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The petitioner is a registered dealer on the rolls of the 2nd respondent under the provisions of the Kerala Value Added Tax Act, 2003, hereinafter referred to as 'KVAT Act'. It is a dealer in printers, peripherals and its parts. During the assessment years from 2012-13 and 2013-14, the petitioner had classifies the item sold by it as a Multi-Function printer and included the turnover in respect of the said item in the returns filed with the respondents under Entry 69(22)(c)(i) of the 3rd Schedule to the KVAT Act. In the returns, the petitioner stated that the applicable rate of tax for the said item was 5%. It is not in dispute that, for the above assessment years, the assessment of the petitioner has not been called into question by the assessing authority and the returns filed by the petitioner for the said assessment years have not been interfered with by the assessing authority. It is a case of the petitioner that the classification under the 3rd Schedule was effected by taking note of the fact that the supplier of the machines to the petitioner had also classified the item under the same head and discharged his tax liability accordingly. The 3rd respondent, however, proposed a classification of the item sold by the petitioner as a photocopier by classifying the same under Entry 30 of SRO 82/2006 attracting tax at the rate of 14.5%. Exts.P3 and P4 notices were also issued to the petitioner for the assessment years 2012-13 and 2013-14, proposing the imposition of a penalty under Section 67 of the KVAT Act on the ground that the petitioner had filed an untrue and incorrect returns for the said assessment years. In the notice, it was made clear that the basis of the proposal in the notice was the erroneous classification allegedly done by the petitioner in respect of the machine in question. Although the petitioner preferred detail replies to the said notices, the 3rd respondent passed Exts.P7 and P8 orders confirming the proposals in the notices and imposing penalties on the petitioner for misclassification of the product. In the writ petition, Exts.P7 and P8 orders are impugned, inter alia, on the ground that the 3rd respondent had exceeded its jurisdiction in imposing a penalty on the petitioner on a matter relating to classification of products under the KVAT Act.

4. I have considered the rival submissions. On a perusal of Exts.P7 and P8 orders, I find that they are orders imposing a penalty on the petitioner for alleged contravention of Section 67 of the KVAT Act. Section 67 of the Act contemplates an imposition of penalty if the department is satisfied that any person has, inter alia, submitted an untrue or incorrect return and that the said act of the dealer has resulted in an evasion of tax. In the instant case, the petitioner had filed returns before the assessing authority classifying the item as a multi functional printer falling under Entry 69(22) (c) (i) of the 3rd Schedule and attracting tax at 5%. The said classification appears to have been adopted by the petitioner, based on the fact that the supplier of the said machine to the petitioner had also classified the item under the same entry and discharged tax liability at the rate of 5%. It is not in dispute that the returns filed by the petitioner adopting the aforesaid classification have not been called into question by the assessing authority, in that there has been no notice issued to the petitioner for the aforesaid years questioning the classification adopted by the petitioner. It is in that background that one has to examine whether the 3rd respondent is justified in issuing notice a notice proposing a penalty on the petitioner for alleged misclassification of the product. This would assume importance especially in view of the fact that under Section 67 a penalty is contemplated only if there is any willful act on the part of the assessee with a possibility of evasion of tax. In the instant case, I find that inasmuch as the petitioner was justified in adopting a classification of the product based on the classification adopted by the supplier of the product to the petitioner, the orders passed by the 3rd respondent confirming a penalty on the petitioner, merely because it was the view of the 3rd respondent that a classification of the product ought to have been under a different entry, cannot be legally sustained. In this connection, it is relevant to note the decision of this Court in Chakkiath Brothers v. Assistant Commissioner, Commercial Taxes, EKM and others [2014 (3) KLT 55] where it was held, under almost similar circumstances that, when there is a debatable issue with regard to a classification of the product, then it is for the assessing authority to first arrive at a decision with regard to the correct classification of the product, before penalty proceedings can be initiated against an assessee for misclassification of the product. The relevant paragraphs of the said judgment are extracted herein below:-