2021 (7) TMI 1038 - HC - VAT and Sales Tax

High Court rules in favor of company on tax classification dispute under Karnataka VAT Act

M/s. Asian Paints Industrial Coatings Limited Versus The State Of Karnataka Represented By The Commissioner Of Commercial Taxes, Bangalore

The High Court ruled in favor of the petitioner, a public limited company manufacturing and selling powder quoting materials, in a case concerning the ... Classification of goods - powder quoting material - to be classified under Central Excise Tariff Heading (CTH) 39 or under Entry 51 of 3rd Schedule of the Act? - applicability of Notification dated 03.04.2005 - Section 4(1)(b) of Central Excise Act - HELD THAT:- Section 4(1)(b) of the Act prescribe for liability to tax and rates thereof. Section 4(1)(ii) prescribes that in respect of goods mentioned in 3rd Schedule, the tax shall be levied at the rate of five and half percent. Entry 51 of Schedule III of the Act covers industrial inputs and packing materials as may be notified. The State Government has issued a Notification dated 30.04.2005 notifying the industrial inputs and packing materials. Entry 133 of the aforesaid Notification covers Chapter Heading No.3907, which in turn covers polyacetals, other polyethers and epoxide resins, in primary forms; polycarbonates, alkyd resins, polyallylesters and other polyesters, in primary forms. The description against Entry No.133 of the Notification matches fully with corresponding description in the Central Excise Act and therefore, in terms of Explanation III to the Notification, all the commodities covered for the purpose of the said tariff heading will be covered under Entry No.133 of the Notification. Therefore, the product of the petitioner which falls under Chapter Heading No.3907, is classified as industrial input under Serial No.133 of the Notification dated 30.04.2005 - The product namely powder coating material is primarily composed of 'Epoxide Resins' or 'Polyester Resins' and additional items are merely additives. Therefore, in terms of Rule 3(b) of General Rules of Interpretation, the classification shall be determined on the basis of 'Epoxy Resin' or 'Polyester Resin'. The reliance placed by the Respondents on the division bench decision of this court in the case of the petitioner is of no assistance to the Respondents as the product was classified by the petitioner in that case under CTH 3911.90.90 which was not covered under the Notification dated 30.04.2005. In the instant case, the product of the petitioner is covered under the Notification dated 30.04.2005. Petition allowed. Issues:Classification of powder quoting material under Karnataka Value Added Tax Act, 2003.Analysis:The petitioner, a public limited company engaged in manufacturing and selling powder quoting materials, filed a petition against the Karnataka Appellate Tribunal's judgment. The Deputy Commissioner issued re-assessment notices, claiming the material is taxable at 12.5% under a residual entry. The petitioner argued that the materials fall under Chapter Heading 3907 and should be classified as industrial inputs. The tribunal and Joint Commissioner upheld the re-assessment. The petitioner contended that the goods were rightly classified under CTH 3907, citing relevant case law. The government advocate argued that the materials were unclassified and taxable at 12.5%. The High Court analyzed the issue, referring to the Notification covering industrial inputs and packing materials. It concluded that the petitioner's product falls under Chapter Heading 3907 and is classified as an industrial input under Entry No.133 of the Notification. The Court emphasized that the classification under the Central Excise Act is not open for determination by state tax authorities. The Court rejected the Respondents' reliance on a previous decision, as the current product fell under the relevant Notification.The Court found that the Tribunal erred in its decision, setting aside the orders of the Tribunal and Deputy Commissioner. The petition was allowed, ruling in favor of the petitioner.