IN THE GAUHATI HIGH COURT

( THE HIGH COURT OF ASSAM, NAGALAND, MEGHALAYA,MIZORAM, MANIPUR, TRIPURA AND

ARUNACHAL PRADESH )

-PRESENT –

HON’BLE MR JUSTICE AMITAVA ROY

WP( C) NO.5428/2010 PETITIONER : M/s Jyothy Laboratories Ltd. Export Promotion Industrial Park, Amin Gaon, Guwahati(Assam). A Company incorporated under the provisions of the Companies Act,1956 and having its corporate office located at Ujala House, Ramakrishna Mandir Road, Kondivita Andheri(East), Mumbai and its factory situated at Amingaon Post, Guwahati-31, represented by Mr M.M.Basheer, the authorized signatory of the petitioner company. BY ADVOCATES : Mr M.P.Debnath, Mr B Sharma, Ms J.Huda, Advocates. `

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RESPONDENTS :

1. STATE OF ASSAM Through its Principal Secretary, Finance Department, Dispur, Guwahati. Assam.

2. THE COMMISSIONER OF TAXES, Assam Kar Bhawan Dispur, Guwahati Unit-B Guwahati.

3. THE SUPERINTENDENT OF TAXES, Kar Bhawan, Dispur, Guwahati Unit-B, Guwahati.

BY ADVOCATES : Mr D.Saikia, Standing counsel, Finance Department.

Date of hearing : 9.11.2010, 11.11.2010, 30.11.2010 and 7.12.2010. Date of judgment : 15.3.2011 JUDGMENT AND ORDER(CAV) The petitioner by this impeachment not only seeks the

annulment of the order dated 11.8.2010 of the Commissioner of

Taxes, Assam whereby its product “Ujala Supreme” has been

adjudged to be included in Sl No.1 of the Fifth Schedule of the

Assam Value Added Tax Act, 2005 ( for short, hereafter referred to as

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the „Act‟) and taxable @ 13.5%,but also pleads for a direction that the

same is leviable @ 4% being classified under Sl No.114 of Pt-C of the

Second Schedule of the enactment.

2. I have heard Mr M.P.Deb Nath, learned counsel for the

petitioner assisted by Mr Bikash Sharma, Advocate and Mr D.Saikia,

learned Standing Counsel, Finance Department. Assam for the

respondents.

3. The factual prologue in a sketch can be gleaned from the rival

pleadings. The petitioner has introduced itself to be a dealer

registered under the Act and engaged inter alia in making and

selling of „Ujala Supreme‟ ( for convenience, also hereafter referred

to as the „product‟ or „Ujala‟) which, according to it, is a brand name

for diluted Acid Violate Paste ( for short, also hereafter referred to

“AVP‟). It claims to have been filing its returns for the above

product in accordance with the Act and the Rules framed

thereunder by classifying it under HSN Code 3204 12 94 and

paying VAT @ 4% in terms of Pt-B of the Second Schedule of the Act

of the legislation and in turn, collecting the said amount from its

consumers.

4. On receipt of the audit assessment notice dated 21.5.2007

under Section 36 of the Act asking it to produce documentary

evidence in support of the returns filed by it for the period 1-5-05 to

31-3-2006, it submitted the same and also furnished the details as

sought for. A show cause notice being No.CTVA-8/2007/2 dated

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25.6.07 was issued by the Superintendent of Taxes (Department)

alleging that it had short paid the VAT @ 4% instead of 12.5% due

for the sale of the product. The petitioner in response to this notice,

caused its appearance before the concerned departmental authority

and asserted the exigibility of Ujala to VAT @ 4%. Its claim,

however, was rejected by the order dated 2.8.07, whereupon it

preferred an appeal with the Deputy Commissioner of

Taxes(Appeals), Guwahati. By order dated 27.11.2007 the said

revenue authority in the appeal interfered with the order of

assessment and remitted the matter with a direction to the

Assessing Officer to assess the petitioner afresh by determining the

tax payable by it for Ujala @ 4%. The revenue filed a revision

petition against this order before the Commissioner of Taxes,

Assam. The revisional authority by his order dated 27.6.08 sustained

the findings of the appellate authority i.e. Deputy Commissioner of

Commercial Taxes (Appeals), Guwahati concluding that Ujala

occasioned by adding of water with AVP did not amount to

manufacture and that the product retained its original

characteristics.

5 The Additional Deputy Commissioner of Taxes, Assam

subsequent thereto, by his letter dated 26.5.2010 required the

petitioner to appear before the Commissioner of Taxes, Assam, for

clarification regarding rate of tax on Ujala Supreme. The petitioner

arranged for its representation through its authorized representative

and furnished all materials relevant to the issue and also reinforced

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the same with written submission. The impugned order dated

11.8.2010 followed.

6. This order inter alia discloses that the exercise had been

undertaken afresh pursuant to a petition structured on the decision

rendered on 6.4.2009 by the Kerala High Court in M.P. Agencies vs.

State of Kerala, (2010) 28 VST 44 (KER) and filed by the

Superintendent of Taxes, Unit-B, Guwahati.

7. While elaborating its challenge on various counts vis a vis this

order, the petitioner with reference to the decision in M.P.Agencies

(Supra) involving Kerala Value Added Tax Act, 2003 and the Rules

framed thereunder has mentioned about significant changes

introduced under the Kerala VAT regime with effect from 1`.4.2005

in the matter of classification of goods for the purpose of taxation or

exemption, with reference to the code numbers developed by

International Customs Organization as Harmonized System of

Nomenclature (HSN) and adopted by Customs Tariff Act,1975. It

has underlined that unlike the earlier sales tax regime wherein the

classification of goods was by and large determined by the

commercial parlance/common parlance test, classification under

the Kerala Value Added Tax Act,2003 (for short, hereafter referred to

as „KVAT Act‟) was with reference to specific Code numbers under

HSN to obviate uncertainties and disputes on this count. The

petitioner has maintained as well that the adoption of HSN Code

was also to guarantee uniform classification of the items

transcending various taxing statues, Central or State irrespective of

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the nature of the duty/levy i.e. Customs Duty, Central Excise Duty

or State VAT. Though at the enactment of KVAT Act, no norm for

elucidation of the entries in the Schedule with the reference to the

HSN Codes did exist, in the face of problems encountered, the

Government introduced “Rules of Interpretation” vide Kerela VAT

(Amendment) Act,2005 with retrospective effect from 1.4.2005.The

preamble of the Rules of Interpretation of Schedules as well as Rule

43 thereof in particular as would occupy the center stage of the

competing pleas, apt it would be to extract the same at this stage for

ready reference :-

“ RULES OF INTERPRETATION OF SCHEDULES

The commodities in the schedules are allotted with Code

Numbers, which are developed by the International Customs

Organization as Harmonized 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. These 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, inn

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.”

…. …. …. …. .... ….. …. ….

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43. The goods given in List A to third Schedule as „Industrial

inputs and Packing Materials‟ shall attract the rate of tax

applicable to third schedule regardless to the purpose for which

such goods have been purchased.”

8. According to the petitioner, its product „Ujala Supreme‟ is

the diluted form of Acid Violate Paste and is classifiable under HSN

Code 3204 12 94 of the Central Excise Tariff Act,1985 ( for short,

hereafter referred to as the „Tariff Act”) as well as the Customs

Tariff Act,1975. As the product has no other ingredient, it remains a

dye as Acid Violate Paste though in a much diluted form. Referring

to various test reports and experiments the petitioner while

contending that its product is not a fabric whitener ,has

controverted as well, the findings of the Kerala High Court in

M.P.Agencies(Supra) on which the impugned order dated 11.8.2010

is founded.

9. The respondents in their affidavit affirmed by the

Commissioner of Taxes, Assam, the Respondent No.2, while

endorsing the validity of the order impugned, have sought to bring

home the contradictory and inconsistent dispositions of the

petitioner to repudiate the bonafide as well as the substance of its

challenge. The answering respondents have averred that the

petitioner though had availed sales tax concession under the

Industrial Concession Schemes by contending that it had been

manufacturing Ujala by applying raw materials of Acid Violate

Paste, HDPE granules Masterbatch colour by mentioning these in its

Form to obtain the Certificate of Entitlement, it has turned a volte

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face to assert that the said product does not involve any

manufacturing process and is a yield of dilution of Acid Violate

Paste alone. According to the respondents, on the basis of the

Entitlement Certificate issued to the petitioner, the Assistant

Commissioner of Taxes, Guwahati Unit-B had issued the Certificate

of Entitlement on 29.9.2008 granting it the tax exemption to the

extent of Rs.355.49 lakhs for the period 25.12.06 to 24.12.13 in respect

of Ujala Supreme, its finished product. The respondents have

maintained that the product marketed by the petitioner is accepted

in common parlance as „fabric whitener‟ distinctly different from

Acid Violate Paste which is acknowledged as synthetic organic dye

and is used for dyeing fabrics of silk wool at elevated temperature

in presence of acid only. While dismissing the petitioner‟s

classification of its product in Entry No.114 of Pt-C of the Second

Schedule of the Act as patently erroneous, the respondents endorsed

the impugned decision with profuse reference to various

observations and findings recorded in the M.P. Agencies (Supra).

According to them, Ujala Supreme was a product commercially

different from Acid Violate Paste with distinct use and purpose and

that its claim to the contrary was clearly untenable. They have

insisted that even assuming that Ujala Supreme is diluted Acid

Violate Paste, as the product contains 99.02 % of water it is

completely transformed in identity, use and marketability

compared to the original raw material and thus cease to be a dye and

thus the rate of tax applicable on synthetic organic dye used for

dyeing fabrics of silk wool was not applicable to it (Ujala). The

respondents maintained that the findings of the Kerala High Court

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in M.P. Agencies (Supra) were of decisive significance and that no

different approach in the instant proceeding is warranted.

10. Mr Debnath, in his pursuit to invalidate the impugned order

of the revenue authority has emphatically questioned the tenability

of the findings recorded in the decision of the Kerala High Court in

M.P.Agencies(Supra). According to him, the conclusion that Ujala

Supreme was in the nature of laundry whitener and thus was not

classifiable under the third Schedule of the Kerala VAT Act against

the HSN Code No.3204 12 94 ( i.e. Acid Violate Paste)was contrary

to Rule 43 of the Rules of Interpretation and in absence of any

stipulation in the said enactment or its Schedule and Rules framed

thereunder that the classification of the goods with reference to HSN

Code would be available only for the original product, the

observation to the contrary made in the judgment was not

sustainable. Mr Debnath urged that as the AVP and the Ujala

Supreme are products which are clearly classifiable in the third

Schedule to the Kerala VAT Act, the latter could not have been

brought under the residuary entry. The observation of the Kerala

High Court that the findings of the Central Excise Tribunal and the

Commissioner of Central Excise that Joyti Laboratories was not

involved in any manufacture was not worth considering for the

purpose of the classification „Ujala Supreme‟, was clearly in

confrontation with the decision of the Apex Court in M/s Reckitt

Beneckiser India Ltd. vs. Commissioner of Commercial Taxes,

[2008]15 VST 10(SC), he pleaded. Referring to the various test reports

and experiments conducted by several agencies to discern the

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inalienable traits of AVP and Ujala Supreme, the learned counsel

insistently maintained that the product was unmistakably classified

under HSN Code 3204 12 94 and was thus taxable @ 4%. He

assiduously urged that the consistent findings of the tests conducted

unambiguously demonstrate that Ujala Supreme is nothing but a

diluted form of AVP and does remain a dye and the character and

use of both the components remain the same even after dilution. Mr

Debnath therefore sought to impress upon this Court that AVP

when diluted retains its characteristic and does not undergo a

change to be converted to a different manufactured commodity.

The learned counsel drew the attention of this court to the preamble

of the Rules for Interpretation to sustain this plea. As commercial

parlance or common parlance test is relevant vis a vis those

commodities which are not referable to HSN Code for their

classification as is otherwise irrefutably attested by the Rules of

Interpretation, the sale thereof (AVP) with a different commercial

name per se would not make any difference and attract a different

rate of tax, he insisted. Mr Debnath argued that judged by the

consistent experimental analysis ,Ujala Supreme is an alter ego of

AVP in a diluted form and thus being distinctly identified by HSN

Code No. 3204 12 94 ,the finding to the contrary as recorded in

M.P.Agencies (Supra) is untenable and is of no persuasive worth in

the instant proceeding. While maintaining that the Kerala High

Court had left out of consideration the relevant subsequent reports

to the effect that Ujala was possessed of dyeing attributes rendering

its findings to the contrary flawed, the learned counsel also

dismissed the remonstrance of the respondents based on the

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petitioner‟s claim for sales tax exemption contending that the notion

of “manufacture” under the Assam Industrial Policy, Assam General

Sales Tax Act, 1993 and the Act is not identical in all essential

constituents to render the challenge herein frivolous. Mr Debnath

placed reliance on the following decisions of the Apex Court :

1) (1976) 2 SCC 241,Dunlop India Ltd. vs. Union of India and

Others.

2) 1994(72) ELT 669, Jyoti Laboratories Vs. CCE, Cochin.

3) 2002 (142) ELT 18, Collector of Customs, Bomday vs. Business

Forces Ltd THR.OL.

4) 2007(78) RLT 276(T), Jyothi Laboratories Ltd. & Nnr. Vs. CCE,

Calicut.

5) 2007(82) RLT 927(S.C), CCE, Mumbai vs. Laijee Goodhoo &

Co.

6) 2007(210) ELT 171(S.C), Crane Betel Nut Powder Works vs.

Commissioner of Customs & Central Excixe, Tirupathi.

7) 2007(217) ELT 161(SC), CCE, Cochin vs. Mannampalakkal

Rubber Latex Works . `

8) [2008 15 VST 10(SC)]Reckitt Benckiser (India) Ltd. vs.

Commissioner of Commercial Taxes and Others.

11. The learned Standing Counsel for the Revenue has

responded at the out-set by questioning the bonafide of the challenge

contending that the petitioners having availed sales tax concession

under the Industrial Concession Scheme by representing the

product to be one manufactured by applying raw materials of Acid

Violate Paste, HDPE Granules etc.,its turn around for securing

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classification of „Ujala‟ under Tariff Item 3204 of the Central Excise

Tariff Act,1985 is visibly contradictory to this orientation and on

that count alone, the present assailment ought to be negated.

Referring to the application submitted by the petitioner for obtaining

the Certificate of Entitlement for exemption of tax for „Ujala‟

showing it to be a commercial product under the Assam Industries

(Tax Exemption for Pipe Line Unit) Order, 2005, in particular, the

learned Standing Counsel has urged that product has been described

there tobe a fabric whitener manufactured from the raw materials

namely, Acid Violate Paste, HDPE granules ,Masterbatch colours.

The petitioner, thus having enjoyed the tax exemption as above, it is

estopped from projecting the same product otherwise, he pleaded.

The learned Standing Counsel with allusion to the certificates

and reports based on empirical findings as contained therein

(annexed to the writ petition) has maintained that „Ujala‟s use as a

dye or coloring matter having been ruled out thereby, it by no means

can be identified in absolute terms with Acid Violate Paste and thus

the petitioner‟s claim is misconceived. He has ,therefore urged that

its endeavour to certify „Ujala‟ under Entry 114 of Schedule II –C of

the Act is apparently flawed. Relying heavily on the decision

rendered by Kerala High Court in M.P. Agencies(Supra), Mr Saikia

has insisted that the petitioner‟s product is commercially different

from Acid Violate Paste with distinct characteristics and utility and

therefore, its plea to the contrary is mis-placed. As admittedly,

„Ujala‟ is claimed to be a diluted Acid Violate Paste containing 99.02

percent of water, it is even otherwise a commodity totally

transmuted from Acid Violate Paste and having ceased to be a dye,

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it has been rightly taxed as a residuary item under Fifth Schedule of

the Act, he contended. Endorsing the findings recorded in M.P.

Agencies (Supra), the learned Standing Counsel argued that the

decisive criteria to identify the product for the purpose of

classification has been rightly held to be the common parlance

and/or a commercial parlance test. In the alternative, he urged that

even assuming that „Ujala‟ is being sold as a dye, it being put up in

form or packing for retail sale, it is beyond the tariff item 3204 and

instead traceable to tariff item 3212 of Chapter 32 of the Tariff Act an

thus liable to be taxed @ 13.2 % under Schedule-V of the Act. Ujala

being essentially a laundry whitener or a fabric whitener, it is not a

classified item under the Tarrif Act with an allotted HSN No. and is

thus exigible to tax as a residuary item under Schedule-V of the Act,

he insisted. He emphatically rebutted the shortcomings in the

determination in M.P.Agencies(Supra) as provided by the

petitioner. Mr Saikia, to bolster his contentions placed reliance on the

following decisions of the Apex Court-

i) (2005) 2 SCC 460 ; OK Play India Ltd vs. Commissioner

of Central Excise Delhi III.

ii) (2005) 12 SCC 731; Western India Plywood Ltd vs.

Collector of Customs.

iii) (2007) 7 SCC 490; Commissioner of Central Excise

Mumbai vs. Damnet Chemicals Pvt. Ltd.

iv) (2007) 12 SCC 602; Mercantile Company vs.

Commissioner of Central Excise, Calcutta.

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v) (2008) 9 SCC 82 ; Camlin Limited vs. Commissioner of

Central Excise, Mumbai.

12. Mr Debnath, in his short reply maintained that in the facts of

the case, Item 3212 of Chapter 32 of the Tariff Act had no

application and that as the notion of manufacture under the Assam

Industrial Policy,2003 is relevant only in the context of

establishment of new and existing units for commercial production,

the plea of incompatibility qua the petitioner is misconceived.

13. Due attention has been lent to the competing pleadings and

the arguments based thereon. Before embarking upon the

contentious issues surfacing therefrom, appropriate it would be to

notice the relevant legal provisions involved.

ENTRY 114 OF SCHEDULE II-C OF THE ACT

Serial No. Heading No. of the Central Excise Tariff Act,1985(5 of 1986)

Sub-heading N.of the Central Excise Tariff Act,1985(5 of 1986)

Description

114. 32.04 Synthetic organic colouring

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matter, whether or not chemically defined; preparations based on synthetic organic colouring matter as specified in Note 3 or Chapter 32 of the First Schedule of the Central Excise Tariff Act,1985; synthetic organic products of a kind used as fluorescent brightening agents or as luminophores, whether or not chemically denied excluding eatechu or gambiar.

Notes appearing beneath the entries in Schedule II-C

Note 1. Micronutrients and plant growth promoter or regulators are

Not covered by the scope of this Part.

Note 2. The Rules for the interpretation of the Central Excise Tariff

Act,1985, read with the Explanatory Notes as updated from

Time to time published by the Customs Co-operation

Council, Brussels, shall apply for the interpretation of this

Part.

Note 3. Where any commodities are described against any heading

or, as the case may be, sub-heading, and the aforesaid

description is different in any manner than the correspond-

ding description in the Central Excise Tariff Act,1985, then

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only those commodities described as aforesaid will be

covered by the scope of this Part and other commodities,

though covered by the corresponding description in the

Central Excise Tariff, will not be covered by the scope of

this Part.

Note 4. Subject to Note 3, for the purpose of any entry contained in

this Part, where the description against any heading or, as

the case may be, sub-heading, matches fully with the

corresponding description in the Central Excise Tariff Act,

1985, then all the commodities covered for the purpose of

the tariff under that heading or sub-heading will be

Covered by the scope of this Part.

Note 5. Where the description against any heading or sub-

Heading is shown as ”other” then the interpretation as

Provided in Note 2 shall apply.”

Central Excise Tariff of India

“ Chapter 32

` Tanning or Dyeing Extracts; tannins and their

Derivatives; Dyes, Pigments and other colouring matter;

paints and varnishes‟ putty and other mastics; inks .“

“3204” Synthetic organic colouring matter, whether or

not chemically defined; preparations as specified

in note 3 to this Chapter based on synthetic

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organic colouring matter; synthetic organic

products of a kind used as fluorescent

brightening agents or luminophores, whether

or not chemically defined.”

“3204 12 94 Acid Violates,…………”

14. A global body/entity nomenclatured as World Customs

Organization (earlier named Customs Co-operation Council) was

established by a Convention signed in Brusseels on 15h

December,1950 delineating its functions amongst others to make

recommendations to ensure an uniform interpretation and

application of the Conventions concerning the Nomenclature for the

Classification of Goods in Customs Tariffs and the Valuation of

Goods for Customs Purposes. In order to secure an uniform

classification of commodities across the various taxing enactments be

it parliamentary or legislative, enjoining prescription and realization

of duty/levy, the World/International Customs Organization

developed a System of Code numbers for commodities catalogued in

the Schedules of such legislations based on Harmonized System of

Nomenclature (for short, „HSN‟) since adopted by the Customs Tariff

Act,1975. The Organization also formulated rules for the

interpretation of the Harmonized System. The norms for

classification of goods in the Nomenclature have also been evolved.

Rule 3 thereof relevant for the present purpose is extracted

hereinbelow :-

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WHEN BY APPLICATION OF RULE-2(b) OR FOR ANY

OTHER REASON, GOODS ARE, PRIMA FACIE,

CLASSIFIABLE UNDER TWO OR MORE

HEADINGS,CLASSIFICATION SHALL BE EFFECTED AS

FOLLOWS :

(a)THE HEADING WHICH PROVIDES THE MOST

SPECIFIC DESCRIPTION SHALL BE PREFERRED TO

HEADINGS PROVIDING A MORE GENERAL

DESCRIPTION. HOWEVER, WHEN TWRO OR MORE

HEADNGS EACH REFER TO PART ONLY OF THE

MATERIALS OR SUBSTANCES CONTAINED IN MIXED

OR COMPOSITE GOODS OR TO PART ONLY OF THE

ITEMS IN A SET PUT UP FOR RETAIL SALE, THOSE

HEAIDNGS ARE TO BE REGARDED AS EQUALLY

SPECIFIC IN RELATION TO THOSE GOODS, EVEN IF

ONE OF THEM GIVES A MORE COMPLETE OR

PRECISE DESCRIPTION OF THE GOODS.

“ (b) MIXTURES, COMPOSITE, GOODS CONSISTING OF

MATERIALS OR MADE UP OF DIFFERENT

COMPONENTS, AND GOODS PUT UP IN SETS FOR

RETAIL SALE, WHICH CANNOT BE CLASSIFIED BY

REFERENCE TO 3(a) ,SHALL, BE CLASSIFIED AS IF

THEY CONSISTED OF THE MATERIAL OR

COMPONENT WHICH GIVES THEM THEIR

ESSENTIAL CHARACTER, INSOFAR AS THIS

CRITERION IS APPLICABLE.

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(c) WHEN GOODS CANNOT BE CLASSIFIED BY

REFERENCE TO 3(a) OR 3(b), THEY SHALL BE

CLASSIFIED UNDER THE HEADING WHICH OCCURS

LAST IN NUMERICAL ORDER AMONG THOSE

WHICH EQUALLY MERIT CONSIDERATION.”

15. The parties are not in issue that the Tariff Model of the

Tariff Act is patterned on the categorization and the rationalized

norms of nomenclature labelled as HSN for specifying the rate(s) of

duty payable thereunder. That the underlying purpose of this

enterprise is to introduce a rationalized mechanism of cataloguing

the various categories of goods exigible to duty thus minimizing the

scope of ambivalence or dissonance in the matter of identification

and classification for levy and exaction of such impost irrespective

of the legislation involved is not in dispute. The relevant entries in

the Act and the Tariff Act are also in place. There is no dissensus in

the Bar, that the Rules for the Interpretation of Harmonized System

as well for the Schedules figuring in the KVAT have a decisive

bearing on the course of the present adjudication. The impugned

order dated 11.8.2010 of the Commissioner of Taxes, Assam under

section 105 of the Act is wholly structured on the determination in

M/S M.P. Agencies(Supra) by the Kerala High Court involving the

same product. Having regard to the aforesaid conclusive impact of

this decision on the impugned order, it would logically be expedient

to notice at this stage the findings recorded therein. That the rival

contentions are pre-dominantly founded on the conclusions

recorded therein also endorse this step.

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16. The contextual facts in M/s M.P. Agencies (Supra) reveal

that two products of the petitioner herein namely, „Ujala Supreme‟

and „Ujala Stiff and Shine‟ were involved. The factual recitation

reveals that Ujala Supreme is produced by the petitioner in bottles

describing it to be a fabric whitener. It was identified by the

jurisdictional Commissioner of Commercial Taxes as a laundry

brightener under Entry 27 of the notification No.S.R.O. No.82/2006

dated 21.1.2006. Contending it tobe classifiable in Entry

No.155(8)(d) of the Third Schedule to the KVAT relatable to “Acid

Violates” with HSN Code No. 3204 12 94, the petitioner appealed

from this decision of the aforementioned revenue authority. On a

perusal of the documents including test report, the decisions of the

Central Excise Tribunal etc. the order of the Commissioner was

interfered with and the issue was remanded for a fresh consideration

whereafter it was clarified that the product was includable in

residuary Entry 103 of the above referred notification and was

taxable @ 12.5%. The petitioner, thus returned with a fresh appeal,

the decision wherein is being referred to.

17. On a scrutiny of the test reports produced before it, their

Lordships concluded that in Ujala Supreme, Acid Violet was

present in less than one percent and that the balance 99 percent was

water. Referring to the report of the Institute of Chemical

Technology, Matunga, Mumbai, it was determined that the

petitioner‟s product could not be used as a dye or colouring matter

in contradistinction to AV 49. It was noticed further that Entry 115 of

list A of the Third Schedule to KVAT covered “industrial inputs and

packing materials” and thus Acid Violate under Entry 155(8) (d) was

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an industrial input. Their Lordships accepted the finding of the

jurisdictional Commissioner that Ujala Supreme was a finished

product as a fabric whitener emerging from the application of the

industrial input i.e. Acid Violate Paste. It was held on a perusal of

the report of the Institute of Chemical Technology that due to

extreme dilution of AVP, it had lost its identity and thus Ujala

Supreme could no longer be regarded as Acid Violate Paste from

which it had been made. It was thus concluded that the acid based

industrial raw material per se could not be used as a laundry

whitener and it necessarily was to be subjected to a process of

manufacture to be so. Their Lordships thus determined that as the

petitioner‟s product could not be interchanged with AVP, the

classification of items under KVAT with reference to HSN was of no

significance as those were relatable to original items and not to

products manufactured therefrom with different use and purpose.

The petitioner‟s plea against applicability of common parlance or

commercial parlance test thus was rejected. The same reasonings

figure in the order impugned herein.

18. Before adverting to the merit of the contentious

projections, the respondents‟ cavil on the petitioner‟s bonafide

demands attention. The petitioner does not deny to have availed the

benefit of tax/ fiscal incentives under the Assam Industrial

Policy,2003 at the relevant point of time. The policy was formulated

amongst others to ensure industrial development in the industrially

backward regions of the State and to generate more employment

opportunities. It offered a package of incentives for promotion and

setting up of industrial units and revilalization of sick industrial

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units and to promote investment in the State. The eligibility criteria

for availing the incentives offered thereunder visibly envisaged a

date of commencement of commercial production of the unit

concerned whether existing or new and a finished product was

contemplated to mean and include the item manufactured by the

eligible units . Raw materials similarly were envisaged to mean and

include all industrial components, intermediate goods, substances,

consumable stores including furnace oil and light diesel oil used for

captive generating sets required in the process of manufacture and

packing materials utilized for packing of finished products by an

eligible unit. The applications for grant of Eligibility Certificate and

the Certificate of Entitlement with the particulars furnished therein

thus have to be judged in these perspectives.

The facts pertaining to the commencement of commercial

production and the manufacture of finished products were pre-

dominantly for the purpose of determining the eligibility of the units

engaged therein to avail the benefits under the policy. The focus

invariably was not on the actual process of manufacture of the

goods. Though the petitioner‟s present plea that Ujala Supreme is

intrinsically only a diluted AVP is irreconcilable with the amalgam

of the raw materials applied for the manufacture thereof as

enumerated in its application for obtaining the aforementioned

certificates, in the estimate of this Court this incompatibility ipso

facto, does not render the issue raised herein non examinable on the

ground of lack of its bonafide. Such a contradiction though may

expose the petitioner to steps contemplated in law by the

appropriate authorities, the consequence of if being non-suited

23

therefor vis a vis the present challenge does not ensue. If in fact, the

product Ujala Supreme is only singularly diluted AVP to its extreme

with no other constituent and thus ought to be included in Entry

No.114 of the Act to be assigned the corresponding HSN Code No.

3204 12 94, its prospect would stand jeopardized if the aforenoted

anomaly simpliciter is awarded a decisive primacy. There being no

estoppel against law, the plea of the respondents against the

maintainability of the instant proceeding for want of bonafide of

the petitioner does not commend for acceptance.

19. In Reckit Benckiser(India) Ltd (Supra), the question that

was posed for the scrutiny of the Apex Court was whether mosquito

repellants and other items fell under Entry 44(5) of Schedule III to

the KVAT. Whereas, the appellant insisted on the aforesaid

classification, according to the Revenue, the products were traceable

to Entry No.66 which attracted an enhanced rate of duty. Interfering

with the decision of the jurisdictional High Court from which the

appeal had been preferred to it, the Apex Court underlined that

cases where HSN and Code number is indicated against a tariff item

mentioned in the Third Schedule of KVAT then, in terms of the Rules

of Interpretation one ought to abide by the same as adopted by

Customs Tariff Act, 1975 and thus interpret the entries in the said

Schedule not only in the light of the entries in the Custom Tariff

Act,1975, but also the judgments applicable thereto. Their Lordships

observed that KVAT was aligned with the Customs Tariff which, in

turn, was in Harmony with HSN and consequently its product in

question was required to be viewed in the context of HSN and Code

number and the judgmenst based thereon.

24

20. That Explanatory Notes to the Harmonized System of

Nomenclature (HSN) were not only of persuasive value, but having

regard to the fact that the structure of the Central Excise Tariff is

based thereon were entitled to greater weightage was underlined

by the Apex Court in Collector of Customs, Bombay(Supra) in

which it quoted with approval its observations in Collector, Central

Excise, Shillong vs. Wood Crafts Products Limited [ 1995(77) E.L.T.

23] as follows :-

“ We are of the view that the Tribunal as well as

the High Court fell into the error of overlooking the fact

that the structure of the Central Excise Tariff is based on

the internationally accepted nomenclature found in the

HSN and, therefore, be resolved with reference to the

nomenclature indicated by the HSN unless there be an

express different intention indicated by the Central Excise

Tariff Act,1985 itself. The definition of a term in the ISI

Glossary, which has a different purpose, cannot, in case of a

conflict, override the clear indication of the meaning of an

identical expression in the same context in the HSN. In the

HSN , block board is included within the meaning of the

expression „similar‟ laminated wood‟ in the same context of

classification of block board. Since the Central Excise Tariff

Act,1985 is enacted on the basis and pattern of the HSN,

the same expression used in the Act must, as far as

practicable, be construed to have the meaning which is

expressly given to it in the HSN when there is no

indication in the Indian Tariff of a different intention.”

25

21. The Rules of Interpretation of the Schedules as appearing

in the KVAT enjoin that commodities allotted HSN Code numbers

ought to be extended the same meaning as recorded in the Customs

Tariff Act,1975 and that while interpreting such 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 assigned the HSN Number. This only evidences

the elasticity extended to the expanse of the Harmonized System of

Nomenclature (HSN) to guarantee to the maximum an uniformity

in identification and classification of excisable goods for the levy

thereon. Rule 43 of the Rules of Interpretation of Schedules

appended to KVAT mandates that the goods catalogued in list A to

the Third Schedule “ industrial inputs and packing materials” would

attract the rate of tax applicable to Third Schedule regardless of the

purpose for which such goods have been purchased. This Rule does

ordains that the end use of goods would not have any pertinence in

adjudging the rate of tax otherwise prescribed therefor.

22. That Ujala Supreme has been determined to be comprised of

the following constituents is borne out by the relevant reports

referred to in M.P. Agencies(Supra) as well laid before this Court as

follows :-

AV/49 …… .08 %

Water …… 99.02%

26

The petitioner‟s product is an extremely diluted form of AVP in the

compositional context is also a finding of the Kerala High Court in

M/S M.P. Agencies( Supra).

23. The following excerpt of the certificate dated 30.8.2006 of

Prof. V.R. Kanetkar, Professor and Head, Dyestuff Technology

Department, University of Mumbai, Institute of Chemical

Technology (Autonomous) , University of Mumbai deserves to be

extracted.

“ The acid violate paste (referred as “AVP” hereafter) supplied

to us confirms to Acid Violate 49, a synthetic organic 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) that

the result 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.

27

4. From the technical literature it can be understood that

diluted acid violate 49 is used in the fabric finishing

industries for imparting brightness to while fabrics

( The mechanism being the fabric absorbs all the

colours in the visible light and transmits the

bluish/purplish tint).

… …. ….. …. ….. …. …..

As per the technical report and the HPTLC repot, it

can be conclusively said that Ujala is nothing but a

diluted form of Acid Violet Dye.

The observations of the HPTLC analysis are as

follows.

a. All the components present in diluted sample of

AVP are also present in Ujala sample.

b. No additional components are present in Ujala

Sample.

c. The diluted AVP samples and the Ujala sample‟s

spectral scans are super imposable and match

exactly, which confirms that Ujala is a diluted form

of AVP and chemically they both are identical.

From the above analytical and technical data, it can be

28

concluded that ”Ujala” is only a diluted form of Acid

Violate 49 with water, which has the inherent characteristics

of brightening clothes and does not contain any other

additives or optical brightening agents. The brightness of

the fabric is increased because at absorbs all the colours in

the visible light and transmits the bluish/purplish tint, thus

hiding the yellowing of the fabrics.”

24. The above extract recites the following features of the

analysis of the product –(1) The chemical compositions of AVP and

Ujala are the same.

(2) Ujala is heavily diluted form of AVP with water.

(3) All the components present in diluted sample of AVP

also exist in Ujala.

(4) No additional component is present in Ujala.

(5) Ujala is a diluted form of AVP and both are chemically

identical.

(6) Ujala is a diluted form of Acid Violate Paste 49 with

water and has the inherent characteristics of

brightening clothes.

(7) Ujala cannot used as a dye or colouring matter as it is.

29

25. The petitioner in paragraph D.45 has referred to a report

dated 22.10.2007 (stated to be Annexure-13 in the appeal before the

High Court) of Prof. V.R.Kanetkar as above providing the following

clarification :

“ 4) Para 2, point 3 of the report dated 30th August,2006

state that as such „Ujala‟ cannot be used as a dye or a colouring

matter as it is. Ujala will impart permanent colour(dye) in the

presence of acid at elevated temperature.”

On a conjoint reading of this clarification ( existence and authenticity

of the report dated 22.10.07 not having been denied by the

respondents), the absence of dyeing efficacy of the petitioner‟s

product in absolute terms cannot be inferred. Ujala Supreme

assuredly thus is a commodity which is AVP being highly diluted

with water possessing dyeing quality in the presence of acid at

elevated temperature.

26. Axiomatically, therefore, if Ujala is identifiable with AVP

though in a diluted form and is not construed to be a commercially

different product therefrom, it is classifiable under Entry 114 of the

Act and relatable to HSN Number 3204 12 94 for the purpose of

excise duty under the Tariff Act. It, however, it is regarded as a new

product independent of its constituent AVP irrespective of its end

use , in absence of any other entry available to accommodate it, it is

liable to be assessed as a residuary item contemplated under

Schedule V of the Act. Admittedly, Ujala Supreme is a mixture or

combination of AVP and water. Entry 114 of the Schedule II –C of

the Act is assigned inter alia to synthetic organic colouring matter

30

whether or not chemically defined as well as preparation based on

synthetic organic colouring matter as specified in Note 3 of Chapter

32 of the First Schedule of the Central Excise Tariff Act, 1985. It is

relatable to heading No.3204 in Chapter 32 of the Tariff Act dealing

with “ Tanning or Dyeing Extracts‟ Tannins and their Derivatives;

Dyes, Pigments and other colouring matter; paints and varnishes;

putty and other mastics; inks”

Note -3 of Chapter 32 as above, extends amongst other the

application of heading 3204 to preparations based on colouring

matter of a kind used for colouring any material or used as

ingredients in the manufacture of colouring preparations. This head

Note, however, does not apply to pigments dispersed in non-

aqueous media, in liquid or paste form, of a kind used in the

manufacture of paints, including enamels or to other preparations of

heading 3212 etc.

27. Their Lordships of the Supreme Court in

C.C.E.,Mumbai(Supra), held that “compounded asafoetida” made

from raw asafoetida through the process involved did not constitute

manufacture as no chemical change was brought about thereby. As

the essential character of the product remained the same, no process

of manufacture was involved. Their Lordships highlighted the

twin tests of manufacture and marketability to ascertain whether a

commodity was exigible to excise duty or not.

28. In Crane Betel Nut Power Works(Supra), the issue was

whether processing of betel-nuts by essential/non essential oils

31

menthol ,sweetening agents etc. amounted to manufacture to attract

excise duty. Having regard to the nature of the process to which the

betel-nuts were subjected to, it was held in the negative as no article

different from the raw material was produced. In arriving at this

conclusion, their Lordships recalled the view of the Constitution

Bench of the Apex Court in Union of India vs. Delhi Cloth and

General Mills,(1963) Supp. 1 SCR 586 that „ manufacture‟ signified

bringing into existence of a new substance and not merely to effect

a change in one. The following extract of the rendering in Anheuser-

Busch Brewing Association vs. United States, 52 L.Ed. 336-338 was

referred to with approval-

“ Manufacture implies change, but every change is not

manufacture and yet every change of an article is the result of

treatment, labour and manipulation. But something more is

necessary and there must be transformation, a new and

different article must emerge having a distinctive name,

character or use.”

It was held that the process involved in the emergence of sweetened

betel-nut pieces did not result in the manufacture of a new product

as the end product continued to retain its original character though

in a modified form.

29. The assessee in Commissioner of C.Ex. ,Cochin (Supra)

engaged in the manufacture of Latex(Rubber) based Adhesive with

brand names Superset(LC) and Superset (LB) , was engaged in a

debate with the Revenue regarding classification of its product for

determining its excise duty liability. Disapproving the plea of „end-

32

user test‟ applied by the Revenue for the purpose of classification,

their Lordships held that therefor “ composition test” is important

and that the end user test would apply only if relevant entry

approves the same.

30. Noticeably, the argument on behalf of the respondents that

Ujala Supreme even if a dye, being offered for sale in form or

packing for retail sale, is covered by heading 3212 is not based on

pleadings. Such a plea is instead opposed to the stance of the

respondents that the product is shorn of any dyeing attribute. Be

that as it may, as the product is a composition of two constituents as

demonstrated by its composition, Rule 3(b) of the General Rules for

Interpretation of the Harmonized System seems apposite to diagnose

with certitude , its classification to ascertain the rate of its exigibility

to duty under the Tariff Act. Judged by the percentage of existence

of the ingredients of the product, it cannot be gainsaid that the

essential characteristics thereof would be decided by Acid Violate

Paste (AVP). As it is Rule 3(b) stipulates that classification of

mixtures and composite goods consisting of different materials or

made up of different components as well as goods put up in sets for

retail sale and which cannot be classified by referring to Rule 3(a)

shall be classified as if they constitute the material or component

which gave them their essential character. As Ujala Supreme is a

highly diluted form of AVP in its essential character, on the

application of Rule 3(b) it appropriately is entitled to be catalogued

in Entry 114 of Schedule II-C of the Act and qualified for HSN 3204

12 94 for determining the rate of taxability.

33

31. The ultimate conclusion of their Lordships in M/s M.P.

Agencies contrary to the above is based on the findings of the report

dated 30.8.2006 that Ujala Supreme is in capable of being used as a

dye or a colouring matter and it having thus lost that quality due to

extreme dilution, can no longer be identified with AVP. The

petitioner‟s contention against manufacture of the product to yield a

commodity novel in kind and distinguishable from AVP was not

considered in this premise. On the same reasoning, the benefit of

classification based on Harmonized System of Nomenclature was

refused to its product. This determination with utmost respect for

the aforementioned deductions in the present adjudication cannot be

subscribed to. Not only the clarification provided in the report dated

22.10.2007 by Prof. V.R. Karnetker neutralizing the earlier

observations in the report dated 30.8.06 that Ujala cannot be used as

a dye or a colouring matter, is of definite significance for the

ultimate classification of the product, its structural composition as

well enjoins its inclusion under Entry 114 of Schedule II-C of the

Act earning for it HSN Code Number 3204 12 94 to determine its

tax liability.

32. The decision of the Apex Court in Camlin Limited(Supra),

that if the entries in the HSN and the Tariff are not aligned, reliance

on the former for the purpose of classification of goods is not

permissible, does not advance the case of the revenue in the facts of

the present case.

33. The decision in O.K. Play(India) Ltd.(Supra), while reiterating

that the scheme of the Central Excise Tariff is based on Harmonised

System of Nomenclature and the explanatory notes thereto as a safe

34

guard for interpretation of an entry, underlined that functional

utility, design, shape and predominant use are equally relevant for

determining the classification of an item. This, however, is not in

effacement of the enunciation that end use of product is not an

absolute index in the matter of classification.

34. Their Lordships of the Apex Court in Western India

Plywood Ltd(Supra) reiterated the well settled proposition that

resort to residuary tariff entry ought to be made with a good deal of

caution and only when no other provision express or implied is

available for the goods in question. It was held that in the matter of

classification, identification of an entry is the primary step and the

description thereof would be relevant for assigning it a particular

tariff entry.

35. The decision in Commissioner of Central Excise, Mumbai-

IV(Supra) has been introduced by the respondents to brace up its

plea that the petitioner‟s product cannot be passed on as AVP in

view of the negligible percentage of its existence in it. The Apex

Court therein was in seisin of a commodity/preparation containing

70% of mineral oil and 20% of petroleum oil. Having regard to the

fact that it was blended lubricating oil, it was held that negligible

percentage of rust preventive did not make the product a rust

preventative one. Having regard to the composition of the

petitioner‟s product , this exposition is also of no assistance to the

respondents.

35

36. On the other hand, the decision of the Apex Court in

Dunlop India Ltd(Supra) and of this Court in CHEM Trade India(P)

Limited underlined that lodgment of an item in the residuary

category is approvable only if by no conceivable reasoning, it can

be brought within the purview of any other tariff item. That the

burden to this effect is on the department, was also emphasized in

unambiguous terms.

37. On a totality of the above considerations, this Court is of

the unhesitant view that the petitioner‟s product “Ujala Supreme” is

entitled to be included in Entry 114 of Schedule II-C of the Act with

corresponding rate of duty prescribed by HSN Code No. 3204 12

94. This Court, for the reasons recorded hereinabove, is thus in

respectful disagreement with the observations and the conclusions

recorded in M/s M.P. Agencies(Supra). The impugned order dated

11.8.2010 when judged by the above touchtone is thus unsustainable

in aw and on facts. It is thus, quashed.

38. The petition is allowed. No costs.

JUDGE

BARUAH