Distinct Classification for Sunglasses under VAT Acts, Upholds 12.5% Tax Rate
In a landmark judgment, the Punjab and Haryana High Court has ruled that sunglasses are to be taxed separately from spectacles under the Punjab Value Added Tax Act, 2005 and Haryana Value Added Tax Act, 2003. A division bench consisting of Mrs. Lisa Gill and Mrs. Meenakshi I. Mehta upheld the decision that sunglasses do not fall under the entry for spectacles in these VAT Acts and must be taxed under the residual entry at a rate of 12.5%.
The judgment came in response to appeals filed by M/s Himalaya Optical Centre (P) Ltd. and M/s Luxottica India Eyewear (P) Ltd., among others, challenging the classification of sunglasses for taxation purposes. The appellants contended that sunglasses should be included under the term 'spectacles', thereby attracting a lower tax rate. However, the court, emphasizing the distinct nature of these products, rejected this argument.
The court referenced the common parlance test, where sunglasses and spectacles are considered distinct products. It was noted that in trade, spectacles are understood to assist or correct vision, whereas sunglasses primarily protect from sunlight or are used for aesthetic purposes. The court also cited previous judgments, including the Rajasthan High Court's ruling in RayBan Sun Optics India Ltd. v. Deputy Commissioner (Appeals), which supported the classification of sunglasses under the residual entry.
Furthermore, the judgment highlighted the amendment in the Punjab VAT Act, 2005 in 2011, which explicitly included sunglasses alongside spectacles, reinforcing that prior to this amendment, sunglasses were correctly classified under the residual entry.
Legal experts regard this decision as a significant clarification in the realm of taxation, especially concerning the classification of goods under VAT laws. The court's reliance on the common parlance test and its meticulous differentiation between corrective vision products and protective eyewear underlines the importance of precise legislative language in tax statutes.
The ruling carries implications for businesses dealing with eyewear products, ensuring clarity in tax obligations and potentially affecting pricing strategies and consumer costs.
Bottom Line:
Taxation - Classification of goods for VAT - Sunglasses cannot be classified as spectacles under Punjab Value Added Tax Act, 2005 or Haryana Value Added Tax Act, 2003, as they are distinct products and are to be taxed under the residual entry.
Statutory provision(s): Punjab Value Added Tax Act, 2005, Haryana Value Added Tax Act, 2003
