TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 883
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....sessment year in question, the Assessee-Opposite Party has charged and deposited the tax on the sale of Harpic and Lizol treating the same are covered under Schedule-II, Part-A, Entry No. 20 of VAT Act at the rate 4% - 5%. Assessing Authority, while passing the assessment order under Section 28 of the VAT Act, has passed the assessment order dated 30.6.2012 by treating the items namely Harpic and Lizol as unclassified item, therefore, has imposed the tax at the rate of 12.5%. Against the order of assessment dated 30.6.2012, the Assessee-Opposite Party has filed an appeal under Section 55 of the VAT Act before the Additional Commissioner, Grade-II (Appeals)-I, Commercial Tax, Ghaziabad. The Additional Commissioner (Appeals) has decided the appeal, vide order dated 25.3.2013, by which, he has affirmed the order of the Assessing Authority. Against the order dated 25.3.2013 passed by the Additional Commissioner (Appeals), the Assessee-Opposite Party has preferred the Second Appeal before the Commercial Tax Tribunal, Bench-2, Ghaziabad, which was registered as Appeal No. 853 of 2013. The Tribunal vide its impugned order dated 17.8.2013 has allowed the appeal filed by the assessee-de....
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....s not appear to be correct. Where entries are descriptive of category of goods they have certain characteristics. Therefore, when a question arises whether a particular good is covered in any category or not, it has to be examined if it satisfies the characteristic which go to make it a good of that category. And whether in trade circle it is understood as such and if it is a good of technical nature then whether technically it falls in the one or the other category. Once it is found that a particular good satisfies the test then issue which arises for consideration is whether it should be construed broadly or narrowly. One of the settled principles of construction of an exemption notification is that it should be construed strictly, but once a good is found to satisfy the test by which it falls in the exemption notification then it cannot be excluded from it by resorting to applying or construing such notification narrowly. Item 18 is an exemption notification. As stated earlier, it mentions broad categories of goods which are entitled to exemption. Once a good is found to fall even narrowly in any of these categories, there appears no justification to exclude it. The test of stri....
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.... repellents in any form). 88. Drugs and medicines whether patent or proprietary, as defined in clauses (i), (ii) and (iii) of Section 3(b) of Drugs and Cosmetics Act, 1940 (Central Act 23 of 1940), and hypodermic syringes, hypodermic needles, perfusion sets, urine bags, catguts, sutures, surgical cotton, dressings, plasters, catheters, cannulae, bandages and similar articles, but not including:- (a) Medicated goods; (b) Products capable of being used as cosmetics and toilet preparations including Tooth Pastes, Tooth powders, cosmetics, Toilet articles and soaps; (c) Mosquito Repellants in any form; (d) (xxx) While deciding issue, the High Court has considered the test report issued by SGS Laboratory, Calcutta certifying that Harpic and Lizol kill germs. Learned counsel for the Assessee-Opposite Party submitted that the Revision has been filed by the Revenue against the Judgment dated 17.03.2013, passed by the Commercial Tribunal, Ghaziabad, who has allowed the Appeal filed by the assessee and has upheld and held that the classification of Harpic Disinfectant Toilet Cleaner ("Harpic") and Lizol Disinfectant Floor Cleaner ("Lizol") under Entry 20 of Part-A of Schedule II ....
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.... insecticide, which are relevant as held by the Hon'ble Supreme Court in Ponds); (d) definition under the relevant statute - Section 3 (b) of the Drugs and Cosmetics Act (definition of drugs) read with Rule 126 of the Drugs & Cosmetics Rules; (e) Licenses issued for Harpic and Lizol by the Drug Controller, Government of India treating them as a disinfectant; (f) HSN Classification; (g) Technical and Dictionary meaning; and (h) common/commercial parlance etc. (taken note of by the Hon'ble Supreme Court in Bombay Chemicals and by various High Courts (in paras 26 and 27 below). These principles have been recognized by the Supreme Court in Ponds India Ltd. v. Commissioner of Trade Tax, Lucknow (2008) 8 SCC 369. Based on such classification, the assessee-dealer had collected VAT @ 4%/5% and deposited VAT @ 4%/5% with the Revisionist. The monthly as well as annual returns of the assessee-dealer were accepted for years. Now, the Revisionist has questioned the classification adopted by the Department, claiming that Harpic and Lizol ought to be classified under the residual entry i.e. Schedule V to the UPVAT Act, which reads as: "Schedule V 1. All goods except goods mentione....
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....n food) intended to affect the structure or any function of the human body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette. In terms of Section 3 (b) (ii) of the D&C Act, Government of India is required to notify such goods and Government of India by its Notification No. S.O. 1335 dated 02.06.1961 read with Notification No. X. 11013/2/72-D dated 09.07.1975 has notified "Disinfectant fluids from synthetic or naturally occurring substances by virtue of their composition possessing disinfectant properties or with claim to possess disinfectant properties" as drugs. Accordingly, for manufacture of Harpic and Lizol, a drug license is required to be obtained under D&C Act as it is a substance used for the destruction of vermin or insects which cause disease in human beings. The Respondent has accordingly obtained drug licence under the D&C Act. Even the labels of Harpic and Lizol are required to comply with the provisions of the Drugs & Cosmetics Rules framed under the Drugs and Cosmetics Act, 1940. Accordingly, the manufa....
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....d 17-6-1966 as amended from time to time." 73. In this case also, the report of the chemical examiner is in favour of the assessee. Furthermore, in a case of this nature, where the Revenue itself has been holding the assessee to be a producer of a pharmaceutical product, the burden would be on the Revenue to establish that the goods cease to fall under a given entry. For the said purpose, no material was placed by the Revenue which was imperative." In support the learned counsel for the assessee-dealer placed the Dictionary meaning. Dictionary meaning including technical dictionaries are a relevant factor, as held in Ponds India by the Hon'ble Supreme Court and disinfectant is defined as: Webster Comprehensive Dictionary: "as a substance used to disinfect or to destroy the germs of infectious and contagious diseases". In the Concise Oxford Dictionary of Current English, "disinfectant" is defined as: "a commercially produced chemical liquid that destroys germs". In Encyclopedia Britannica, Volume 4, it is explained to mean: "any substance, such as creosote or alcohol, applied to inanimate objects to kill micro-organisms. Disinfectants and antiseptics are alike in that b....
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....seeds. The group includes sanitisers bacteriostats and sterilisers." Further, even as per the HSN Explanatory Notes it is provided that "Disinfectants are used in hospitals for cleaning walls". Thus, such disinfectants may also be used for cleaning and merely because they are also used for cleaning, it cannot be said that it is not a disinfectant. Common parlance evidence: The primary function of Harpic and Lizol is to act as a disinfectant and in addition to disinfecting/killing bacteria and germs, they also clean. Consumers purchase Harpic and Lizol for their disinfectant properties and expect it to, also clean; therefore as a secondary use, ingredients for cleaning has been added to Harpic Lizol. To extend the logic of the Revisionist, products which have multiple attributes cannot be classified under the specific entry and has to be classified under the residual entry - tablet for cold and fever, cannot be classified as a drug, since it has multiple attributes and has to be classified under the residual entry only. There would be thousands of goods which have multiple attributes in which case, all of them have to be classified under the residual entry only. Such an interp....
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....ods produced by the appellant are capable of killing bacteria and fungi which too, is covered in the expressions 'pesticide' and 'fungicide' there appears no reason to exclude the goods from the aforesaid notification." Hence, it is clear that the Hon'ble Supreme Court itself held that pesticide/insecticide are understood in common parlance to include disinfectants. Re: Judgment of Andhra Pradesh High Court holds Harpic and Lizol as insecticide/ pesticide: The Hon'ble Andhra Pradesh High Court (in the Respondents' own case ) relying on the Judgment of the Supreme Court in Bombay Chemicals and the test reports of IICT, Hyderabad has held that Harpic and Lizol are to be classified as insecticide/pesticide. The relevant paragraph of the AP High Court judgment is set out below for ease of reference: "We have referred to the test report for SGS Laboratory, Calcutta and IICT, Hyderabad. Both these reports support the view that Harpic and Lizol are disinfectants. Applying the ratio in Bombay Chemical Pvt. Ltd the conclusion is irresistible that Harpic and Lizol are covered in "pesticides" liable to tax at 4%." Re: Judgment of Gauhati High Court holds Harpic and Lizol as insecticide....
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....tal or added attribute of the product. Therefore, it was held that the products 'Harpic' and 'Lizol' cannot be set to be covered by Entry 19 of the Second Schedule-Part A." After considering the above stand of the Department, the Gauhati High Court in para 17 of its Judgment held that there are sufficient material to show that Harpic and Lizol are disinfectants and in para 18 of its Judgment, the Court held that: "What is to be noted is that these products are used for cleaning toilets/floors etc. because of the disinfectant properties. Without the disinfectant qualities, these products would be reduced to mere cleaning agents and not different from any other cleaning solutions. It may be also noted that stain caused on the toilet or floor is because of dirt which carry germs and bacteria. Therefore, removing the stain and cleaning of floor or toilet is also for the purpose of sanitizing the same which is most effective with the disinfectant component of these liquids. Therefore, in any event, whether used for removing stains or cleaning, the sanitising aspect cannot be ignored. Thus, what stands out in respect of these products is the disinfectant quality these products possess....
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....tances of the case, the said Order appears to be cryptic for non-consideration of the two decisions of the High Courts which clearly covers the field leaving hardly any scope for upholding the assessment of tax on the above items as unclassified items unless decisions to the contrary of the High Courts or of the superior Courts are produced." Re: Principles applied with respect to classification under a taxing statute: Also, the following principles relating to classification ought to be taken into consideration in any matter relating to classification under a taxing statute: (a) plain meaning to be given to the taxing provision; (b) burden to prove classification in a particular entry is always on the Revenue; (c) any ambiguity has to be resolved in favour of the assesse; and (d) resort to residuary entry is to be taken as a last measure. Going by the aforesaid principles and applying the same to the present case, it is amply clear that Harpic and Lizol fall under Entry 20 of Part A of Schedule II to the UP VAT Act and not under Schedule V to the UP VAT Act. Re: Resort to a residuary entry only as a last measure: The principles governing inclusion of any goods under the re....
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....er the residuary entry and not under Entry 20 of Part A of Schedule II to the UPVAT Act. The Department-Revenue except for making a bald allegation that Harpic and Lizol have failed to substantiate the said allegation with any documentary proof and justify that Harpic and Lizol are unclassified items under the UPVAT Act and thus exigible to tax at a higher rate. Re: If two views are possible, the view in favour of assesse to be adopted: It is a settled principle of law that any ambiguity with respect to classification of a product has to be resolved in favour of the assesse and not the Department. The well settled view was reiterated in Voltas Ltd. vs. State of Gujarat (2015 (7) SCC 527) by the Hon'ble Supreme Court in para 24 has held that in case of a reasonable doubt, the construction most beneficial to the assesse has to be adopted. Applying the aforesaid principles to the facts and circumstances of the present case assuming though not in any manner admitting that there are two plausible views about the classification of Harpic and Lizol then the view favouring the assessee has to be adopted and not the Revenue, especially when the contention of the Revenue is that the items ....
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....n IV Schedule as ordered by the Government in G.O.Ms.No.1615, dated 31.8.2005. As seen from the said G.O. extracted hereinabove, all the goods in entry 20 of IV Schedule are covered under the HSN Code (heading) 3808 except three products, namely, repellents for mosquitoes, Gibberillic acid and plant growth regulators. The product "disinfectants" are in sub-heading 3808.40.00 and they are not excluded from the main "heading". Thus all the disinfectants would fall within HSN Code 3808 which deals with most of the goods mentioned in entry 20. That being the position, in our considered opinion, any reference to entry 88 may not be called for. Even if the manufacturer obtained drug licence for producing Harpic and Lizol the same cannot be a conclusive that these goods within the ambit of entry 88." The High Court has also considered the provisions of Section 18 of Drugs Act, which mandates a licence for manufacture, sale or distribution of any drug, cosmetic or medicine. The word "drug" is defined in Section 3(b) of the Drugs Act. It is inclusive definition. A plain reading of Section 3(b)(iv) thereof shows that not only medicines for internal or external use of human beings or animals....
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....to the notice of this Court a judgment of the Rajasthan High Court in the case of Reckitt Binckiser (India) Ltd. v. Assistant Commercial Taxes Officer Anti Evasion, Commercial Taxes Department Ward-III, Jaipur and Another and the Rajasthan High Court has also considered above mentioned judgments and has held that the products being sold by the assessee would fall in Entry 21 or 29 of the Act, which provides that the products namely Harpic and Lizol classifiable under the aforesaid entry of Schedule IV of Rajasthan VAT Act and the same being used as insecticides or pesticides and further that the entry being specific and clear as such has held that the departmental authorities were wrong in holding that the items harpic and Lizol fall under the residuary entry namely Schedule (V). The relevant extract of the judgment, which are mentioned in paragraph 29, which is quoted herein below :- Taking into aforesaid, in my view, the claim of the assessee that the products being sold by the assessee would fall in Entry 21 or 29 of the Act as the case made be is well taking it under the residuary Schedule (V). The claim of the assessee is just and proper. Learned counsel for the appellant h....