TMI Blog2011 (6) TMI 657X X X X Extracts X X X X X X X X Extracts X X X X ..... [Judgment per : D.Y. Chandrachud, J.]. This appeal by the Commissioner of Sales Tax has been admitted on the following substantial questions of law : (i) Whether in the facts and in the circumstances of the case, the Tribunal was justified in construing the Schedule Entry C-74 to mean footwear predominantly made of plastic and not as footwear exclusively/entirely made of plastic; and (ii) Whether in the facts and circumstances of the case, the Tribunal was justified in holding that the goods of the respondent namely Escort 111 SYN Black sold through invoice dated 25-8-2005 though admittedly not wholly made of plastic would be covered by the Schedule Entry C-74. 2. The Respondent engages in the business of the import and sale of footwear at Pune and is registered under the Maharashtra Value Added Tax Act, 2002. An application was submitted on 25 December 2007 to the Commissioner for a determination under Section 56 of the Act, accompanied by a Tax Invoice for a product described as Escort 111 SYN Black. The contention of the Respondent was that the product manufactured by it is plastic moulded footwear and is covered by Entry C-74 of the Schedule so a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, but by residual Entry E-1 and was hence liable to tax at 12.5%. 4. The decision of the Commissioner was challenged by the Respondent in appeal before the Tribunal. The Tribunal by its judgment dated 16 January 2010 held that the footwear was plastic footwear as it was predominantly made of plastic and was, therefore, covered by Entry C-74. The Tribunal noted that it is true that footwear is not made entirely of plastic because other materials like fabric are also used therein . The Tribunal noted that man made fabric with plastic coating is certainly used on the upper portion so as to make the footwear comfortable . However, on the basis of the certificate of the FDDI, the Tribunal accepted the contention of the Respondent that both in terms of weight as well as value, 90% of the material used in the manufacture of the footwear is plastic and hence, the footwear is made primarily of plastic. 5. On behalf of the Appellant, it has been submitted that (i) Entries in the Schedule must be construed according to their plain and literal meaning unless there is an ambiguity or an absurd result would ensue; (ii) Entry C-74 refers to plastic footwear. If the footwear is not of pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State desired that the HSN classification is to be adopted, it has by a specific notification adopted the same in respect of a specific scheduled entry. Reliance has been placed on notifications pertaining to Entry C-6 (Notification dated 1 June 2005), C-54 (Notification dated 1 September 2005), and Entry C-56 (Notification dated 17 October 2005); (vii) The Karnataka High Court in its decision in Preston India Pvt. Ltd. considered the very entry (plastic footwear) appearing in the VAT legislation of that State. The Karnataka High Court held that since the material used for the upper portion of the footwear is man made fabric with plastic coating, the footwear would not fall for classification as plastic footwear; (viii) In the market, footwear made wholly of plastic is widely available for sale and which alone would be covered by Entry C-74; (ix) The Tribunal found, as a matter of fact, that the footwear in question, is not made entirely of plastic because other material like fabric is also used. The Tribunal, however, incorrectly applied the test of predominance in the present case; (x) The judgment of the Supreme Court in A. Nagaraju Bros. v. State of Andhra Pradesh - (1994) 95 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dopted or referred to in the Schedule appended to the Maharashtra Value Added Tax Act, cannot be blindly applied for considering the scope and meaning of the entries under the Maharashtra VAT Act; (vii) There is no material on record to indicate that the product in dispute is commercially known in the trade as anything other than the plastic footwear. The benefit must, in the circumstances, go to the tax payers. The ingredients, nature and contents of the product have a vital role in determination of proper classification. 7. These submissions fall for consideration. 8. In analysing the merits of the rival contentions, the admitted position on which there is no dispute, is that (i) The footwear which forms the subject matter of the determination is not made entirely of plastic; and (ii) Other material namely, man made fabric with a plastic coating is used on the upper portion of the footwear. As a matter of fact, the documents which were produced by the Respondent before the Commissioner of Sales Tax, make it abundantly clear that while the sole of the footwear is made of PVC compound, the upper portion is made out of plastic coated textile where textile material is used as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation such as Note 3 to Chapter 64 of Section XII of the Central Excise Tariff Act has not been adopted in the value added tax legislation in the State of Maharashtra. But Note 3 of Chapter 64, Section XII of the Central Excise Tariff was the basis and foundation on which the Respondent, relying on the FDDI certificate sought to clarify its product as plastic footwear. This is plainly contrary to law. It is evident from the material that was produced by the Respondent, principally the certificates issued by the FDDI that a substantial part of that material is founded on the notes appended to Section XII of Chapter 64 of the Central Excise Tariff Act. The basis on which the Respondent sought an inference to be drawn that the footwear fell for classification as plastic footwear was the explanatory notes to the Central Excise Tariff. These would evidently have no relevance to a construction to be placed on the provisions of the relevant entry in the MVAT Act. 10. The entry in question, C-74, adverts to plastic footwear. The entry has to be construed as it stands. The Respondent submitted before the Tribunal that it was the predominant nature of the material used that must be a dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s based on the Harmonized System of Nomenclature (HSN) and the explanatory notes thereto, HSN together with its explanatory notes would provide a safe guide for interpretation of an entry in the Central Excise Tariff. Equal importance, the Court held, would be given to the Rules for Interpretation of the Excise Tariff. Moreover, it would be important to bear in mind that functional utility, design, shape and predominant usage would have to be taken into account while determining the classification of an item. These aids and assistance, held the Supreme Court, would be more important than the names used in the trade or common parlance in the matter of correct classification. These observations of the Supreme Court emphasize that the nature of the legislation would have an important bearing on the question in issue. HSN together with its explanatory notes has relevance to interpreting the Central Excise Tariff because that Tariff is based on the HSN. 12. In Geep Flashlight Industries Ltd. v. Union of India, 1985 (22) E.L.T. 3 (S.C.) the Supreme Court considered the interpretation to be placed on Tariff Entry 15A(2) of the Central Excise Tariff which dealt with articles made of pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion were plastic articles within the meaning of Entry 113 of Schedule I to the Andhra Pradesh General Sales Tax Act, 1957. The question arose with reference to Assessment Year 1981-82. Prior to 1 July 1985, there was no entry specifically dealing with suitcases and Entry 113 read as plastic sheets and articles . With effect from 1 July 1985, the entry was amended to read plastic sheets and articles excluding those allied goods falling under any other item whereas Entry 163 read All kinds of suitcases, briefcases and vanity bags . The Supreme Court observed that it was considering suitcases made of plastic by injection moulding and fitted with steel bands, locks and ancillaries made of other materials. According to the Appellant, those suitcases were plastic articles within the meaning of Entry 113, a submission which was not accepted by the Deputy Commissioner, the Tribunal and the High Court. The Supreme Court noted that the decisions of the Tribunal in the case of certain other dealers were not uniform. In the case of some similar dealers, the Tribunal had taken the view that the suitcases were plastic articles. In the case of very same dealer pertaining to Assessment Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The Karnataka High Court considered the provisions of a similar entry in the State Value Added Tax Act, 2003 in Preston India Pvt. Ltd. v. State of Karnataka - (2007) 35 MTJ 139. Entry 47 of the Third Schedule to the Act was entitled Plastic Footwear for the period between 1 April 2005 and 6 June 2005. With effect from 7 June 2005, a substituted provision came into force and the relevant entry read as Moulded plastic footwear, hawaii Chappals and their straps . The Appellant manufactured two types of footwear. One of them, known as Walkie Chappal, had a sole which was made up of two layers, the upper layer consisting of a plastic polymer, while the bottom layer was made up of a rubber sheet. The strap of the footwear, called as the upper, was made up of man made fabric with plastic coated on it. The Appellant contended that this product was taxable as plastic footwear. The second product of the Appellant was called EVA footwear in which both the sole and the strap consisted of EVA polymers, moulded together. The Appellant sought an advance ruling from the Authority. In the case of the Walkie Chappal, the Authority held that the Appellant was not entitled to the benefit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down by the Supreme Court in Geep Flashlight which was followed in the subsequent decision in Wiltech. 18. The Respondent sought a determination under Section 56 of the MVAT Act, based on a tax invoice relating to a product which the Respondent claimed was plastic footwear. The material upon which reliance was placed by the Respondent primarily consisted of certificates from the FDDI and the Institute of Chemical Technology. All the certificates arc consistent when they state that the upper part of the product incorporates textile material upon which a plastic coating is applied. Many of the certificates opined that the product is plastic footwear on the basis of the explanatory notes contained in Section XII of Chapter 64 of the Central Excise Tariff. The explanatory notes to the Central Excise Tariff cannot determine the interpretation of the entry in question, in the MVAT Act, 2002. The IISN has not been adopted in the Maharashtra Value Added Tax Legislation by legislative incorporation. Hence, it would not be permissible to rely upon the explanatory note contained in legislation pertaining to the Central Excise Tariff. The basis and foundation upon which the Respondent claim ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
