2011 (2) TMI 1328 - HC - VAT and Sales Tax

Court Cancels Tax Penalty, Clarifies Import as Capital Goods, Not Evasion

The Court set aside the Tribunal's decision and canceled the penalty imposed on the petitioner for alleged tax evasion on the inter-State purchase of ... Penalty levied for alleged evasion of tax for inter-State purchase of steel cylinders used in the packing and sale of medical oxygen. Held that:- Even though rule 58(18) of the Rules does not authorise the petitioner being registered dealer to use form 16 for transport of capital goods, namely, cylinders purchased inter-State, the petitioner's counsel submitted that through a circular the Commissioner has permitted registered dealers also to transport goods purchased for own use under cover of form 16 issued. In view of the Commissioner's order, we feel the violation, if any by the petitioner, is only technical not involving any evasion of tax, and so much so, there is no case of penalty against the petitioner. Penalty cancelled. Appeal allowed. Issues:Challenge to penalty for alleged tax evasion on inter-State purchase of steel cylinders used in the packing and sale of medical oxygen.Detailed Analysis:1. Interpretation of Section 6(5) of the Act:The petitioner, engaged in the business of medical oxygen, purchased cylinders from outside Kerala. The Tribunal confirmed the penalty for alleged tax evasion on this purchase. The Tribunal concluded that the import of cylinders by the petitioner violated Section 6(5) of the Act and Rule 58(18) of the Rules. The definition of 'importer' and 'business' under Sections 2(xxii) and 2(ix) were crucial. The term 'importer' excludes those entitled to pay presumptive tax under Section 6(5). The Court clarified that the term 'business' in the definition of 'importer' refers to trading only. Therefore, importing goods for use as capital goods does not disqualify one from paying presumptive tax under Section 6(5).2. Capital Goods and Importer Status:The petitioner imported cylinders for packing medical oxygen, not for trading. As per the Act, 'capital goods' include equipment used in the course of business. Since the petitioner's business involved repeated packing of medical oxygen, the imported cylinders were considered capital goods. Hence, the petitioner was not an 'importer' disentitling him from paying presumptive tax under Section 6(5). The Court differentiated between trading goods and capital goods, emphasizing that the petitioner's activity did not amount to trading in cylinders.3. Liability for Tax on Rental Charges:The Court addressed the liability for tax on rental charges collected by the petitioner for cylinders supplied with medical oxygen. It was noted that such charges would not render the petitioner liable for penalty under Section 47(6) of the Act concerning the purchase of cylinders. The Court emphasized that the purchase of cylinders as capital goods for business use did not indicate tax evasion, especially when the goods continued to be used in the trade of medical oxygen.4. Technical Violation and Penalty:While the petitioner's use of form 16 for transporting capital goods violated Rule 58(18) of the Rules, the Court considered it a technical violation. The petitioner's counsel highlighted a circular permitting registered dealers to transport goods purchased for own use under form 16. The Court deemed this violation as technical and not involving tax evasion, leading to the conclusion that no penalty should be imposed on the petitioner.5. Decision and Outcome:The Court allowed the revision case by setting aside the Tribunal's orders and canceling the penalty levied under Section 47(6) of the Act. The judgment clarified the petitioner's entitlement to pay presumptive tax under Section 6(5) despite the inter-State purchase of cylinders as capital goods for the business of medical oxygen, emphasizing the distinction between trading and capital goods transactions.