2017 (10) TMI 426 - HC - VAT and Sales Tax

Court rules Brake Fluid not a Lubricant under tax law, directs refund at 8% rate

M/s. Castrol India Limited Versus Commissioner of Commercial Tax, M.P. & Others

M/s. Castrol India Limited Versus Commissioner of Commercial Tax, M.P. & Others - [2018] 1 GSTL ( STC ) 150 (MP), 2018 (16) G.S.T.L. 495 (M. P.) Issues Involved:1. Whether Brake Fluid can be categorized as a Lubricant under Entry No.9 Part-III of Schedule-II of the Madhya Pradesh Commercial Tax Act, 1994.2. Whether the tax on Brake Fluid should be charged under the residuary entry being Entry No.1 of Part-VII of Schedule-II.Issue-wise Detailed Analysis:1. Categorization of Brake Fluid as a Lubricant:- The petitioner, a company manufacturing 'Brake Fluid,' contested the classification of Brake Fluid as a Lubricant under Entry No.9 Part-III of Schedule-II of the Madhya Pradesh Commercial Tax Act, 1994, which imposes a 15% tax on lubricants.- The petitioner argued that Brake Fluid does not fall under the description of Lubricant and should be taxed under the residuary entry, Entry No.1 of Part-VII of Schedule-II, at 8%.- The respondents contended that Brake Fluid should be treated as a Lubricant because both reduce friction, albeit in different parts of a machine.- The court examined various definitions and characteristics of Brake Fluid and Lubricants, noting significant differences in water solubility, flash points, and chemical composition.- The court referenced the Bombay Sales Tax Act, 1959, and the Central Excise Tariff Act, 1985, which classify lubricants and Brake Fluid under different entries, indicating they are distinct products.- The court concluded that Brake Fluid cannot be categorized as a Lubricant as their functions and compositions are fundamentally different.2. Taxation under the Residuary Entry:- The court considered whether Brake Fluid should be taxed under the residuary entry, Entry No.1 of Part-VII of Schedule-II, which imposes an 8% tax.- The court referenced several judgments, including those by the Supreme Court, which emphasized that products should be classified based on their functional character and common parlance understanding.- The court cited the case of Atul Glass Industries (P.) Ltd. Vs. Union of India, where the Supreme Court held that a product's identity is associated with its primary function, and thus, Glass Mirrors were not categorized under Glass and Glassware.- Similar principles were applied in other cases like Commissioner, Trade Tax, U. P., Lucknow Vs. H. C. S. Comnet System Ltd., where VSAT and Satellite Receivers were treated as separate entries.- The court concluded that Brake Fluid should be taxed under the residuary entry as it does not fit the description of Lubricant under Entry No.9 Part-III of Schedule-II.Conclusion:- The court quashed the orders dated 24/04/2001, 07/03/2002, and 21/03/2003, which treated Brake Fluid as a Lubricant and imposed a 15% tax.- The court directed the respondents to refund any amount recovered by charging a 15% tax on Brake Fluid within 90 days.- The respondents are permitted to charge Commercial Tax on Brake Fluid under the residuary entry at 8%.Order:- Both writ petitions were allowed, and the impugned orders were quashed. No order as to costs.- Certified Copy as per rules.