2007 (4) TMI 602 - HC - Indian Laws

Interpretation of statute - Adhesive - Synthetic adhesive - Whether vulcanizing solution used in tyre retreading work is a synthetic adhesive taxable at the rate of 16% with reference to aforesaid Entry No. 91 under the notification dated 27-3-1995 or at general rate of 10% - HELD THAT - The commodity in question vulcanizing solution is an adhesive is beyond the pale of doubt because it is used for sticking together two layers of rubbers in the tyre retreading industry of the respondent assessee. The chemical composition of the vulcanizing solution also indicates that they have the adhesive value in them. The rubber compound, polymers and solvent used along with natural rubber to make the vulcanizing solution makes it a synthetic adhesive used for the purpose of sticking. A bare and close reading of the said Entry No. 91 clarifies the issue that it is only the synthetic adhesive used by the paints industry which are intended to be taxed at the rate of 16%. The principles of ejusdem generis or noscitur a sociis are well settled principles of interpretation and the words of general and wider import used in an entry surrounded by other relevant terms has to draw its colour and meaning from such surrounding words and that cannot be lost sight of. Thus, going by the rule of interpretation, this Court is of the opinion that the learned Assessing Authority was not correct in applying 16% rate of tax on the commodity in question i.e. the vulcanizing solution with reference to Entry No. 91 of notification dated 27-3-1995 and the Appellate Authorities were justified in setting aside such additional tax, interest and penalty thereon though for different reasons. Accordingly, it is held that vulcanizing solution was rightly taxable at general rate of 10% under Entry No. 100 and not at the rate of 16% under Entry No. 91 under the aforesaid notification dated 27-3-1995 during the relevant period. The revision petitions are accordingly dismissed with no order as to costs.

Summary

Issues:
Interpretation of taxability of vulcanizing solution as a synthetic adhesive at 16% or general rate of 10% under specific or residuary entry.

Analysis:
The High Court considered the issue of whether the vulcanizing solution used by the respondent-assessee in tyre retreading work should be taxed as a synthetic adhesive at 16% or at the general rate of 10%. The Assessing Authority imposed a 6% tax difference based on Entry No. 91 of the notification, which includes synthetic adhesives at 16%. However, the Deputy Commissioner (Appeals) and the Tax Board held that the vulcanizing solution is a rubber compound, not a synthetic adhesive, and should be taxed at the general rate of 10%. The court noted the arguments presented by both sides regarding the interpretation of the relevant entry and the application of the principles of ejusdem generis and noscitur a sociis in statutory interpretation.

The Revenue contended that the vulcanizing solution, being an adhesive used for tyre retreading, should be taxed at 16% as a synthetic adhesive. They argued that the common parlance test should be applied to determine the taxability of the commodity. On the other hand, the respondent's counsel argued that the specific entry for synthetic adhesives at 16% did not include vulcanizing solutions used for tyre retreading. They relied on the principle of ejusdem generis to interpret the scope of the entry and argued that the vulcanizing solution should be taxed at the general rate of 10% under the residuary entry.

The court analyzed the composition and usage of the vulcanizing solution, determining that it indeed functions as an adhesive in tyre retreading. However, the court emphasized that the specific entry for synthetic adhesives at 16% under Entry No. 91 of the notification was intended for products used in the paints industry. Applying the principles of ejusdem generis and noscitur a sociis, the court concluded that the vulcanizing solution used by the respondent should be taxed at the general rate of 10% under Entry No. 100, not at the 16% rate specified for synthetic adhesives under Entry No. 91.

In the final judgment, the High Court dismissed the revision petitions, affirming that the vulcanizing solution was rightly taxable at the general rate of 10% under the residuary entry and not at the 16% rate specified for synthetic adhesives under the specific entry. The court's decision was based on the interpretation of the relevant entry, the nature of the commodity, and the established principles of statutory interpretation, emphasizing the specific context and usage of the product in question.