Kerala High Court
M/S.M.P.Agencies vs State Of Kerala on 6 April, 2009
Bench: C.N.Ramachandran Nair, K.Surendra Mohan
IN THE HIGH COURT OF KERALA AT ERNAKULAM
OT.Appeal.No. 9 of 2007()
1. M/S.M.P.AGENCIES, PARIS ROAD,
... Petitioner
Vs
1. STATE OF KERALA.
... Respondent
For Petitioner :SRI.G.SHIVADASS
For Respondent :GOVERNMENT PLEADER
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice K.SURENDRA MOHAN
Dated :06/04/2009
O R D E R
C .N. RAMACHANDRAN NAIR &
K. SURENDRA MOHAN, JJ.
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O.T.A No. 9 OF 2007
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Dated this the 6th day of April, 2009
C.R.
JUDGMENT
Ramachandran Nair,J.
This is an appeal filed under Section 62 of the Kerala Value Added Tax Act, 2003, hereinafter called the "Act" against Annexure 5 order issued by the Commissioner of Commercial Taxes under Section 94 of the Act, clarifying rate of tax on the products distributed by the appellant by name "Ujala Supreme" and "Ujala Stiff and Shine". The products are manufactured by M/s. Jyothy Laboratories, and appellant is the wholesale distributor of the products in Kerala. While Ujala Supreme is a fabric whitener, Ujala Stiff and Shine is a liquid fabric stiffner. The product samples produced by the appellant in bottles contain the description of the products as follows:
Ujala Supreme: Fabric Whitener-
For Supreme Whiteness of Clothes.
Ujala Stiff and Shine: Liquid Fabric Whitener For Crisp & Shining Clothes.2
When the appellant applied for clarification before the Commissioner of Commercial Taxes on the rate of tax applicable to the above two products, the Commissioner clarified that both the products would fall under Entry 27 of Notification, SRO 82/2006 dated 21.1.2006 issued under Section 6(1)(d) of the Act, which is as follows:
27. Detergents whether cake, liquid or powder, toilet soap, washing soap, laundry brighteners, abir, blue, stain busters, stain removers and all kinds of cleaning powder and liquids including floor and toilet cleaning.
(emphasis supplied) Essentially the finding of the Commissioner was that since the items were used for imparting brightness and stiffness to clothes, those are laundry brighteners falling under Entry 27 above stated. However, appellant filed appeal before this Court contending that Ujala Supreme is an item falling under Entry 155(8)(d) of the Third Schedule to the Act, which provides for "Acid Violets" with HSN Code No. 3204.12.94 and Ujala Stiff and Shine falls under Entry 118(5) with HSN Code No. 3905 which provides for "polymers of vinyl acetate or 3 of other vinyl esters, in primary forms; other vinyl polymers in primary forms". Several documents including test reports, decisions of the Central Excise Tribunal, etc., were produced to substantiate the contention of the appellant that the products are covered by the two entries of Third Schedule stated above. This Court after hearing parties, vide judgment in OTA No. 13 of 2006 set aside the order of the Commissioner and remanded the matter back to the Commissioner for fresh consideration. The Commissioner after considering all the materials furnished by the appellant and after hearing them issued Annexure 5 order again clarifying that both the items do not fall under the above stated entries in the Third Schedule and instead the items would fall under residuary Entry 103 of SRO 82/2006 taxable at the rate of 12.5 per cent. The only deviation made in Annexure 5 order from the earlier order of the Commissioner is that though he found that laundry brighteners are among the items covered by the heading of Entry 27 in Notification SRO 82/2006, no such item is provided in any of the sub-headings with HSN code No. The Commissioner therefore held that both the items fall under the residuary Entry 103 of SRO 4 82/2006 which provides for rate of tax on items not covered by any of the entries in the list provided in the notification or by any Entry of any of the Schedules to the Act. Accordingly appellant's claim that the items fall under the two entries of Third Schedule referred above was turned down by the Commissioner. It is against this order the appellant has filed this appeal. We have heard counsel appearing for the appellant and Special Government Pleader appearing for the respondent.
2. As already stated, Ujala Supreme is a product in liquid form sold in bottles for use as a fabric whitener. Appellant's main contention is that notification, namely, SRO 82/2006 issued under Section 6(1)(d) of the Act cannot cover any goods specifically covered by Second or Third Schedule to the Act, which attracts tax at the rate provided therein by virtue of Section 6(1)(a) of the Act. We do not think there can be any dispute on this proposition, because Section 6(1)(d) itself expressly gives authority to the State Government to issue notification providing for rate of tax at 12.5 per cent only on goods not falling under clause (a) or (c) of Section 6(1) of the Act. However, the 5 question to be considered is whether the two items are covered by the specific entries of the Third Schedule claimed by the appellant. Since the items involved are different, though use is similar, we consider the items separately and serially hereunder.
3. Ujala Supreme: The appellant's claim is that the item falls under Entry 155(8)(d) of the Third Schedule with HSN Code No. 3204.12.94, which covers "Acid Violets". We have to therefore consider whether Ujala Supreme sold by the appellant is an "Acid Violet" falling under the said Entry and if so, it cannot be treated as covered by notification issued under Section 6(1)(d) of the Act. Appellant's case is that Ujala Supreme is made by the manufacturer, namely, Jyothy Laboratories by just diluting Acid Violet Paste with water. They have produced test reports, Annexure 7 and 8, issued by SGS India Private Ltd. which show 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% (exactly 99.01) is water. Annexure 9 is the test report of Acid Violet Paste and Ujala Supreme obtained by the appellant from the Institute of Chemical 6 Technology, Matunga, Mumbai, wherein they have stated 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 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 HPTLC (High Performance Think Layer Chromatography) and the results are observed as below:
1. Acid Violet 49 is a synthetic organic Dye which can be used by fabric Dyeing industry for dyeing silk/wool and other protein fibres. The dyeing of these fabrics takes place under an elevated temperature in presence of acid only.
2. The diluted acid blue/violet dyes are being used in the fabric finishing industries for imparting brightness (bluish/purple tint) to white fabrics.
3. As such "Ujala" cannot be used as a dye or a colouring matter as it is because, the fundamental principle of Acid class of dyes is that they do not show any substantivity to cotton and at the most they tint the fabric.
Entry 155 falls under List A of Third Schedule to the Act covering "Industrial Inputs and Packing Materials". It is obvious from the Group Heading of the Schedule that all items given thereunder 7 including Acid Violet falling under Entry 155 (8)(d) are essentially industrial inputs. The finding of the Commissioner of Commercial Taxes in the impugned order is that Acid Violet Paste is purchased by the Jyothy Laboratories, a SSI unit, engaged in the manufacture of various products, including Ujala Supreme and the same is used to produce Ujala Supreme. In our view, the finding of the Commissioner is consistent with the appellant's own case that industrial inputs, namely, Acid Violet Paste, is purchased by the Jyothy Laboratories and is converted into final product, namely, "Ujala Supreme" for use as a fabric whitener. Appellant has produced several orders of the Central Excise Tribunal and Commissioners of Central Excise in support of their contention that there is no manufacture involved for payment of excise duty in the conversion of AVP into Ujala Supreme, which according to the appellant, is extremely diluted form of AVP. However, from the test report, namely, Annexure 9, extracted above, it is clear that AVP is a synthetic organic dye for fabric dyeing and is used for dyeing silk/wool and dyeing of these fabrics can take place at elevated temperature in the presence of acid only. However, the further 8 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 appellant contend 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 it's 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. Appellant has relied on several court decisions including that of the Supreme Court in DEPUTY COMMISSIONER SALES TAX (LAW), BOARD OF 9 REVENUE (TAXES), ERNAKULAM V. PIO FOOD PACKERS, (1980) 6 E.L.T. 343 (SC), COMMISSIONER V. TITANIUM EQUIPMENT & ANODE MFG. CO.LTD., (2003) 153 E.L.T. A298 (SC) and STERLING FOODS V. THE STATE OF KARNATAKA AND ANOTHER, (1986) 63 STC 239 (SC). It is worthwhile to mention the observation of the Supreme Court in the last above referred decision, wherein the Supreme Court has stated as follows:
".... It is necessary to point out that it is not every processing that brings about change in the character and identity of a commodity. The nature and extent of processing may vary from one case to another and indeed there may be several stages of processing and perhaps different kinds of processing at each stage. With each process suffered, the original commodity experiences change. But it is only when the change or a series of changes take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognised as a new and distinct commodity that it can be said that a new commodity, distinct from the original, has come into being."
Applying the above test laid down by the Supreme Court, we are of the view that Ujala Supreme, which is admittedly used as laundry whitener for clothes, cannot be treated as AVP falling under Entry 155(8)(d) 10 under List "A" of Third Schedule covering "Industrial inputs and Packing materials" because Ujala Supreme, the product made can no longer be identified with AVP in any manner and in the conversion process it has lost it's property as an industrial input used for dyeing silk and woolen material. Moreover in the process of conversion, there is 99% erosion in the concentration of AVP leaving only an insignificant percentage of the item in water with different properties and different use. In other words, what is done is that an industrial raw material which is used as a dyeing agent for silk and woolen clothes at high temperature is converted into a laundry whitener. Obviously an acid base industrial raw material cannot be used as a laundry whitener and it has to be necessarily subjected to processing or manufacture to make it fit for use as a laundry whitener which is exactly what is done by Jyothy Laboratories, the supplier of the items to the appellant. Since in the process, the original item lost it's identity and a new commodity with distinct composition, identity and use emerged, the appellant's contention that the item should be treated as the original commodity for classification cannot be accepted. We therefore confirm 11 the order of the Commissioner rejecting the appellant's claim that the item falls under Entry 155(8)(d) of List A of Third Schedule to the Act with HSN Code No. 3204.12.94.
4. The next question to be considered is whether the Commissioner is justified in classifying the item under Entry 103 of the Notification, SRO 82/2006. Appellant has no case that the item falls under any of the entries of Second or Third Schedule other than Entry 155(8)(d) of the Third Schedule which we have found against. Since the item falls outside second or third Schedule, rate of tax can be prescribed by the Government in terms of Section 6(1)(d) of the Act. The only notification issued in this regard is SRO 82/2006 which in Entry 27 provides for rate of tax for "fabric whiteners". We have found that appellant did not deny that the only purpose of the item, namely, Ujala Supreme, is for use as fabric whitener. However, even though Commissioner initially held that the item is a fabric whitener coming under Entry 27, after remand by this Court, he found that even though the Group Heading contains Fabric Whitener, none of the sub-entries covers fabric whitener. Therefore the Commissioner held that the item 12 falls under residuary entry, namely,Entry 103 of SRO 82/2006. We are in complete agreement with this finding of the Commissioner because Entry 103 is a residuary entry covering items which are not covered by any of the entries in Second or Third Schedule or any of the specific entries in the said notification. We therefore uphold Annexure 5 order of the Commissioner of Commercial Taxes on this issue.
5. Ujala Stiff and Shine. The next issue pertains to rate of tax on Ujala Stiff and Shine. According to the appellant, the item falls under Entry 118(5) of List A of Third Schedule to the Act providing for "Industrial inputs and Packing materials". Admittedly Ujala Stiff and Shine is a laundry item used to impart crispness and shining of clothes. In common parlance it is an agent which is a substitute for starch used for giving stiffness to clothes and is applied after washing the clothes. Appellant's contention is that the item falls under Entry 118(5) of Third Schedule. Group heading of Entry 118 provides for "plastic granules, plastic powder and master batches". Sub-entry (5) provides for rate of tax for polymers of vinyl acetate or of other vinyl esters, in primary forms; other vinyl polymers in primary forms. 13 Annexures 17 and 18 are test reports obtained by the appellant from Shriram Institute for Industrial Research. In Annexure 18 the test result of Ujala Stiff and Shine is given as follows:
Sl.No. Tests Results
01. Polymerized vinyl acetate
content, % w/w 42.98
02. Water content,% w/w 55.80
03. Solid content, % w/w 43.80
04. Fragrance (Rose) Present
According to the appellant, the processing done by Jyothy Laboratories which purchases raw materials and converts the same to Ujala Stiff and Shine, does not involve any manufacturing activity. However, appellant does not deny the contents of the product certified by the Laboratory which shows that product is different from raw material and it has a rose fragrance. We do not know on what basis appellant can contend that an industrial raw material, namely, polymerised vinyl acetate retains it's character even after subjecting it to the process, whether it be manufacture or not, leading to production of a different 14 item with different use and purpose. The contention raised by the appellant that common parlance or commercial parlance test cannot be applied and identification of the products should be with HSN Code No., does not apply to these two products because these two products as such cannot be regarded as original item from which these are made. In fact all the orders produced by the appellant are of the Central Excise Tribunal, and Commissioners of Central Excise, to show that the supplier, namely, Jyothy Laboraties is not engaged in any manufacture, and so much so they have no liability for excise duty. We do not think we should consider this argument for the purpose of deciding classification done by the Commissioner of Commercial Taxes for the ;purpose of payment of sales tax under the Act. Even though classification of items under VAT regime is also based on HSN numbers, the same does not mean that the products made out of items with HSN numbers should be classified as the original items with same HSN number. 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. Our findings above 15 rendered with regard to Ujala Supreme squarely apply to Ujala Stiff and Shine also. We are therefore of the view that the Commissioner of Commercial Taxes is perfectly justified in classifying the two items under residuary Entry 103 of SRO 82/2006.
Appeal is accordingly dismissed.
(C.N.RAMACHANDRAN NAIR) Judge.
(K. SURENDRA MOHAN) Judge.
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