1985 (11) TMI 56 - SC - VAT and Sales Tax

Supreme Court rules on classification of specialty papers under Sales Tax Act

COMMISSIONER OF SALES TAX, UP. Versus MACNEILL AND BARRY LTD.

COMMISSIONER OF SALES TAX, UP. Versus MACNEILL AND BARRY LTD. - 1986 (23) E.L.T. 5 (SC), [1986] 61 STC 76 (SC), 1986 AIR 386, 1985 (3) Suppl. SCR 739, ... Issues:1. Interpretation of whether ammonia paper and ferro paper can be classified as 'paper other than hand made paper' for tax purposes under the U.P. Sales Tax Act, 1948.Analysis:The case involved a dispute regarding the classification of ammonia paper and ferro paper for taxation under the U.P. Sales Tax Act, 1948. The respondent, a dealer in stationery and drawing material, contended that these papers should be taxed as unclassified goods at a lower rate, while the tax authorities argued that they fell under the category of 'paper other than hand made paper' and should be taxed at a higher rate of six percent. The High Court opined that the chemical coating on these papers distinguished them from traditional paper, as they were chemically coated papers used for obtaining prints and sketches of site plans. The court held that ammonia paper and ferro paper did not qualify as 'paper in the popular sense of the word' and thus did not fall within the specified notification for higher taxation.The legal dispute centered around the interpretation of the term 'paper other than hand made paper' as per the notification issued under the U.P. Sales Tax Act, 1948. The appellant, the Commissioner of Sales Tax, contended that ammonia paper and ferro paper should be considered within this category, thereby subjecting them to a higher tax rate of six percent. However, the respondent argued that the unique chemical process and coating on these papers set them apart from conventional paper, making them unsuitable for traditional paper uses such as printing or writing. The court referenced previous judgments, such as the case involving carbon paper, to support the argument that certain specialized papers do not fall under the common understanding of paper and should be treated differently for tax purposes.The court examined the nature and usage of ammonia paper and ferro paper, noting that they were chemically treated papers specifically designed for obtaining prints and sketches of site plans. The chemical coating on these papers enabled a unique process where prints or sketches emerged upon exposure to light, distinguishing them from regular paper. The court emphasized that these papers were not intended for typical paper uses like printing or writing, further supporting the argument that they did not fit the conventional definition of paper. Drawing parallels to previous cases involving specialized paper products, the court affirmed the High Court's decision that ammonia paper and ferro paper did not fall under the classification of 'paper other than hand made paper' for taxation purposes.In conclusion, the Supreme Court upheld the High Court's ruling that ammonia paper and ferro paper should not be categorized as 'paper other than hand made paper' under the relevant notification, thereby dismissing the appeal by the Commissioner of Sales Tax. The court's decision was based on the distinct chemical composition and intended use of these papers, which deviated from the traditional understanding of paper, leading to a favorable outcome for the respondent in terms of taxation classification.