IN THE GAUHATI HIGH COURT
( THE HIGH COURT OF ASSAM, NAGALAND,
MEGHALAYA,MIZORAM, MANIPUR, TRIPURA AND
ARUNACHAL PRADESH )
-PRESENT –
HON’BLE MR JUSTICE AMITAVA ROY
WP( C) NO.5428/2010
PETITIONER :
M/s Jyothy Laboratories Ltd.
Export Promotion Industrial Park,
Amin Gaon,
Guwahati(Assam).
A Company incorporated under the
provisions of the Companies Act,1956
and having its corporate office located
at Ujala House, Ramakrishna Mandir
Road, Kondivita Andheri(East),
Mumbai and its factory situated at
Amingaon Post, Guwahati-31,
represented by Mr M.M.Basheer,
the authorized signatory of the petitioner
company.
BY ADVOCATES :
Mr M.P.Debnath,
Mr B Sharma,
Ms J.Huda, Advocates.
`
2
RESPONDENTS :
1. STATE OF ASSAM
Through its Principal Secretary,
Finance Department,
Dispur, Guwahati.
Assam.
2. THE COMMISSIONER OF TAXES, Assam
Kar Bhawan
Dispur, Guwahati Unit-B
Guwahati.
3. THE SUPERINTENDENT OF TAXES,
Kar Bhawan,
Dispur, Guwahati Unit-B,
Guwahati.
BY ADVOCATES :
Mr D.Saikia, Standing counsel,
Finance Department.
Date of hearing
:
Date of judgment :
9.11.2010, 11.11.2010, 30.11.2010 and 7.12.2010.
15.3.2011
JUDGMENT AND ORDER(CAV)
The petitioner by this impeachment not only seeks the
annulment
of the order dated 11.8.2010 of the Commissioner of
Taxes, Assam whereby its product “Ujala Supreme” has been
adjudged to be included in Sl No.1 of the Fifth Schedule of the
Assam Value Added Tax Act, 2005 ( for short, hereafter referred to as
3
the „Act‟) and taxable @ 13.5%,but also pleads for a direction that the
same is leviable @ 4% being classified under Sl No.114 of Pt-C of the
Second Schedule of the enactment.
2.
I have heard Mr M.P.Deb Nath, learned counsel for the
petitioner assisted by Mr Bikash Sharma, Advocate and Mr D.Saikia,
learned Standing Counsel, Finance Department. Assam
for the
respondents.
3.
The factual prologue in a sketch can be gleaned from the rival
pleadings. The petitioner has introduced itself to be a dealer
registered under the Act and engaged inter alia in making and
selling of „Ujala Supreme‟ ( for convenience, also hereafter referred
to as the „product‟ or „Ujala‟) which, according to it, is a brand name
for diluted Acid Violate Paste ( for short, also hereafter referred to
“AVP‟). It claims to have been filing its returns
product in accordance with
for the above
the Act and the Rules framed
thereunder by classifying it under HSN Code 3204
12 94 and
paying VAT @ 4% in terms of Pt-B of the Second Schedule of the Act
of the legislation and in turn, collecting the said amount from its
consumers.
4.
On receipt of the audit assessment notice dated 21.5.2007
under Section 36 of the Act asking it to produce documentary
evidence in support of the returns filed by it for the period 1-5-05 to
31-3-2006, it submitted the same and also furnished the details as
sought for. A show cause notice being No.CTVA-8/2007/2 dated
4
25.6.07 was issued by the Superintendent of Taxes (Department)
alleging that it had short paid the VAT @ 4% instead of 12.5% due
for the sale of the product. The petitioner in response to this notice,
caused its appearance before the concerned departmental authority
and asserted
of Ujala to VAT @
4%. Its claim,
however, was rejected by the order dated 2.8.07,
whereupon it
preferred
the exigibility
an
appeal
with
the
Deputy
Commissioner
of
Taxes(Appeals), Guwahati. By order dated 27.11.2007 the said
revenue authority in the appeal interfered with the order of
assessment and remitted the matter with a direction
to the
Assessing Officer to assess the petitioner afresh by determining the
tax payable
by it for Ujala @ 4%. The revenue filed a revision
petition against this order before
the Commissioner of Taxes,
Assam. The revisional authority by his order dated 27.6.08 sustained
the findings of the appellate authority i.e. Deputy Commissioner of
Commercial Taxes (Appeals), Guwahati concluding that Ujala
occasioned
by adding
of water with AVP did not amount to
manufacture and that the product retained its
original
characteristics.
5
The Additional Deputy Commissioner of Taxes, Assam
subsequent thereto, by his letter dated 26.5.2010 required the
petitioner to appear before the Commissioner of Taxes, Assam, for
clarification regarding rate of tax on Ujala Supreme. The petitioner
arranged for its representation through its authorized representative
and furnished all materials relevant to the issue and also reinforced
5
the same with written submission. The impugned order dated
11.8.2010 followed.
6.
This order inter alia discloses that the exercise had been
undertaken afresh pursuant to a petition structured on the decision
rendered on 6.4.2009 by the Kerala High Court in M.P. Agencies vs.
State of Kerala, (2010) 28 VST 44 (KER) and filed by the
Superintendent of Taxes, Unit-B, Guwahati.
7.
While elaborating its challenge on various counts vis a vis this
order, the petitioner with reference to the decision in M.P.Agencies
(Supra) involving Kerala Value Added Tax Act, 2003 and the Rules
framed thereunder has mentioned about significant changes
introduced under the Kerala VAT regime with effect from 1`.4.2005
in the matter of classification of goods for the purpose of taxation or
exemption,
with reference to the code numbers developed
by
International Customs Organization as Harmonized System of
Nomenclature (HSN) and adopted by Customs Tariff Act,1975. It
has underlined that unlike the earlier sales tax regime wherein the
classification of goods was by and large determined by the
commercial parlance/common parlance test, classification under
the Kerala Value Added Tax Act,2003 (for short, hereafter referred to
as „KVAT Act‟) was with reference to specific Code numbers under
HSN to obviate uncertainties and disputes
on this count. The
petitioner has maintained as well that the adoption of HSN Code
was
also to guarantee uniform classification of the items
transcending various taxing statues, Central or State irrespective of
6
the nature of the duty/levy i.e. Customs Duty, Central Excise Duty
or State VAT. Though at the enactment of KVAT Act, no norm for
elucidation of the entries in the Schedule with the reference to the
HSN Codes did exist, in the face of problems encountered, the
Government introduced “Rules of Interpretation” vide Kerela VAT
(Amendment) Act,2005 with retrospective effect from 1.4.2005.The
preamble of the Rules of Interpretation of Schedules as well as Rule
43 thereof in particular as would occupy the center stage of the
competing pleas, apt it would be to extract the same at this stage for
ready reference :“ RULES OF INTERPRETATION OF SCHEDULES
The commodities in the schedules are allotted with Code
Numbers, which are developed by the International Customs
Organization as Harmonized System of Nomenclature( HSN)
and adopted by the Customs Tariff Act,1975. However, there are
certain entries in the schedules for which HSN Numbers are not
given. These commodities which are given with HSN Number
should be given the same meaning as given in the Customs
Tariff Act,1975. Those commodities, which are not given with
HSN Number, should be interpreted, as the case may be, inn
common parlance or commercial parlance. While interpreting a
commodity, if any inconsistency is observed between the
meaning of a commodity without HSN Number and the
meaning of a commodity with HSN Number, the commodity
should be interpreted by including it in that entry which is
having the HSN Number.”
….
….
….
….
....
…..
….
….
7
43. The goods given in List A to third Schedule as „Industrial
inputs and Packing Materials‟ shall attract the rate of tax
applicable to third schedule regardless to the purpose for which
such goods have been purchased.”
8.
According to the petitioner, its product „Ujala Supreme‟ is
the diluted form of Acid Violate Paste and is classifiable under HSN
Code 3204 12 94 of the Central Excise Tariff Act,1985 ( for short,
hereafter referred to as the „Tariff Act”) as well as the Customs
Tariff Act,1975. As the product has no other ingredient, it remains a
dye as Acid Violate Paste though in a much diluted form. Referring
to various test reports and experiments
contending
the petitioner while
that its product is not a fabric whitener ,has
controverted as well, the findings of the Kerala High Court
in
M.P.Agencies(Supra) on which the impugned order dated 11.8.2010
is founded.
9.
The
respondents
in
their
affidavit
affirmed
by
the
Commissioner of Taxes, Assam, the Respondent No.2, while
endorsing the validity of the order impugned, have sought to bring
home the contradictory and inconsistent dispositions
of the
petitioner to repudiate the bonafide as well as the substance of its
challenge. The answering respondents have averred that the
petitioner though had availed sales
Industrial
tax concession under the
Concession Schemes by contending that it had been
manufacturing Ujala by applying raw materials of Acid Violate
Paste, HDPE granules Masterbatch colour by mentioning these in its
Form to obtain the Certificate of Entitlement, it has turned a volte
8
face to assert that the said product does not involve any
manufacturing process and is a yield of dilution of Acid Violate
Paste alone. According to the respondents, on the basis of the
Entitlement
Certificate issued to the petitioner, the Assistant
Commissioner of Taxes, Guwahati Unit-B had issued the Certificate
of Entitlement on 29.9.2008 granting it the tax exemption to the
extent of Rs.355.49 lakhs for the period 25.12.06 to 24.12.13 in respect
of Ujala Supreme, its finished product. The respondents have
maintained that the product marketed by the petitioner is accepted
in common parlance as „fabric whitener‟ distinctly different from
Acid Violate Paste which is acknowledged as synthetic organic dye
and is used for dyeing fabrics of silk wool at elevated temperature
in
presence of acid only. While dismissing
the petitioner‟s
classification of its product in Entry No.114 of Pt-C of the Second
Schedule of the Act as patently erroneous, the respondents endorsed
the impugned decision
with profuse reference
to various
observations and findings recorded in the M.P. Agencies (Supra).
According to them, Ujala Supreme was a product commercially
different from Acid Violate Paste with distinct use and purpose and
that its claim to the contrary was clearly untenable. They have
insisted that even assuming that Ujala Supreme is diluted Acid
Violate Paste, as the product contains
completely transformed
99.02 %
in identity, use
of water it is
and marketability
compared to the original raw material and thus cease to be a dye and
thus the rate of tax applicable on synthetic organic dye used for
dyeing fabrics of silk wool was not applicable to it (Ujala). The
respondents maintained that the findings of the Kerala High Court
9
in M.P. Agencies (Supra) were of decisive significance and that no
different approach in the instant proceeding is warranted.
10.
Mr Debnath, in his pursuit to invalidate the impugned order
of the revenue authority has emphatically questioned the tenability
of the findings recorded in the decision of the Kerala High Court in
M.P.Agencies(Supra). According to him, the conclusion that Ujala
Supreme was in the nature of laundry whitener and thus was not
classifiable under the third Schedule of the Kerala VAT Act against
the HSN Code No.3204 12 94 ( i.e. Acid Violate Paste)was contrary
to Rule 43 of the Rules of Interpretation and in absence of any
stipulation in the said enactment or its Schedule and Rules framed
thereunder that the classification of the goods with reference to HSN
Code would be available only for
the original product, the
observation to the contrary made in the judgment was not
sustainable. Mr Debnath urged that as the AVP and the Ujala
Supreme are products which are clearly classifiable
in the third
Schedule to the Kerala VAT Act, the latter could not have been
brought under the residuary entry. The observation of the Kerala
High Court that the findings of the Central Excise Tribunal and the
Commissioner of Central Excise that Joyti Laboratories
was not
involved in any manufacture was not worth considering for the
purpose of the classification „Ujala Supreme‟, was clearly
in
confrontation with the decision of the Apex Court in M/s Reckitt
Beneckiser India
Ltd. vs. Commissioner of Commercial Taxes,
[2008]15 VST 10(SC), he pleaded. Referring to the various test reports
and experiments
conducted
by several agencies to discern the
10
inalienable traits of AVP and Ujala Supreme, the learned counsel
insistently maintained that the product was unmistakably classified
under HSN Code 3204
12 94 and was thus taxable @ 4%. He
assiduously urged that the consistent findings of the tests conducted
unambiguously demonstrate that Ujala Supreme is nothing but a
diluted form of AVP and does remain a dye and the character and
use of both the components remain the same even after dilution. Mr
Debnath
therefore sought to impress upon this Court that AVP
when diluted retains its characteristic and does not undergo a
change to be converted to a different manufactured commodity.
The learned counsel drew the attention of this court to the preamble
of the Rules for Interpretation to sustain this plea. As commercial
parlance or common parlance test
is relevant vis a vis
those
commodities which are not referable to HSN Code for their
classification as is otherwise irrefutably attested by the Rules of
Interpretation, the sale thereof (AVP) with a different commercial
name per se would not make any difference and attract a different
rate of tax, he insisted. Mr Debnath argued that judged by the
consistent experimental analysis ,Ujala Supreme is an alter ego of
AVP in a diluted form and thus being distinctly identified by HSN
Code No. 3204
12 94 ,the finding to the contrary as recorded in
M.P.Agencies (Supra) is untenable and is of no persuasive worth in
the instant proceeding. While maintaining that the Kerala High
Court had left out of consideration the relevant subsequent reports
to the effect that Ujala was possessed of dyeing attributes rendering
its findings to the contrary
flawed, the learned counsel also
dismissed the remonstrance of the respondents based
on the
11
petitioner‟s claim for sales tax exemption contending that the notion
of “manufacture” under the Assam Industrial Policy, Assam General
Sales Tax Act, 1993 and the Act is not identical
in all essential
constituents to render the challenge herein frivolous. Mr Debnath
placed reliance on the following decisions of the Apex Court :
1) (1976) 2 SCC 241,Dunlop India Ltd. vs. Union of India and
Others.
2) 1994(72) ELT 669, Jyoti Laboratories Vs. CCE, Cochin.
3) 2002 (142) ELT 18, Collector of Customs, Bomday vs. Business
Forces Ltd THR.OL.
4) 2007(78) RLT 276(T), Jyothi Laboratories Ltd. & Nnr. Vs. CCE,
Calicut.
5) 2007(82) RLT 927(S.C), CCE, Mumbai vs. Laijee Goodhoo &
Co.
6) 2007(210) ELT 171(S.C), Crane Betel Nut Powder Works vs.
Commissioner of Customs & Central Excixe, Tirupathi.
7) 2007(217) ELT
161(SC), CCE, Cochin vs. Mannampalakkal
Rubber Latex Works . `
8) [2008
15 VST
10(SC)]Reckitt Benckiser (India) Ltd. vs.
Commissioner of Commercial Taxes and Others.
11.
The learned Standing Counsel for the Revenue has
responded at the out-set by questioning the bonafide of the challenge
contending that the petitioners having availed sales tax concession
under the Industrial Concession Scheme by representing the
product to be one manufactured by applying raw materials of Acid
Violate Paste, HDPE Granules etc.,its turn around for securing
12
classification of „Ujala‟ under Tariff Item 3204 of the Central Excise
Tariff Act,1985 is visibly contradictory to this orientation and on
that count alone, the present assailment ought to be negated.
Referring to the application submitted by the petitioner for obtaining
the Certificate of Entitlement for exemption of tax for „Ujala‟
showing it to be a commercial product under the Assam Industries
(Tax Exemption for Pipe Line Unit) Order, 2005, in particular, the
learned Standing Counsel has urged that product has been described
there tobe a fabric whitener manufactured from the raw materials
namely, Acid Violate Paste, HDPE granules ,Masterbatch colours.
The petitioner, thus having enjoyed the tax exemption as above, it is
estopped from projecting the same product otherwise, he pleaded.
The learned Standing Counsel with allusion to the certificates
and reports based on empirical findings as contained therein
(annexed to the writ petition) has maintained that „Ujala‟s use as a
dye or coloring matter having been ruled out thereby, it by no means
can be identified in absolute terms with Acid Violate Paste and thus
the petitioner‟s claim is misconceived. He has ,therefore urged that
its endeavour to certify „Ujala‟ under Entry 114 of Schedule II –C of
the Act is apparently flawed. Relying
heavily on the decision
rendered by Kerala High Court in M.P. Agencies(Supra), Mr Saikia
has insisted that the petitioner‟s product is commercially different
from Acid Violate Paste with distinct characteristics and utility and
therefore, its plea to the contrary is mis-placed. As admittedly,
„Ujala‟ is claimed to be a diluted Acid Violate Paste containing 99.02
percent of water, it is
even otherwise a commodity totally
transmuted from Acid Violate Paste and having ceased to be a dye,
13
it has been rightly taxed as a residuary item under Fifth Schedule of
the Act, he contended. Endorsing the findings recorded in M.P.
Agencies (Supra), the learned Standing Counsel argued that the
decisive criteria to identify the product for the purpose of
classification has been rightly held to be the common parlance
and/or a commercial parlance test. In the alternative, he urged that
even assuming that „Ujala‟ is being sold as a dye, it being put up in
form or packing for retail sale, it is beyond the tariff item 3204 and
instead traceable to tariff item 3212 of Chapter 32 of the Tariff Act an
thus liable to be taxed @ 13.2 % under Schedule-V of the Act. Ujala
being essentially a laundry whitener or a fabric whitener, it is not a
classified item under the Tarrif Act with an allotted HSN No. and is
thus exigible to tax as a residuary item under Schedule-V of the Act,
he insisted. He emphatically rebutted the shortcomings in the
determination in M.P.Agencies(Supra) as provided by
the
petitioner. Mr Saikia, to bolster his contentions placed reliance on the
following decisions of the Apex Courti)
(2005) 2 SCC 460 ; OK Play India Ltd vs. Commissioner
of Central Excise Delhi III.
ii)
(2005) 12 SCC 731; Western India Plywood Ltd vs.
Collector of Customs.
iii)
(2007) 7 SCC
490; Commissioner of Central Excise
Mumbai vs. Damnet Chemicals Pvt. Ltd.
iv)
(2007)
12
SCC
602;
Mercantile
Company
Commissioner of Central Excise, Calcutta.
vs.
14
v)
(2008) 9 SCC 82 ; Camlin Limited vs. Commissioner of
Central Excise, Mumbai.
12.
Mr Debnath, in his short reply maintained that in the facts of
the case, Item
3212
of Chapter 32 of the Tariff Act had no
application and that as the notion of manufacture under the Assam
Industrial Policy,2003 is relevant only in
the context of
establishment of new and existing units for commercial production,
the plea of incompatibility qua the petitioner is misconceived.
13.
the
Due attention has been lent to the competing pleadings and
arguments
based thereon.
Before
embarking upon
the
contentious issues surfacing therefrom, appropriate it would be to
notice the relevant legal provisions involved.
ENTRY 114 OF SCHEDULE II-C OF THE ACT
Serial No.
Heading No.
of the Central
Excise Tariff
Act,1985(5 of
1986)
114.
32.04
SubDescription
heading
N.of
the
Central
Excise
Tariff
Act,1985(5
of 1986)
Synthetic organic colouring
15
matter, whether or not
chemically
defined;
preparations
based on
synthetic organic colouring
matter as specified in Note
3 or Chapter 32 of the First
Schedule of the Central
Excise
Tariff
Act,1985;
synthetic organic products
of a kind used as
fluorescent
brightening
agents or as luminophores,
whether or not chemically
denied excluding eatechu
or gambiar.
Notes appearing beneath the entries in Schedule II-C
Note 1. Micronutrients and plant growth promoter or regulators are
Not covered by the scope of this Part.
Note 2. The Rules for the interpretation of the Central Excise Tariff
Act,1985, read with the Explanatory Notes as updated from
Time to time published by the Customs Co-operation
Council, Brussels, shall apply for the interpretation of this
Part.
Note 3. Where any commodities are described against any heading
or, as the case may be, sub-heading, and the aforesaid
description is different in any manner than the correspondding description in the Central Excise Tariff Act,1985, then
16
only those commodities described as aforesaid will be
covered by the scope of this Part and other commodities,
though covered by the corresponding description in the
Central Excise Tariff, will not be covered by the scope of
this Part.
Note 4. Subject to Note 3, for the purpose of any entry contained in
this Part, where the description against any heading or, as
the case may be, sub-heading,
matches
fully with the
corresponding description in the Central Excise Tariff Act,
1985, then all the commodities covered for the purpose of
the tariff under that heading or sub-heading will be
Covered by the scope of this Part.
Note 5.
Where the description against any heading or subHeading is shown as ”other” then the interpretation as
Provided in Note 2 shall apply.”
Central Excise Tariff of India
“ Chapter 32
`
Tanning or Dyeing Extracts; tannins and their
Derivatives; Dyes, Pigments and other colouring matter;
paints and varnishes‟ putty and other mastics; inks .“
“3204” Synthetic organic colouring matter, whether or
not chemically defined; preparations as specified
in note 3 to this Chapter based on synthetic
17
organic colouring matter; synthetic organic
products of a kind used as fluorescent
brightening agents or luminophores, whether
or not chemically defined.”
“3204 12
14.
94 Acid Violates,…………”
A global body/entity nomenclatured as World Customs
Organization (earlier named Customs Co-operation Council) was
established
by
a
Convention
signed
in
Brusseels
on
15h
December,1950 delineating its functions amongst others to make
recommendations to ensure an
uniform
interpretation and
application of the Conventions concerning the Nomenclature for the
Classification of Goods in Customs Tariffs and the Valuation of
Goods for Customs Purposes. In order to secure an uniform
classification of commodities across the various taxing enactments be
it parliamentary or legislative, enjoining prescription and realization
of duty/levy, the World/International Customs Organization
developed a System of Code numbers for commodities catalogued in
the Schedules of such legislations based on Harmonized System of
Nomenclature (for short, „HSN‟) since adopted by the Customs Tariff
Act,1975.
The
interpretation
Organization
of
also
the Harmonized
formulated
rules
for
the
System. The norms
for
classification of goods in the Nomenclature have also been evolved.
Rule 3 thereof relevant
hereinbelow :-
for the present purpose is extracted
18
WHEN BY APPLICATION OF RULE-2(b) OR FOR ANY
OTHER
REASON,
CLASSIFIABLE
GOODS
UNDER
ARE,
PRIMA
FACIE,
TWO
OR
MORE
HEADINGS,CLASSIFICATION SHALL BE EFFECTED AS
FOLLOWS :
(a)THE HEADING WHICH PROVIDES THE MOST
SPECIFIC DESCRIPTION SHALL BE PREFERRED TO
HEADINGS
PROVIDING
A
MORE
GENERAL
DESCRIPTION. HOWEVER, WHEN TWRO OR MORE
HEADNGS EACH REFER TO PART ONLY OF THE
MATERIALS OR SUBSTANCES CONTAINED IN MIXED
OR COMPOSITE GOODS OR TO PART ONLY OF THE
ITEMS IN A SET PUT UP FOR RETAIL SALE, THOSE
HEAIDNGS ARE TO BE REGARDED AS EQUALLY
SPECIFIC IN RELATION TO THOSE GOODS, EVEN IF
ONE OF THEM GIVES A MORE COMPLETE OR
PRECISE DESCRIPTION OF THE GOODS.
“ (b) MIXTURES, COMPOSITE, GOODS CONSISTING OF
MATERIALS
OR
MADE
UP
OF
DIFFERENT
COMPONENTS, AND GOODS PUT UP IN SETS FOR
RETAIL SALE, WHICH CANNOT BE CLASSIFIED BY
REFERENCE TO 3(a) ,SHALL, BE CLASSIFIED AS IF
THEY
CONSISTED
COMPONENT
ESSENTIAL
OF
WHICH
CHARACTER,
CRITERION IS APPLICABLE.
THE
GIVES
MATERIAL
THEM
INSOFAR
AS
OR
THEIR
THIS
19
(c) WHEN GOODS CANNOT BE CLASSIFIED BY
REFERENCE TO 3(a) OR 3(b), THEY SHALL BE
CLASSIFIED UNDER THE HEADING WHICH OCCURS
LAST
IN
NUMERICAL
ORDER
AMONG
THOSE
WHICH EQUALLY MERIT CONSIDERATION.”
15.
The parties are not in issue that the Tariff Model of the
Tariff Act is patterned on the categorization and the rationalized
norms of nomenclature labelled as HSN for specifying the rate(s) of
duty payable thereunder. That the underlying
purpose of this
enterprise is to introduce a rationalized mechanism of cataloguing
the various categories of goods exigible to duty thus minimizing the
scope of ambivalence or dissonance in the matter of identification
and classification for levy and exaction of such impost irrespective
of the legislation involved is not in dispute. The relevant entries in
the Act and the Tariff Act are also in place. There is no dissensus in
the Bar, that the Rules for the Interpretation of Harmonized System
as well for the Schedules figuring in the KVAT have a decisive
bearing on the course of the present adjudication. The impugned
order dated 11.8.2010 of the Commissioner of Taxes, Assam under
section 105 of the Act is wholly structured on the determination in
M/S M.P. Agencies(Supra) by the Kerala High Court involving the
same product. Having regard to the aforesaid conclusive impact of
this decision on the impugned order, it would logically be expedient
to notice at this stage the findings recorded therein. That the rival
contentions
are pre-dominantly founded on the conclusions
recorded therein also endorse this step.
20
16.
The contextual facts in M/s M.P. Agencies (Supra) reveal
that two products of the petitioner herein namely, „Ujala Supreme‟
and „Ujala Stiff and Shine‟ were involved.
The factual recitation
reveals that Ujala Supreme is produced by the petitioner in bottles
describing it to be a fabric whitener. It was identified by the
jurisdictional Commissioner of Commercial Taxes as a laundry
brightener under Entry 27 of the notification No.S.R.O. No.82/2006
dated 21.1.2006. Contending it tobe classifiable
in Entry
No.155(8)(d) of the Third Schedule to the KVAT relatable to “Acid
Violates” with HSN Code No. 3204 12 94, the petitioner appealed
from this decision of the aforementioned revenue authority. On a
perusal of the documents including test report, the decisions of the
Central Excise Tribunal
etc. the order of the Commissioner was
interfered with and the issue was remanded for a fresh consideration
whereafter it was clarified
that the product was includable in
residuary Entry 103 of the above referred notification and was
taxable @ 12.5%. The petitioner, thus returned with a fresh appeal,
the decision wherein is being referred to.
17.
On a scrutiny of the test reports produced before it, their
Lordships
concluded that in Ujala Supreme, Acid
Violet
was
present in less than one percent and that the balance 99 percent was
water. Referring to the report of the
Institute of Chemical
Technology, Matunga, Mumbai, it was determined that the
petitioner‟s product could not be used as a dye or colouring matter
in contradistinction to AV 49. It was noticed further that Entry 115 of
list A of the Third Schedule to KVAT covered “industrial inputs and
packing materials” and thus Acid Violate under Entry 155(8) (d) was
21
an industrial input. Their Lordships accepted the finding of the
jurisdictional Commissioner that Ujala Supreme
was a finished
product as a fabric whitener emerging from the application of the
industrial input i.e. Acid Violate Paste. It was held on a perusal of
the report of the Institute of Chemical Technology that due to
extreme dilution of AVP, it had lost its identity and thus Ujala
Supreme could no longer be regarded as Acid Violate Paste from
which it had been made. It was thus concluded that the acid based
industrial raw material per se could not
whitener and
be used as a laundry
it necessarily was to be subjected to a process of
manufacture to be so. Their Lordships thus determined that as the
petitioner‟s product could not be interchanged
with AVP, the
classification of items under KVAT with reference to HSN was of no
significance as those were relatable to original items and not to
products manufactured therefrom with different use and purpose.
The petitioner‟s plea against applicability of common parlance or
commercial parlance test thus was rejected. The same reasonings
figure in the order impugned herein.
18.
Before adverting to the merit of the contentious
projections, the respondents‟ cavil on the petitioner‟s bonafide
demands attention. The petitioner does not deny to have availed the
benefit of tax/ fiscal incentives under the Assam Industrial
Policy,2003 at the relevant point of time. The policy was formulated
amongst others to ensure industrial development in the industrially
backward regions of the State and to generate more employment
opportunities. It offered a package of incentives for promotion and
setting up of industrial units and revilalization of sick industrial
22
units and to promote investment in the State. The eligibility criteria
for availing the incentives offered thereunder visibly envisaged a
date of commencement of commercial production of the unit
concerned whether existing or new
and a finished product was
contemplated to mean and include the item manufactured by the
eligible units . Raw materials similarly were envisaged to mean and
include all industrial components, intermediate goods, substances,
consumable stores including furnace oil and light diesel oil used for
captive generating sets required in the process of manufacture and
packing materials utilized for packing of finished products by an
eligible unit. The applications for grant of Eligibility Certificate and
the Certificate of Entitlement with the particulars furnished therein
thus have to be judged in these perspectives.
The facts pertaining to the commencement of commercial
production and the manufacture of finished products were predominantly for the purpose of determining the eligibility of the units
engaged therein to avail the benefits under the policy. The focus
invariably was not on the actual process of manufacture of the
goods. Though the petitioner‟s present plea that Ujala Supreme is
intrinsically only a diluted AVP is irreconcilable with the amalgam
of the
raw materials applied for the manufacture thereof as
enumerated in its application for obtaining the aforementioned
certificates, in the estimate of this Court this incompatibility ipso
facto, does not render the issue raised herein non examinable on the
ground of lack of its bonafide. Such a contradiction though may
expose the petitioner to steps contemplated in law by the
appropriate authorities, the
consequence
of if being non-suited
23
therefor vis a vis the present challenge does not ensue. If in fact, the
product Ujala Supreme is only singularly diluted AVP to its extreme
with no other constituent and thus ought to be included in Entry
No.114 of the Act to be assigned the corresponding HSN Code No.
3204 12 94, its prospect would stand jeopardized if the aforenoted
anomaly simpliciter is awarded a decisive primacy. There being no
estoppel against law, the plea
of the respondents against the
maintainability of the instant proceeding for want of bonafide of
the petitioner does not commend for acceptance.
19.
In Reckit Benckiser(India) Ltd (Supra), the question that
was posed for the scrutiny of the Apex Court was whether mosquito
repellants and other items fell under Entry 44(5) of Schedule III to
the KVAT. Whereas, the
appellant insisted on the aforesaid
classification, according to the Revenue, the products were traceable
to Entry No.66 which attracted an enhanced rate of duty. Interfering
with the decision of the jurisdictional High Court from which the
appeal had been preferred to it, the Apex Court underlined that
cases where HSN and Code number is indicated against a tariff item
mentioned in the Third Schedule of KVAT then, in terms of the Rules
of Interpretation one ought to abide by the same as adopted by
Customs Tariff Act, 1975 and thus interpret the entries in the said
Schedule not only in the light of the entries in the Custom Tariff
Act,1975, but also the judgments applicable thereto. Their Lordships
observed that KVAT was aligned with the Customs Tariff which, in
turn, was in Harmony with HSN and consequently its product in
question was required to be viewed in the context of HSN and Code
number and the judgmenst based thereon.
24
20.
That
Explanatory Notes to the Harmonized
System of
Nomenclature (HSN) were not only of persuasive value, but having
regard to the fact that the structure of the Central Excise Tariff is
based thereon were entitled to greater weightage was underlined
by the
Apex Court in Collector of Customs, Bombay(Supra) in
which it quoted with approval its observations in Collector, Central
Excise, Shillong vs. Wood Crafts Products Limited [ 1995(77) E.L.T.
23] as follows :“ We are of the view that the Tribunal as well as
the High Court fell into the error of overlooking the fact
that the structure of the Central Excise Tariff is based on
the internationally accepted nomenclature found in the
HSN and, therefore, be resolved with reference to the
nomenclature indicated by the HSN unless there be an
express different intention indicated by the Central Excise
Tariff Act,1985 itself. The definition of a term in the ISI
Glossary, which has a different purpose, cannot, in case of a
conflict, override the clear indication of the meaning of an
identical expression in the same context in the HSN. In the
HSN , block board is included within the meaning of the
expression „similar‟ laminated wood‟ in the same context of
classification of block board. Since the Central Excise Tariff
Act,1985 is enacted on the basis and pattern of the HSN,
the same expression used in the Act must, as far as
practicable, be construed to have the meaning which is
expressly given to it
in the HSN when there is no
indication in the Indian Tariff of a different intention.”
25
21.
The Rules of Interpretation of the Schedules as appearing
in the KVAT enjoin that commodities allotted HSN Code numbers
ought to be extended the same meaning as recorded in the Customs
Tariff Act,1975 and that while interpreting such a commodity if
any inconsistency is observed between the meaning of a commodity
without HSN Number and the meaning of a commodity with HSN
Number, the commodity should be interpreted by including it in
that entry which is assigned the HSN Number. This only evidences
the elasticity extended to the expanse of the Harmonized System of
Nomenclature (HSN) to guarantee to the maximum an uniformity
in identification and classification of excisable goods for the levy
thereon. Rule 43 of the Rules of Interpretation of Schedules
appended to KVAT mandates that the goods catalogued in list A to
the Third Schedule “ industrial inputs and packing materials” would
attract the rate of tax applicable to Third Schedule regardless of the
purpose for which such goods have been purchased. This Rule does
ordains that the end use of goods would not have any pertinence in
adjudging the rate of tax otherwise prescribed therefor.
22.
That Ujala Supreme has been determined to be comprised of
the following constituents is borne out by the relevant reports
referred to in M.P. Agencies(Supra) as well laid before this Court as
follows :AV/49
……
.08 %
Water
…… 99.02%
26
The petitioner‟s product is an extremely diluted form of AVP in the
compositional context is also a finding of the Kerala High Court in
M/S M.P. Agencies( Supra).
23.
The following excerpt of the certificate dated 30.8.2006 of
Prof. V.R. Kanetkar, Professor and Head, Dyestuff Technology
Department,
University
of
Mumbai,
Institute
of
Chemical
Technology (Autonomous) , University of Mumbai deserves to be
extracted.
“ The acid violate paste (referred as “AVP” hereafter) supplied
to us confirms to Acid Violate 49, a synthetic organic classified
into acid dye class which is used for the colouration of silk
wool at elevated temperatures in the presence of acid. “AVP”
is uniform and having standard strength which is formulated
and prepared as ready for use. The ”AVP” as well as “Ujala”
purchased from the market are subjected to instrumental
analysis (High Performance Thin Layer Chromatography) that
the result are observed as below.
1. The chemical composition of “AVP” and “Ujala” are
the same except for the dilution in “Ujala”.
2. It can be observed from the chromatogram that”Ujala”
is a heavily diluted form of AVP with water.
3. As such”Ujala” cannot be used as a dye or a colouring
matter as it is.
27
4. From the technical literature it can be understood that
diluted acid violate 49 is used in the fabric finishing
industries for imparting brightness to while fabrics
( The mechanism being the fabric absorbs all the
colours in the visible light and transmits the
bluish/purplish tint).
…
….
…..
….
…..
….
…..
As per the technical report and the HPTLC repot, it
can be conclusively said that Ujala is nothing but a
diluted form of Acid Violet Dye.
The observations of the HPTLC analysis are as
follows.
a. All the components present in diluted sample of
AVP are also present in Ujala sample.
b. No additional components are present in Ujala
Sample.
c. The diluted AVP samples and the Ujala
sample‟s
spectral scans are super imposable and match
exactly, which confirms that Ujala is a diluted
form
of AVP and chemically they both are identical.
From the
be
above
analytical and
technical data, it can
28
concluded
that ”Ujala” is only a diluted form of Acid
Violate 49 with water, which has the inherent characteristics
of brightening clothes and does not contain any other
additives or optical brightening agents. The brightness of
the fabric is increased because at absorbs all the colours in
the visible light and transmits the bluish/purplish tint, thus
hiding the yellowing of the fabrics.”
24.
The above extract recites the following features of the
analysis of the product –(1) The chemical compositions of AVP and
Ujala are the same.
(2) Ujala is heavily diluted form of AVP with water.
(3) All the components present in diluted sample of AVP
also exist in Ujala.
(4) No additional component is present in Ujala.
(5) Ujala is a diluted form of AVP and both are chemically
identical.
(6) Ujala is a diluted form of Acid Violate Paste 49 with
water
and has
the inherent characteristics of
brightening clothes.
(7) Ujala cannot used as a dye or colouring matter as it is.
29
25.
The petitioner in paragraph D.45 has referred to a report
dated 22.10.2007 (stated to be Annexure-13 in the appeal before the
High Court) of Prof. V.R.Kanetkar as above providing the following
clarification :
“ 4) Para 2, point 3 of the report dated 30th August,2006
state that as such „Ujala‟ cannot be used as a dye or a colouring
matter as it is. Ujala will impart permanent colour(dye) in the
presence of acid at elevated temperature.”
On a conjoint reading of this clarification ( existence and authenticity
of the report dated 22.10.07 not having been denied by the
respondents), the absence of dyeing efficacy of the petitioner‟s
product
in absolute terms cannot be inferred. Ujala Supreme
assuredly thus is a commodity which is AVP being highly diluted
with water possessing dyeing quality in the presence of acid at
elevated temperature.
26.
Axiomatically, therefore, if Ujala is identifiable with AVP
though in a diluted form and is not construed to be a commercially
different product therefrom, it is classifiable under Entry 114 of the
Act and relatable to HSN Number 3204 12 94 for the purpose of
excise duty under the Tariff Act. It, however, it is regarded as a new
product independent of its constituent AVP irrespective of its end
use , in absence of any other entry available to accommodate it, it is
liable to be assessed as a residuary item contemplated
under
Schedule V of the Act. Admittedly, Ujala Supreme is a mixture or
combination of AVP and water. Entry 114 of the Schedule II –C of
the Act is assigned inter alia to synthetic organic colouring matter
30
whether or not chemically defined as well as preparation based on
synthetic organic colouring matter as specified in Note 3 of Chapter
32 of the First Schedule of the Central Excise Tariff Act, 1985. It is
relatable to heading No.3204 in Chapter 32 of the Tariff Act dealing
with “ Tanning or Dyeing Extracts‟ Tannins and their Derivatives;
Dyes, Pigments and other colouring matter; paints and varnishes;
putty and other mastics; inks”
Note -3
of Chapter 32 as above, extends amongst other the
application of heading 3204
to preparations based on colouring
matter of a kind used for colouring any material or used as
ingredients in the manufacture of colouring preparations. This head
Note, however, does not apply to pigments dispersed in nonaqueous media, in liquid or paste form, of a kind used in the
manufacture of paints, including enamels or to other preparations of
heading 3212 etc.
27.
Their
Lordships
of
the
Supreme
Court
in
C.C.E.,Mumbai(Supra), held that “compounded asafoetida” made
from raw asafoetida through the process involved did not constitute
manufacture as no chemical change was brought about thereby. As
the essential character of the product remained the same, no process
of manufacture
was involved.
Their Lordships highlighted the
twin tests of manufacture and marketability to ascertain whether a
commodity was exigible to excise duty or not.
28.
In Crane Betel Nut Power Works(Supra), the issue was
whether processing of betel-nuts
by essential/non essential oils
31
menthol ,sweetening agents etc. amounted to manufacture to attract
excise duty. Having regard to the nature of the process to which the
betel-nuts were subjected to, it was held in the negative as no article
different from the raw material was produced. In arriving at this
conclusion, their Lordships recalled the view of the Constitution
Bench of the Apex Court in Union of India vs. Delhi Cloth and
General Mills,(1963) Supp. 1 SCR 586 that „ manufacture‟ signified
bringing into existence of a new substance and not merely to effect
a change in one. The following extract of the rendering in AnheuserBusch Brewing Association vs. United States, 52 L.Ed. 336-338 was
referred to with approval“ Manufacture implies change, but every change is not
manufacture and yet every change of an article is the result of
treatment, labour and manipulation. But something more is
necessary and there must be transformation, a new and
different article must
emerge having a distinctive name,
character or use.”
It was held that the process involved in the emergence of sweetened
betel-nut pieces did not result in the manufacture of a new product
as the end product continued to retain its original character though
in a modified form.
29.
The assessee in Commissioner of C.Ex. ,Cochin (Supra)
engaged in the manufacture of Latex(Rubber) based Adhesive with
brand names Superset(LC) and Superset (LB) , was engaged in a
debate with the Revenue regarding classification of its product for
determining its excise duty liability. Disapproving the plea of „end-
32
user test‟ applied by the Revenue for the purpose of classification,
their Lordships held that therefor “ composition test” is important
and that the end user test would apply only if relevant
entry
approves the same.
30.
Noticeably, the argument on behalf of the respondents that
Ujala Supreme even if a dye, being offered for sale
in form or
packing for retail sale, is covered by heading 3212 is not based on
pleadings. Such a plea is instead opposed to the stance
of the
respondents that the product is shorn of any dyeing attribute. Be
that as it may, as the product is a composition of two constituents as
demonstrated by its composition, Rule 3(b) of the General Rules for
Interpretation of the Harmonized System seems apposite to diagnose
with certitude , its classification to ascertain the rate of its exigibility
to duty under the Tariff Act. Judged by the percentage of existence
of the ingredients of the product, it cannot be gainsaid that the
essential characteristics thereof would be decided by Acid Violate
Paste (AVP). As it is Rule 3(b) stipulates that classification of
mixtures and composite goods consisting of different materials or
made up of different components as well as goods put up in sets for
retail sale and which cannot be classified by referring to Rule 3(a)
shall be classified as if they constitute the material or component
which gave them their essential character. As Ujala Supreme is a
highly
diluted form of AVP in its essential character, on the
application of Rule 3(b) it appropriately is entitled to be catalogued
in Entry 114 of Schedule II-C of the Act and qualified for HSN 3204
12 94 for determining the rate of taxability.
33
31.
The ultimate conclusion of their Lordships
in M/s M.P.
Agencies contrary to the above is based on the findings of the report
dated 30.8.2006 that Ujala Supreme is in capable of being used as a
dye or a colouring matter and it having thus lost that quality due to
extreme dilution, can no longer be identified with AVP. The
petitioner‟s contention against manufacture of the product to yield a
commodity novel in kind and distinguishable from AVP was not
considered in this premise. On the same reasoning, the benefit of
classification based on Harmonized System of Nomenclature was
refused to its product. This determination with utmost respect for
the aforementioned deductions in the present adjudication cannot be
subscribed to. Not only the clarification provided in the report dated
22.10.2007 by Prof.
V.R.
Karnetker
neutralizing the
earlier
observations in the report dated 30.8.06 that Ujala cannot be used as
a dye or a colouring matter, is of definite
significance for the
ultimate classification of the product, its structural composition as
well enjoins its inclusion under Entry 114 of Schedule II-C of the
Act earning for it HSN Code Number 3204 12 94 to determine its
tax liability.
32.
The decision of the Apex Court in Camlin Limited(Supra),
that if the entries in the HSN and the Tariff are not aligned, reliance
on the former for the purpose of classification
of goods is not
permissible, does not advance the case of the revenue in the facts of
the present case.
33.
The decision in O.K. Play(India) Ltd.(Supra), while reiterating
that the scheme of the Central Excise Tariff is based on Harmonised
System of Nomenclature and the explanatory notes thereto as a safe
34
guard for interpretation of an entry, underlined that functional
utility, design, shape and predominant use are equally relevant for
determining the classification of an item. This, however,
is not in
effacement of the enunciation that end use of product is not an
absolute index in the matter of classification.
34.
Their Lordships of the Apex Court in Western India
Plywood Ltd(Supra) reiterated the well settled proposition that
resort to residuary tariff entry ought to be made with a good deal of
caution and only when no other provision express or implied is
available for the goods in question. It was held that in the matter of
classification, identification of an entry is the primary step and the
description thereof would be relevant for assigning it a particular
tariff entry.
35.
The decision in Commissioner of Central Excise, Mumbai-
IV(Supra) has been introduced by the respondents to brace up its
plea that the petitioner‟s product cannot be passed on as AVP in
view of the negligible percentage of its existence in it. The Apex
Court therein was in seisin of a commodity/preparation containing
70% of mineral oil and 20% of petroleum oil. Having regard to the
fact that it was blended lubricating oil, it was held that negligible
percentage of rust preventive did not make the product a rust
preventative
one. Having regard to the composition of the
petitioner‟s product , this exposition is also of no assistance to the
respondents.
35
36.
On the other hand, the decision of the Apex Court in
Dunlop India Ltd(Supra) and of this Court in CHEM Trade India(P)
Limited underlined that lodgment
of an item
in the residuary
category is approvable only if by no conceivable reasoning, it can
be brought within the purview of any other tariff item. That the
burden to this effect is on the department, was also emphasized in
unambiguous terms.
37.
On a totality of the above considerations, this Court is of
the unhesitant view that the petitioner‟s product “Ujala Supreme” is
entitled to be included in Entry 114 of Schedule II-C of the Act with
corresponding rate of duty prescribed by HSN Code No. 3204 12
94. This Court, for the reasons recorded hereinabove, is thus in
respectful disagreement with the observations and the conclusions
recorded in M/s M.P. Agencies(Supra). The impugned order dated
11.8.2010 when judged by the above touchtone is thus unsustainable
in aw and on facts. It is thus, quashed.
38.
The petition is allowed. No costs.
JUDGE
BARUAH