TMI Blog1997 (12) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... .R.C. No. 41 of 1995 is, whether the sale of the items empty drums, old newspaper, gunny bags, etc., are to be taxed at the general rate or at the rates given against each item in the Schedule to the Kerala General Sales Tax Act, 1963? 3.. Assessments for the years 1981-82 to 1985-86 under the Act were completed treating compounded rubber manufactured by the assessee in its factory at Kottayam as finished rubber product entitled to avail of the concession rate under Notification S.R.O. No. 641 of 1981. For the assessment year 1986-87, return was filed by the assessee claiming concessional rate of 3 per cent tax on the purchase turnover of rubber which was used for the manufacture of tread rubber and compounded rubber. Assessing authority rejected the claim holding that compounded rubber is not a finished rubber product, that tread rubber being mixture of synthetic rubber and natural rubber, it is not a rubber product and therefore purchase of rubber for manufacture of compounded rubber and tread rubber will not be entitled to the concessional rate of 3 per cent tax under S.R.O. No. 641 of 1981. Assessing authority further found that the turnover of cloth bags was liable to tax un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only at the rate applicable to scrap. The claim of the assessee that the purchase turnover of cloth bags was exempted from purchase tax under section 5A was rejected by the Tribunal. 5.. We will first consider the common question arising in all the tax revision cases, namely, whether compounded rubber is a finished rubber product for the purpose of claiming concessional rate of tax as per Notification S.R.O. No. 641 of 1981 and whether S.R.O. No. 1516 of 1990 is clarificatory in nature having retrospective effect from the date of S.R.O. No. 641 of 1981. 6.. S.R.O. No. 641 of 1981 reads as follows: In exercise of the powers conferred by section 10 of the Kerala General Sales Tax Act, 1963 (15 of 1963), the Government of Kerala, having considered it necessary in the public interest so to do, hereby make a reduction in the rate of tax payable under the said Act on the purchase of rubber by manufacturers of finished rubber products within the State for use of such rubber by such manufacturers in the manufacture of finished rubber products within the State from five per cent to three per cent. This notification shall be deemed to have come into force on the 1st day of April, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed rubber product is necessary to remove the ambiguity. The notification is intended to achieve the above object. 7.. Learned Advocate-General who appeared on behalf of the Revenue, put forward two contentions in support of the view taken by the assessing authority that the assessee is not entitled to concessional rate of tax in respect of raw rubber purchased by it for manufacturing compounded rubber. Firstly, it is contended that compounded rubber is not a finished rubber product and therefore purchase of rubber for the purpose of manufacture of compounded rubber, will not get the benefit of concessional rate of tax under S.R.O. No. 641 of 1981. Secondly, it is contended that S.R.O. No. 1516 of 1990 is clarificatory in nature and the clarification given therein that rubber purchased for the purpose of making compounded rubber will not come within the purview of S.R.O. No. 641 of 1981, has retrospective effect from the date on which S.R.O. No. 641 of 1981 came into force. 8.. In support of the contention that compounded rubber is not a finished rubber product, learned Advocate-General referred to several materials including meaning of the term in dictionaries as also ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anizing agents like sulphur, etc., and therefore, it is different from masticated rubber. It is further stated that compounded rubber is not a finished product and it requires further processing (shaping and/or vulcanization) to become the finished product. In a communication addressed by the Deputy Director, Chemistry/Rubber Technology Division to M/s. General Rubbers, P. John Zachariah Buildings, Kottayam-1, dated January 18, 1985, it is stated that a rubber compound which does not contain any of the essential ingredients like sulphur and accelerator is not an end-product in itself. It can only be considered as a master-batch for making some end-products through further processing. 10.. It is relevant to point out that these materials had been made available before the Tribunal by the Revenue. According to the learned Advocate-General, interpretation given by certain judicial pronouncements to the term finished product and analogous terms are relevant for deciding the question whether compounded rubber is finished product or not. In this context, learned AdvocateGeneral relied on the following decisions: Sundari Rubber Works v. State of Tripura [1991] 81 STC 200 (Gauhati), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for manufacture of synthetic rubber product. This Court took the view that if rubber was utilised as one of the materials for the rubber products-whether the end-product is a synthetic rubber product or purely a rubber product-the assessee would be entitled to a concessional rate of 3 per cent in view of the language in S.R.O. No. 585 of 1980. After entering the above finding, learned Judges observed as follows: Even on the basis that S.R.O. No. 641 of 1981 applies to the instant case, it is evident that the assessees, a manufacturer, who purchased rubber and manufactured finished rubber products within the State, is entitled to the concessional rate provided by S.R.O. No. 641 of 1981. The assessee is a manufacturer of finished rubber products, as clarified by S.R.O. No. 1516 of 1990. The assessee utilises the raw rubber purchased for the manufacture of tread rubber. The explanation to S.R.O. No. 1516 of 1990 makes the position clear. The explanation was by way of amendment to S.R.O. No. 641 of 1981. The explanatory note refers to the ambiguity in the earlier notification (S.R.O. No. 641 of 1981), which necessitated the explanation to be inserted by way of amendment by S.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntainable under the above section only on the ground that Appellate Tribunal has either decided wrongly or failed to decide any question of law. According to the assessee, since the question whether compounded rubber manufactured by the assessee is a finished product or not, is not a question of law, but only a question of fact, the decision of the Appellate Tribunal is final and this Court will not take a different view unless the Revenue is successful in showing that the decision of the Tribunal is perverse or entered on no material. 14.. According to the assessee, the approach of the Tribunal in accepting the commercial view on the nature of compounded rubber in preference to the scientific view is perfectly justified in the light of judicial pronouncements. On this aspect, the learned Senior Counsel Sri F.S. Nariman, who appeared for the assessee placed reliance on the following decisions of the Supreme Court and this Court: United Offset Process Private Ltd. v. Assistant Collector of Customs, Bombay [1989] 74 STC 81, Indian Cable Company Ltd. v. Collector of Central Excise, Calcutta [1995] 97 STC 307; AIR 1995 SC 64, South Bihar Sugar Mills Ltd. v. Union of India AIR 1968 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book contains a photo copy of the classified advertisement in European Rubber Journal. It contains an advertisement in respect of rubber compound among other rubber products. Similar advertisement in the journal Elastomerics of April, 1988 and Rubber World, December, 1987 are seen at pages 109 and 110 of the paper book. 16.. An objection was sought to be raised by the Revenue against the Tribunal relying on the documents produced by the assessee to substantiate its contention. It is alleged that these documents were produced at the second appeal stage without complying with the conditions stipulated in Regulation No. 48 of the Sales Tax Appellate Tribunal Regulations and that no opportunity was given to the Revenue to cross-examine all those who had filed counter-affidavits. We find no merit in this objection for two reasons. Firstly, it is seen that these affidavits and copies of advertisements in journals had been produced by the assessee before the assessing authority itself along with its reply to the pre-assessment notice for the year 1986-87. The assessing authority could have summoned those who had filed the affidavits for cross-examination, if it so wanted. Secondl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ff rate. There was no definition of the term in the Customs Tariff Act or the notification. Supreme Court took the view that if definition of a particular expression is not given, it must be understood in the sense how that expression is used every day by those who use or deal with goods. Resort should not be taken to the scientific and technical meaning of the particular item. Since there was no definite finding by the Tribunal regarding the popular meaning of the term, the matter was remanded for consideration by the Tribunal to find out how those goods were dealt with by the people who deal in them. 19.. Similar view was taken regarding interpretation of an item or entry in the excise tariff Schedule in Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta [1995] 97 STC 307 (SC); AIR 1995 SC 64 also. In South Bihar Sugar Mills Ltd. v. Union of India AIR 1968 SC 922, the question which arose was whether gas generated by the units where sugar is manufactured by carbonisation process and which emanates from lime kiln was kiln gas or carbon dioxide coming under item 14-H in the First Schedule under the Central Excises and Salt Act, 1944. It was found as a fact that gas so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd India Limited v. State of Kerala [1992] 84 STC 334, this Court had to consider the question whether instant coffee, namely, a blend of coffee and chicory in the ratio 70: 30 sold under the brand name Bru is a drink or beverage coming under entry 33 or it is taxable as coffee under entry 21. While taking the view that in commercial sense, Bru is a form of coffee, even though it is composition of 70 per cent coffee and 30 per cent chicory, therefore coming to entry 21 from 16th September, 1980 to 31st March, 1983, it was observed that if certain words are used in a statute which are capable of being construed in a popular sense, such words should not be construed according to the strict or technical meaning of the language contained in them, but have to be construed in its popular sense. 20.. Revenue has not placed before us any judicial authority taking a view contrary to the principle laid down in the abovementioned cases. 21.. It is further contended by the assessee that the very wording of S.R.O. No. 641 of 1981 imports the notion of exigibility to excise duty. The concessional rate of tax was announced for rubber purchased for manufacture of any finished product. The prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1991] 192 ITR 155 where the contention of the assessee that even though cellulose pulp constituted raw material for manufacture of carboxymethyl-cellulose (CMC), it was, even by itself, a finished marketable commodity, was accepted. In that case, one of the objects of the company, as evidenced by memorandum of association, was manufacture of cellulose pulp. It was submitted by the assessee in the present case that its memorandum of association contains the following clauses which would take in manufacture of compounded rubber also: (1) To carry on the business of rubber manufacture of all description and with all kinds of rubber, natural, synthetic or reclaim. (2) To produce, manufacture, purchase, refine, prepare, process, blend, mix, pack, import, export, sell and generally to deal in rubber products...... and in connection therewith to acquire, erect, construct, establish, operate and maintain factories, workshops and other works . 24.. Reliance was also placed on the decision of the Bombay High Court in Indian Vegetable Products Ltd. v. Union of India [1980] ELT 704. The question that arose was whether merely because vegetable tallow is put to further use of manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, whether the notification is in the nature of clarification or not, the executive intention has been made clear that it shall not disturb the position before April 1, 1989. Learned counsel for the assessee pointed out that the authorities who are operating the provisions had also understood the notification in the above manner all these years and had acted openly on that basis till the assessment order dated March 12, 1991 was passed. He contended that the best material to understand the object sought to be achieved by the notification is the wording of the notification itself. In support of the above contention, reliance was placed on two decisions of the Supreme Court: Desh Bandhu Gupta and Co. v. Delhi Stock Exchange Association Ltd. AIR 1979 SC 1049 and Keshavji Ravji and Co. v. Commissioner of Income-tax [1990] 183 ITR 1 (SC); AIR 1991 SC 1806. In the first of the above two decisions, Supreme Court considered the relevance of a document which came into existence almost simultaneously with the issuance of the notification which came up for interpretation. In the latter case, while considering the scope of an explanation , Supreme Court observed that, generally speaking, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y (vi) in column 4 of appendix 17 of the 1984-85 import-export policy document referring to lining and inter-lining materials of width not exceeding 87 cms. and excluding nylon taffeta coated fabrics (10 per cent) can be treated as clarificatory in nature and applied as such to entry (vi) in column 4 of appendix 17 of the Import-Export Policy for 1982-83 so that, that entry must also be read as limiting the width of the inter-lining materials of 87 cms. It was held that the consequences of this interpretation would lead to certain penal liabilities and therefore it cannot be given any retrospective effect because those who have already imported the material prior to the amendment would be visited with unforeseen consequences and would become liable to penal action. Similarly, according to the assessee herein, it will have to face penal consequences such as for filing false returns, etc., if S.R.O. No. 1516 of 1990 is given retrospective effect. 29.. Learned Advocate-General would submit that the decision of this Court in Krishna Iyer v. State of Kerala [1962] 13 STC 838 has no application to the facts of the present case, because, compounded rubber was never included in the 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity. If a finding of fact is entered by the Appellate Tribunal, by ignoring relevant facts, or by adverting to irrelevant facts or factors, or by assuming facts or circumstances which have no existence or if the finding is arrived at by posing a wrong question or failing to pose the proper question or in any manner the finding is unfair, perverse or arbitrary or irrational, this Court can interfere with the said finding in exercise of its revisional powers. With the above principle in the background we will proceed to consider the rival contentions raised by the parties on the question whether compounded rubber is a finished rubber product. 31.. The learned Advocate-General has referred to standard technical books where the process of compounding of rubber has been dealt with and also the views expressed by technically qualified persons in this particular area. We have referred to these materials in the earlier portion of this judgment. The learned Advocate-General contended that the materials thus relied on by the Revenue would show that the compounded rubber is not an end-product. It is only an intermediate product, which is ultimately utilised for the purpose of manufacturing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on by the Revenue, the Gauhati High Court took the view that masticated rubber continues as a rubber even after undergoing the process of masticating and it cannot be treated as a rubber product. According to the learned Advocate-General, the analogy is directly applicable to compounded rubber also. We find it difficult to accept the above contention. Apart from the fact that process involved in producing masticated rubber and compounded rubber are entirely different, we find that before the Gauhati High Court no material had been produced as to the commercial view on the term masticated rubber . No evidence was adduced before their Lordships to show that masticated rubber was understood as a finished product by the trade and that it has a market of its own. Therefore, we are of the view that the above decision is of no help to the Revenue in the present case. 34.. Empire Industries Limited v. Union of India [1987] 64 STC 42; [1986] 162 ITR 846 is a decision of the Supreme Court relied on by the learned Advocate-General. In the above case the Supreme Court took the view that the process of bleaching, dyeing and printing, etymologically means manufacturing process. There is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be admissible . 37.. In the paper book, filed by the Revenue before this Court, a copy of budget speech of the Minister for Finance in respect of the budget for the period 1981-82 is produced. In para 58 of the above speech reference is made to the sales tax concessions proposed to be given for the purchase and utilisation of raw rubber within the State. It reads as follows: We are the major producers of rubber within the country, with a near monopoly on the supply of this vital raw material. Therefore, it has been our consistent policy to ensure through appropriate tax rates and concessions, the utilisation of the raw rubber produced by us within the State itself for the manufacture of the value added products so that the generation of profits and employment may take place in this State itself. With this end in view, initially we had reduced the sales tax on the raw rubber purchased for the manufacture of tyres within the State to 3 per cent. In my last Budget I had extended the same concessional rate of 3 per cent to the purchase of raw rubber by the small-scale sector for all productive purposes. The net result of the above measures has been to leave out from the ran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se Tariff Act, 1985 as an item exigible to excise duty. We find merit in the contention raised by the assessee that exigibility to excise duty is an indication to the effect that compounded rubber is a marketable product as such and therefore a finished product. If an article can satisfy the requirements of section 3 of the Central Excises and Salt Act read with the definition of the term manufacture under section 2(f), the article has to be taken as brought into existence as a new substance. Marketability of the article is also an essential ingredient. Decisions of the Supreme Court in Union of India v. Delhi Cloth and General Mills Co. Ltd. AIR 1963 SC 791 and in Indian Cable Co. Ltd. v. Collector of Central Excise, Calcutta [1995] 97 STC 307; AIR 1995 SC 64 are authorities to the above proposition. Therefore, the fact that compounded rubber is treated as an excisable goods would certainly help the assessee to contend that compounded rubber is a finished product. While the assessee has produced certain materials to show that compounded rubber is known to the trade as a marketable finished product, the materials relied on by the Revenue can at the most show that compounded r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification, namely, November 2, 1990. We do not find any merit in the contention raised by the Revenue that this Court has already taken a view in Ceakay Rubber Industries v. State of Kerala [1994] 92 STC 382 that S.R.O. No. 1516 of 1990 is clarificatory in nature and it takes effect from the date of S.R.O. No. 641 of 1981. The issue which came up for consideration in the abovementioned decision was whether the assessee was entitled to concessional rate of tax for raw rubber purchased by it which was used for manufacture of tread rubber with reference to S.R.O. No. 585 of 1980. Tread rubber is a product of mixture of rubber and synthetic rubber. Since raw rubber was one of the raw materials for manufacturing of tread rubber, this Court took the view that raw rubber purchased by the assessee for manufacturing tread rubber is entitled to concessional rate of tax as per S.R.O. No. 585 of 1980. This Court disagreed with the view taken by the Tribunal that raw rubber used in the manufacture of synthetic rubber product will not get the benefit of concessional rate of tax. In the above case, this Court has not held that S.R.O. No. 1516 of 1990 is clarificatory in nature and it will tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned single Judge in M.M. Nagalingam Nadar Sons v. State of Kerala [1993] 91 STC 61 (Ker) that Government has no power under section 10(3) of the Act to issue a notification with retrospective effect. If that be so, S.R.O. No. 1516 of 1990 can take effect only from November 2, 1990. 42.. The additional question to be considered in T.R.C. No. 41 of 1995 relates to the rate of tax applicable to old newspapers, gunny bags, etc. The assessee claimed that butyl rubber, banbury tailings, brass valves, empty drums and gunnies which were accumulated in its factory where compounded rubber is produced and which are of no use to the assessee were sold as scrap items in a lot inviting quotations. Therefore, the turnover in respect of the above sale has to be assessed at the rate applicable to scrap. The assessing authority as well as the first appellate authority rejected the claim. The assessing authority took the view that these items can have independent use by the purchaser and therefore they are to be taxed at the rate specified against each item. The first appellate authority without assigning any reason upheld the view taken by the assessing authority. The Tribunal took the view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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