HDFC BANK LTD Vs. INTELLIGENCE OFFICER

JUDGEMENT

(1.) In W.P. (C) No. 4635 of 2009 the petitioner-bank is challenging exhibit P5 order of assessment finalised against them for the year 2007-08, under the Kerala Value Added Tax Act, 2003 ("the KVAT Act"). Bank is also challenging exhibit P6 series monthly assessments made with respect to various months in the assessment year 2008-09. In W. P (C) Nos. 16478 of 2009 and 16479 of 2009, the petitioner-bank is challenging exhibit P4 orders imposing penalty under section 67(1) of the KVAT Act, with respect to assessment years 2006-07 and 2007-08. Since the issue involved in all these writ petitions pertains to the rate of tax applicable on the sale of gold bars imported and sold by the banks within the State of Kerala, these cases are considered together and disposed of through a common judgment. The petitioner-banks have conceded turnover on the sale of gold bars during the relevant period and paid tax at one per cent, on the premise that the commodity sold will fall within the relevant entry of gold bullions. But the returns were rejected and the turnover was assessed at four per cent treating the commodity as one falling within entry 4(4) of the Third Schedule to the KVAT Act. In this regard, the Commissioner of Commercial Taxes had issued a clarification in exercise of power vested under section 94 of the KVAT Act (exhibit P7 produced in W. P (C) No. 4635 of 2009). In the said clarification, issued on September 29, 2008, it is held that 10 grams of rectangular gold bars, being semi-manufactured gold would fall within entry 4(4) of the Third Schedule with HSN Code 7108.13.00. The assessing authorities found that the rectangular gold bars dealt with by the petitioner-banks cannot be regarded as bullion since they are not raw or unwrought gold or gold in mass. According to the petitioner such an interpretation given by the assessing authority relying on the clarification issued by the Commissioner is totally erroneous and opposed to settled legal principles enumerated in the decision of the honourable Supreme Court in Deputy Commissioner of Sales Tax v. G.S. Pai and Co., 1980 45 STC 58(sc).

(2.) An identical question has been dealt with by a Division Bench of this court in HDFC Bank Limited v. Assistant Commissioner, 2010 36 VST 338 It is held therein that small sizes of minted gold cannot be treated as gold in unwrought form coming under HSN code 7108.12.00, because the website of the manufacturer describes the process of manufacturing which is by further processing of gold obtained in unwrought form through melting and casting. The Division Bench observed that so far as KVAT Act is concerned, up to March 31, 2009 gold was treated under three descriptions. One as bullion described under Schedule II and others are semi-finished forms of gold and the third category is under gold Jewellery the latter to falling under two separate entries contained in the Third Schedule taxable at four per cent. After April 1, 2009, semi-manufactured gold items covered under entry 4 of the Third Schedule were brought along with bullion in the Second Schedule and made at taxable at one per cent. The relevant period in this cases and also in the cases dealt with by the Division Bench falls within the pre-amended period, i.e., before April 1, 2009. The Division Bench observed that, the minted rectangular form of gold bars made with fine finish and markings with sizes of 5 gms. 8 gms. and 10 gms. etc., are purchased only to be worn or to be gifted or purchased and retained only for its finish and beauty and not for use as a raw material in the manufacture of gold ornaments. Hence it cannot be treated as gold in unwrought form used as raw material for manufacture of other products, covered under entry 1 of the Second Schedule until the amendment came into effect on April 1, 2009. It was held that, the clarification issued by the Commissioner is applicable in such case and it applies to gold bars and gold coins of 5 gms. 8 gms. and 10 gms. etc., marketed by the hanks. It is submitted that the decision rendered by the Division Bench in HDFC Bank s case, 2010 36 VST 338(Ker) has attained finality, not being challenged before the honourable Supreme Court. Hence prima facie the abovesaid decision is binding on this court since the issue involved is one and the same.

(3.) But Sri. M. Pathrose Mathai, learned Senior Counsel appearing for the petitioner in W.P. (C) Nos. 4635 of 2009 contended that the clarification issued as well as the assessment made are against the law declared by the honourable Supreme Court in the case reported in Deputy Commissioner of Sales Tax v. G.S. Pai and Co, 1980 45 STC 58 (SC). According to him, it is ignoring the binding force of law laid by the honourable apex court that the decision is taken to assess the gold bars classifying the same as commodity not corning within description of bullion. In the said decision the honourable Supreme Court held that, in its plain ordinary meaning bullion means gold or silver in the mass. It connotes gold or silver regarded as raw material and it may either in the form of raw gold or silver or ingots or bars of gold or silver. Ornaments and other articles cannot be regarded as bullion because even if Old and antiquated they are not raw or unwrought gold or gold in the mass, but they represent manufactured or finished product of gold. On the facts of the said case, the honourable apex court held that ornaments and other articles of gold purchased by the assessee with a view to melt them and making of new ornaments or other articles out of the melted gold, fall within entry 56 of the Kerala General Sales Tax Act ("the KGST Act"). Therefore it is held that such gold are liable to be taxed not at the lesser rate of one per cent applicable to bullion included in entry 56, but at the general rate of three per cent under section 5A of the said Act. The contention of the senior counsel is that, since the honourable Supreme Court held that the term "bullion" means gold and silver in the mass and it connotes raw gold or bar of gold, the gold bar which is the commodity in the present case, cannot be treated as a commodity other than bullion.