Kerala High Court
M/S.Huntsman International (India) ... vs The State Of Kerala on 25 February, 2016
Author: A.M.Shaffique
Bench: A.M.Shaffique
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE
WEDNESDAY, THE 12TH DAY OF APRIL 2017/22ND CHAITHRA, 1939
WP(C).No. 9727 of 2016 (M)
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PETITIONER:
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M/S.HUNTSMAN INTERNATIONAL (INDIA) PVT. LTD
12/720 C, FEROKE, KIZHIKODE 673 631.
REPRESENTED BY ITS INDUSTRIES MANAGER.
BY ADV. SRI.V.S.SHIRAZ BAVA
RESPONDENTS:
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1. THE STATE OF KERALA
THROUGH THE SECRETARY
MINISTRY OF FINANCE
DEPT. OF REVENUE, THIRUVANANTHAPURAM 695 001.
2. THE COMMISSIONER
COMMERCIAL TAX DEPARTMENT
THIRUVANANTHAPURAM 695 002.
3. THE COMMERCIAL TAX OFFICER
IVTH CIRCLE, KOZHIKODE 673 006
4. ASST. COMMISSIONER
COMMERCIAL TAX DEPARTMENT,
SPL. CIRCLE II, KOZHIKODE 673 006.
5. DEPUTY COMMISSIONER
COMMERCIAL TAX DEPARTMENT,
KOZHIKODE 673 006.
R1-R5. BY GOVERNMENT PLEADER SRI.C.E.UNNIKRISHNAN
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON
12-04-2017, ALONG WITH WPC. 15191/2016, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
WP(C).No. 9727 of 2016 (M)
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APPENDIX
PETITIONER(S)' EXHIBITS
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P1: TRUE COPY OF THE REVISION ORDER DATED 25/2/2016 PASSED BY
RESPONDENT 5
P2: TRUE COPY OF RELEVANT ENTRIES UNDER CHAPTER 39 AND CHAPTER 29 OF
THE CENTRAL EXCISE TARIFF
P3: RUE COPY OF THE WCO EXPLANATORY NOTE TO HSN HEADING 3909 AND 2929
P4:COPY OF BILL OF ENTRIES, INVOICE RAISED BY FOREIGN SUPPLIER AND
CENTRAL EXCISE INVOICE, EVIDENCING HSN CODE AS 3909
P5: TRUE COPY OF THE ENTRY 103 OF SRO NO.82/2006
P6: TRUE COPY OF ENTRY NO.118 OF LIST A READ WITH ENTRY NO.66 OF
THIRD SCHEDULE OF KVAT ACT
P7: TWO REPRESENTATIVE TRUE COPIES OF ASSESSMENT NOTICES
P8: REPRESENTATIVE COPIES OF ASSESSMENT ORDERS
P9: TRUE COPY OF THE ORDER DATED 29/9/2014 ISSUED BY THE COMMERCIAL
TAX DEPARTMENT
P10: TRUE COPY OF THE APPLICATION DATED 21/1/2015
P11: TRUEE COPY OF THE ORDER DATED 2/7/2015
P12: TRUE COPY OF THE LETTER DATED 10/8/2015
P13: TRUE COPY OF THE ORDER DATED 24/8/2015
P14: TRUE COPY OF THE LETTER DATED 16/2/2016
P15: COPY OF THE TRANSLATED VERSION OF THE CLARIFICATION GIVEN BY
THE DUTCH CUSTOMS AUTHORITIES DATED 07/06/2013.
P16: COPY OF LETTER DATED 21/11/2013 INTIMATING THE DEPARTMENT
REGARDING THE CHANGE IN CLASSIFICATION.
P17: COPY OF ORDER PASSED BY DEPUTY COMMISSIONER (APPEALS) DATED
01/02/2016 FOR M/S.SPICE AGENCIES, CALICUT.
P18: COPY OF THE TECHNICAL REPORT BY SGS PVT.LTD.
RESPONDENTS' EXHIBITS
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ANNEXURE R2(a): A TRUE COPY OF THE REPORT DATED 17/10/2016.
ANNEXURE R2(b): A TRUE COPY OF THE REPORT ON ANALYSIS OF NIT,
CALICUT.
TRUE COPY
PA TO JUDGE
A.M.SHAFFIQUE, J
* * * * * * * * * * * *
W.P.C.Nos.9727
&
15191 of 2016
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Dated this the 12th day of April 2017
J U D G M E N T
Since common issues arise for consideration in these writ petitions, they are heard and decided together.
2. The petitioners are registered dealers under the Kerala Value Added Tax Act (hereinafter referred to as 'the KVAT Act') and also the Central Sales Tax Act. Petitioners virtually challenge the proceedings of the Commercial Tax Officer, IV Circle, Kozhikode, Commercial Tax Department in revision petitions filed by the petitioners by which it was found that there is wilful and deliberate attempt on the part of the petitioners by misclassifying the commodity and hence the revision petitions were dismissed without interfering with the imposition of penalty. In WP(C) No.15191 of 2016, the challenge is with reference to the appellate order passed by the Deputy Commissioner (Appeals).
3. The short facts in WP(C) No.9727/2016 are as under:
The petitioner was engaged in import and sales of chemicals and goods are imported under the brand name 'Suprasec 2442, W.P.C.Nos.9727 & 15191 of 2016 2 2444 and 2449 from the exporter M/s.Huntsman Holland B.V. The exporter classified the said goods under the Harmonised System of Nomenclature (HSN) chapter heading 29291020. Petitioner also adopted the very same classification.
4. Effective from 1st August 2013, the exporter, placing reliance upon the Dutch Customs ruling dated 07/06/2013, realised the correct classification of the goods in question as coming under chapter heading 3909. It is alleged that an internal review was carried out by the petitioner and it was noticed that Suprasec is in nature of polyurethane and not isocynate covered under HSN 2929.10. Therefore it was observed that it comes under HSN code 3909 which covers Amino-resins, Phenolic resins and Polyurethanes in primary forms. When there was change in classification, Suprasec was classified by customs authority for clearance for home consumption under HSN code 3909 and the same was cleared by the Customs after due verification from 2013. A review was also done by the petitioner to determine if there is any change in rate of Value Added Tax (VAT) in various States including Kerala and it was observed that goods falling under HSN code 3909 are covered under Entry No.118 of List A W.P.C.Nos.9727 & 15191 of 2016 3 read with entry No.66 of Third Schedule of KVAT Act and chargeable to VAT at the rate of 5%. Petitioner therefore started levying tax at the rate of 5% on Suprasec sold by it from August 2013 to its customers. The change in classification was objected by the VAT authorities. They sought for a clarification by the Commissioner of Commercial Taxes, Kerala. The Commissioner by his order dated 04/11/2009 clarified that the goods in question being not mentioned in any of the schedules to the Act is taxable at 12.5% (revised to 14.5% from 2013) as per Entry 103 of SRO No.82/2006. Pursuant to the same, pre-assessment notices were issued under Section 25(1) of the KVAT Act. The Commercial Tax Officer rejected the return filed by the petitioner for the month of August 2013 to January 2015. The penalty notices were issued under Section 67(1)(d) of the KVAT Act. In the meantime, the Assistant Commissioner, Commercial Taxes, as per separate order confirmed the demand raised in pre-assessment notice imposing differential tax amounts on sale of Suprasec. The Assistant Commissioner also imposed penalty under Section 67(1)(d) of the KVAT Act. Petitioner preferred an appeal against the said assessment order and a revision was filed against the order W.P.C.Nos.9727 & 15191 of 2016 4 imposing penalty. It is further stated that one of their business competitors, M/s.Sagar Agencies, Kannur filed an application under Section 94 of the Act seeking clarification of their product VORALAST GE 143 Isocyanate. As per order dated 29/9/2004, it was clarified that amino resins, phenolic resins and polyurethanes in primary forms with HSN code 3909.50.00 sold under any trade/brand name would be taxable @ 5% by virtue of Entry 118 (9) of List A to the Third Schedule of KVAT. Petitioner also sought for clarification. However, by order dated, 02/07/2015, the Department declined to entertain the application since the petitioner had already preferred appeal against the assessment order. Petitioner had taken up the matter before the Commissioner in regard to classification. The Commissioner of Commercial Taxes by order dated 24/08/2015 applied the order issued in respect of M/s.Sagar Agencies to the case of the petitioner. The Commissioner, having examined copies of bills of entry and invoices produced by the petitioner held that the product Supersec is classified under HSN code 3909.50.00 and is taxable @5%. Petitioner therefore filed review petitions before the Deputy Commissioner, Commercial Taxes to review the W.P.C.Nos.9727 & 15191 of 2016 5 penalty levied. Revision applications were also filed before the Deputy Commissioner for the assessment year from August 2013 to January 2015 reviewing penalty imposed on the petitioner. The Deputy Commissioner, Commercial Taxes, by order dated 25/2/2016 had upheld the assessment order imposing the penalty while deciding the revision petition.
5. In WP(C) No.15191/2016, the challenge is with reference to Ext.P1 by which the appellate authority had dismissed the appeals by its order dated 27/02/2016. The grounds raised are the same.
6. Counter affidavit has been filed on behalf of the 4th respondent inter alia supporting the stand taken by the Department. It is contended that the petitioner has not furnished any certificate or authenticated evidence from the Central Excise and Customs Department to prove that the commodity "Supersec" is included in HSN code 3909 and not included in Entry 2929.10.20. It is further contended that when a clarification is in existence, the assessing authority and the subordinate officers are bound to follow the clarifications. It it also contended that the clarification issued on the application of another dealer W.P.C.Nos.9727 & 15191 of 2016 6 is not applicable to the petitioner and they ought to have obtained a clarification based on their petition.
7. During the pendency of these petitions, by interim order dated 08/09/2016, this Court had observed that an analysis of goods in question is required to examine whether it falls within a particular HSN code. The SGS India Private Limited was appointed as an agency to ascertain the particulars. It is, however, made clear that all the expenses will have to be borne by the writ petitioner.
8. Pursuant to the said interim order, M/s.SGS Private Limited has filed a report dated 17/17/2016 wherein they have stated that they have taken samples of Suprasec 2442, 2444 and 2449. In all these three reports, their conclusion is that "sample submitted was found to have isocyanate group along with various polyurethane groups".
9. The learned counsel for the petitioner submits that the report does not suggest that the gods imported is isocyanate whereas it only indicates that the sample was found to have isocyanate groups along with various polyurethane groups. Therefore, when the major factor is the existence of polyurethane W.P.C.Nos.9727 & 15191 of 2016 7 groups and when an HSN code is prescribed for the same, there need not be any doubt regarding the classification as contended by the petitioner.
10. On the other hand, the learned Government Pleader filed an affidavit I.A.No.20340/2016 inter alia stating that the test virtually concludes that the sample submitted found to have isocyanate group along with various polyurethane groups. Report, however, observes that the actual nomenclature of the chemicals could not be defined and actual content of the chemical could not be ascertained from the chemical analysis. It is further contended that the respondent sought further assistance from the Department of Chemistry, National Institute of Technology, Calicut and Dr.Lissa Sreejith, the Head of the Department of Chemistry provided a report on analysis of laboratory report evidenced by the report of SGS, which is produced as Annexure R2(b). In Annexure R2(b), the following has been stated.
"Report on Analysis of Laboratory Report No.PN:TR:7540006283 Dated 17/10/2016 of SGS India Pvt.Ltd.
The synthesis of polyurethane involves the reaction of appropriate dilsocyanates with W.P.C.Nos.9727 & 15191 of 2016 8 polyols. On formation of the polyurethane the
-NCO functional group of dilsocyanate gets converted to the corresponding carbmate (-NH-
CO-O- linkage). FT-IR is a spectroscopic technique, which provides information about various functional groups present in chemical compounds. The characteristic IR peak of isocyanate functional group (-NCO) appear in the range of 2200-2300 cm-1. Pure polyurethane and Suprasec 2449 without isocyanate functional group should not show characteristic peak corresponding to isocyanate functional group in the range of 2200-2300 cm-1. In the FT-IR spectrum provided, Suprasec 2449 and polyurethane shows strong -NCO peaks in this range indicating the presence of isocyanate functional group. However, FT-IR data cannot provide quantitative information about the percentage of isocyanate present in these samples."
11. On the basis of the above opinion expressed by the National Institute of Technology, Calicut, Department of Chemistry, it is contended that the synthesis of polyurethane involves reaction of appropriate dilsocyanates with polyols.. On formation of polyurethane, the functional group of dilsocyanate W.P.C.Nos.9727 & 15191 of 2016 9 gets converted to the corresponding carbonate. Further it is observed that the isocyanate functional group appear in the range of 2200-2300 cm-1. The further observation is that pure polyurethane and suprasec 2449 without isocyanate functional group should not show characteristic corresponding to isocyanate functional group. It is therefore contended that in the light of the aforesaid group, the contentions of the petitioner cannot be sustained.
12. The learned counsel for the petitioner, however, would submit that this report virtually substantiate their contentions. But, the question to be considered in the present writ petition is in regard to classification.
13. First of all, the petitioner places reliance upon a clarification issued by the Commercial Taxes Department in favour of M/s. Sagar Agencies, which is produced as Ext.P9. Their application seeking clarification on the rate of tax of their product VORALAST GE 143 Isocyanate with HSN code 3909.50.00. The Department of Commercial Taxes has given clarification stating that since the applicant has produced a copy of the tax receipt issued by M/s.Dow Chemical International Pvt. Limited, W.P.C.Nos.9727 & 15191 of 2016 10 Kanchipuram and the HSN code produced is 3909.50.00, it comes under 118(9) of List A to the Third Schedule and as such it is classified as Amino-resins, Phenolic resins and Polyurethanes in primary forms. Hence the petitioner sought for a clarification. Ext.P11 was issued without any clarification on the ground that appeal was pending. However, when the Commissioner was approached by Ext.P13 dated 24/08/2015, communication was sent to the Assistant Commissioner (Assessment) stating that since as per the copies of bills of entry produced by the petitioner the impugned product is seen classified under HSN code 3909.50.00. It is further indicated that since the authority for classification under Section 94 had already clarified that Amino- resins, Phenolic resins and Polyurethanes in primary forms with HSN code 3909.50.00 sold under any trade name/brand name would be taxable @ 5% by virtue of entry 109.
14. The impugned order has been passed proceeding on the basis that the product imported and sold by the petitioner comes under HSN code 2929. However, according to the petitioner, the goods have been imported under HSN heading 3909 which includes all polyurathenes. Chapter 29 deals with W.P.C.Nos.9727 & 15191 of 2016 11 organic chemicals. Chapter heading 2929 relates to compounds with other Nitrogen function and 2929.10 relates to isocyanates and sub headings are Phenolic resins diphenyl methane diisocyanate and others. Chapter 39 relates to plastic and articles thereon and the entry 3909 relates to amino resins, phenolic resins and polyurethanes in primary forms. Polyurethanes are classified under Entry 3909.50 00. It is apparent that the product does not come under Entry 2929.10 as it is not isocyanates or derivatives of isocyanates. Ext.P3 is an explanatory note 5th edition 2012 and Chapter 29 relating to Organic chemicals. Chapter 39 relates to Plastic and articles thereof. Polyurethane is described as "this class includes all polymers produced by the reaction of poly functional isocyanates, polyhydroxy compounds such as castor oil, butane-1, 4-diol, polyether polyols, poly polyols. It is also stated that polyurethane exists in various forms of which the most important are the form of elastomors and coatings. They are also used as adhesives, moulding compounds etc.
15. There cannot be any dispute regarding the fact that when an HSN code is provided for a commodity, the commodity is W.P.C.Nos.9727 & 15191 of 2016 12 described under the said HSN code, unless there are materials to indicate that it is fraudulently created. In M.P.Agencies v. State of Kerala [2015(318) ELT 22 (SC)], the Apex Court, while considering the classification issued with reference to the KVAT Act, 2003, held at paragraph 19 that when the commodities mentioned in the schedules have been allotted code numbers developed by International Customs Organisation, which is known as HSN, the same has been adopted in the Customs Tariff Act, 1975. Where the commodities have been given HSN numbers, the same meaning would be given for classification under the Customs Tariff Act, 1975. Where commodities are not ascribed any HSN number, they would be interpreted as understood in common or commercial parliance. In case of inconsistency between the meaning of a commodity without HSN number and a commodity with HSN number, the commodity without HSN number should be interpreted by including the commodity in that entry, which has been given HSN number. It was therefore held that primacy is given to HSN number classification and adoption/interpretation of HSN classification under the Customs Tariff Act, 1975 and any inconsistency or debate would be W.P.C.Nos.9727 & 15191 of 2016 13 decided with the commodity being categorised against the HSN number.
16. But the fact remains that this Court cannot take a decision on the actual commodity in order to assign a particular HSN number in view of the complexity of the product. But, prima facie, when the customs have accepted the product as coming under HSN 2929 in the absence of any other material, is it possible for the Sales Tax Department to take a different view.
17. This doubt in the mind of the Sales Tax Department was to be clarified by way of a chemical examination of the product. But, even after it is tested by SGS, the doubt still exists. Under such circumstances, I do not think that it will be appropriate for this Court to interfere with the orders passed by the competent authorities, at this stage. However, being a disputed question, if any further materials could be produced by the petitioner before the Department, it shall always be open for them to approach the said authority and thereafter take a decision in the matter. As far as the impugned orders are concerned, I do not think that this Court will be justified in interfering with the orders by exercising the writ jurisdiction W.P.C.Nos.9727 & 15191 of 2016 14 especially when statutory remedies are available.
In the result, this writ petition is dismissed with liberty to the petitioner to approach the competent statutory authority. If any appeal/revision is filed, petitioner can seek for excluding the period during which this writ petition was pending, for the purpose of computing the period for availing the alternate remedy.
(sd/-) (A.M.SHAFFIQUE, JUDGE) jsr