No Higher Sales Tax on Kenwood Car Audio Systems Manufactured Using Imported Parts: Madras HC upholds 12.5% Levy [Read Order]

The Madras High Court has affirmed that the manufacture of Kenwood car audio systems in India, using imported parts and accessories is not liable to higher sales tax - with the applicable levy positioned at 12.5%.

The appellant-assessee, M/s. Nippon Audiotronix Ltd., a registered manufacturer of excisable goods, had declared turnover from sale of car audio systems at the rate of 12.5% under Entry 14(vi) of Part D of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 during the assessment year 2003-04.

Though the returns were initially accepted by the Department, the assessing authority later issued a notice proposing revision of assessment on the ground that the products sold under the brand name “Kenwood” were imported goods, thereby attracting a higher rate of tax at 20% plus surcharge.

Also Read: Madras HCReserves Orders on Actor Vijay’s Plea Against ₹1.5 Crore Income Tax Penalty

Despite objections raised by the assessee, the authority revised the assessment and levied a higher rate of sales tax along with penalty under Section 16(2) for concealment of turnover.

In appeal, the first appellate authority accepted the assessee’s contention that they had imported only components and spares, and not the finished car audio systems by itself. The assessee stated that they carried out assembly and manufacturing activities in India using both imported and locally sourced materials, and that the finished products were cleared on payment of central excise duty.

The appellate authority accordingly set aside the higher tax levy and penalty, but the Revenue filed an appeal before the Sales Tax Appellate Tribunal which reversed the appellate order, and held in favour of the Department. Aggrieved, the assessee approached the High Court through this present Tax Case Reference.

The High Court examined the nature of the transactions, the manufacturing activity undertaken by the assessee, and the licence agreement entered into with Kenwood, Japan.

The Court noted that Article 6 of the Licence Agreement stipulates that the finished car audio systems were an amalgam of both the parts imported by it from Kenwood as well as other parts sourced domestically, thus indicating manufacture within India.

Accordingly, the Division Bench of Justice Anita Sumanth and Justice Mummineni Sudheer Kumar held that mere import of components does not render the finished product an imported good, thus finding the Tribunal to be in error in disturbing the factual findings recorded by the first appellate authority.

The Court further held that the higher rate of tax and the penalty imposed were unsustainable.

Also Read: Directors cannotDirectly Targeted for Company’s GST Dues During Liquidation: Madras HC GrantsLiberty to ‘Extricate’ Liability

Accordingly, the High Court allowed the revision petition and set aside the order of the Sales Tax Appellate Tribunal, and upheld the levy of sales tax at 12.5% on the Kenwood car audio systems manufactured by the assessee.

C.Rekha Kumari appeared for the appellant while Special Government Pleader C.Harsha Raj appeared for the Respondent department.

Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates