Orissa High Court Overturns Tribunal Order, Labels 'ATS Control Panel' as 'Accessories' under OVAT Act

Orissa High Court Overturns Tribunal Order, Labels 'ATS Control Panel' as 'Accessories' under OVAT Act

The Orissa High Court has provided respite to M/s. Corporate Engineers and Associates (petitioner) by overturning the Odisha Sales Tax Tribunal's decision concerning the categorisation of the '150 HP Fully Automatic ATS (Auto-Transformer Starter) Control Panel', alongside Motor Starter Panel Board and other Control Panels.

The Court ruled that the assessment of tax liability at a rate of 13.5 per cent was flawed, opting instead to classify the item as 'accessories' in accordance with Entry Serial No.29 of Part-II of Schedule-B attached to the Odisha Value Added Tax Act, 2004 (OVAT Act).

The petitioner, a duly registered dealer under the OVAT Act, was actively engaged in the manufacturing and trading of industrial electrical goods and equipment. Their operations encompassed the supply, erection, installation, and commissioning of contracted work. Following an Audit Visit Report, an evaluation was conducted under Section 42, which raised objections regarding the incorrect classification of an item named the '150 HP Fully Automatic ATS Control Panel', alongside other control panels. This misclassification led to a shortfall in VAT payment. Consequently, the Assessing Authority imposed a tax demand of ₹52,517 and a penalty equivalent to twice the assessed tax amount.

In response to this assessment, the petitioner initiated an appeal. The Deputy Commissioner of Sales Tax (Appeal) in Bhubaneswar partially upheld the appeal after considering the petitioner's explanation. However, dissatisfied with this outcome, the State of Odisha pursued the case before the Odisha Sales Tax Tribunal. The Tribunal nullified the Deputy Commissioner's decision, instructing the Assessing Authority to conduct a fresh evaluation. This revised assessment would involve applying a tax rate of 13.5 per cent to the sale of the ATS, as specified in Entry Serial No.29 of Part-III, Schedule-B of the OVAT Act.

The Bench comprising Justices B.R. Sarangi and Murahari Sri Raman observed a significant lapse in the evaluation conducted by the authorities involved.

The Bench noted that the critical matter of classifying the 'ATS' commodity under Entry 29 of Part-II of Schedule-B had not been thoroughly examined. The Assessing Authority overlooked the petitioner's explanation and erroneously placed the burden of proof on the dealer.

The Bench highlighted a legal precedent set in the case of Hindustan Ferodo Ltd. v. Collector of Central Excise, Bombay [LQ/SC/1996/2113]. According to this precedent, the responsibility of establishing a product's placement within a specific category rests with the Revenue. In cases where the Revenue does not furnish supporting evidence for their classification, they fail to meet their burden of proof.

The Bench highlighted that the petitioner had taken steps to ascertain the genuine character of the 'ATS' commodity. They introduced expert opinion as substantiating evidence, which aided in comprehending the true essence of the commodity. Furthermore, the Bench examined various web portals linked to manufacturers specialising in similar commodities. This scrutiny revealed that within trade circles, the commodity 'ATS' is commonly regarded as accessories related to 'Centrifugal, Monoblock, and Submersible pumps and pump sets'.

The Bench concluded that the petitioner consistently maintained throughout the proceedings that 'ATS' should rightfully be categorized as an accessory to pumps. Notably, the Revenue failed to produce any contradictory evidence to challenge this assertion. The expert opinion furnished by the petitioner further bolstered their argument. In light of these circumstances, the Bench determined that the Odisha Sales Tax Tribunal had committed an error by reversing the Appellate Authority's conclusion and allowing the State of Odisha's second appeal.

The Bench underscored the absence of a substantial justification provided by the Tribunal for its decision, leading to the nullification of the Tribunal's order.