TaxTMI 
TaxTMI 
2015 (3) TMI 787
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....s there was an issue relating to rate of tax applicable to the two products, the appellant filed an application for clarification before the Commissioner of Commercial Taxes, Thiruvananthapuram. The Commissioner vide order no. C7.34151/06/CT dated 25.10.2006 clarified the position which is in the nature of advance ruling by opining that the items "Ujala Supreme" and "Ujala Stiff and Shine" are commercially known as instant whiteners and the consumers who are purchasing the manufactured goods which are subjected to certain processes and are marketed as a commercially different commodity, "instant whitener", in the brand name "Ujala'", which is used as a "laundry whitener" at the end point. After so observing, the Commissioner referred to SRO 82/06 wherein the Government has notified list of commodities coming under 12.5% category and laundry whiteners have been brought under this category vide Entry No. 27. On that basis, the Commissioner held that as there is a specific Entry for the commodities, it would fall under the said Entry and the taxable rate would be 12.5%. 3. Being aggrieved by the aforesaid clarificatory order, the appellant filed an appeal being O.T.A No. 13 of ....
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....product in question from Jyothy Laboratory that was charging tax at 4% on the products. Thereafter the Commissioner took note of all the contentions of the appellant and referred to the HSN Codes allotted to the commodities, Clause 43 of the Rules of Interpretation, referred to the test reports filed by the appellant and addressed to the commodity, namely, Acid Violet Paste (AVP), and at one point observed thus:- "Admittedly the product in question are manufactured and supplied by M/s. Jyothy Laboratories, an industrial unit. There is no dispute on the status of the unit as a 'manufacturing unit'. The unit for the production of the products in question purchases the AVP and PVA. There is no dispute on the fact that 'the unit is not merely repacking' the materials purchased by them and marketing it under their brand name. Admittedly some process, as per the SSI certificate of the unit "a manufacturing process", is carried out before marketing their product, which brings an obvious change in the content and character and use of the products. AVP is basically an organic dye used in textile industry. By virtue of the process undertaken in the unit on the material it ....
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.... would give "Ujala Whitener", so also when "Ujala Whitener" is asked for no dealer would give the commodity 'AVP'. Instead, when a laundry brightener is asked for obviously the dealer would give "Ujala Whitener" as a similar product. So in common parlance and commercial parlance "Ujala Whitener" is known and treated as a 'laundry brightener'. In the Third Schedule there is no other entry for such products and so it cannot be classifiable under the 3rd Schedule. In the case of 'Ujala Stiff & Shine' the raw material used is Poly Vinyl Acetate (PVA) coming under the specific HSN 3905 12 90 and admittedly the product marketed as 'Ujala Stiff & Shine' fabric stiffener is in other form and the formulation arrived at in pre paras in the case of 'Ujala Whitener' is squarely applicable in this case also." xxxxx xxxxx xxxxx "It is a settled position that so long as the trade recognizes it as different commodity and its uses are different, the item has to be recognized as different goods. Here the products in question produced are by itself a commercial commodity capable of being sold or supplied with distinct identities when compared to the ra....
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....hat the said item falls under Entry 155(8)(d) of the Third Schedule of HSN Code No. 3204.12.94, which covers "Acid Violets" (for short, 'AV'). The High Court posed the question whether "Ujala Supreme" sold by the appellant is an "Acid Violet" falling under the said Entry and if so, then it cannot be treated as covered by Notification issued under Section 6(1)(d) of the 2003 Act. It was urged that the manufacturer, namely, M/s. Jyothy Laboratories Ltd., was manufacturing the said item by just diluting the acid violet paste with water. Two test reports, one from SGS India Private Ltd. and the other from Institute of Chemical Technology, Matunga, Mumbai were filed before the High Court. The first report shows that on analysis of the product, namely, "Ujala Supreme", the presence of AV49, that is acid violet paste is only less than one per cent and balance 99% is water. The second report which has been reproduced by the High Court is as follows:- "The acid violet paste (referred as, "AVP" hereafter) supplied to us confirms to Acid Violet 49, a synthetic dye classified into acid dye class which is used for the colouration of silk/wool at elevated temperatures in the presence ....
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....ing of these fabrics can take place at elevated temperature in the presence of acid only. However, the further finding of the Institute is that product sold by the appellant, namely, Ujala Supreme, cannot be used as a dye or a colouring matter. Even though the appellant contends that there is no manufacture in the conversion of Acid Violet Paste to Ujala Supreme, we find from the opinion expressed by the Institute of Chemical Technology in their above report that by virtue of the extreme dilution to below one per cent, AVP lost its identity and therefore Ujala Supreme can no longer be regarded as AVP from which it is made. In fact the test result produced by the appellant itself shows that the product has lost its property as a dyeing agent, once it is subjected to conversion process by Jyothy Laboratories to Ujala Supreme. In the impugned order, the Commissioner of Commercial Taxes, has also come to the conclusion that irrespective of whether there is manufacture or not for the purpose of deciding on the liability for excise duty, the product sold by the appellant, namely, Ujala Supreme can no longer be identified with the raw material, namely, AVP, from which it is made." 11. ....
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....The High Court opined that even though the classification of items under VAT regime is also based on HSN numbers, it does not mean that the products made out of items with HSN numbers should be classified as the original items with same HSN number, and when the products made from industrial raw material are commercially different with distinct use and purpose, it cannot be treated as the raw material from which it is made. On the said foundation it ruled that the two items can be classified under the residuary Entry 103 of SRO 82/2006. Being of this view, the High Court dismissed the appeal. 15. We have heard Mr. V. Giri, learned senior counsel, Mr. V. Lakshmi Kumaran and Mr. Alok Yadav, learned counsel for the appellants and Mr. M.T. George, learned counsel for the respondent-State. 16. To appreciate the controversy at hand, it is appropriate to refer to Section 6 of the 2003 Act. It occurs in Chapter 3 that deals with instance of levy of tax. The relevant part requisite for the present purpose reads as follows: "6. Levy of tax on sale or purchase of goods.- (1) Every dealer whose total turnover for a year is [not less than ten lakhs] rupees and every importer or casual t....
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....on of the Schedules is reproduced below:- "The commodities in the schedules are allotted with Code Numbers, which are developed by the International Customs Organisation as Harmonised System of Nomenclature (HSN) and adopted by the Customs Tariff Act, 1975. However, there are certain entries in the schedules for which HSN Numbers are not given. Those commodities which are given with HSN Number should be given the same meaning as given in the Customs Tariff Act, 1975. Those commodities, which are not given with HSN Number, should be interpreted, as the case may be, in common parlance or commercial parlance. While interpreting a commodity, if any inconsistency is observed between the meaning of a commodity without HSN Number and the meaning of a commodity with HSN Number, the commodity should be interpreted by including it in that entry which is having the HSN Number. HSN Numbers are allotted in the Schedules either in four digits or in six digits or in eight digits. The four digit numbers indicate the heading in the HSN classification, six digit numbers indicate the sub-heading and the eight digit numbers indicate the specific commodity number. While interpreting the commoditi....
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....h has been given HSN number. Thus, primacy is given to HSN number classification and adoption/interpretation of HSN classification under the Customs Tariff Act, 1975 and any inconsistency or debate would be decided with the commodity being categorized against the HSN number. As is seen, general guidelines have been given on interpretation of four digit, six digit and eight digit HSN numbers. The rules also provided for resolution and conflict between the commodities with four digit, six digit and eight digit HSN number, when they overlap. It can be emphatically stated that the word "other" used in sub-entries or sub-sub-entries have to be construed by adopting the doctrine of ejusdem generis. 20. A two-Judge Bench of this Court has addressed to a dispute pertaining to the interpretation of Rules of Interpretation as provided under the 2003 Act and HSN Code. In Reckitt Benckiser (India) Ltd. v. Commissioner, Commercial Taxes and others (2008) 15 VST 10 (SC), the question arose whether mosquito repellants and other items fall under Entry 44(5) of Schedule III of the 2003 Act. The Court referred to the items by enlisting the trade name, name of active ingredient, entry in relevant ....
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....esponding entries in the Customs Tariff Act. 22. In this regard, it is appropriate to refer to a pronouncement by a three-Judge Bench in Collector of Central Excise, Shillong v. Wood Craft Products Ltd. (1995) 3 SCC 454 In the said case, the Court referred to the Statement of Object and Reasons of the Central Excise Tariff Bill, 1985 which led to the enactment of the Central Excise Tariff Act, 1985, which indicates the pattern of the structure of the Central Excise Tariff indicated therein. The Court reproduced the Objects and Reasons of the 1985 Act. We think it apt to reproduce the relevant part of the same as follows: "The Technical Study Group on Central Excise Tariff, which was set up by the Government in 1984 to conduct a comprehensive inquiry into the structure of the central excise tariff has suggested the adoption of a detailed central excise tariff based broadly on the system of classification derived from the International Convention on the Harmonised Commodity Description and Coding System (Harmonised system) with such contractions or modifications thereto as are necessary to fall within the scope of the levy of central excise duty. The Group has also suggested th....
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.... based on Harmonised System of Nomenclature (for short "HSN") and the explanatory notes thereto. Therefore, HSN along with the explanatory notes provides a safe guide for interpretation of an entry." 25. In the instant case, the respondents have not invoked and there is no lis as regards the applicability in Entry 27. As per the respondent and the impugned judgment, the residuary Entry, that is, Entry No. 103, is attracted. Needles to say, the residuary entry would apply only when the goods are not covered under any other Entry of the List or any other Entry in the Schedules. To elaborate, the case of the respondent is that two goods under consideration are not covered by any specified Entry in the Schedules as well as in SRO 82/2006 dated 21.01.2006. If the goods in question are covered under any of the Entries in the Schedule, Entry 103, which is the residuary Entry, would not get attracted. In such cases, the tax rate as stipulated in the Schedule, applicable to the Entries would be applicable. 26. Keeping the aforesaid principles in view, we are required to understand the Schedule and the relevant Entries therein. Prior to that we would like to refer to the findings recor....
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....al equation. Learned counsel for the appellant has referred us to report dated 30.8.2006 of the Institute of Chemical Technology, Matunga, Mumbai which has stated that the chemical composition of AVP and Ujala are the same except for the dilution in Ujala. The relevant part of the said report reads as follows: "The Acid Violet Paste (referred as "AVP" hereafter) supplied to us confirms to Acid Violet 49, a synthetic organic dye classified into acid dye class which is used for the colouration of silk / wool at elevated temperatures in the presence of acid. "AVP" is uniform and having standard strength which is formulated and prepared as ready for use. The "AVP" as well as "Ujala" purchased from the market are subjected to instrumental analysis (High Performance Thin Layer Chromatography) and the results are observed as below. 1. The Chemical composition of "AVP" and "Ujala" are the same except for the dilution in "Ujala". 2. It can be observed from the chromatogram that "Ujala" is a heavily diluted form of AVP with water. 3. As such "Ujala" cannot be used as a dye or a colouring matter as it is. 4. From the technical literature it can be understood that diluted acid v....
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....case. It is further stated that the solid content in both the cases have been tested and certified to contain PVA in the ratio of 42.94 out of 43.87 and 42.98 out of 43.80 respectively. In other words, the percentage of PVA in the solid content is more than 98%. It is also noticeable from the report that there is presence of rose fragrance. It is further the stand of the appellant that Jyothy Laboratories Ltd. does not add any ingredient to the PVA and, therefore, the rose fragrance is inherent in the PVA purchased by it. 30. At this stage, it is pertinent to note that Chapter Heading 3905 of HSN reads "Polymers of Vinyl acetate or of other vinyl esters, in primary forms; other vinyl polymers in primary forms". Chapter Note 6 of Chapter 39 of HSN/Customs Tariff/Excise Tariff states that "the expression 'primary forms' applies only to: "(a) Liquids and pastes, including dispersions (emulsions and suspension) and solutions, (b) Blocks of irregular shape, lumps, powders (including moulding powders), granules, flakes and similar bulk forms." 31. On the aforesaid basis, it is claimed that "Ujala Stiff and Shine" is a liquid form and is covered under primary form. Ref....
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....rs to 'rubber and articles thereof'. The tribunal referred to Note 5(b) of Chapter 40 and eventually held thus: "Reading Note 5(b), it becomes clear that the test to distinguish rubber based adhesives and non-rubber based adhesives or other adhesives is the test of composition and not the test of end-user. Generally, in matters of classification "composition test" is an important test and "end-user test" would apply only if the entry say so. Applying Note 5(b) and keeping in mind the distinction between rubber adhesive and other adhesives, we are of the view that tariff heading 40.01 is applicable to the facts of the present case. Applying the composition test, we also find that the rubber content in the product in question is above 90 per cent. For the aforestated reasons, we are of the view that Latex and Adhesives manufactured by the assessee falls under heading 40.01 and not under heading 35.06." 35. Learned counsel for the appellant has drawn inspiration from the said decision to show that the case at hand, the composition test is the important one and not the end-user test. Be it stated, Note 5(b) provided about rubber or mixture of rubber retaining its essen....
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....g the classification issued by the Collector on 31.5.1991, the admitted position is acid violet received by the appellants is standardized. Therefore, it is very clear that there is no conversion in this case of unformulated, unstandardised or unprepared form into their formulated, standardized or prepared forms ready for use in the process of dyeing. When this is so, it cannot be held that there is a process of manufacture in the production of 'Ujala'. The chemical examiner's report is to the effect that it is a physical mixture of the ingredients in boiling water which report has been given after study of the manufacturing process." [Emphasis added] 37. It is apt to note here that the majority opined that the Chemical Examiner's opinion is in accordance with the Tariff Ruling of the Board. These authorities fundamentally relate to the issue that there has been really no manufacture process for the purpose of classification. That apart we find from the test reports that there is only dilution in water and needless to emphasize the same does amount to or result in manufacture and hence, no new product emerges. Therefore the common parlance would come into play....