2016 (3) TMI 330 - SC - VAT and Sales Tax

Tax Appeal Dismissed, Penalty Appeal Succeeds, Court Considers Amendments, Emphasizes Lack of Intent

M/s. Electro Optics (P) Ltd. Versus State of Tamil Nadu

The Civil Appeals challenging the tax assessment were dismissed, but the Appeal regarding the penalty imposed was successful. The Court set aside the ... Classification of goods - sale of electronic goods (survey instruments) - rate of sales tax 3% or 16% - Held that:- Part-B of the Schedule covers various kinds of goods such as agricultural products, vegetable oils, kerosene, aluminium domestic utensils, raw wool, hosiery goods, gold and silver articles, cycles, tractors, different electronic items, television sets, gramophones, all chargeable at the rate of 3%. In this background, Entry 50 of Part-B is meant to accommodate only such left over electronic system, apparatus etc. which are not specified elsewhere in the Schedule and are therefore chargeable at the rate of 3%. Clearly, if specified elsewhere and chargeable at a different rate, they cannot be included under Entry 50. This conclusion is further strengthened by a look at some of the entries in Part-F, just preceding Entry 14. Entries 10, 11, 12 and 13 cover goods chargeable at the rate of 16%, such as typewriters, teleprinters, tabulating, calculating machines and duplicating machines etc. In all these four entries there is a specific exclusion of electronic variety of these machines - the conclusion is obvious that even electronic survey instruments are covered by Entry No. 14 in Part-F of the First Schedule of the Act. - Decided in favor of revenue. Levy of penalty - Section 12 of Tamil Nadu General Sales Tax Act, 1959 - Held that:- the return submitted by the appellant was on account of bona fide belief in correctness of appellant’s stand that the goods in question were chargeable only at the rate of 3%. In our considered view, in the facts of the case it would not be proper to hold that the appellant had submitted a return which was incorrect to its knowledge or belief. Only after the outcome of the legal dispute by virtue of this judgment, the authorities can be justified in holding henceforth that the return was incorrect. In such a situation it would not be just and proper exercise of discretion to hold the appellant guilty of submitting incorrect return so as to attract penalty for the same. Hence, in the peculiar facts of the case and in the interest of justice, we set aside the balance dues of penalty. - However, the penalty already paid by the appellant shall not be refunded and the same may be retained by the respondent authorities by way of cost of this protracted litigation. - Decided partly in favor of assessee. Issues:Challenge to High Court judgment on tax assessment and penalty under Tamil Nadu General Sales Tax Act, 1959.Analysis:1. The High Court rejected the appellant's claim regarding the classification of goods sold for Assessment Years 1993-94 and 1994-95 under the Tamil Nadu General Sales Tax Act, 1959. The dispute revolved around whether the goods imported by the appellant, specifically electronic survey instruments, should be classified under Entry 50 of Part B or Entry 14 of Part F of Schedule I of the Act, attracting different tax rates.2. The appellant argued that the goods should fall under Entry 50, attracting a 3% tax rate, while the authorities contended they should be classified under Entry 14, attracting a 16% tax rate. The High Court and authorities maintained that Entry 50 covers all electronic instruments not specified elsewhere in the Schedule, and since the goods were specified as 'survey instruments' in Entry 14, they were excluded from Entry 50.3. The appellant's counsel highlighted entries in Part B of Schedule I, arguing that the use of the term 'electronic' in various entries indicated a uniform 3% tax rate for electronic goods. However, the Court held that Entry 50 of Part B was meant for residual electronic goods not specified elsewhere, and goods specified in Entry 14 were deliberately excluded from Entry 50. The Court found that even electronic survey instruments fell under Entry 14 of Part F.4. The appellant relied on a judgment in M/s BPL Ltd. v. State of Andhra Pradesh, but the Court found it inapplicable to the present case. The Court emphasized the specific wording and interpretation in the cited case were different and did not support the appellant's argument.5. The Civil Appeals challenging the tax assessment were dismissed. However, the Appeal regarding the penalty imposed deserved further consideration. The appellant's contention was based on a genuine misunderstanding due to Schedule amendments in 1993, leading to confusion about the applicable tax rate. The Court stayed the penalty realization and set aside the balance penalty amount, considering the appellant's bona fide belief and lack of mens rea.6. The Court referred to judgments in M/s Hindustan Steel Ltd. and Commissioner of Sales Tax, Uttar Pradesh, emphasizing judicial discretion in imposing penalties based on the circumstances and intent of the offender. In this case, the Court found that the appellant's submission of an incorrect return was due to a genuine belief in the correctness of their stand, warranting setting aside of the balance penalty amount.7. The Court dismissed the Civil Appeals challenging the assessment orders and allowed the Appeal regarding penalty, directing that the balance penalty amount should not be realized from the appellant. The penalty already paid was not to be refunded, serving as the cost of the litigation.