Karnataka High Court
Mysore Ammonia (P) Ltd. vs State Of Karnataka And Another on 26 August, 1992
Equivalent citations: [1993]90STC439(KAR)
JUDGMENT S.A. Hakeem, J.
1. The question of law that arises for consideration is : whether "anhydrous ammonia" sold by the appellant in liquid form is to be treated as "industrial gas" falling under entry No. 121 of the Second Schedule, or is it a "chemical" falling under entry No. 79 of the Second Schedule to the Karnataka Sales Tax Act, 1957 ("the Act") ?
2. The appellant-company is a dealer carrying on business in chemicals, namely, anhydrous ammonia. It sells the product to various industrial units in the State like H.M.T., Widia (India), rubber industries, dairies and ice manufacturing units. For the assessment year 1981-82 the Commercial Tax Officer determined the assessee's taxable turnover at Rs. 15,00,411.16 and levied tax at 8 per cent under entry No. 79 of the Second Schedule, treating the product as a chemical. Subsequently, the Deputy Commissioner of Commercial Taxes initiated suo motu proceedings under section 21(2) of the Act, proposing to levy tax at 10 per cent under entry No. 121 of the Second Schedule, treating the product as "industrial gas". Accepting the contention that since the company had sold anhydrous ammonia in liquid form, and on the basis of the certificate issued by the Fertilisers and Chemicals Travancore Limited, to the effect that it is a chemical falling under entry No. 79 of the Second Schedule, revisional proceedings were dropped.
3. The Joint Commissioner of Commercial Taxes initiated further suo motu proceedings under section 22A of the Act proposing to treat anhydrous ammonia supplied by the appellant to various industrial units in the State as industrial gas and proposing to tax the same at 10 per cent under entry No. 121 of the Second Schedule. On consideration of the contentions raised by the appellant the Joint Commissioner took the view that since the appellant had sold anhydrous ammonia gas to various industrial units, the product has to be treated only as industrial gas liable to tax under entry No. 121 of the Second Schedule. It is the correctness and legality of this order that is challenged in this appeal.
4. Entry No. 79 and entry No. 121, as they stood in the relevant year in the Second Schedule of the Act, read as under :
"79. Chemicals of all kinds 8 per cent."
"121. Industrial gas such as oxygen, acetylene, nitrogen and the like 10 per cent."
The consistent stand taken by the assessee is that since anhydrous ammonia was sold to the industrial units only in liquid form, the commodity has to be necessarily classified only as a chemical falling under entry No. 79 of the Second Schedule and cannot be treated as industrial gas. On the contrary Sri Dattu, learned Government Advocate, submits that the very fact that the product was sold to various industrial units for industrial purpose and used as industrial gas, the commodity squarely comes within the purview of entry No. 121, and it is taxable as such.
5. In Porritts & Spencer (Asia) Ltd. v. State of Haryana [1978] 42 STC 433, while interpreting the word "textiles" in item 30 of Schedule B to the Punjab General Sales Tax Act, 1948, the Supreme Court has held that the word must be interpreted according to its popular sense; meaning, that sense which people conversant with the subject-matter with which the statute is dealing would attribute to it.
6. In Bishambar Dayal Shri Niwas v. Commissioner of Sales Tax [1963] 14 STC 184, a Division Bench of the Allahabad High Court has held thus :
"Having regard to the intention of the Legislature to tax sales, any ambiguity as to the category in which an article should be placed should be resolved with reference to its sale. If an article is sold as an article belonging to one category it must be treated as a sale of an article of that category even though it answers the description of another category. If, therefore, an article is capable of being used as a chemical and also as a colour, the answer to the question what was sold, would depend upon how it was treated by the vendor. If he stocked and sold it as a chemical, it would be a sale of chemical, and more so if it was bought by the vendee also as such."
7. In Bharat Vijay Mills Ltd. v. Commissioner of Commercial Taxes , the question was : if an article is to be taxed, and may fall within two entries, how should it be treated. It is held that in such a case the entry which is more beneficial to the assessee will have to be accepted as applicable to the article in question. In this context it is observed thus :
"The question will have to be answered with reference to the principles of interpretation applicable to a taxing statute. In the decision reported in [1973] 88 ITR 192 (Commissioner of Income-tax v. Vegetable Products Ltd.) it was held by the Supreme Court that if there are two competing entries the entry which is beneficial to the assessee will have to be adopted. Though there is no equity in the taxing statute, the rule of interpretation that in the matter of competing interests, a citizen should be given the benefit as against the State is not excluded. The same idea is conveyed when it is said that if an article is to be taxed and the said article may fall within two entries, the entry which is more beneficial to the assessee will have to be accepted as applicable to the article in question."
8. In Commissioner, Sales Tax v. Prayag Chemical Works [1970] 25 STC 85 (All.) [FB], an identical entry in the U.P. Sales Tax Act, namely, "chemicals of all kinds" came up for interpretation. R. S. Pathak, J. (as he then was), has held that whether a commodity can be described as a "chemical" for the purpose of the entry in the notification must be determined not by the use for which a particular purchaser buvs it but with reference to the general properties which make it saleable to the entire range of prospective buyers. It makes it clear that while the theory of user may be one of the factors, but it cannot be the sole criteria for classification of the commodities falling under competing entries.
9. Sri Dattu has brought to our notice the dictionary meaning of the word "anhydrous ammonia" in the Condensed Chemical Dictionary, 10th edition, page 56. It is described thus :
"Ammonia anhydrous : properties : colourless gas (or liquid) soluble in water, alcohol and ether."
We may also refer to the description of the commodity in the "World Book of Encyclopaedia", Volume I, page 467. It is described thus :
"Anhydrous ammonia ........ is the liquid form of pure ammonia gas. Because of its high nitrogen content about 82 per cent farmers use anhydrous ammonia as a fertilizer. It may be used alone or in a commercial mixture containing compounds of phosphorous and potassium. It may be combined with water to form a solution for making a mixed fertiliser. Anhydrous ammonia is also used as a refrigerant in cold storage and ice manufacturing plants. It is made by compressing dry ammonia gas."
10. It is not seriously disputed, and indeed cannot be disputed, that the commodity sold by the appellant is in the liquid form and stored in the liquid form. From the definition of the commodity it is clear that it is put to various uses. In its liquid form it can be used as a fertilizer directly on the soil. It may also be used, after necessary processing, in the gaseous form for certain purposes. One thing appears to be clear that in its soluble form and the subsequent storage, it is essentially a chemical in the liquid form and sold as such, notwithstanding the specific user (which is not clear in this case) by the purchasers which are industrial units.
11. Sri Dattu, however, strongly relied upon the decision of this Court in Rao and Company v. State of Karnataka [1981] 47 STC 421. The question that arose for consideration in that case was whether "carbon dioxide" is "industrial gas" falling under entry No. 121 of the Second Schedule to the Act. It was not disputed therein that the commodity is an industrial gas. However, on the principle of ejusdem generis it was contended by the assessee that the commodity, namely, carbon dioxide, should have properties similar to some of the commodities given as illustrations in entry No. 121. On that basis it was sought to be contended that having regard to the gases specified against the entry, there is a genera contemplated, i.e., "combustible gas" and, therefore, carbon dioxide being non-combustible cannot fall within that entry. This Court, while rejecting the said contention held that apart from oxygen and acetylene, which are combustible, the entry also refers to nitrogen and the like, the latter being non-combustible. In that view of the matter it was held that mere specification of three types of gases, namely, oxygen, acetylene and nitrogen in the entry does not support the construction suggested by the assessee. The ratio of the decision has no applicability to the question that has arisen in the instant case.
The learned counsel further sought to rely upon the decision of this Court in Ganjam Nagappa and Sons v. State of Mysore [1968] 21 STC 188 to contend that since the appellant sells his commodity only to industrial units it should be construed as an industrial gas to bring it within the purview of entry No. 121. This contention is fallacious for more than one reason. In the first instance, it is not sold as a gas but as a chemical liquid; secondly, applying the ratio of the decision in [1963] 14 STC 184 (All) (Bishambar Dayal Shri Niwas v. Commissioner of Sales Tax) and [1970] 25 STC 85 (All.) [FB] (Commissioner, Sales Tax v. Prayag Chemical Works) the nature of the commodity has to be construed mainly from the point of view of the vendor; and thirdly, the meaning of the word in common parlance and the common user thereof, namely, the user of anhydrous ammonia, directly as a fertilizer which appears to be its dominant use.
12. In the view we have taken above, "anhydrous ammonia" sold by the appellant does not fall within the purview of entry No. 121 of the Second Schedule for the purpose of levying sales tax as held by the Joint Commissioner.
The appeal is accordingly allowed. The impugned order passed by the Joint Commissioner is hereby set aside.
13. Appeal allowed.