Hawkins Cookers Limited and Others vs State of Assam and Others

Ujjal Bhuyan, J.—This order will dispose of W.P. (C) Nos. 5766 of 2007, 173 of 2008, 840 of 2008 and W.P. (C) No. 4256 of 2011. The above four cases have been heard together as the issue involved is the same. Question for consideration in this bunch of writ petitions is whether "pressure cooker" being sold by the petitioners is covered under entry No. 6 of Part A-General of the Second Schedule to the Assam Value Added Tax Act, 2003 being taxable at the rate of four per cent, or whether it would be covered by entry 1 of the Fifth Schedule to the said Act, in which case the rate of tax would be 12.5 per cent. According to the Revenue, the goods in question, viz., pressure cooker, is not covered under entry No. 6 of Part A of the Second Schedule and since it is not covered by any of the entries in the First, Second, Third and Fourth Schedules, it would come in the residuary list of the Fifth Schedule as entry No. 1 warranting tax at the rate of 12.5 per cent. This has led to filing of the four writ petitions. An additional issue has arisen in one of the writ petitions which is the consequential assessment made levying higher rate of tax at 12.5 per cent and imposition of penalty for default in payment of due tax.

A brief recital of the facts, case wise, is considered necessary.

W.P. (C) No. 5766 of 2007.

In this case, M/s. Hawkins Cookers Ltd. is the petitioner. The petitioner is a public limited company having its registered office at Mumbai and a branch office at Guwahati. It is engaged in the business of manufacturing and marketing of pressure cookers under the brand name of "Hawkins". It is also engaged in marketing of various kitchen ware items, such as frying pan, tava, etc. The above goods are made of aluminium. The petitioner is a registered dealer under the Assam Value Added Tax Act, 2003 (the VAT Act). Respondent No. 2 is the assessing authority of the petitioner. Since coming into force of the VAT Act, petitioner has been submitting its tax returns under the VAT Act showing the turnover of sales of pressure cooker and kitchen ware items made of aluminium. Since aluminium utensils and enamelled utensils specified under entry No. 6 of Part A-General of the Second Schedule to the VAT Act has prescribed tax thereon at the rate of four per cent, the petitioner paid tax at the rate of four per cent on the sales turnover and disclosed the same in the returns. Respondent No. 2 in his notice dated March 24, 2006 informed the petitioner that it had failed to pay tax at the correct rate of 12.5 per cent in respect of pressure cooker. Petitioner was asked to file correct revised return with proof of payment of the differential tax amount along with interest. It was further stated that failure to do so would lead to making of provisional assessment to enable the Revenue to levy and collect the correct amount of tax and interest. The petitioner submitted reply on April 20, 2006 contending that pressure cooker is an utensil made of aluminium, which is used in kitchen. Hence it would be covered within the meaning of aluminium utensil under entry No. 6 of Part A-General of the Second Schedule to the VAT Act and sale of pressure cooker would therefore, be liable to tax at the rate of four per cent. It was contended that tax was correctly levied and the returns filed were correct and complete. Since pressure cooker is not liable to tax at the rate of 12.5 per cent, payment of tax at the rate of 12.5 per cent did not arise. The authority was therefore, requested to drop the proceeding. However, it appears that explanation submitted by the petitioner was not accepted. The Commissioner of Taxes, Assam, respondent No. 3, on July 24, 2007 clarified that in common parlance, pressure cooker is not treated as aluminium utensils and enamelled utensils. Therefore, it would not be covered by entry No. 6. Since it is not covered by any entry in the First, Second, Third and Fourth Schedules, it would be taxable at the rate of 12.5 per cent under entry No. 1 of the Fifth Scnedule.

Aggrieved, the petitioner has filed the present writ petition for quashing of the clarification of the Commissioner of Taxes, Assam dated July 24, 2007 and to direct the assessing authority to accept four per cent tax on pressure cooker while assessing the turnover of the petitioner.

An affidavit has been filed on behalf of respondent No. 3, i.e., Commissioner of Taxes. It is stated that in common parlance, pressure cookers are not understood as utensils, but as contrived appliances meant for domestic use. It is further stated that pressure cookers have valves made of steel, rubber gasket and also have rubber insulating materials. The product is not made solely of aluminium so as to qualify for inclusion in entry No. 6 of Part A-General of the Second Schedule to the VAT Act. Therefore, rate of tax cannot be four per cent. Since pressure cooker is not included in any of the entries under the First, Second, Third and Fourth Schedules, it would be covered by entry No. 1 of the Fifth Schedule, which is a residuary list attracting tax at the rate of 12.5 per cent as prescribed. Therefore, the view taken by the Commissioner is correct and requires no interference.

W.P.C. No. 173 of 2008

In this case M/s. Nirlep Appliances Ltd. is the petitioner, which is engaged in the business of manufacturing and marketing of various kitchen items and pressure cooker under the brand name of "Nirlep". It is stated that the above goods are made of aluminium. The petitioner is a registered dealer under the VAT Act and has been submitting its tax returns showing the turnover of sales of pressure cooker, etc., and paying tax at the rate of four per cent by treating pressure cooker and the other items under entry No. 6 of Part A-General of the Second Schedule as aluminium utensils and enamelled utensils. The assessing authority issued notice dated June 22, 2007 to show cause as to why tax at the rate of 12.5 per cent should not be levied by taking the view that pressure cooker is not aluminium utensils and enamelled utensils. The petitioner was asked to file fresh return showing the turnover with additional tax. The petitioner submitted an application before the Commissioner of Taxes, Assam under section 105 of the VAT Act for determination of disputed question relating to rate of tax on pressure cooker, etc. The Commissioner of Taxes, Assam, passed an order dated October 30, 2007 clarifying that pressure cooker is different from aluminium utensils as is understood in common parlance. Therefore, pressure cooker will not come under the category of aluminium utensils mentioned in entry No. 6 of Part A-General of the Second Schedule. It would fall under entry No. 1 of the Fifth Schedule and will be taxable at the prescribed rate of 12.5 per cent. Same was the view expressed in respect of non-stick cook ware. Aggrieved, the petitioner has filed the related writ petition challenging the legality and validity of the aforesaid clarificatory order dated October 30, 2007 and seeking a direction to the assessing authority not to apply tax at the rate of 12.5 per cent in respect of sale transaction of pressure cooker and non-stick cookware.

Affidavit has not been filed in this case.

W.P.C. No. 840 of 2008.

In this case M/s. Pushpanjali Appliances Private Ltd. is the petitioner. It is engaged in the manufacture and marketing of pressure cooker under the brand name of "Sun-Kwik Easie". The petitioner is also engaged in manufacturing and marketing of home appliances. The petitioner is a registered dealer under the VAT Act and has been submitting its return paying tax at the rate of four per cent. The Commissioner of Taxes, Assam issued clarification dated July 24, 2007 clarifying that in common parlance, pressure cooker and non-stick cookware are not treated as aluminium utensils and enamelled utensils. Therefore, these goods would not come within the ambit of entry No. 6; they would rather come under the residuary entry No. 1 of the Fifth Schedule. Thus, they would be taxable at the rate of 12.5 per cent. Following the same, the assessing authority issued notice to the petitioner under section 74(1) of the VAT Act to produce all relevant documents and books of accounts relating to the periods 2005-06, 2006-07 and 2007-08, i.e., from April 1, 2007 to November 29, 2007. Under section 74(3)(a) of the VAT Act, certain documents, etc., were seized from the business premises of the petitioner on the ground of non-payment of tax as per prescribed rate. The petitioner was issued show-cause notice dated December 24, 2007 as to why penalty should not be imposed under section 90 of the VAT Act for default in the payment of tax to the extent of Rs. 6,50,619. It appears that the petitioner had submitted reply dated December 27, 2007 requesting the authority to drop the proceeding for realisation of additional tax as well as for imposition of penalty. Ultimately, order dated December 31, 2007 was passed by the assessing authority, whereby, it was stated that the petitioner had paid four per cent tax on sales turnover on pressure cooker instead of 12.5 per cent and the differential amount of tax due came to Rs. 6,50,619. The penalty was also levied for such default. The breakup of the additional tax and the penalty imposed are as follows:

Aggrieved, the petitioner has filed the related writ petition challenging the legality and validity of the clarificatory order of the Commissioner of Taxes, Assam dated July 24, 2007 and the order dated December 3, 2007 of the assessing authority levying additional tax and imposing penalty equivalent to the additional tax.

W.P.C. No. 4256 of 2011.

In this case, TTK Prestige Ltd. is the petitioner. It is engaged in the business of manufacturing and marketing of pressure cooker and other kitchen ware, such as, frying pan, tavas, etc., under the brand name of "Prestige". According to the petitioner, the manufactured goods are made of aluminium. The petitioner is a registered dealer under the VAT Act and has been submitting its return showing the sales turnover of pressure cookers and kitchen ware as aluminium utensil and paying tax at the rate of four per cent. The assessing authority issued notice dated November 30, 2007 and seized books of accounts on the ground that petitioner had charged tax at lower rate and thereby evaded payment of due tax. The petitioner submitted detailed reply stating that pressure cooker is made of aluminium and would be covered within the meaning of aluminium utensil under entry No. 6 of Part A-General of the Second Schedule to the VAT Act. Therefore, the petitioner had rightly paid tax at the rate of four per cent. It cannot be treated as a residuary item under entry No. 1 of the Fifth Schedule, thereby warranting payment of tax at the higher rate of 12.5 per cent. Other reasons were also mentioned why tax at the rate of four per cent was justified. After considerable delay, the petitioner received notice dated November 30, 2007 stating that the petitioner was required to pay higher tax at the rate of 12.5 per cent based on the clarificatory order of the Commissioner of Taxes dated July 24, 2007, which stated that in common parlance pressure cooker is not treated or understood as aluminium utensils and, therefore, taxable as a residuary item at the rate of 12.5 per cent. Aggrieved, the petitioner has filed the related writ petition challenging the circular of the Commissioner dated July 24, 2007 and seeking a direction to the assessing authority not to apply tax at the rate of 12.5 per cent.

As has already been noticed above, the core issue in all the writ petitions is the applicability of tax on pressure cooker under the VAT Act. According to the petitioners, pressure cooker is made of aluminium and therefore, would come within the meaning of aluminium utensils and enamelled utensils as per entry No. 6 of Part A-General of the Second Schedule to the VAT Act. On the other hand, according to the Revenue, pressure cooker is not an aluminium utensil as is commonly understood and, therefore, is not covered by entry No. 6 of Part A-General of the Second Schedule. Since it is not covered by any of the entries in the First, Second, Third and Fourth Schedules, it would come under the Fifth Schedule as a residuary item under entry No. 1 in which case tax is leviable at the rate of 12.5 per cent. A connected issue of levy of additional tax by application of the higher rate of tax and imposition of penalty for default in the payment of the differential tax amount has arisen in one of the petitions.

We have heard Mr. G.K. Joshi, learned senior counsel for the petitioners and learned Standing Counsel, Finance (Taxation) Department, Assam.

Mr. Joshi, learned Senior Counsel for the petitioners, submits that pressure cooker is made of aluminium. Use of other materials in minor quantities would not make it a non-aluminium item. In various other States of the country including in some of the neighboring north eastern States, pressure cooker is treated as an aluminium item and is taxed at the rate of four per cent. Departure made by the Revenue authorities in the State of Assam from the uniform pattern of taxation in other States is not justified. He has also argued that pressure cooker is treated and commonly understood as a utensil used in kitchen, therefore, it would come within the meaning of aluminium utensil under entry No. 6 of Part A-General of the Second Schedule to the VAT Act. Imposition of tax at the rate of 12.5 per cent by treating pressure cooker as a residuary item under the Fifth Schedule is untenable and cannot be justified. He has also referred to the Central Excise Tariff Act, 1985 to contend that under the said Act, pressure cooker is a classified aluminium article. He, therefore, submits that the view taken by the Revenue is wholly erroneous and requires interference of the court. Regarding imposition of penalty, learned senior counsel submits that imposition of penalty is not automatic even if a finding of default is arrived at. It is a coercive measure and must be preceded by hearing. Order of penalty must be a speaking order disclosing reasons for imposition of penalty. Therefore, in any case, imposition of penalty is bad in law and cannot be sustained.

On the other hand, learned Standing Counsel, Finance (Taxation) Department supports the view taken by the Commissioner of Taxes, Assam and seeks dismissal of the writ petitions.

Submissions made have been considered.

To appreciate the submissions of learned senior counsel for the petitioner, it would be apposite to refer to the description of entry No. 6 of Part A-General of the Second Schedule to the VAT Act. Description of goods against entry No. 6 is "aluminium utensils and enamelled utensils". It does not say aluminium utensils and enamelled utensils, such as, pressure cooker, kitchen ware, etc. In the order dated October 30, 2007, passed by the Commissioner of Taxes, Assam, annexed to W.P. (C) No. 173 of 2008 as annexure IV, the Commissioner has expressed the view that in common parlance, pressure cooker is not understood as duminium utensils. It is also not pure aluminium. As per weight chart of non-stick ware produced by the applicant (Nirlep Appliances Ltd.), it is made of alloy where the percentage of aluminium is about 71 per cent. It is also made up of other components, such as stainless steel bracket, weight set, bakelite handle set, side handle, gaskets etc, which are not pure aluminium. Therefore, according to the Commissioner, since pressure cooker is different from aluminium utensils as is commonly understood, pressure cooker will not come within the category of aluminium utensils mentioned in entry No. 6 of Part A-General of the Second Schedule. Since there is no specific entry for pressure cooker, it will be covered by entry 1 of the Fifth Schedule, which is the residuary Schedule and will be taxable at the prescribed rate of 12.5 per cent.

The reasoning given by the Commissioner is a plausible one and appeals to the court. This position has been further explained in the affidavit filed by the Commissioner on May 19, 2011 in W.P. (C) No. 5766 of 2007. It is stated that pressure cookers have valves made of steel, rubber gasket and also have rubber insulating materials. Pressure cooker is not made solely of aluminium so as to qualify for inclusion in entry No. 6 of Part A-General of the Second Schedule. In common parlance, pressure cookers are not understood as mere utensils, but contrived appliances meant for domestic use. To fall within the sweep of entry No. 6, the item must not only be a utensil, but must be aluminium or enamelled utensil. The affidavit has stated that in other States where tax on pressure cooker is levied at the rate of four per cent, the description in the entry is "utensils of all kinds including pressure cookers except made of precious metals". This entry is very different in its content from entry No. 6 of Part A-General of the Second Schedule to the VAT Act where the description is aluminium utensils and enamelled utensils. While in the other States, pressure cooker is specifically mentioned, in the case of VAT Act in the State of Assam, there is no mention of pressure cooker. Even in the concerned entry of the Central Excise Tariff Act on which reliance has been place by the petitioner, it is stated that the relevant entry in the Excise Tariff Act is different from the entry in the VAT Act in Assam. The description of the entry in the Excise Tariff Act is "table, kitchen or other household articles and parts thereof of aluminium; pot scourers and scouring or polishing pads, gloves and the like of aluminium, sanitary ware and part thereof of aluminium". In any case, the classification adopted in the Central Excise Tariff Act cannot override the legislative intent of the competent State for classification of goods for imposition of tax.

We agree with the stand taken by the Commissioner of Taxes in the aforesaid affidavit. Whether pressure cooker falls within the sweep of entry No. 6 of Part A-General of the Second Schedule or not will have to be determined keeping in mind the legislative intent expressed through the words in the entry. When the description of the entry is aluminium utensils and enamelled utensils, the legislative intent is quite clear that to come within the sweep of entry No. 6, the goods in question have to be an aluminium utensil and enamelled utensil. Had the Legislature intended to give the benefit of the entry to goods, such as pressure cooker, it would have been clearly mentioned in the entry itself. We cannot go beyond the description of the goods under entry No. 6 as given in the statute. As is well accepted, a taxing statute has to be strictly construed.

Having regard to the above, we are of the clear opinion that the view taken by the Revenue that pressure cooker does not come within the ambit of entry No. 6 of Part A-General of the Second Schedule to the VAT Act appears to be the correct view and we see no reason to interfere with the decision taken by the revenue authorities in this regard. However, against the assessment orders, the concerned dealers will have their remedy of appeal and revision under the VAT Act. Subject to the observation as above, the aforesaid challenge is rejected.

Coming to the challenge to imposition of penalty, this court has already held in W.P. (C) No. 4112 of 2007 (Vishal Retail Ltd. v. State of Assam [2015] 79 VST 44 (Gauhati)) disposed of today that imposition of penalty is not automatic on default. That was also a case relating to imposition of penalty under section 90 of the VAT Act. It has been held that discretion is vested on the authority empowered to impose penalty; whether to impose penalty at all or not and in the event it is decided to impose penalty, what should be the quantum. The order of penalty must reflect application of mind indicating exercise of discretion. It must be a speaking order. Relevant portion of the said order reads as under (page . . .):

"14. A careful reading of the aforesaid provision would indicate that in case of contravention or failure to comply with any provision of the VAT Act or the Rules framed thereunder, if no other penalty is provided under the VAT Act for such contravention or failure, penalty of an amount not exceeding twice the amount of tax evaded or sought to be evaded or involved, may be imposed. As per the proviso, no penalty under the said section shall be imposed unless the person concerned is given a reasonable opportunity of being heard. Therefore, in the event of any contravention or, failure to comply with any provision of the VAT Act or any order or direction made thereunder, penalty may be imposed which may extend to an amount not exceeding twice the amount involved or tax evaded or sought to be evaded. However, before imposition of penalty, the affected person is required to be given a reasonable opportunity of being heard.

Question is whether in the event of any contravention or failure as per section 90 of the VAT Act, imposition of penalty would be automatic or whether some discretion is vested on the authority to impose the penalty or not. The fact that the section itself mandates providing of reasonable opportunity of hearing before imposition of penalty is a clear pointer to the legislative intent that imposition of penalty in the event of any contravention or failure to comply in terms of section 90 would not be automatic. Discretion is vested in the authority whether to impose penalty at all or not or in the event of the need to impose penalty, the quantum of penalty that should be imposed. This would require application of mind to all the relevant factors including the response of the affected person. Imposition of penalty is a coercive measure and, therefore, the order of penalty should be a speaking order.

. . .

Therefore, from the order imposing penalty, the reasons for imposition of penalty as well as the quantum of penalty must be discernible. This will reflect application of mind by the authority imposing the penalty and also allow the higher authorities to examine the reasons assigned for imposition of penalty in the event of appeal or revision. The order of penalty must indicate that all relevant factors were taken into consideration before imposing penalty. The discretionary power to impose penalty must be exercised in a reasonable and rational manner, otherwise it would be arbitrary and capricious."

In W.P. (C) No. 840 of 2008, a common order was passed by the assessing authority dated December 31, 2007 levying additional tax based on the differential rate of tax and also imposed equivalent quantum of penalty. No reasons have been given to justify imposition of penalty or the quantum of penalty. The order does not disclose any application of mind by the authority to the relevant factors as indicated above before imposition of penalty.

In the light of the aforesaid decision, imposition of penalty cannot be sustained and accordingly, the impugned order dated December 31, 2007 to the extent of imposition of penalty is set aside. All the writ petitions are accordingly disposed of. Interim orders passed earlier stand vacated to the above extent. No costs.