Supreme Court clarifies tax classification rules for "Ujala" products

The Supreme Court held that "Ujala Supreme" and "Ujala Stiff and Shine" should be classified under their respective HSN codes in the Third Schedule, not under the residuary Entry 103 of the Kerala Value Added Tax Act, 2003. The Court clarified that goods with specific HSN codes should be taxed at the rate specified in the Third Schedule and not under the general entry. The judgment allowed the appeals but did not award costs, and no refund of VAT already paid by the appellants was granted.

---

---

Issues involved:
1. Classification of "Ujala Supreme" and "Ujala Stiff and Shine" under the Kerala Value Added Tax Act, 2003.
2. Applicability of Harmonized System of Nomenclature (HSN) for classification.
3. Interpretation of the term "manufacture" under the Central Excise Tariff Act, 1985.
4. Application of common parlance or commercial parlance test.
5. Determination of tax rate under the Kerala Value Added Tax Act, 2003.

Detailed Analysis:

1. Classification of "Ujala Supreme" and "Ujala Stiff and Shine" under the Kerala Value Added Tax Act, 2003:
The appellant, M/s. M.P. Agencies, sought clarification on the tax rate for "Ujala Supreme" and "Ujala Stiff and Shine" from the Commissioner of Commercial Taxes, who classified these products as "instant whiteners" and "laundry whiteners" under Entry No. 27 of SRO 82/06, attracting a tax rate of 12.5%. The High Court remitted the matter back to the Commissioner, who again classified the products under Entry 103 of SRO 82/2006, maintaining the 12.5% tax rate. The High Court upheld this classification, rejecting the appellant's contention that the products should be classified under specific entries in the Third Schedule of the 2003 Act.

2. Applicability of Harmonized System of Nomenclature (HSN) for classification:
The appellant argued that the products should be classified based on the HSN codes, specifically under Entry 155(8)(d) for "Ujala Supreme" and Entry 118(5) for "Ujala Stiff and Shine," both of which fall under the Third Schedule of the 2003 Act. The Supreme Court emphasized the importance of HSN codes in classification, as adopted by the Customs Tariff Act, 1975, and stated that commodities with HSN numbers should be interpreted accordingly.

3. Interpretation of the term "manufacture" under the Central Excise Tariff Act, 1985:
The appellant contended that no new product emerged from the dilution process of AVP (Acid Violet Paste) and PVA (Poly Vinyl Acetate), and thus, no manufacturing process was involved. The Supreme Court referred to previous decisions by the Central Excise, Customs & Gold (Control) Appellate Tribunal (CESTAT), which held that the dilution of AVP with water did not result in a new product and that the diluted product remained classified under the same HSN code.

4. Application of common parlance or commercial parlance test:
The Commissioner and the High Court applied the common parlance test, concluding that "Ujala Supreme" and "Ujala Stiff and Shine" were known as laundry whiteners and stiffeners, respectively, in the market. However, the Supreme Court held that the common parlance test should not override the HSN classification, especially when the products are listed under specific HSN codes in the Third Schedule.

5. Determination of tax rate under the Kerala Value Added Tax Act, 2003:
The Supreme Court clarified that goods listed under specific HSN codes in the Third Schedule should not be classified under the residuary Entry 103, which attracts a 12.5% tax rate. Instead, they should be taxed at the rate specified in the Third Schedule. The Court disallowed the application of the residuary entry for products already classified under specific HSN codes.

Conclusion:
The Supreme Court set aside the High Court's judgment, ruling that "Ujala Supreme" and "Ujala Stiff and Shine" should be classified under their respective HSN codes in the Third Schedule, not under the residuary Entry 103. However, the Court stipulated that any VAT already paid by the appellants would not be refunded. The appeals were allowed, but no costs were awarded.

---