2011 (3) TMI 477 - HC - VAT and Sales Tax

Classification of 'Ujala Supreme' under Assam VAT Act upheld, VAT rate 4%

M/s Jyothy Laboratories Ltd. Versus STATE OF ASSAM & COMMISSIONER OF TAXES, ASSAM

The court classified 'Ujala Supreme' under Entry 114 of Schedule II-C of the Assam Value Added Tax Act, 2005, with HSN Code 3204 12 94, attracting a VAT ... Applicability of VAT rate at 13% or 4% - Classification of goods - The petitioner has introduced itself to be a dealer registered under the Act and engaged inter alia in making and selling of 'Ujala Supreme' which, according to it, is a brand name for diluted Acid Violate Paste ( for short, also hereafter referred to 'AVP') - According to the petitioner, its product 'Ujala Supreme' is the diluted form of Acid Violate Paste and is classifiable under HSN Code 3204 12 94 of the Central Excise Tariff Act,1985 ( for short, hereafter referred to as the 'Tariff Act') as well as the Customs Tariff Act,1975 - The respondents have maintained that the product marketed by the petitioner is accepted in common parlance as 'fabric whitener' distinctly different from Acid Violate Paste which is acknowledged as synthetic organic dye and is used for dyeing fabrics of silk wool at elevated temperature in presence of acid only - On a scrutiny of the test reports produced before it, their Lordships concluded that in Ujala Supreme, Acid Violet was present in less than one percent and that the balance 99 percent was water - There being no estoppel against law, the plea of the respondents against the maintainability of the instant proceeding for want of bonafide of the petitioner does not commend for acceptanceThe argument on behalf of the respondents that Ujala Supreme even if a dye, being offered for sale in form or packing for retail sale, is covered by heading 3212 is not based on pleadings - As Ujala Supreme is a highly diluted form of AVP in its essential character, on the application of Rule 3(b) it appropriately is entitled to be catalogued in Entry 114 of Schedule II-C of the Act and qualified for HSN 3204 12 94 for determining the rate of taxability - Held that: petitioner‟s product 'Ujala Supreme' is entitled to be included in Entry 114 of Schedule II-C of the Act with corresponding rate of duty prescribed by HSN Code No. 3204 12 94 - Decided in favor of the assessee Issues Involved:1. Classification of 'Ujala Supreme' under the Assam Value Added Tax Act, 2005.2. Validity of the order dated 11.8.2010 by the Commissioner of Taxes, Assam.3. Application of Harmonized System of Nomenclature (HSN) for tax classification.4. Bonafide of the petitioner's challenge based on prior tax concessions availed.5. Applicability of common parlance or commercial parlance test for classification.6. Relevance of Kerala High Court's decision in M.P. Agencies vs. State of Kerala.Detailed Analysis:1. Classification of 'Ujala Supreme' under the Assam Value Added Tax Act, 2005:The petitioner argued that 'Ujala Supreme' is a diluted form of Acid Violate Paste (AVP) and should be classified under HSN Code 3204 12 94, attracting a VAT rate of 4%. The respondents contended that 'Ujala Supreme' is a distinct product from AVP, used as a fabric whitener, and should be taxed at 13.5% under the Fifth Schedule of the Act. The court examined the product's composition and found that 'Ujala Supreme' is chemically identical to AVP, albeit heavily diluted with water.2. Validity of the order dated 11.8.2010 by the Commissioner of Taxes, Assam:The impugned order classified 'Ujala Supreme' as taxable at 13.5% under the Fifth Schedule, based on the Kerala High Court's decision in M.P. Agencies. The court found that the order did not consider the clarification provided by Prof. V.R. Kanetkar, which stated that 'Ujala Supreme' retains dyeing properties in the presence of acid at elevated temperatures. Thus, the court quashed the order, holding it unsustainable in law and on facts.3. Application of Harmonized System of Nomenclature (HSN) for tax classification:The court emphasized the importance of HSN codes for uniform classification across various taxing statutes. It referred to the Supreme Court's decision in Reckitt Benckiser (India) Ltd., which highlighted that entries in tax schedules aligned with HSN should be interpreted in light of the Customs Tariff Act, 1975. The court concluded that 'Ujala Supreme' should be classified under HSN Code 3204 12 94, attracting a VAT rate of 4%.4. Bonafide of the petitioner's challenge based on prior tax concessions availed:The respondents argued that the petitioner had availed tax concessions by representing 'Ujala Supreme' as a manufactured product, and thus, its current claim was contradictory. The court acknowledged the inconsistency but held that it did not render the issue non-examinable. The court stated that there is no estoppel against law, and the petitioner's challenge was maintainable.5. Applicability of common parlance or commercial parlance test for classification:The respondents relied on the common parlance test, arguing that 'Ujala Supreme' is known as a fabric whitener. The court, however, referred to the Rules of Interpretation of Schedules in the KVAT, which prioritize HSN codes over common parlance. The court held that 'Ujala Supreme,' being chemically identical to AVP, should be classified under the relevant HSN code rather than based on its commercial name.6. Relevance of Kerala High Court's decision in M.P. Agencies vs. State of Kerala:The impugned order heavily relied on the Kerala High Court's decision, which classified 'Ujala Supreme' as a fabric whitener and not under the HSN code for AVP. The court disagreed with this decision, noting that it did not consider subsequent clarifications regarding the product's dyeing properties. The court held that 'Ujala Supreme' should be classified under HSN Code 3204 12 94, aligning with the Central Excise Tariff Act, 1985.Conclusion:The court concluded that 'Ujala Supreme' is classifiable under Entry 114 of Schedule II-C of the Assam Value Added Tax Act, 2005, with HSN Code 3204 12 94, attracting a VAT rate of 4%. The order dated 11.8.2010 by the Commissioner of Taxes, Assam, was quashed as unsustainable. The petition was allowed with no costs.