In a recent case, the Orissa High Court (HC) has held that 4% VAT cannot be applied to ‘Chokad’ considering it as industrial input in absence of Government Notification.
Kamadhenu Cattle & Poultry, the Assessee-dealer challenged an order passed by the Joint Commissioner of Sales Tax (JCST), confirming an assessment order passed by the Sales Tax Officer (under Section 42(4) of the Odisha Value Added Tax Act, 2004 (OVAT Act) raising a demand of Rs.3,86,245.24 against the dealer for the period 1st April 2005 to 30th September 2006.
The Petitioner-Dealer carries on business in cattle feed, poultry feed, salt, rice and broken rice and affects purchases both from inside and outside the State of Odisha. The Petitioner effected the sale of 8463.30 quintals of wheat bran worth Rs.50,53,137/- during 2005-06 to M/s. NALCO Ltd., Damanjodi, and had claimed exemption by referring to Entry ‘3’ of Schedule ‘A’ of the OVAT Act.
The STO made an inference that since NALCO was an industrial organization the said goods, i.e., ‘Chokad’ sold to it “have been used as industrial input which is subject to tax at 4% with effect from 1st July 2005 vide SL No.74, Part-II of the OVAT Schedule”. A tax demand was raised along with a penalty under Section 42(5) of the OVAT Act which was confirmed by the JCST.
It must be noted here that the above Entry was substituted with effect from 1st July 2005 where the list of goods included ‘Chokad’. It must further be noted that Column-3 which is titled ‘Conditions of exemptions’ has been left blank. In other words, there is no conditionality attached to the sale of ‘Chokad’ for such a sale to be exempt from VAT.
Under Entry 74 of Part-II of Schedule ‘B’ of the OVAT Act, the Court viewed that only where an Industrial input is ‘notified by the State Government’, it would attract tax at 4% (presently 5%).
Justice M S Raman while allowing the revision petition held that “if Entry 74 of Schedule ‘B’ had to be made applicable so that the sale of ‘Chokad’ to NALCO is amenable to tax at 4%, then the Department needed to show that there was a notification issued by the State Government identifying ‘Chokad’ as an ‘industrial input’. In the absence of such notification, no inference could have been drawn that ‘Chokad’ sold to NALCO was an ‘Industrial input’. “
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