VAT - Legislature providing for exemption from payment of tax does not necessarily and by itself imply that product was otherwise exigible to tax: HC
By TIOL News Service
AHMEDABAD, AUGUST 22, 2016: THE petitioner is engaged in trading in prawn feed and purchases the same from the vendors outside the State of Gujarat and sells it to aquatic farmers within the State.
In the context of the Gujarat Sales Tax Act, 1969, the question arose whether such prawn feed would be covered within Entry No.14 of ScheduleI to the Sales Tax Act concerning cattle feed.
The Deputy Sales Tax Commissioner passed an order dated 18.01.2001 and concluded that the prawn feed would be included under Entry 14 of First Schedule to the Sales Tax Act and consequentially, would be exempt from payment of tax.
Year after year, the petitioner claimed and was granted exemption from payment of sales tax on its sale of prawn feed.
The Sales Tax Act was substituted by the Gujarat Value Added Tax Act, 2003w.e.f 01.04.2006and this Act also contained an exemption Entry11 in the First Schedule referring to cattle feed. Even after introduction of the VAT Act, the authorities continued to grant exemption to the petitioner on the basis of the earlier order.
With effect from 31.03.2012, Entry78 was added to the notification of exemption issued by the Government in the exercise of powers under section 5(2) of the VAT Act. This notification granted exemption to aquatic feed from whole of the tax payable from 31.03.2012.
This development led the Assessing Officer to carry a belief that prior to 31.03.2012 aquatic feed would fall under the residuary clause and, therefore, for the year 2011-12, after hearing the petitioner, he passed the impugned order dated 30.03.2016 and held ‘prawn feed' would invite VAT under residuary clause.
A total demand of tax of Rs.16,65,34,540/- was raised along with interest and penalty.
Faced with such a gargantuan demand, the petitioner is before the Gujarat High Court and inter alia claims that the exemption notification cannot govern the classification of a product for its taxability.
The counsel for the department submitted that the order of determination which was passed by the Deputy Commissioner under the Sales Tax Act would no longer govern the taxability of the product under the VAT Act.
The High Court extracted the provisions of s.62 of the Sales Tax Act, Entry 14, section 80 of the VAT Act, entry 11 and observed -
“16. Under subsection (3) of section 80, therefore, the order of determination passed by the Deputy Commissioner under section 62 of the Sales Tax Act would continue to hold the field. When subsection (3) of section 80 refers to any question from any order already passed under the Act or under the earlier law, it necessarily includes a reference to an order of determination passed by the competent authority under the erstwhile provisions of section 62 of the Sales Tax Act. In other words, under identical situation, under subsection (1) of section 80 of the VAT Act, the authorities cannot reopen a question which is already decided by the competent authority while determining the disputed question under subsection (1) of section 62.”
Relying on the decisions in Nestle India Ltd. - 2015-TIOL-1749-HC-AHM-CT, Ponds India Limited - 2008-TIOL-116-SC-CT, the High Court held -
"19. Thus, even after introduction of the VAT Act, the order passed by the Deputy Commissioner on 18.01.2001 continued to hold the field, insofar as the question of proper classification of the petitioner's commodity viz. prawn feed was concerned.”
The High Court placed reliance on the decision dated 13.10.2006, passed in Sales Tax Reference No.2 of 2003 in case of State of Gujarat v. Mahavir Engineering & Electric Stores& judgment dated 30.06.2005, passed in Sales Tax Reference No. 6 of 1994 in case of State of Gujarat v. Electro Porcelain Industries wherein it is held that the order of determination would bind the Department.
The High Court added -
+ Assessing Officer was bound by the order of determination passed by the Deputy Commissioner and could not have taken a different view unless of course, there had been any material change.
+ We have noticed that with effect from 31.03.2012, the State Government exempted aquatic feed from all taxes. This by itself would not mean that the legislation indicated that prior to 31.03.2012 the product was taxable.
+ This exemption notification is not in the nature of clarificatory amendment either clarifying or making any amendment with retrospective effect concerning the product in question.
+ Had the legislature made any specific change either prospectively or with retrospective effect which would change the very fundamental question of taxability of the product, Assessing Officer would have been well within the power to consider such question independently ignoring the order of determination passed by the Deputy Commissioner.
+ All that the legislature has done is to provide for a specific exemption for all aquatic products with effect from 31.03.2012. This exemption entry in no manner, amended any provisions of the First Schedule to the VAT Act, which continued to carry Entry 14 pertaining to the cattle feed, and thus whether before or after 31.03.2012, all cattle feed continued to fall within the list of goods, the sale or purchase of which are exempt from tax.
+ The legislature providing for exemption of such product from payment of tax does not necessarily and by itself imply that the product was otherwise exigible to tax.
+ Question of relegating the petitioner to the alternative remedy therefore would not arise, when we find that the Assessing Officer has gone against an order of determination which was binding on him and when we find that his reasons for discarding such order of determination are wholly invalid.
Holding that the Assessing Officer could not have ignored the earlier order of determination, the impugned order was held to be wholly without jurisdiction and set aside.
The petition was allowed.
(See 2016-TIOL-1810-HC-AHM-VAT)
