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2016 (9) TMI 410 - SUPREME COURT

2016 (9) TMI 410 - SUPREME COURT - 2016 (339) E.L.T. 500 (SC), 2016 (9) JT 37, 2016 (8) SCALE 573 - Classification - bitumen emulsion - rate of tax - 12.5% - residuary entry - 4% - Serial no. 22 Part A of Schedule II to the VAT Act - 20% - Notification No. 100 dated 15.1.2000 issued under the erstwhile U.P. Trade Tax Act, 1948 - Section 11 of the U.P. Trade Tax Act, 1948 - Sections 81 and 58 of the VAT Act, 2008 - whether the Bitumen and Bitumen Emulsion are one and the same commodity for the pu .....

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e Revenue that bitumen per se would only include its solid hard form which melts at high temperature and not bitumen emulsion. The two varieties and types carry the same composition, do not differ in character and have the same commercial identity i.e. bitumen. That apart, the use or end use test is also satisfied - bitumen and bitumen emulsion are one and the same commodity - taxable at 4% - appeal dismissed - decided against Revenue. - Civil Appeal No. 2650 of 2016 [ Arising out of SLP(C) No. .....

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Act ) whereby the learned Single Judge has allowed the revision negativing the stand put forth in opposition by the State to the stance highlighted by the assessee. 2. The facts on which the controversy rests is in a narrow compass. The respondent manufactures bitumen emulsion . It filed an application before the Commissioner, Commercial Taxes, Lucknow, U.P. under Section 59 of the VAT Act seeking a clarification about the rate of tax applicable to the sales of bitumen emulsion. The Commissione .....

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erein that bitumen as a commodity is taxed at 4% under Serial no. 22 Part A of Schedule II to the VAT Act and bitumen is found in solid state and to bring it in the liquid form, water is added to it and very little quantity is used in the process. Elaborating the said submission, it was urged that when bitumen is available in the liquid form, it is known as bitumen emulsion and is commonly known as bitumen when it is available in the solid form; and both the commodities are understood in the sam .....

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, Kanpur to bolster the stand that there is no difference between the two commodities and they are to be categorised as one item, if common parlance test is applied. To buttress the submissions, the assessee relied upon CST v. Ashok Grah Udyog Kendra Private Ltd. (2004) UPTC 1827, CST v. Bechu Ram Kishori Lal (1976) 36 STC 236, and M/s Indodan Milk Products v. Commissioner Sales Tax (1974) 33 STC 381. The tribunal referred to one of its earlier decisions in appeal no. 17 of 2000 decided on 3.4.2 .....

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i.e. upto enforcement of notification no. 2758 dated 29.9.2008? 6. The learned Single Judge took note of the various technical materials from the Government approved laboratory which had been brought before the tribunal, and opined that the controversy had not been appositely appreciated by the tribunal, for the materials clearly establish that bitumen and bitumen emulsion is the same thing. The High Court analysed the concept of end use, i.e. the end result of bitumen emulsion and came to hold .....

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2 and ultimately ruled that it could not be said that mixing of some material would amount to manufacture unless it results in a change when the commodity concerned cannot be recognised as an original commodity but rather new and distinct article emerges having different commercial use and identity. On the basis of the aforesaid analysis, the High Court allowed the revision and set aside the orders of the forums below. 7. We have heard Mr. Pawan Shree Agarwal, learned counsel for the appellant a .....

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Private Limited (supra) is not applicable to the present controversy as the said decision was rendered in the context of the Central Excise Act, 1944 whereas the lis herein hinges on the definition of manufacturing. For the said purpose, he has relied upon the authority in Sonebhadra Fuels v. Commissioner, Trade Tax, U.P., Lucknow (2006) 7 SCC 322. Learned counsel for the Revenue contends that when the view expressed by the lower authorities is neither perverse nor arbitrary, the High Court in .....

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e statute, which is not permissible, for a taxing statute has to be understood what is clearly stated therein and not what is intended to be said. 9. Mr. Gulati, learned senior counsel appearing for the assessee in support of the view expressed by the High Court would contend that four principles relating to interpretation of entries and taxing statute are required to be considered in the present case. According to Mr. Gulati, they are (a) plain meaning to be given to the taxing provision; (b) b .....

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of Schedule II to the VAT Act. It is urged by him, whether the activity of mixing water with bitumen amounts to manufacture under Section 2(t) of the VAT Act is wholly irrelevant for deciding the issue at hand. It is, according to Mr. Gulati, where goods are purchased on paying tax and process thereafter is undertaken, a question often arises as to whether such process amounts to manufacture or not, and if it amounts to manufacture, then it would enable the department to levy tax again as the c .....

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uct has come into existence. Expatriating the said submission, it is put forth that the process of heating on high degree temperature and then adding water to it to obtain emulsified bitumen does not alter the basic nature of bitumen but only brings a change in physical appearance of the product. He has heavily relied on Osnar Chemical Private Limited (supra) to highlight that bitumen would include bitumen emulsion. 10. The principal controversy, as we perceive, is whether bitumen emulsion is co .....

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in carbon disulfide: obtained mainly from natural oxidized petroleum products or from a petroleum distillation process. 11. The McGraw-Hill Concise Encyclopedia of Science & Technology (Third Edition) defines bitumen as under:- Bitumen A term used to designate naturally occurring or pyrolytically obtained substances of dark to black color consisting almost entirely of carbon and hydrogen with very little oxygen, nitrogen, and sulphur. Bitumen may be of variable hardness and volatility, rangi .....

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er Technological Institute, Kanpur, in its report dated 11.4.2008 states that:- The components derived from fractional distillation of petroleum, at various temperature levies, are (I) Gas (II) Naphtha, (III) Kerosene, (IV) Diesel and lubricating oil, (V) Bitumen and furnace oil, and (VI) residue. This bitumen is known as penetration grade bitumen because the specification, by which it is designated, is obtained from the penetration test. There could be two other forms of Bitumen: Namely (I) Emu .....

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ht of atoms of sulphur, nitrogen and oxygen, attached to hydrocarbon molecules. The carbon content in bitumen is 80-87%. Three basic components of bitumen are (I) asphaltene, (II) maltene and (III) carbine. The chemical bonds in bitumen are weak and break when heat is applied. When it is cooled, it comes back to its original structure, but not necessarily the same as before. 15. The said report has further proceeded to state that emulsion is a two phase system consisting of two immiscible liquid .....

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men materials have certain characteristics such as (I) waterproofing (II) durability, (III) resistance to strong acids and (IV) cementing properties. At normal temperature, bitumen is semi-solid and takes time to flow. At higher temperatures, it behaves like a viscous liquid, whereas at very low temperature, is brittle as glass. Bitumen is believed to behave viscoelastically at the standard operating temperature at highways. 17. According to the report when a state of liquefaction is achieved an .....

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surface dressing, tack coat, premix carpets, soil stabilization, etc. The concluding remarks of the report is extracted below:- Bitumen and Emulsion are two forms of bituminous binders which serve some common purposes in road construction and maintenance. Bitumen and emulsion are selected for various applications depending upon some parameters like weather conditions, availability of material, economic aspects and availability of construction time. Bitumen needs preheating whereas emulsion is re .....

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clearly reveal that bitumen in its original form is solid but melts when heated, for it is used in molten stage. There is no difficulty to appreciate that bitumen emulsion comes into existence when bitumen is treated with emulsifiers and other chemicals to attain a liquid form. It has a huge advantage and add benefit because it is not to be heated and detained in its liquid form and has better stability and thus, saves time and cost components. That apart, it ensures its use at the stage of appl .....

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d include different types of bitumen. Revenue, however, as stated earlier, intends to apply it restrictively. The said submission has a fundamental fallacy. Entry 22 does not exclude or specify that it would not include bitumen of all types and varieties. This is not the principle or precept applied to interpret the entries under the Schedule of the Act. We will be deliberating in detail on the said aspect at a later stage. Prior to that, we would like to advert to certain other aspects. 19. At .....

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scription of the Entry. Where such similarity in popular sense of meaning exists, the generic entity would be construed as including the goods in question. Sometimes on certain circumstances the end use test, i.e., use of the good and its comparison with the Entry is applied. 20. The Entry in question uses the word bitumen without any further stipulation or qualification. Therefore, it would, in our opinion, include any product which shares the composition identity, and in common and commercial .....

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s the same function as bitumen. As a result of processing, neither the primary character nor the composition is lost. Emulsification only eases and provides proficiency to the use of application of bitumen. Hence, in popular and commercial sense, bitumen emulsion is nothing but bitumen, which is in liquid form and is user friendly. 21. It is perceivable that the legislature has used the word bitumen and treated it as a separate entity. As we notice, it has not indicated that this was done with t .....

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rely upon another Entry under which bitumen emulsion can be taxed. The Revenue relies upon the residuary Entry which would only include goods, which cannot be covered under any other Entry in the schedule on application of the three-fold criteria. In the State of Maharashtra v. Bradma of India Limited (2005) 2 SCC 669, the Court had observed that the general principle is that specific Entry would override a general Entry. Referring to the decisions in the case of Collector of Central Excise, Sh .....

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spective of their mode of operation. In the absence of any limitation or qualification as to the different kind of cash registering machines, there was no reason for such qualification and limit the Entry to a particular kind of cash registering machine. However, computers had been specifically excluded and were separately dealt with in Entry 97(a). The assessee, who was manufacturing electronic cash registers would, therefore, be covered by Entry 90 and not by the Entry relating to computers. A .....

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ontext, reference to the authority in Commercial Taxes Officer v. Jalani Enterprises (2011) 4 SCC 386 would be profitable. While dealing with the question of sales tax/VAT under the Rajasthan Sales Tax Act, it was held that if from records it was established that the product in question could be brought under a specific Entry, then there was no reason to take resort to the residuary Entry. Revenue cannot be permitted to travel to the residuary Entry when a product can be covered under a specific .....

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Collector of Customs and others v. Kumudam Publications (P) Limited and others (1998) 9 SCC 339, while adverting to the issue of classification it has been held that it would not be correct to say that in no case can the end use or function of the goods be relevant in the question of classification, as was held in Indian Tool Manufacturers v. Asstt. Collector of Central Excise, Nasik and others (1994) Supp (3) SCC 632. The decision in Commissioner of Central Excise, Cochin v. Mannampalakkal Rubb .....

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d. v. State of Uttar Pradesh and another (1981) 3 SCC 578, is of no assistance, for in the context of the particular notification it was held that aluminium ingots, billet, roll products, extrusion, etc. would not be covered by the exemption, which was granted to all kinds of minerals, ore, metals or alloys, including sheets and circles used in the manufacture of brasswares and scraps. In this context, referring to Section 3A of the U.P. Sales Tax Act and the notification as applicable, it was h .....

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r sense and words of everyday use must be construed not in their scientific or technical sense, but as understood in common parlance. 27. We have also been commended to a judgment of the Customs, Excise and Service Tax Appellate Tribunal in Allied Bitumen Complex (India) Private Limited v. Collector of Central Excise, Calcutta - 1 (1997) 90 ELT 374 (Tribunal) , which holds that conversion of bitumen into bitumen aqueous emulsion amounts to manufacture. Per contra, the respondent-assessee has rel .....

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