Karnataka High Court
Belaire Refrigeration Services vs Additional Commissioner Of Commercial ... on 31 January, 2001
Equivalent citations: [2001]123STC463(KAR)
Author: D.V. Shylendra Kumar
Bench: D.V. Shylendra Kumar
JUDGMENT M.F. Saldanha, J.
1. We have heard the learned counsel who represents the appellants as also the learned Government Advocate who represents the respondents on merits. It is not really necessary for us to elaborately set out the background to the present dispute that has given raise to this appeal beyond stating that the controversy narrows down to the question of classification in so far as the contention of the appellants is that the item in question namely, "mafron" gas which has ultimately been classified under the head of "industrial gas" under entry No. 121 has wrongly been done. In the course of the submissions and on an examination of the material produced before us, what emerges is that there can be no dispute about the correctness of the contentions advanced by the appellants' learned counsel to the effect that the gas in question with which we are here concerned, namely, "mafron" which is also" known in the trade as "freon gas" is used as a refrigerant. In other words, this gas is used as a cooling agent in so far as it is injected into the compressor, since it is heat absorbent and is used for the purposes of cooling and it is also true that the gas liquefies and thereafter repumped through the system by the compressor. Mr. Narayan demonstrated to us that his client who is a supplier of this gas to various parties and undertakes refrigeration service and repairs is not a manufacturer nor is he running any industry and that there is nothing on record to classify him as such. Next, what he also demonstrates from the material that has been placed before us, is that it is a more or less an admitted position that this "mafron" is supplied in a liquefied form in cylinders and the safety requirements also prescribe that since it is in a liquefied form but is also volatile that sufficient safety space is required to be left within the cylinder to make allowance for the gasification process. The learned counsel has demonstrated that different views were taken by the department at different times and that at an earlier stage of the proceedings a reassessment was ordered at which time the item was classified under entry 5.1 which is really a residuary entry for those of the items which do not specifically answer to the description of a classification under the prescribed heads. The appellate authority upheld this position whereas the Joint Commissioner who exercised suo motu revisional powers set aside the aforesaid orders and restored the reassessment order which in effect put the item back under the head "industrial gas". The assessee being aggrieved by this classification has approached this Court by way of an appeal.
2. We have carefully examined the material that has been produced before us and we have also considered the submission canvassed by the appellants' learned counsel Mr. Narayan in the light of the decision [Mysore Ammonia (P) Ltd. v. State of Karnataka] wherein the court was concerned with naphta and the court had occasion to observe that it is necessary to examine and ascertain all relevant aspects relating to the item in question particularly the scientific aspect and that the user is not the only criterion for the purposes of classification. The learned counsel pointed out to us that entry No. 121 which deals with "industrial gas" has bracketed oxygen, acetylene and nitrogen and it is his submission that these particular gases have been so bracketed because they find vide use in the industrial application, whereas on the other hand it is his contention that "mafron" does not have any industrial utility whatsoever and that the basic test itself applied by the revisional authority who had proceeded on the footing that since "mafron" is a gas that it would ipso facto come under entry No. 121 is erroneous. We refrain from expressing any View with regard to this particular submission because we are concerned with the special facts of the present case and feel that any expression of opinion on this aspect would be too wide and is also unnecessary. Suffice it to say that even after hearing the learned Government Advocate we are satisfied that from the present record the submissions canvassed by the appellants' learned counsel that there is no material to indicate that the appellants either ran an industry or that he was using "mafron" for industrial purpose is justified. Secondly, the non-inclusion of the specific gas namely "mafron" along with the others named would perhaps justify the submission canvassed on behalf of the appellants that merely because some other gases which are widely used for industrial purposes would come under this entry that it would be improper to use a process of generalisation and bracket other gases also which are not specifically mentioned.
3. One other aspect of the law which requires us to apply the user test is also relevant in so far as a detailed examination of the present record will indicate that there is nothing before us to indicate that this particular gas, namely "matron" was being used as a gas for industrial purposes either in the hands of the assessee or in the hands of the buyers for whom he was making this gas available. What would be of some relevance in this context is the fact that as far as the "mafron" gas is concerned, the present assessee had contended that it was being used for the purposes of servicing of refrigeration and air-conditioning unit by the parties to whom he supplied the same and this user again, in our considered view, would not be sufficient to bring it under the head of "industrial gas". The term "industrial gas" would connote gas that is specifically or widely used by the industry, and it would be inappropriate to a situation in which a private party or a small concern which provides the gas to persons who are involved in the process of maintenance or service purposes.
4. It is true that the learned Government Advocate vehemently supported the order and he advanced an interesting argument in so far as his contention was that "mafron" is the basic refrigeration component in all formats of refrigeration and air-conditioning equipment in so far as the equipment essentially works on the basis of this gas which is used for air-cooling. The learned counsel pointed out to us that it makes no difference whether the gas is injected into the equipment by the original manufacturer which may be an industry or whether the same is used at some subsequent point of time because characteristic and the nature of the commodity of the item remains unchanged. We do not dispute that the input gas is the same but it is precisely for this reason that we apply the user test for the purposes of ascertaining whether there is any material on record to indicate that the appellant is using the gas in question for the purposes that could answer to the definition of "industrial use" and the answer is in the negative.
5. Next, we have also resorted to what may be termed as the "application test". What the record indicates is that the assessee is a trader who buys and sells "mafron" gas, that he does not use it at any stage for any purposes by himself and as indicated by us earlier, it is also demonstrated that the parties to whom he supplies it, only use it for maintenance or service purposes and do not put it into any industrial applications. Under these circumstances, we do find it difficult or virtually impossible to uphold the classification that has been resorted to by the revisional authority for that matter by assessing authority whereby "mafron" gas has been classified under entry No. 121.
6. Very briefly, we need to reiterate the position that in matters relating to classification undoubtedly the authorities and the courts will be faced with a rather difficult or problematic situation in so far as it would rarely be possible for the authorities to have such an extensive list of all items and commodities that specifically answer to the description of a particular entry. The law is now well-settled in so far as it would not be permissible to virtually drag an item and classify it under a particular entry by adopting what we may define as an over-stretching process unless it clearly answers to the description of that item. Also, what we need to take into account is the well-settled principle in law that where there may be a clear ambiguity, that the view, which benefits the assessee will have to prevail. The Supreme Court in the decision (Commissioner of Income-tax, West Bengal v. Vegetable Products Ltd.) and the courts in several other decisions have consistently taken this view. Also what we need to restate is that merely because there is some difficulty in the process of what we may call "correct or absolute fitment" as far as the entries are concerned, that the mechanical process of straightaway consigning the item to the residuary entry may not always be the correct method of deploying the taxation process in so far as the test of categorising must be under the "next best head" provided it answers rationally and generally to that description and this would be the correct formula that is required to be applied. We have very briefly recounted and restated the principles as far as this aspect of the law is concerned for the limited reason that it would be necessary for the department in particular to bear these in mind while classifying different items.
7. For the reasons enunciated by us above, the appellants are entitled to succeed. The revisional order which is the impugned order as far as the present appeal is concerned is set aside and the earlier Appellate order stands restored. The appeal succeeds to this extent and stands disposed of. No order as to costs. The appellants/assessee would undoubtedly be entitled to the consequential benefits.