O.T. Rev. Nos. 120 of 2014 and 121 of 2014, High Court of Kerala (Ernakulam)

**OT.Rev.No.120 OF 2014** **1** # **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** **&** **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **TUESDAY, THE 12TH DAY OF NOVEMBER 2019 / 21ST KARTHIKA, 1941** ## **OT.Rev.No.120 OF 2014** **AGAINST THE ORDER/JUDGMENT IN TAVAT 344/2008 DATED 14-05-2009 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM** ## **REVISION PETITIONER/S:** **M/S. PERFECT AGENCIES CIVIL STATION WARD, ALAPPUZHA, REPRESENTED BY ITS MANAGING PARTNER, SHRI.A.G.ABDUL RAHMAN.** **BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.DIVYA RAVINDRAN SRI.V.P.NARAYANAN** ## **RESPONDENT/S:** **STATE OF KERALA REPRESENTED BY THE CHIEF SECRETARY TO GOVERNMENT, SECRETARIAT, THIRUVANANTHAPURAM.** ## **OTHER PRESENT:** **SR.GP-SRI. V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 12.11.2019, ALONG WITH OT.Rev.121/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE C.K.ABDUL REHIM** ## **&** ## **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **TUESDAY, THE 12TH DAY OF NOVEMBER 2019 / 21ST KARTHIKA, 1941** ## **OT.Rev.No.121 OF 2014** **AGAINST THE ORDER/JUDGMENT IN TAVAT 345/2008 DATED 14-05-2009 OF KERALA VAT APPELLATE TRIBUNAL, ERNAKULAM** ## **REVISION PETITIONER/S:** **M/S PERFECT AGENCIES CIVIL STATION WARD, ALAPPUZHA, REPRESENTED BY ITS MANAGING PARTNER, SHRI.A.G.ABDUL RAHMAN.** **BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.DIVYA RAVINDRAN SRI.V.P.NARAYANAN** ## **RESPONDENT/S:** **STATE OF KERALA REPRESENTED BY THE CHIEF SECRETARY TO GOVERNMENT, SECRETARIAT, THIRUVANANTHAPURAM.** **SR.GP-SRI. V.K.SHAMSUDHEEN** **THIS OTHER TAX REVISION (VAT) HAVING BEEN FINALLY HEARD ON 12.11.2019, ALONG WITH OT.Rev.120/2014, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** ## **C.K.ABDUL REHIM & AMIT RAWAL, JJ. -------------------------------O.T Rev. No.120 and 121 OF 2014** **---------------------------------** ## **Dated this the 12[th] day of November, 2019** ## **O R D E R** ## **C.K.ABDUL REHIM, J** These tax revision cases arise out of a common order passed by the Kerala Value Added Tax Appellate Tribunal, Ernakulam in the Appeals, TA (VAT) Nos.344 and 345 of 2008 dated 14.5.2009. 2. The revision petitioner is a dealer in mosquito repellents. With respect to the assessments periods 4/2006 to 11/2006, they filed return conceding tax liability at 4% with respect to the said goods. But assessment was proposed on the basis that the rate of tax leviable on mosquito repellent is 12.5%; instead of 4%. Even though, the proposal was communicated, the revision petitioner has not raised any serious dispute with respect to the proposal. Therefore the assessment was finalized by computing tax @ 12.5%. Simultaneously, proceedings for imposition of penalty under Section 67 of the Kerala Value Added Tax Act (KVAT Act) was initiated alleging non payment of tax due under the Act. The proposal was to impose penalty to the tune of Rs.8,85,398/-, being double the amount of tax due. By rejecting the request to drop the **OT.Rev.No.120 OF 2014 4** proceedings for imposition of penalty, the proposal was finalized and through an order passed by the Assessing Authority dated 30.6.2007, penalty was imposed to the extent as mentioned above. 3. The revision petitioner took up the matter in Appeal before the Deputy Commissioner (Appeals) Commercial Taxes, Kollam. But the first appeals were dismissed by repelling the contention raised to the effect that the product dealt with by the revision petitioner is classified under Entry No.44 (5) of the III[rd] Schedule of the KVAT Act. On the other hand, it was found that mosquito repellents and accessories are included in Serial No.66 in the list of goods taxable under 12.5%, notified under SRO No.82/86. In the second appeals filed before the Tribunal it was held that, the commodity is taxable at 12.5% from 1.7.2006 onwards, because of the Entry No.66 of SRO 82/06. It was noticed that, as per the Finance Act, 2006, the HSN Codes were omitted from Entry 44(5) of Schedule III. It was also noticed that HSN Code was also removed from Entry 66 of SRO 82/06 also. Therefore it is held that the commodity is taxable at the rate of 12.5% under Entry 66 of SRO No.82/2006, with effect from 1.7.2006. The Tribunal further held that, in view of the **OT.Rev.No.120 OF 2014** **5** deletion of the HSN Code from Entry 44(5) of Schedule III, the revision petitioner was aware that they are bound to remit the differential tax due by filing revised returns. Since there occurred failure in that respect, provisions of Section 67 will be attracted and the imposition of penalty for filing of wrong return has to be justified. But the imposition of penalty as well as collection of tax at the higher rate was limited from 1.7.2006 onwards. Further, the quantum of penalty was reduced to an equal amount of the tax due, instead of double the amount of tax. It is aggrieved by the decision of the Tribunal, the above revision petitions are filed. 4. Learned counsel for the revision petitioner has brought to our attention a Division Bench judgment of this Court, in **Reckitt Benckiser (India) Ltd v. Commissioner, Commercial Taxes, Thiruvananthapuram and Others [2009] 22 VST 459 (Ker)** . Question with respect to the rate of tax applicable to the commodity of mosquito repellent was dealt with in the said case. Referring to the Rule of Interpretation of Schedules, appended to the KVAT Act, it was observed that, the commodities which are given 4 digit HSN Number shall include all those commodities coming under that head of the HSN. **OT.Rev.No.120 OF 2014 6** Applying the said Rule, it was found that the commodities included under Entry 44(5) of the III[rd ] Schedule is provided with HSN Code 3808. It was also found that HSN Code 3808.10.91 contained in the Customs Tariff Act relates to repellents for insects such as flies, mosquitoes. Therefore, by applying the above said Rule of Interpretation those items will fall under Entry 44(5) of the III[rd] Schedule, is the finding. When Entries 66 of SRO 82/06 was considered, it was found that, provisions contained in Section 6 (1)(d) of the KVAT Act prohibits issuance of any notification prescribing any higher rate of tax with respect to items covered under the Schedule II and III of the Act. As long as any items specifically covered under any of the entries in II[nd] or III[rd] Schedule, it was held that, the Government ceases to have any authority to issue notification prescribing any specific rate of tax for it. Therefore it was found that, dehors the coverage of mosquito repellent under Entry 66 of SRO 82/06, the commodity continue to be assessable under Entry 44(5) of the 3[rd] Schedule. However, the Court took note of the argument on behalf of the State that, by virtue of deletion of the HSN Code 3808 from Entry 44(5) with effect from 1[st] July 2006, the above said Rule of Interpretation has no application, because of the **OT.Rev.No.120 OF 2014** **7** removal of the HSN Code. But the Court has not considered this question because it was not dealing with an issue relating to the period after the amendment. 5. We take note of the fact that, Entry 44(5) as it stood at the relevant time, included pesticides, weedicides, insecticides, fungicides, herbicides, rodenticides, anti-sprouting products and similar products other than micro products till 1.7.2006. The Entry was covered with specific HSN Code of 3808. But Entry 66 of SRO 82/06 included mosquito repellents, electric or electronic mosquito repellents, gadgets and insect repellents, devices and parts and accessories thereof. Originally the said entry was bearing HSN Code 8516.79.20. The position from 1.7.2006 onwards is that the HSN Code was removed from Entry 44(5) of the III[rd] Schedule. Therefore, the product 'mosquito repellent' cannot be accepted as one falling under Entry 44(5), at least for the period after 1.7.2006. The commodity being mosquito repellent, the specific and appropriate Entry can only be considered as Entry 66 of SRO 82/06. Therefore, we are of the opinion that the assessment of tax at the higher rate from 1.7.2006, as found by the Tribunal, is justifiable and sustainable. 6. Learned counsel for the Revision Petitioner raised **OT.Rev.No.120 OF 2014 8** contention that, the imposition of penalty cannot be justified because there existed a bonafide dispute with respect to the question regarding the rate of tax applicable. He had pointed out that, this is especially because of the decision of this Court in **Reckitt Benckiser (India) Ltd.** (Supra) wherein, with respect to the previous year, it was held that the rate of tax applicable is only in accordance with Entry 44(5). 7. We take note of the fact that even with respect to the assessment year concerned, for the period from 1.4.2006 to 1.7.2006, the rate of tax with respect to the commodity remained as such, in accordance with Entry 44(5), because of the above said decision. Of course, there occurred a change in the rate of tax with effect from 1.7.2006. Consequently the monthly return filed after the said period became wrong in the matter of the rate of tax computed. But that by itself cannot be taken as an intentional wrong filing of return, done with any malafide intention, which will attract imposition of penalty under Section 67 of the KVAT Act. Hence we are inclined to take a lenient view in the matter of the penalty imposed. Hence the revision petition No.121 of 2014 filed against the order of the Tribunal in TA(VAT) No.345/2008, relating to the order imposing penalty, is hereby **OT.Rev.No.120 OF 2014** **9** reversed. In the result O.T(Rev.)Nos. 120 of 2014 is hereby dismissed confirming the order of the Tribunal with respect to the assessment. O.T(Rev.) No.121 of 2014 is allowed to the extent of reversing the decision in TA(VAT) No.345/2008 and setting aside the order imposing penalty, which stood modified as per the order of the Tribunal. **Sd/-** **C.K.ABDUL REHIM JUDGE** **Sd/-** sab **AMIT RAWAL JUDGE** **OT.Rev.No.120 OF 2014 10** ## **APPENDIX OF OT.Rev 121/2014** **PETITIONER'S/S EXHIBITS:** **ANNEXURE P1 A TRUE COPY OF ORDER IMPOSING PENALTY FOR 2006-07 DATED 03.06.2007 OF THE CTO (AA), ALAPPUZHA. ANNEXURE P2 B TRUE COPY OF THE ORDER OF THE DC(A) IN STA NO.451/207 DATED 20.09.2008 ANNEXURE P3 C TRUE COPY OF THE COMMON APPELLATE ORDER IN TA. NOS.343, 344 AND 345/2008 DATED 14.05.2009.**