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M/s. MP. Agencies Versus State of Kerala

2015 (3) TMI 787 - SUPREME COURT

Classification of goods - "Ujala Supreme" and "Ujala Stiff and Shine" - it is claimed that "Ujala Stiff and Shine" is a liquid form and is covered under primary form - Whether both the items fall under residuary entry 103 of S.R.O. No. 82 of 2006 which provides for rate of tax on items not covered by any of the entries in the list provided in the notification or by any entry of any of the Schedules to the Act? - Held that:- provision deals with the levy of tax on sale and purchase of goods and p .....

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ause (d), goods not falling under Clauses (a) or (c), tax is payable at the rate of 12.5% at the point of sale within the State. The legislature has conferred the power on the Government to notify a list of goods taxable at the rate of 12.5%. Harmonious construction of Clause (a) and (d) clearly demonstrates that in case of notified goods, the rate of tax would be 12.5%. Similarly, in case of goods not falling under Clause (a), that is Second and Third Schedule, the rate of tax would be 12.5%. I .....

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under the Customs Tariff Act, 1975. The rules accept that for certain entries, HSN numbers are not given. Where commodities are not ascribed any HSN number, they would be interpreted as understood in common or commercial parlance. In case of inconsistency between meaning of a commodity without HSN number and a commodity with HSN number, the commodity without HSN number should be interpreted by including the commodity in that entry, which has been given HSN number. Thus, primacy is given to HSN n .....

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ered under any other Entry of the List or any other Entry in the Schedules. To elaborate, the case of the respondent is that two goods under consideration are not covered by any specified Entry in the Schedules as well as in SRO 82/2006 dated 21.01.2006. If the goods in question are covered under any of the Entries in the Schedule, Entry 103, which is the residuary Entry, would not get attracted. In such cases, the tax rate as stipulated in the Schedule, applicable to the Entries would be applic .....

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not fall under residuary entry 103 in SRO 82/2006 dated 21.01.2006, if the goods in question fall in any entry of any of the schedule. That is what is conveyed by the language employed in Entry No. 103. The said Entry, as we find, does not stipulate or carves out any exception in respect of list "A" to the Third Schedule. That being the position, once goods fall under any of the HSN classification, that is, the goods/commodities that are included in list "A" to the Third Schedule, entry 103, whi .....

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the said SRO, would be chargeable to tax @ 12.5%. But that is not the lis here, for the Revenue has included the goods in the residuary Entry 103 and the said entry, by no stretch of reasoning, can be made applicable. - High Court, has missed the issue in entirety and, therefore, we are obliged to dislodge the impugned judgment and orders. However, if any assessee-appellant has paid the amount of VAT to the State Government, they will not be entitled to get any refund of the said amount. - Decid .....

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stributor for "Ujala Supreme" and "Ujala Stiff and Shine", which are manufactured by M/s. Jyothy Laboratories Ltd. "Ujala Supreme" is a fabric whitener and "Ujala Stiff and Shine" is a liquid fabric stiffener. The product "Ujala Supreme" is described as fabric whitener for supreme whiteness of clothes, and "Ujala Stiff and Shine" is given the description, liquid fabric whitener for crisp and shining clothes. 2. As there was an issue rel .....

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re subjected to certain processes and are marketed as a commercially different commodity, "instant whitener", in the brand name "Ujala'", which is used as a "laundry whitener" at the end point. After so observing, the Commissioner referred to SRO 82/06 wherein the Government has notified list of commodities coming under 12.5% category and laundry whiteners have been brought under this category vide Entry No. 27. On that basis, the Commissioner held that as there .....

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n the commercial circles, has proceeded to observe that the sale of the products by the assessee requires to be taxed at 12.5%. This view of the Commissioner is contrary to sub-section (2) of Section 94 of the Act. The orders passed by the Commissioner under Section 94 of the Act is not only binding on the assessee, but also binding on the assesses who are similarly placed. Further, it is binding on the assessing authority. In cases of this nature, it is expected of the Commissioner to deal with .....

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fter the matter was remitted, the Commissioner considered all the materials furnished by the appellant and heard the matter at length. It was contended by the appellant that the scheme of VAT is materially different from that of KGST principally with respect to classification of goods for the purpose of levy of sales tax based on Harmonized System of Nomenclature (HSN), rate of tax applicable to different goods, etc. and resort to common parlance/commercial parlance test could be made only in re .....

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g on common parlance or commercial parlance. The Commissioner took note of the fact that the appellant had purchased the product in question from Jyothy Laboratory that was charging tax at 4% on the products. Thereafter the Commissioner took note of all the contentions of the appellant and referred to the HSN Codes allotted to the commodities, Clause 43 of the Rules of Interpretation, referred to the test reports filed by the appellant and addressed to the commodity, namely, Acid Violet Paste (A .....

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as per the SSI certificate of the unit "a manufacturing process", is carried out before marketing their product, which brings an obvious change in the content and character and use of the products. AVP is basically an organic dye used in textile industry. By virtue of the process undertaken in the unit on the material it undergoes a basic change both in its content and character as well as in its application and use. It the new product evolved out of the process, admittedly there is on .....

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ric whitener'. It may be true that on account of the term 'manufacture' as defined in the CET Act for the purpose of levying 'excise duty' the activities leading to the emergence of the product may not amount to manufacture on microanalysis of the term for the purpose of levying 'excise duty'. But the basic fact remains that the product marketed by the unit is not AVP in its original form as classified in the CET Act. The AVP with the changed character has not been as .....

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the ambit of a classification made under CET Act, then the interpretation that could be given under KVAT Act would be based on the preamble and definitions under the statue." Thereafter, the Commissioner proceeded to state thus: "The commodity covered under HSN 3204.12.94 is specifically for Acid violets. In view of the above findings 'Ujala Whitener' can no longer be treated as an AVP in the original form for which the HSN has been assigned and so the specific entry 155(8) fo .....

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imilar product. So in common parlance and commercial parlance "Ujala Whitener" is known and treated as a 'laundry brightener'. In the Third Schedule there is no other entry for such products and so it cannot be classifiable under the 3rd Schedule. In the case of 'Ujala Stiff & Shine' the raw material used is Poly Vinyl Acetate (PVA) coming under the specific HSN 3905 12 90 and admittedly the product marketed as 'Ujala Stiff & Shine' fabric stiffener is i .....

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ials used. In the instant case these requirements are satisfied and so the products in question can no longer be treated as the same product as 'imputed' by virtue of its mere presence in a negligible proportion. As per Section 6(1)(d) goods not covered under clause (a) or (c) are taxable at 12.5% and Government is empowered to notify list of such goods. Accordingly Government had notified the list of such goods as per SRO 82/2006. Vide entry 27 interalia 'laundry brighteners' ha .....

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y, the intention is made specially clear. But since no specific HSN has been assigned to the products in question and the products are not specifically mentioned else where, it has necessarily to go under entry 103 i.e., the residual entry of SRO 82/2007 taxable at 12.5%." 6. In view of the aforesaid analysis, the Commissioner opined the products "Ujala Supreme" and "Ujala Stiff and Shine" are classifiable under Entry 103 of SRO 82/2006 and would attract tax at the rate .....

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position of law, the High Court opined, it deserved acceptation, but proceeded to consider whether the two items are covered by the specific entries of the Third Schedule, as contended by the appellant. Be it stated, the High Court proceeded to consider both the items separately, despite their use being similar. 9. Dealing with the "Ujala Supreme", the High Court took note of the stand of the appellant that the said item falls under Entry 155(8)(d) of the Third Schedule of HSN Code No. .....

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est reports, one from SGS India Private Ltd. and the other from Institute of Chemical Technology, Matunga, Mumbai were filed before the High Court. The first report shows that on analysis of the product, namely, "Ujala Supreme", the presence of AV49, that is acid violet paste is only less than one per cent and balance 99% is water. The second report which has been reproduced by the High Court is as follows:- "The acid violet paste (referred as, "AVP" hereafter) supplied .....

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let 49 is a synthetic organic Dye which can be used by fabric dyeing industry for dyeing silk/wool and other protein fibres. The dyeing of these fabrics takes place under an elevated temperature in presence of acid only. 2. The diluted acid blue/violet dyes are being used in the fabric finishing industries for imparting brightness (bluish/purple tint) to white fabrics. 3. As such "Ujala" cannot be used as a dye or a colouring matter as it is because, the fundamental principle of acid c .....

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acid violet paste is purchased by M/s. Jyothy Laboratories Ltd., a SSI unit, engaged in the manufacture of various products, including "Ujala Supreme". While concurring with the view expressed by the Commissioner on the foundation that the finding recorded by him is consistent with the case put forth by the assessee, the High Court observed: "The finding of the Commissioner is consistent with the appellant's own case that industrial inputs, namely, Acid Violet Paste, is purcha .....

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extracted above, it is clear that AVP is a synthetic organic dye for fabric dyeing and is used for dyeing silk/wool and dyeing of these fabrics can take place at elevated temperature in the presence of acid only. However, the further finding of the Institute is that product sold by the appellant, namely, Ujala Supreme, cannot be used as a dye or a colouring matter. Even though the appellant contends that there is no manufacture in the conversion of Acid Violet Paste to Ujala Supreme, we find fr .....

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of Commercial Taxes, has also come to the conclusion that irrespective of whether there is manufacture or not for the purpose of deciding on the liability for excise duty, the product sold by the appellant, namely, Ujala Supreme can no longer be identified with the raw material, namely, AVP, from which it is made." 11. The High Court, after so stating, opined that an acid base industrial raw material cannot be used as a laundry whitener and it has to be necessarily subjected to processing o .....

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ed. 12. The High Court, as we find, has also separately discussed with regard to "Ujala Stiff and Shine" and opined that it is a laundry item used to impart crispness and shining of clothes and in common parlance is an agent which is a substitute for starch used for giving stiffness to clothes after washing the clothes. The High Court also referred to the test report obtained by the appellant from Shriram Institute for Industrial Research. The test result which has been referred to by .....

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om raw material and it has a rose fragrance. We do not know on what basis the appellant can contend that an industrial raw material, namely, polymerised vinyl acetate retains its character even after subjecting it to the process, whether it be manufacture or not, leading to production of a different item with different use and purpose." 14. The High Court, as we notice, repelled the contention that the common parlance or commercial parlance test cannot be applied and identification of the p .....

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ial are commercially different with distinct use and purpose, it cannot be treated as the raw material from which it is made. On the said foundation it ruled that the two items can be classified under the residuary Entry 103 of SRO 82/2006. Being of this view, the High Court dismissed the appeal. 15. We have heard Mr. V. Giri, learned senior counsel, Mr. V. Lakshmi Kumaran and Mr. Alok Yadav, learned counsel for the appellants and Mr. M.T. George, learned counsel for the respondent-State. 16. To .....

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or silver articles or contractor or any State Government, Central Government or Government of any Union Territory or any department thereof or any local authority or any autonomous body whatever be his total turnover for the year, shall be liable to pay tax on his sales or purchases of goods as provided in this Act. The liability to pay tax shall be on the taxable turnover,- (a) in the case of goods specified in the Second and Third Schedules at the rates specified therein and at all points of .....

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and provides various facets. It applies to an importer, casual trader, agent of a non-resident dealer, dealer in jewellery or gold, silver & platinum group metals or silver articles or contractor of State Government or the Central Government, etc. regardless of the turnover. Under Clause (a), in respect of the goods specified in the second and Third Schedule, tax is payable at the rate specified in the said schedule. Tax is payable at the point of sale. As is seen, clause (b) stands deleted .....

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e 12.5%. It requires to be clarified here that this does not necessarily mean that exempted goods would be taxable by virtue of Clause (d). 18. Sub-Section 8 of 2003 Act provides the Rule of Interpretation of Schedules under the Act. The relevant part of the Rules of Interpretation of the Schedules is reproduced below:- "The commodities in the schedules are allotted with Code Numbers, which are developed by the International Customs Organisation as Harmonised System of Nomenclature (HSN) an .....

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ithout HSN Number and the meaning of a commodity with HSN Number, the commodity should be interpreted by including it in that entry which is having the HSN Number. HSN Numbers are allotted in the Schedules either in four digits or in six digits or in eight digits. The four digit numbers indicate the heading in the HSN classification, six digit numbers indicate the sub-heading and the eight digit numbers indicate the specific commodity number. While interpreting the commodities in the Schedules, .....

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ules, which bear the eight digit numbers but the four digit heading numbers of such commodities are given for some other commodities mentioned elsewhere. In such cases, the four digit heading shall include only those commodities under that heading excluding that commodity for which the eight digit numbers are given. Similar cases are available in the case of six digit numbers also. In such cases the above principles shall apply mutatis mutandis. v. Where the term 'other' is used in suben .....

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purchased." 19. From the aforesaid rule position, it is luculent that the commodities mentioned in the schedules have been allotted code numbers developed by International Customs Organisation, which is known as Harmonised System of Nomenclature (HSN). The same has been adopted in the Customs Tariff Act, 1975. Where the commodities have been given HSN numbers, the same meaning would be given for classification under the Customs Tariff Act, 1975. The rules accept that for certain entries, H .....

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Customs Tariff Act, 1975 and any inconsistency or debate would be decided with the commodity being categorized against the HSN number. As is seen, general guidelines have been given on interpretation of four digit, six digit and eight digit HSN numbers. The rules also provided for resolution and conflict between the commodities with four digit, six digit and eight digit HSN number, when they overlap. It can be emphatically stated that the word "other" used in sub-entries or sub-sub-en .....

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sting the trade name, name of active ingredient, entry in relevant statutes i.e. Insecticides Act, 1968 and Drugs and Cosmetics Act, 1940 and the Licensing Authority in respect of the products, namely, Mortein coil, Mortein mats, Mortein vaporizers, Mortein Instant Cockroach Killer, Mortein Instant Flying Insect Killer, Mortein Instant All Insect Killer, Lizol disinfectant surface cleaner, Harpic toilet cleaner and Dettol. After enlisting the same, the Court referred to Section 6 of the 2003 Act .....

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nder Entry 44(5) which, at the relevant time, attracted duty at the rate of 4% whereas the stand of the Department was that the said items came under Section 6(1)(d) read with Notification No. 82/2006, Entry No. 66, which attracted the rate of duty at 12.5%. After recording the stand of the parties, the Court held: "We have examined the impugned judgment. In this case, we find that the High Court in the impugned judgment has failed to notice the Rules of Interpretation which require that in .....

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udgment of the High Court and remitted the matter to the High Court for fresh consideration in accordance with law. The said decision, as we understand, makes it clear that Rules of Interpretation has its own signification and one is required to go by the provision of HSN, as adopted by the Customs Tariff Act, 1975 and one has to interpret the Third Schedule not only in the light of entries in the Customs Tariff Act, 1975 but also the judgments applicable to the corresponding entries in the Cust .....

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and Reasons of the 1985 Act. We think it apt to reproduce the relevant part of the same as follows: "The Technical Study Group on Central Excise Tariff, which was set up by the Government in 1984 to conduct a comprehensive inquiry into the structure of the central excise tariff has suggested the adoption of a detailed central excise tariff based broadly on the system of classification derived from the International Convention on the Harmonised Commodity Description and Coding System (Harmon .....

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tes on account of tariff classification. Besides, since the tariff would be on the lines of the Harmonised System, it would bring about considerable alignment between the customs and central excise tariffs and thus facilitate charging of additional customs duty on imports equivalent to excise duty. Accordingly, it is proposed to specify the Central Excise Tariff suggested by the Study Group by a separate Tariff Act instead of the present system of the tariff being governed by the First Schedule .....

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ationally accepted nomenclature emerging from the HSN. This being the expressly acknowledged basis of the structure of Central Excise Tariff in the Act and the tariff classification made therein, in case of any doubt the HSN is a safe guide for ascertaining the true meaning of any expression used in the Act. The ISI Glossary of Terms has a different purpose and, therefore, the specific purpose of tariff classification for which Central Excise Tariff Act, 1985, must be preferred, in case of any d .....

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rgaon (2005) 2 SCC 460 : "Further, the scheme of the Central Excise Tariff is based on Harmonised System of Nomenclature (for short "HSN") and the explanatory notes thereto. Therefore, HSN along with the explanatory notes provides a safe guide for interpretation of an entry." 25. In the instant case, the respondents have not invoked and there is no lis as regards the applicability in Entry 27. As per the respondent and the impugned judgment, the residuary Entry, that is, Entr .....

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ed. In such cases, the tax rate as stipulated in the Schedule, applicable to the Entries would be applicable. 26. Keeping the aforesaid principles in view, we are required to understand the Schedule and the relevant Entries therein. Prior to that we would like to refer to the findings recorded with regard to the category or classification under HSN Code in respect of two goods under the Central Excise Act. 27. Learned counsel for the appellant submits that no new product comes into existence upo .....

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at the Excise Department has raised a demand of central excise duty in respect of the goods of the appellant by proposing to classify the product as a preparation based on synthetic organic colouring matter and the said issue was decided by the Central Excise, Customs & Gold (Control) Appellate Tribunal in Jyoti Laboratories v. CCE, Cochin 1994 (72) ELT 669, wherein it has been held that in the process of diluting AV dye with water, no new product classifiable under the Chapter Heading 3204. .....

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esult in the emergence of new product and that the diluted product in question would continue to be classifiable under Chapter Heading 3204.12.94. The said decision of the Tribunal has also gone unassailed and has been accepted by the authorities all over the country. 28. It is an admitted fact that Jyothy Laboratories purchases central excise duty paid AVP classifiable under the Heading 3204.12.94 and thereafter, the AVP is diluted in water and filled in plastic container and then sold under th .....

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id report reads as follows: "The Acid Violet Paste (referred as "AVP" hereafter) supplied to us confirms to Acid Violet 49, a synthetic organic dye classified into acid dye class which is used for the colouration of silk / wool at elevated temperatures in the presence of acid. "AVP" is uniform and having standard strength which is formulated and prepared as ready for use. The "AVP" as well as "Ujala" purchased from the market are subjected to instrume .....

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t 49 is used in the fabric finishing industries for imparting brightness to white fabrics. (The mechanism being the fabric absorbs all the colours in the visible light and transmits the bluish / purplish tint) As per technical report and the HPTLC report, it can be conclusively said that Ujala is nothing but a diluted form of Acid Violet Dye. The observations of the HPTLC analysis are as follows: d. All the components present in diluted sample of AVP are also present in Ujala sample. e. No addit .....

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brightening agents. The brightness of the fabric is increased because it absorbs all the colours in the visible light and transmits the bluish / purplish tint, thus hiding the yellowing of the fabrics." 29. Referring to the said report, it is submitted that when the 2003 Act has classified AVP under Entry 155(8)(d) and has classified it as equivalent to HSN Code No. 3204.12.94, it has to be put under that classification. As far as "Ujala Stiff and Shine" is concerned, it is the s .....

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similar test certificate from Shriram Institute for Industrial Research has also been brought on record. The said Institute has tested samples collected from open market in Kerala and from the Kerala sales depot of Jyothy Laboratories Ltd. and the test report has certified that the product to be containing solid and water content of 43.87% and 55.78% respectively in the former and 43.80% and 55.80% in the latter case. It is further stated that the solid content in both the cases have been teste .....

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Heading 3905 of HSN reads "Polymers of Vinyl acetate or of other vinyl esters, in primary forms; other vinyl polymers in primary forms". Chapter Note 6 of Chapter 39 of HSN/Customs Tariff/Excise Tariff states that "the expression 'primary forms' applies only to: "(a) Liquids and pastes, including dispersions (emulsions and suspension) and solutions, (b) Blocks of irregular shape, lumps, powders (including moulding powders), granules, flakes and similar bulk forms.&qu .....

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0 - Other" 32. A comparison has been made between the said tariff and Entry 118(5) of List A of the Third Schedule of the 2003 Act which is as follows: "Polymers of vinyl acetate or of other vinyl esters, in primary forms, other vinyl polymers in primary forms and gives the HSN code as 3905." 33. We have referred to the same as the learned counsel for the appellant has strenuously urged that HSN code has to be given necessitous acceptation as it is the intendment of the legislatur .....

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ns the same, the activity would not amount to manufacture, as the essential character of product remains constant. 34. In this regard, we may refer with profit to a two-Judge Bench decision in Commissioner of C.Ex., Cochin v. Mannampalakkal Rubber Latex Works 2007 (217) ELT 161 (SC). In the said case, the assessee was engaged in the manufacture of Latex (Rubber) based Adhesive with brand names Superset (LC) and Superset (LB). The claim of the Department was that Latex based Adhesive manufactured .....

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39;rubber and articles thereof'. The tribunal referred to Note 5(b) of Chapter 40 and eventually held thus: "Reading Note 5(b), it becomes clear that the test to distinguish rubber based adhesives and non-rubber based adhesives or other adhesives is the test of composition and not the test of end-user. Generally, in matters of classification "composition test" is an important test and "end-user test" would apply only if the entry say so. Applying Note 5(b) and keepin .....

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ion from the said decision to show that the case at hand, the composition test is the important one and not the end-user test. Be it stated, Note 5(b) provided about rubber or mixture of rubber retaining its essential character as a raw material. Learned counsel for the appellant has placed reliance on Jyoti Laboratories (supra), wherein the issue was that the product manufactured under the brand name Ujala was classified differently by the assessee and the revenue. The Tribunal posed two releva .....

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as per the packing list on the tin. Factory is making the Ujala by simply mixing these three items, Acid violet, ultra marine blue, fluorescent whitening agent in water heating them to a particular temperature and then filter this solution and bottling them in small packings and packing them in paper cartons for marketing, as such, there is no machinery is used for the production. All the process is done by manual labour only. Hence, in my opinion, no new product is emerged by this process, onl .....

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he member was differed with another member, but the third member, relying on the report of the Chemical Examiner, who has stated that Ujala is made simply by mixing acid violet, Ranipal and ultramarine blue in water heating them to a particular temperature and filtering this solution and bottling in small packing and packing them in paper cartons for marketing. The chemical examiner observed that only three colouring matters mixed together in a particular proportion for colouring the fabric. The .....

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held that there is a process of manufacture in the production of 'Ujala'. The chemical examiner's report is to the effect that it is a physical mixture of the ingredients in boiling water which report has been given after study of the manufacturing process." [Emphasis added] 37. It is apt to note here that the majority opined that the Chemical Examiner's opinion is in accordance with the Tariff Ruling of the Board. These authorities fundamentally relate to the issue that th .....

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e no shadow of doubt that the said entries fall under entry numbers 155(8)(d) and 118(5) of the list "A" of Third Schedule of the 2003 Act covering industrial inputs and packaging materials, but that would not be material and relevant regard being had to the rules of interpretation which are applicable. The subject matter of the list will not fall under residuary entry 103 in SRO 82/2006 dated 21.01.2006, if the goods in question fall in any entry of any of the schedule. That is what i .....

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