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2016 (5) TMI 1038 - CALCUTTA HIGH COURT

2016 (5) TMI 1038 - CALCUTTA HIGH COURT - TMI - 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 productís relatability to a particular entry based on its commercial identity, use and the common parlance test. If any commodity .....

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t: 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 ra .....

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residuary entry in Schedule CA to the Act. - Petition disposed of - WP 2905 (W) of 2016, WP 324 of 2016 With WP 1163 of 2015 With WP 325 of 2016 WP, 403 of 2016, WP 404 of 2016 - Dated:- 20-5-2016 - SANJIB BANERJEE, J. For the Petitioner: Mr R. N. Bajoria, Sr Adv., Mr Avra Majumder, Adv., Mr Akhilesh Gupta, Adv., Ms Sudeshna Mazumder, Adv., Mr Sumit Kumar Chakraborty, Adv., Mr Piyal Gupta, Adv., Ms Payel Verma, Adv. Mr Sumit Kumar Chakraborty, Adv., Ms Payel Verma, Adv. For the State: Mr Abhrato .....

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ts of bitumen in use for a considerable period, viz, polymer modified bitumen (PMB), crumb rubber modified bitumen (CRMB) and bitumen emulsion. Bitumen it its original form is a solid and it melts at a high temperature. Traditionally, bitumen has been used for road construction for long and the sight and smell of bitumen is one of the everlasting memories of long-distance road travel in India. 3. For its convenient use, bitumen is now increasingly marketed in an emulsified form so that solid bit .....

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milar use as bitumen; except that solid bitumen no longer needs to be brought to a molten state for its application and bitumen emulsion can be used as a substitute for molten bitumen. 4. The Indian Oil Corporation Limited, the petitioner in the lead matter, markets bitumen emulsion. Such petitioner claims that bitumen emulsion facilitates the use thereof, it is non-hazardous and saves time and cost at the stage of application. The petitioners are all registered dealers under the said Act of 201 .....

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ifferent manufacture and separate commercial commodities excigable to further excise duty upon bitumen being refined to obtain such products. As far as PMB and CRMB are concerned, the matter has been laid to rest by a judgment reported at (2012) 2 SCC 282 (Commissioner of Central Excise, Bangalore-II v. Osnar Chemical Private Limited). In the context of PMB and CRMB, the Supreme Court held that the process of mixing polymers and additives with bitumen does not amount to manufacture . The Supreme .....

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of bitumen. By an order of January 6, 2012, the Commissioner held that the other varieties of bitumen were assessable at the higher rate applicable under the residuary item and not at the lower rate under the specific head of bitumen. Another dealer applied under Section 102 of the said Act for determining the rate of tax applicable on CRMB. Such matter culminated in a decision of June 6, 2012, upon the Commissioner noticing the Supreme Court judgment in Osnar Chemical and holding that CRMB woul .....

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tion Tribunal which agreed with the view expressed by the Commissioner that bitumen emulsion would attract tax at the rate of 13.5 per cent under Section 16(2)(b)(a) of the said Act of 2003. The Tribunal s judgment of August 21, 2015 has been challenged in a petition under Article 226 of the Constitution. WPTT No.101 of 2015 is pending before a Division Bench of this court. 7. The petitioner in the lead matter and the other petitioners apprehend that in view of the opinion expressed by the Commi .....

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has not been functioning for more than four months now. 8. The petitioners have carried substantial literature to explain the process of making the other varieties of bitumen, particularly bitumen emulsion. The petitioners claim that though the process of preparing the product can be loosely called as manufacture, unless the product is commercially and otherwise substantially different from the product which is identified by name in the relevant schedule, the related product should be regarded a .....

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ify the goods under a different heading or sub-heading from that claimed by the assessee, it is for the department to adduce evidence and discharge the burden of proof. In such context, the petitioners first refer to a Supreme Court judgment reported at (1960) 11 STC 827 (Tungabhadra Industries Limited v. CTO), which was noticed in some detail in Osnar Chemical. 10. In Tungabhadra Industries, the matter pertained to hydrogenated groundnut oil, otherwise known as vanaspati. The appellant before t .....

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of groundnut oil. In the process of hydrogenation, the Supreme Court noticed that by the absorption of hydrogen atoms the groundnut oil assumed a semi-solid state. The process of refinement was found not to upset the essential characteristics of the original product, though the colour, odour and taste changed considerably. As for the hydrogenation, the Supreme Court accepted that it was a chemical change that the original groundnut oil underwent, but observed that it continues to be the same ed .....

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for the proposition that when an article has reasonable resemblance with an enumerated item in a tariff schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause. 12. The petitioners emphasise that if a commodity retains its character after processing such that the predominant use thereof is unchanged, the resultant commodity has to be regarded as the same as the original commodity. They maintain that it is .....

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the residuary heading only when a liberal construction by the specific heading cannot cover the goods in question. The petitioners also refer to the principle that when there is a conflict between two entries, one leading to the opinion that it comes within the purview of the tariff entry should be preferred over the other opinion that brings it under the residuary entry. Another Supreme Court judgment reported at 2008 (225) ELT 321 (Mauri Yeast India Private Limited v. State of UP) has also be .....

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otanists. For such purpose, the petitioners refer to a judgment reported at (1979) I SCR 545 (Porritts & Spencer (Asia) Limited v. State of Haryana) where the word textiles was seen in its wider context as embracing new varieties of fabric that may have been developed by new methods and techniques. 15. The petitioners submit that every commodity, when subjected to a process of refinement or improvement, experiences a change; sometimes even a chemical change. They suggest that it is only when .....

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ay that unless an express intention is evident in a taxing statute, the legislature must not be seen to have provided for different rates of tax for similar products having the same use. Finally, the petitioners refer to the oft-quoted dictum in 1997 (93) ELT 641 (Sun Export Corporation v. Collector of Customs) where the Supreme Court held that if there were two views possible, the one favourable to the assessee in matters of taxation has to be preferred. 16. The petitioners have also referred t .....

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e imposed on goods manufactured or produced, the activity that is taxed under the sales tax and valued added tax regime is the sale of any goods. As a consequence, the petitioners contend, that merely because a product has been refined by a process which can be loosely seen as manufacture, will not change the nature of the product under the sales tax or value added tax laws, though it could be regarded as an entirely different product after undergoing a process of manufacture under excise laws. .....

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several entries from the schedules to the Act of 2003, including tea. The petitioners suggest that since the many variants of tea have not been differently classified in the schedules to the said Act, all forms of tea will be covered by the single entry, irrespective whether such tea is green tea or organic tea or herbal tea or the like. Similarly, the petitioners seek to demonstrate that in several cases a distinction has been made in the schedules to the said Act between similar products havi .....

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et. 19. The petitioners say that the entire exercise may be fruitless since it is possible for the State, by an executive fiat, to introduce a separate entry by the name of bitumen emulsion and provide for a different rate of tax therefor. But, the petitioners assert, as long as the State does not make such a distinction, bitumen emulsion has to be regarded as being relatable to Entry 14 in Part - I of Schedule C to the said Act covering bitumen and bitumen emulsion cannot be seen to fall under .....

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coat, prime coat, fog seal, dust binding, crack filler, patching filler, recycling and surface dressing. The State relies on the wide definition of the word manufacture in Section 2(22) of the Act and says that the complex process of converting bitumen to bitumen emulsion as evident from the literature on the subject submitted by IOC should prompt the court to hold that bitumen emulsion cannot be regarded as bitumen merely because the word bitumen is used as a part of the name of the product. 21 .....

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ted by IOC on bitumen emulsion. The State says that it is evident from the literature and the structure of bitumen emulsion described therein that products bitumen and bitumen emulsion are quite distinct. Paragraph 2.3 of the document records as follows: 2.3 Production of Bitumen Emulsion Most of the bitumen emulsions are manufactured by continuous process using a colloid mill, which consists of a high-speed rotor revolving at 1000 to 6000 revolutions/minute in a stator. Hot bitumen and emulsifi .....

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e mill, which further increases the production temperature. Pressurized mills are used for bitumen having high viscosity at normal emulsification temperature and to allow higher output with normal bitumen. Emulsions with temperature up to 130°C are produced under high pressure and emulsion output must be cooled down to below 100°C before being discharged into storage tanks. A batch process can also be used for production of emulsion wherein the type of mixer used is chosen to suit the co .....

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en. In IOC s compilation on bitumen emulsion, there is a section on CRMB and there is a Bureau of India Standards (BIS) publication on polymer and rubber modified bitumen which, respectively, record as follows: To produce CRMB, Crumb Rubber powder retrieved form (sic, from) the used tyres is added to normal Bitumen along with additives. For homogeneous mixing of the Crumb Rubber powder and additives, electrically operated stirrers are used to achieve optimum results. Polymer and rubber modified .....

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en used to make modified bitumen. The most commonly used type of modifiers are rubbers and polymers. These are macro-molecules in which the same group of atoms is repeated very large number of times. These repeated groups can be formed from one or several different molecules (monomers). Agents other than synthetic polymers can also be sued to modify bitumen, which are crumb rubber powder and natural rubber powder or in latex form … 24. The State has placed paragraph 5(viii) from its affid .....

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lows: In any view of the matter the question whether Bitumen Emulsion is a separate commercial commodity if and when compared to Bitumen and whether the process of conversion from Bitumen to Bitumen Emulsion amounts to manufacture, requires a fact finding enquiry. 25. The State first relies on a judgment reported at (1977) 39 STC 378 (State of West Bengal v. Washi Ahmed) where a view taken by this court was affirmed by the Supreme Court on the ground that the description of an entry in a schedul .....

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as disparate as bitumen and bitumen emulsion. The State next refers to a judgment reported at (1980) 46 STC 63 (DCST v. Pio Food Packers) where the matter involved canned pineapple and the question framed was whether the pineapple fruit was consumed in the manufacture of canned pineapple slices sold with sugar as a preservative. The Supreme Court referred to the provision in the Kerala General Sales Tax Act, 1963 which envisaged the consumption of a commodity in the manufacture of another commo .....

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entry and only in the event it is not possible to do so, recourse to the residuary entry should be taken by way of last resort. The product in question was yeast and the issue was whether yeast would fall under the head of chemicals or had to be treated as an unclassified item. The State emphasises on the observation at paragraph 44 of the report that classification of goods under a particular entry is, essentially, a question of fact. The State says that the facts relevant to assess whether bi .....

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a matter under the Central Excise Act, 1944, the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) held that the conversion of bitumen into bitumen emulsion was a process of manufacture. In the same vein, the State refers to a judgment of the Madhya Pradesh High Court reported at (2010) 27 VST 67 (Tiki Enterprises v. Commissioner of Commercial Tax) where it was held that upon bitumen being treated with emulsifiers, a new product comes into existence. 28. A judgment reported at (1981 .....

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ase is whether the nature of the product bitumen has been so changed in its conversion to bitumen emulsion that the resultant product would not be relatable to the entry covered by bitumen. 29. The next case cited by the State is reported at (1974) 3 SCC 620 (Ganesh Trading Company v. State of Haryana) where the Supreme Court held that rice and paddy could not be seen to be the same product as they are two different things in ordinary parlance . For similar reasons, coconut husk was seen to be d .....

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mmodity with a new commercial identity. It is very obvious why the Supreme Court held that chicks and broilers were not the same since chicks would scarcely be sought after in markets for their meat, but broilers would. The decision, though it recognises that the process of rearing chicks to broilers would fall within the definition of manufacture, is not apposite in the present context of two products having bitumen as its core content and being put to similar use. 31. The next decision brought .....

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identity and character. Paragraph 27 of the report, however, noticed that sales tax law is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities might have been made. 32. The next judgment carried by the State dealt with coal briquettes or coal tickli . The process was noticed in the judgment reported at (2006) 7 SCC 322 (Sonebhadra Fuels v. Commissioner, Trade Tax) as requiring coal to be gr .....

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men is desirable. The Commissioner also referred to the Central Excise tariff schedules were bitumen and bituminous mixtures were differently classified. Though the Commissioner emphasised that bitumen emulsion was a separate commercial product and distinct from bitumen, such opinion was not based on any scientific study or fact-finding exercise. 33. The State has relied on a judgment reported at (1990) 4 SCC 51 (Laminated Packings (P) Limited v. Collector of Central Excise) where laminated kraf .....

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t considered the exigibility to excise duty of non-slip plywood that was produced by applying a chemical to the plywood and coating the same with a wire mesh. The process adopted was found to throw up a new commercial commodity and the Supreme Court did not interfere with the CEGAT s acceptance of the department s contention that the process led to the emergence of a new commercial product. 34. The State cites a judgment reported at (1981) 3 SCC 578 (Hindustan Aluminium Corporation Limited v. St .....

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he same purpose. 35. The State has also placed an extract from paragraph 2.2 of A white Paper on State-level Value Added Tax presented by an empowered committee of State finance ministers in 2005. The concept of value added tax and the setting off of input tax credit referred to in the extract, does not throw any light on the issue that has arisen here. 36. There is certainly a distinction between the end products of a process that can be regarded as manufacture under excise laws and under sales .....

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ss to extract bitumen from bitumen emulsion. 37. It must also be said that the only test here is not to see how different bitumen emulsion is from bitumen since there are no clearly identifiable and distinct entries for the two products. The limited question, in the context of a separate entry for bitumen emulsion or other bituminous products not being created by the State, is whether bitumen emulsion is relatable to bitumen in the existing scheme apparent from the schedules to the Act of 2003. .....

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manufacture that changed the identity or characteristics of bitumen. The process was found to only improve the grade or quality of bitumen. The same analogy may not apply to bitumen emulsion, but bitumen emulsion would, nonetheless, for its use and commercial identity, be relatable to bitumen. 38. The principle, 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 id .....

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