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TMI Blog2011 (3) TMI 477X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for the above product in accordance with 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 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 schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificate of Entitlement, it has turned a volte 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mistakably 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; Synthetic organic colouring 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 eatech of 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 correspond- ding description in the Central Excise Tariff Act,1985, then 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A FACIE, CLASSIFIABLE UNDER 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 OF THE MATERIAL OR COMPONENT WHICH GIVES THEM THEIR ESSENTIAL CHARACTER, INSOFAR AS THIS CRITERION IS APPLICABLE. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 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 Schedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ample‟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 above analytical and technical data, it can be 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind 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 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 int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 neutra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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