA Vs ALUKKAS JEWELLERY : KERALA HIGH COURT (Dated: June 05, 2018)

KVAT - Writ - Section 67(1)

Keywords - cancelled issue voucher - discrepancies - suppression of stock - verification of register

During the year under consideration, the Intelligence Officer inspected the premises of assessee, who was a dealer in jewellery and who had their Head Office at Thrissur and Branches at Edappal and Pathanamthitta. Out of the many discrepancies found, a cancelled issue voucher was seen from the assessee's own books of accounts, which indicated 2000 grams of gold having been given to the artisan which, later, was cancelled. As a matter of practice, the Department was told that the assessee when transferring gold to the artisans, issues a voucher, the original of which was countersigned by the artisans and taken by the artisans along with the gold. The duplicate was maintained with the jewellery. The transfer of gold and the return of ornaments were both duly entered in the stock register. The presence of the cancelled voucher was sought to be explained by the assessee pointing out that though it was intended to be handed over to the artisan, along with gold, the goods were not handed over since the golsmith expressed an inconvenience; upon which the voucher stood cancelled and kept in the records of the assessee. The Intelligence Officer, however, found that the presence of cancelled voucher indicated a suppression of the quantity of gold so transferred and the ornaments received back. The Tribunal cancelled the same on the ground that the artisan was not summoned and the stock register was not verified.

On Writ, the HC held that,

Whether burden of proof is required to be taken care of by the dealer by enabling verification of stock register, in case of discovery of cancelled voucher during inspection - YES: HC

Whether when there is disclosure in the books of accounts, then no penalty can be imposed when there is no contumacious conduct discernible from the action of assessee - YES: HC

++ it is noted that Section 67 of the KVAT Act, which, by the Explanation, casts the burden of proof on the person who is alleged to have committed an offence leading to evasion of tax. In the context of the burden being squarely on the shoulders of the assessee, it was for the assessee to seek summoning of the artisan and enable verification of the stock register. The assessee has not filed any application before the Intelligence Officer to summon the artisan. The assessee also did not produce the stock register and specifically point out the entry made to absolve himself from the liability. The burden stands undischarged. In such circumstance, we find that the Tribunal erred insofar as casting the burden on the Intelligence Officer; contrary to the statutory prescription. The burden to prove that the artisan had refused to take the gold as per the issue voucher which led to its cancellation was that of the assessee. The assessee ought to have sought for summoning the artisan to be examined before the Intelligence Officer; which the assessee failed to do. The assessee also failed to discharge its burden by enabling verification of the stock register, by producing it and pointing out the specific transaction which stood cancelled; recovered by the Intelligence Officer. We, hence, set aside the deletion of penalty on account of the cancelled voucher;

++ the further issue is with respect to sale of fixed assets, which was not disclosed in the monthly return. The counsel for assessee argued that the same was available in the books of accounts and relied on a decision of this Court in Kollanur Agencies v. Assistant Commissioner [(1991) 80 STC 177] and that of the Supreme Court in Sree Krishna Electricals v. State of T.N - 2009-TIOL-57-SC-CT. In both the said cases, the assessee had disclosed the transaction in the books of accounts; but, however, not paid tax. The Court found that when there is disclosure in the books of accounts, there could be no penalty imposed; obviously since there could be no contumacious conduct discernible from the action of assessee. The provision for self assessment creates an obligation on the assessee to file a correct return; more onerous than in a regime which mandates a regular assessment. The submission of Revenue's counsel that the filing of an incorrect return as available u/s 67(1)(d) assumes more rigour in the teeth of onerous obligation, resulting in imposition of penalty without reference as to whether there has been disclosure made in the books of accounts, has to be accepted. On the question raised with respect to sale of fixed assets, the assessee had filed an incorrect return and had not returned the sale of fixed assets nor paid tax in accordance with that. Even after issuance of notice on penalty, the assessee filed an annual return without showing the said liability. A revision of the annual return was carried out and only then the liability satisfied. On the issue of cancellation of voucher, we are of the opinion that the penalty as levied at 170% by the FAA can be affirmed. With respect to the quantum of penalty on the sale of fixed assets, since the assessee had filed revised return, paid tax and also interest from the due date, we are of the opinion that the same can be reduced to the actual amount of tax sought to be evaded.

Assessee's petition partly allowed

2018-TIOL-1103-HC-KERALA-VAT

BATA INDIA LTD Vs STATE OF KERALA: KERALA HIGH COURT (May 22, 2018)

Kerela VAT Act - Writ - Sections 25(1) & 67

Keywords - classification of goods - levy of penalty - retrospective amendment

The assessee is a manufacturer and dealer in footwear. During the relevant year under consideration, the penalty proceedings were initiated by ITO on basis of an inspection of the business premises and the Shop Inspection Report prepared. Resultantly, it was alleged that claim made by assessee in its return of reduced tax liability @ 4% could not be sustained. The allegation was that the entire products, over which the reduced rate of 4% was claimed would not come within Entry 87, which at that point, before being retrospectively amended, read as "moulded plastic footwear, Hawai Chappal and parts thereof". Subsequently by Kerala Finance Act, 2006, an amendment was brought in, and Entry 87 was substituted retrospectively. Even though, the ITO passed an order of penalty just a few days after the amendment. This levy of penalty was confirmed by the FAA as well as the Tribunal, though reducing the quantum to that equal to tax evaded.

In the meanwhile, the AO also initiated proceedings u/s 25(1) and issued notices alleging misclassification. The assessee filed a reply pointing out that the provision was amended retrospectively. Since the time for filing revised returns was over, a statement was produced reclassifying the goods on the basis of MRP, which was the provision available as amended by the Act of 2007. The AO also found that there was misclassification on the basis of the umamended Entry. It was also held that there was no evidence produced with respect to the goods and their classification even in accordance with the MRP as per the amended provision. The AO also confirmed the proposal u/s 25(1) of the Act of 2003.

On Writ, the HC held that,

Whether penalty can be imposed on dealers in a proceeding initiated for misclassifying the goods based on an entry that was un-available in the assessment year - NO: HC

++ it is seen that the proceedings were initiated for misclassification based on Entry 87 as it stood prior to amendment. Act of 2003 was in force from April 01, 2005 and it continued so in the year 2005-06, after which it stood amended in the year 2006-07 and was substituted in its entirety in 2007, retrospectively with effect from April 01, 2005. When the penalty proceedings were initiated, Entry 87 was as originally stood from the date of effect of Act of 2003. The proceedings initiated was perfectly in order subject only to the contention of assessee against the allegation of misclassification alleged by the Department. However, by the time, the penalty order was passed, Entry 87 under the IIIrd Schedule had been amended. Reduced rate @ 4% was applicable to all footwear having MRP at or below Rs.200/-. Hence there could not have been an order passed for reason of misclassification, since even footwear of all kinds as found in entry 43 of the SRO No.82 of 2006 would also be entitled to such exemption if the MRP is at or below Rs.200/-. Then there should have been a fresh notice issued. But an order was passed without noticing the unamended provision. An appeal was taken, wherein there was a remand. The I.O could have then issued a fresh notice based on the amended provision. This was also not done. In a proceeding initiated for misclassifying the goods based on an entry, that was un-available in the assessment year, there could be no penalty imposed;

Whether when the irregularity is in the notice itself having been issued on the basis of a non existent provision, then the remand proceedings would necessitate fresh notice u/s 25(1) of KVAT Act - YES: HC

Whether penalty can be levied in case of retrospective amendment of Entries, when there is no contumacious conduct alleged during the period - NO: HC

++ it is however seen that the assessee had failed to file a return as per the amended provision. The AO has ample powers u/s 25 to initiate proceedings for assessment, if there is an incorrect return filed or there is absolutely no return filed. This was a fit case in which on amendment, when the assessee failed to file revised returns as per the amended provision, the AO could have initiated proceedings u/s 25(1) of the Act of 2003 to assess the turnover of assessee on the basis of the amended provision. The AO thought it fit to issue notice based on the unamended provision, as is evident from the reference to the SIR of the I.O in the notices u/s 25(1). We cannot countenance the attempt of Revenue's counsel to sustain the assessment on the contention that the notice of assessment, if at all was for taxing the goods of the assessee under Entry 43 of SRO No.82 of 2006. The attempt to sustain the notice as one under Entry 43 of SRO 82 of 2006, fails for reason of the specific reference, in the notice u/s 25, to the SIR and the penalty proceedings, which were based on the unamended provisions. In such circumstances, we do not think that the assessment as initiated by the AO also could be sustained;

++ the Revenue's counsel also attempted to argue for a remand. A remand at this stage would take the proceedings beyond the period of limitation. We could only remand the issue to be considered from the stage of irregularity. Here the irregularity is in the notice itself having been issued on the basis of a non existent provision. The notice itself being based on the unamended entry, a remand would necessitate a fresh notice under Section 25(1) based on Entry 87 as it stands from April 01, 2005. The said exercise would be hit by limitation and we do not think that this Court in revision should extend the period of limitation. The penalty at any rate cannot be sustained since the Entry was retrospectively amended and there could be no contumacious conduct alleged during the period; neither based on the unamended entry nor the amended one. The original entry stood substituted and hence there could be no misclassification alleged. As far as the retrospective amendment the assessee's knowledge of the new entry is only from the date of amendment.

Assessee's revision petition allowed

2018-TIOL-1102-HC-MAD-CT

STATE OF TAMIL NADU Vs ASWIN COLOUR TRADERS : MADRAS HIGH COURT (Dated: April 20, 2018)

TNGST - Writ - basic dyes - classification of commodity - levy of penalty - pigment - revised assessment

The assessee is a dealer in dyes and chemicals, purchased Ammonia Victoria blue, rhodamine, methyl violet, oil blue, oil green and croum scarlet, from outside the State. For the assessment year under consideration, the AO originally assessed the turnover of Rs.7,52,965/- at 8% tax, as dyes falling under Entry 16 of Part C of 1 Schedule and also levied penalty of Rs.60,237/-. Subsequently, the AO revised the assessment, by levying 16% tax, on the said turnover, under Entry 18(ii) of Part C of I Schedule to the Act, treating the commodity as colour and pigments. On appeal, the ACCT(A) revised the assessment and re-determined the taxable turnover at the rate of 8%. This was confirmed by the Tribunal by holding that dyes and chemicals sold by assessee were taxable at 8%, under Entry 16 Part 'C' of the First Schedule of the Tamil Nadu General Sales Tax Act, 1959.

On Writ, the HC held that,

Whether dyes and chemicals are taxable at 8% under Entry 16 Part 'C' of the First Schedule of the Tamil Nadu GST Act, 1959 - YES: HC

++ the question to be decided is whether the goods purchased and sold by the assessee, viz., Ammonia Victoria blue, rohodamine, methyl violet, oil blue, oil green and croum scarlet, which according to them, are basic dyes and acid dyes, taxable at 8%, as per Entry 16 of Part C of the First Schedule or colours and pigments, liable to tax at 16% under Entry 18(II) and (III) of Part E of the 1st Schedule. In order to ascertain the actual nature of goods purchased and sold by the assessee, we called for the assessment files of the dealer. Perusal of the same shows that during the assessment year 2000-01, most of the purchases are made from Ahmadabad, Mumbai, Sinnar and other places and a cursory look at the interstate purchase details, reveals that the sellers are mostly dealing with chemicals. Similarly, perusal of the local sale purchases, also reflect purchase from sellers, dealing with chemicals. Details found in the assessment file, do not suggest strong evidence that the sellers are engaged in sale or paints or enamels. Goods grouped in Entry 18(II) and (III) of Part E of the 1st Schedule, relate to paints and enamels not otherwise specified in this schedule including powder paints, stiff paste paints and liquid paints; colours; and pigments, including water pigments and leather finishes;

++ the Approach of the Tribunal in ascertaining the legislative intent with reference to the disputed word and scrutiny of the purchase invoices of the assessee, to ascertain the goods purchase and sold, to arrive at a conclusion that the goods sold are 'dyes', taxable at 8% as per Entry 16 of the Part C of the 1st Schedule, cannot be said to be perverse. On the fact and circumstances of this case, we are of the view that there is no material irregularity or illegality in the orders of the appellate authority and the Tribunal, warranting reversal.

Revenue's revision petition dismissed