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2018 (11) TMI 1272 - HC - VAT and Sales TaxImposition of penalty - genuine doubt as to the product description as per the Entries in the various Schedules - assessment of goods sold by appellant - toasted bread, crunch toast, sweet toast and milk toast - Whether they are assessable under Entry 6 of the First Schedule or Entry 7 of the Third Schedule or Entry 11 of SRO 82/06, all appended to the KVAT Act; respectively taxable @ 0%, 4 % and 12.5%, at the relevant time? Held that - In deciding the issue, we are concerned with three enactments, the KVAT Act, the Customs Tariff Act, and the Trade Marks Act. The description of the goods in one of such enactments does not at all regulate the adjudication of issue with respect to the other enactments, except where there is an item aligned to an HSN Code in the Schedule of the VAT Act, when the description would have to be understood from the description of the very same goods under the Customs Tariff Act. There is no dispute that the assessee has a brand name registered for All kinds of breads which brand name is also printed in the packet in which the goods are sold - if the specific product has not been included under the Certificate of Registration, issued under the Trade Marks Act, then, the mere fact that the trade name is printed in the package cannot result in the higher tax being levied on the product. The reason being that it is not a product sold under brand name registered under the Trade Marks Act as the recital goes in Entry 11 of SRO 82 of 2006. Bread and rusk as per the classification enabled under the Trade Marks Act are distinct products falling under the same class. So is the distinction palpable as discernible from the entries under general heading with HSN code 1905; under the Customs Tariff Act - the assessee s product to be covered under Entry 7 of the Third Schedule which deals with bakery products other than those sold under brand name registered under Trade Marks Act. We hence answer the question raised against the assessee insofar as the claim for exemption under First Schedule and against the Revenue on the claim of inclusion under SRO No. 82/2006 and declare the toasted products of the assessee to be exigible to tax under the Third Schedule. OTRev.193/2015 will stand allowed, setting aside the order in TA(VAT) No.50/2014; with the declaration as above on the question of classification raised. Penalty - Held that - From the facts and circumstances as also by reason of the debatable issue, which has been answered by the statutory authorities in a manner distinct from the approach of this Court, we are of the opinion that there should be no penalty imposed - penalty set aside. There is no ground for imposition of penalty - The question of law is answered in favor of the assessee and against the revenue.
Issues Involved:
1. Classification of toasted bread products under the Kerala Value Added Tax Act, 2003 (KVAT Act). 2. Imposition of penalty in the context of product classification doubts. Detailed Analysis: 1. Classification of Toasted Bread Products: The primary issue revolves around whether the toasted bread products should be classified under Entry 6 of the First Schedule, Entry 7 of the Third Schedule, or Entry 11 of SRO 82/2006 of the KVAT Act. Arguments and Findings: - Assessing Officer's Decision: The products fall under Entry 11 of SRO 82/2006, taxable at 12.5%, not under Entry 6 of the First Schedule. - Tribunal's Decision: Products aligned with HSN Code 1905.40.40 do not fall under "Bread of all types" in Entry 6 of the First Schedule. - Assessee's Contention: Products should be classified under "Bread of all kinds" (Entry 6) and be exempt from taxation. Alternatively, if classified under Entry 7 of the Third Schedule, a remand to the Tribunal is requested. - Court's Analysis: The court examined the classification under the KVAT Act and the Customs Tariff Act. It noted that "rusks, toasted bread, and similar toasted products" (HSN Code 1905.40.00) are distinct from "bread of all kinds" (HSN Code 1905.90.90). The classification under the Trade Marks Act was also considered, where the registration for "all types of bread" did not include toasted products. Conclusion: The toasted products do not fall under Entry 6 of the First Schedule. They are covered under Entry 7 of the Third Schedule, taxable at 4%, as they are bakery products not sold under a brand name registered under the Trade Marks Act. 2. Imposition of Penalty: The second issue is whether the penalty imposed on the assessee for the classification dispute was justified. Arguments and Findings: - Tribunal's Decision: A penalty of ?1,00,000 was imposed, reduced from ?16,99,600. - Assessee's Contention: The penalty should not be imposed due to the genuine doubt regarding product classification. - Court's Analysis: Given the debatable nature of the issue and the different interpretations by statutory authorities, the court found no grounds for imposing a penalty. Conclusion: The penalty imposed was unjustified. The court set aside the penalty, answering the question of law in favor of the assessee. Final Orders: 1. Classification Issue: The toasted products are classified under Entry 7 of the Third Schedule, taxable at 4%. 2. Penalty Issue: The penalty of ?1,00,000 is set aside, with no grounds for imposition. Ordered accordingly. No order as to costs.
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