2016 (5) TMI 1038 - HC - VAT and Sales Tax

Whether bitumen emulsion should be regarded as bitumen and covered by Entry 14 of the list of goods taxable at five per cent in Part-I of Schedule C to the West Bengal Valued Added Tax Act 2003 - Held that - while matching goods against the entries in schedules under the sales tax and VAT laws ought to be the test of a product s relatability to a particular entry based on its commercial identity use and the common parlance test. If any commodity is capable of being covered by several specified entries as distinct from the residuary entry the best fit would be on a combined assessment based on the commercial identity common parlance and user tests. The positive co-relation between the concerned goods and the specified entry based on such three broad tests ought to provide the answer. But when the choice is between a particular specified entry and the non-descript residuary entry the assessment should be founded on a negative test whether the goods are more non-relatable than relatable to the entry on a reasonable application of the three criteria before they are parked under the residuary entry. There can be no mathematical formula for such an exercise but there must be a pronounced doubtful co-relation between the goods in question and the specified entry on all three counts before such goods can be banished to the residuary entry irrespective of whether the residuary entry carries a higher or lower rate of tax. A further consideration would be that since an indirect tax as sales tax is passed on to the consumers whether a dealer should be penalised and made to pay the tax by upsetting an interpretation that has been accepted for a few years. If such are the tests bitumen emulsion would pass muster to find itself in the company of bitumen in Entry 14 in Part-I of Schedule C to the Act of 2003. therefore the bitumen emulsion is more relatable to the entry covered by bitumen rather than the residuary entry in Schedule CA to the Act. - Petition disposed of

Issues Involved:
- Classification of bitumen emulsion under the West Bengal Value Added Tax Act, 2003.
- Applicability of tax rates for bitumen emulsion.
- Relatability of bitumen emulsion to bitumen under Entry 14 of Schedule C, Part-I.

Detailed Analysis:

Classification of Bitumen Emulsion:
The primary issue is whether bitumen emulsion should be classified as bitumen under Entry 14 of the list of goods taxable at five percent in Part-I of Schedule C to the West Bengal Value Added Tax Act, 2003. The court examined the nature and use of bitumen emulsion, noting that it is produced by adding emulsifiers and other chemicals to bitumen, resulting in a product that can be used without heating to a molten state. Despite the chemical change, bitumen emulsion serves similar purposes as bitumen, such as in road construction and repair.

Applicability of Tax Rates:
The petitioners argued that bitumen emulsion should be taxed at the same rate as bitumen. They cited several judgments, including the Supreme Court's decision in Commissioner of Central Excise, Bangalore-II v. Osnar Chemical Private Limited, which held that the process of mixing polymers and additives with bitumen does not amount to manufacture. The petitioners also referred to Tungabhadra Industries Limited v. CTO, where the Supreme Court held that hydrogenated groundnut oil retains its identity as groundnut oil for tax purposes. They emphasized that a product should be classified based on its commercial identity and predominant use.

Relatability to Bitumen:
The petitioners contended that bitumen emulsion retains its character as bitumen and should be classified under the same entry. They argued that the classification should be based on common parlance and commercial identity, not on technical or scientific distinctions. They cited State of Maharashtra v. Bradma of India Limited and Mauri Yeast India Private Limited v. State of UP to support their argument that a product should be classified under the specific entry if it reasonably resembles the enumerated item.

State's Argument:
The State argued that bitumen emulsion is distinct from bitumen due to the complex manufacturing process and its usability at room temperature. They relied on the definition of "manufacture" in Section 2(22) of the Act and cited State of West Bengal v. Washi Ahmed and DCST v. Pio Food Packers to support their position. The State emphasized that the classification of goods is a question of fact and should be based on the product's nature and use.

Court's Decision:
The court held that bitumen emulsion is more relatable to bitumen under Entry 14 of Schedule C, Part-I, rather than the residuary entry. The court applied the tests of commercial identity, common parlance, and predominant use to determine the classification. It noted that the purpose of sales tax and VAT laws is to tax the sale of goods, not the manufacturing process. The court concluded that bitumen emulsion retains its identity as bitumen for tax purposes and should be taxed at the same rate.

Conclusion:
The court disposed of the petitions by holding that bitumen emulsion is relatable to bitumen under Entry 14 in Part-I of Schedule C to the Act of 2003. The petitioners were given liberty to pursue appropriate proceedings for other matters complained of. There was no order as to costs.

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