Allahabad High Court
The Commissioner, Commercial Tax vs M/S Racket Backizer India Ltd. on 9 October, 2018
Author: Ashok Kumar
Bench: Ashok Kumar
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Judgment Reserved on 07.09.2018 Judgment Delivered on 09.10.2018 Court No. - 59 Case :- SALES/TRADE TAX REVISION No. - 91 of 2014 Applicant :- The Commissioner, Commercial Tax Opposite Party :- M/S Racket Backizer India Ltd. Counsel for Applicant :- S.C. Counsel for Opposite Party :- Kunal Ravi Singh Hon'ble Ashok Kumar,J.
Heard Sri BK Pandey, learned counsel for the appellant, the Commissioner, Commercial Tax, U.P. Lucknow and Sri Jawahar Lal assisted by Sri Kunal Ravi Singh, learned counsels for the Assessee-Opposite Party.
The instant Commercial Tax Revision is filed, under Section 58 of the U.P. Value Added Act,20081 against the judgment and order dated 17.8.2013, passed by the Trade Tax Tribunal2 in Second Appeal No. 853 of 2013 for the Assessment Year 2008-09, by which, the Tribunal has allowed the appeal filed by the Assessee-Opposite Party and has set aside the order passed by the First Appellate Authority.
The brief facts of the case are that the Assessee-Opposite Party-Dealer is carrying on a business of manufacture, purchase and sale of Lizol / Harpic. For the assessment year in question, the Assessee-Opposite Party has charged and deposited the tax on the sale of Harpic and Lizol treating the same are covered under Schedule-II, Part-A, Entry No. 20 of VAT Act at the rate 4% - 5%.
Assessing Authority, while passing the assessment order under Section 28 of the VAT Act, has passed the assessment order dated 30.6.2012 by treating the items namely Harpic and Lizol as unclassified item, therefore, has imposed the tax at the rate of 12.5%.
Against the order of assessment dated 30.6.2012, the Assessee-Opposite Party has filed an appeal under Section 55 of the VAT Act before the Additional Commissioner, Grade-II (Appeals)-I, Commercial Tax, Ghaziabad. The Additional Commissioner (Appeals) has decided the appeal, vide order dated 25.3.2013, by which, he has affirmed the order of the Assessing Authority.
Against the order dated 25.3.2013 passed by the Additional Commissioner (Appeals), the Assessee-Opposite Party has preferred the Second Appeal before the Commercial Tax Tribunal, Bench-2, Ghaziabad, which was registered as Appeal No. 853 of 2013.
The Tribunal vide its impugned order dated 17.8.2013 has allowed the appeal filed by the assessee-dealer and has set aside the order passed by the First Appellate Authority. The Tribunal has, further, waived the additional tax imposed against the assess.
Learned counsel for the Revisionist / Department has submitted that the order of the Tribunal is unacceptable as the Tribunal has not justified in allowing the appeal filed by the assessee.
Per contra, learned counsel for the Assessee-Opposite Party has placed reliance of the judgments of the Apex Court as well as of the High Courts.
Learned counsel for the assessee-Opposite Party has placed reliance of a judgment reported in (1995) Suppl. 2 SCC 646 in the case of the Bombay Chemicals Pvt. Ltd. v. Collector of Central Excise.
Learned counsel for the assessee-Opposite Party has submitted that the question before the Supreme Court in the case of Bombay Chemicals (supra) was as to whether disinfectant fluids which was manufactured by M/s Bombay Chemicals (supra) were entitled to exemption under a notification issued by the Central Excise Department being notification No. 55/75-CE dated 1.3.1975 as amended under notification No. 62/78/1.3.1978.
While considering the aforesaid issued, the Apex Court has considered the correct meaning of the word 'disinfectant'. The Apex Court in the aforesaid background has also considered the correct meaning of the word 'pesticide'. For ready reference, it would be appropriate to incorporate the relevant extract of the judgment of the Apex Court in the Case of Bombay Chemicals (supra) are reproduced below :-
"8. A disinfectant which, therefore, is used for killing may broadly be covered in the word 'pesticide'. Disinfectants, may be of two types; one to disinfect and other to destroy the germs. The former, i.e., those products which are used as disinfectant for instance lavender etc. may not be covered in the expression 'pesticide'. But those products which are used for killing insects by use of substances such as high boiling tar acid have the same characteristic as 'pesticide'.
9. Item No. 18 which was added in 1978 St-ants exemption to the categories of goods which can be classified as insecticides, pesticides, weedicides or fungicides. They have to be understood in broad sense. The reasoning of the Tribunal that if an expression is capable of a broader and a narrower meaning then it is the latter which could be preferred does not appear to be correct. Where entries are descriptive of category of goods they have certain characteristics. Therefore, when a question arises whether a particular good is covered in any category or not, it has to be examined if it satisfies the characteristic which go to make it a good of that category. And whether in trade circle it is understood as such and if it is a good of technical nature then whether technically it falls in the one or the other category. Once it is found that a particular good satisfies the test then issue which arises for consideration is whether it should be construed broadly or narrowly. One of the settled principles of construction of an exemption notification is that it should be construed strictly, but once a good is found to satisfy the test by which it falls in the exemption notification then it cannot be excluded from it by resorting to applying or construing such notification narrowly. Item 18 is an exemption notification. As stated earlier, it mentions broad categories of goods which are entitled to exemption. Once a good is found to fall even narrowly in any of these categories, there appears no justification to exclude it. The test of strict construction of exemption notification applies at the entry, that is, whether a particular good is capable of falling in one or the other category but once it falls then the exemption notification has to be construed broadly and widely. Each of the words insecticides, pesticides, fungicides or weedicides are understood both in the technical and common parlance as having broad meaning. Therefore, if any goods or items satisfy the test of being covered in either of the expression, then it is entitled to exemption. The broad and basic characteristic for exemption under the notification is that the goods must have the property of killing germs and bacteria insects or pest and it should be understood in the common parlance as well as being covered in one of the broad categories mentioned in the notification. Since the goods produced by the appellant are capable of killing bacteria and fungi which too, is covered in the expressions 'pesticide' and 'fungicide' there appears no reason to exclude the goods from the aforesaid notification.
10. In the result, this appeal succeeds and is allowed. The order passed by the Tribunal is set aside and it is held that the goods produced by the appellant from phinolic compounds and high boiling tar acid being disinfectant fluids which have the capability of killing bacteria which are nothing but pests, the appellant was entitled to exemption under Item 18 of the notification issued in 1978. The appellant shall be entitled to its costs."
Similar issue came up before the Andhra Pradesh High Court in the case of M/s Reckitt Benckiser (India) Ltd., Old Bowenpally, Secunderabad represented by Mr. R.A. Ramasubramanian v. State of Andhra Pradesh, in Tax Revision Case No. 10 of 2007 and connected writ petitions and the High Court has considered the issue and the taxability of Harpic and Lizol, which has been referred to Entries 20 and 88 of Schedule IV to VAT Act as well as the Government Order in G.O.Ms.No.1615, Revenue (CT.II) Department dated 31.8.2005 requiring the use of HSN Code for the purpose of classification o goods.
The core controversy circles round entries 20 and 88 to Schedule IV, which read as below.
"20. Pesticides, Insecticides, fungicides, herbicides, weedicides and other plant protection equipment and accessories thereof (including drip and sprinkle irrigation systems but excluding mosquito repellents in any form).
88. Drugs and medicines whether patent or proprietary, as defined in clauses (i), (ii) and (iii) of Section 3(b) of Drugs and Cosmetics Act, 1940 (Central Act 23 of 1940), and hypodermic syringes, hypodermic needles, perfusion sets, urine bags, catguts, sutures, surgical cotton, dressings, plasters, catheters, cannulae, bandages and similar articles, but not including:-
(a) Medicated goods;
(b) Products capable of being used as cosmetics and toilet preparations including Tooth Pastes, Tooth powders, cosmetics, Toilet articles and soaps;
(c) Mosquito Repellants in any form;
(d) (xxx) While deciding issue, the High Court has considered the test report issued by SGS Laboratory, Calcutta certifying that Harpic and Lizol kill germs.
Learned counsel for the Assessee-Opposite Party submitted that the Revision has been filed by the Revenue against the Judgment dated 17.03.2013, passed by the Commercial Tribunal, Ghaziabad, who has allowed the Appeal filed by the assessee and has upheld and held that the classification of Harpic Disinfectant Toilet Cleaner ("Harpic") and Lizol Disinfectant Floor Cleaner ("Lizol") under Entry 20 of Part-A of Schedule II to the UPVAT Act as an "insecticide" or "pesticide" subject to VAT @ 4%/5% for Assessment Year 2008-09 and rejected the submission of the Revenue that Harpic and Lizol are classifiable under the residual entry (viz. Schedule V to the UPVAT Act and subject to VAT @ 12.5%/13.5%).
The Tax Tribunal passed the Impugned Judgment based on the Judgment of the Supreme Court in Bombay Chemicals Pvt. Ltd. Vs. Collector of Central Excise (1995 Supp. (2) SCC 646), where the Supreme Court was seized of classification of Phenyl, held (at para 8 of the judgment) that disinfectants are classifiable as insecticide/pesticide.
Learned counsel for the Assessee-Opposite Party has submitted that the classification of Harpic and Lizol arose in VAT laws of other States and the High Court of Andhra Pradesh, Gauhati High Court and Hon'ble Rajasthan High Court (under the respective VAT Laws of the State) have held that Harpic and Lizol are "insecticide" and/or "pesticide", liable to tax @4% and do not fall under the residual entry.
Learned counsel further submitted that the State of Rajasthan filed the SLP before the Supreme Court which was dismissed, by the Supreme Court.
Learned counsel for the Assessee-Opposite Party has submitted that after coming into force UP VAT Act, the Assessee-Opposite Party has been bonafide classifying the item namely Harpic and Lizol under Entry 20, Part-A of Schedule II to the UP Act, which reads as under :-
Rationale for classification adopted by the Respondent:
Since coming into force of the UPVAT Act, the Respondent has been bona-fide classifying Harpic and Lizol under Entry 20 of Part-A of Schedule-II to the UPVAT Act, which reads as:
"Chemical fertilizers, except those which are described in entry No. 26 of the Schedule I; micro-nutrients and also plant growth promoters and regulators, herbicides, rodenticide, insecticide, weedicide and pesticides."
The Respondent classified Harpic and Lizol under Entry 20 of Part II of Schedule II to the UPVAT Act, based on the following principles:
(a) Classification adopted under UP Trade Tax Act as well as other Sales Tax Act, CST and Central Excise;
(b) supported by a large number of Judgments including Judgment of Hon'ble Supreme Court in Bombay Chemicals (supra);
(c) Test Reports of Indian Institute of Chemical Technology, Hyderabad certifying Harpic & Lizol as disinfectants; hence a pesticide/ insecticide, which are relevant as held by the Hon'ble Supreme Court in Ponds);
(d) definition under the relevant statute - Section 3 (b) of the Drugs and Cosmetics Act (definition of drugs) read with Rule 126 of the Drugs & Cosmetics Rules;
(e) Licenses issued for Harpic and Lizol by the Drug Controller, Government of India treating them as a disinfectant;
(f) HSN Classification;
(g) Technical and Dictionary meaning; and
(h) common/commercial parlance etc. (taken note of by the Hon'ble Supreme Court in Bombay Chemicals and by various High Courts (in paras 26 and 27 below).
These principles have been recognized by the Supreme Court in Ponds India Ltd. v. Commissioner of Trade Tax, Lucknow (2008) 8 SCC 369.
Based on such classification, the assessee-dealer had collected VAT @ 4%/5% and deposited VAT @ 4%/5% with the Revisionist. The monthly as well as annual returns of the assessee-dealer were accepted for years. Now, the Revisionist has questioned the classification adopted by the Department, claiming that Harpic and Lizol ought to be classified under the residual entry i.e. Schedule V to the UPVAT Act, which reads as:
"Schedule V
1. All goods except goods mentioned or described in Schedule I, Schedule II, Schedule III and Schedule IV of this Act"
Learned counsel for the assessee-dealers submitted that the active ingredient of Harpic is Hydrochloric Acid, which is a well-known disinfectant and in addition, it has other ingredients like Bis/2 Hydroxyethyl Oleylamine, Alkyl Trimethyl Ammonium Chloride, Butylated Hydroxy Toluene, Methyl Salicylte and other chemicals, used for disinfecting, the surface on which it is applied. Harpic is effective in killing various Micro-organisms (germs/ bacteria) like S. aurus, E.coli, S. flexnari, S. faecalis, K. pneumoniae, and C. albicans, which are generally found in toilet bowls that cause Skin, soft tissue and mucous membrane infections, Gastroenteritis, Inflammation of colon, bacillary dysentery, Diarrhoea; etc. Hence, it is apparent that the function of Harpic is disinfectant and it has additional function of completely removing tough stains from the surface on which it is applied. Hence, it is recommended for disinfecting (primary function) and cleaning toilets (additional function) and other porcelain surfaces.
The active ingredient of "Lizol" is Benzalkonium chloride solution I.P. The other ingredients of "Lizol" are Fragrance-BBA P 2062 M, Propylene Glycol I.P, Sodium bicarbonate I.P, Tartazine Yellow, Fatty Alcohol Ethoxylate, Isoprpyl alcohol I.P and other chemicals, used for disinfecting the floor, cooking platform, sink and similar hard surfaces. It is effective in killing Micro-organisms like S. aurus, E.coli (MTCC 1687) Pseudomonas aeruginosa (MTCC-741) which are generally found on hard surfaces like floors that cause urinary tract infections, respiratory system infections, dermatitis, soft tissue infections, bone and joint infections, infections to patients with severe burns, cancer etc. Hence, it is apparent that the primary function of Harpic and Lizol is to act as disinfectant and to kill germs, bacteria and microorganisms and it has additional function of completely removing tough stains from the surface on which it is applied.
He has further submitted that Government recognizes Harpic and Lizol as disinfectants.
Harpic and Lizol being disinfectants are considered as a ''drug' under Section 3(b) of the Drugs and Cosmetics Act, 1940 read with Rule 126 of the Drugs & Cosmetics Rules. Section 3 (b) (ii) of D&C Act defines drug to include such substances (other than food) intended to affect the structure or any function of the human body or intended to be used for the destruction of vermin or insects which cause disease in human beings or animals, as may be specified from time to time by the Central Government by notification in the Official Gazette. In terms of Section 3 (b) (ii) of the D&C Act, Government of India is required to notify such goods and Government of India by its Notification No. S.O. 1335 dated 02.06.1961 read with Notification No. X. 11013/2/72-D dated 09.07.1975 has notified "Disinfectant fluids from synthetic or naturally occurring substances by virtue of their composition possessing disinfectant properties or with claim to possess disinfectant properties" as drugs.
Accordingly, for manufacture of Harpic and Lizol, a drug license is required to be obtained under D&C Act as it is a substance used for the destruction of vermin or insects which cause disease in human beings. The Respondent has accordingly obtained drug licence under the D&C Act. Even the labels of Harpic and Lizol are required to comply with the provisions of the Drugs & Cosmetics Rules framed under the Drugs and Cosmetics Act, 1940. Accordingly, the manufacturing license number as obtained is mentioned on the label along with other requirements such as batch number etc. Further as per Schedule K of the Drugs and Cosmetics Act, 1940, "substances intended to be used for destruction of vermin or insects which cause disease in human beings or animals" are considered as "insecticides and disinfectants" and such products are exempted from the requirement of sale license. Hence, in terms of the provisions of D&C Act, Harpic Lizol are disinfectants.
He has also submitted that the Government lab certifies Harpic and Lizol as Disinfectants.
The Indian Institute of Chemical Technology, Hyderabad ("IICT") a premier Institute under the Government of India by its Report dated 06.08.2010 has certified that Harpic and Lizol have very high capability to kill bacteria and germs (99.999999%) and they are disinfectants. In Ponds India (Annexure B herein) the Hon'ble Supreme Court laid stress on the fact that reports of experts certify the nature of the products in question, ought to be taken as sufficient evidence in support of classification. Relevant paragraphs of the Judgment in Ponds India Ltd is extracted below for ease of convenience:-
"72. Furthermore, an expert in the field has also given his opinion in favour of the appellant. This Court in Quinn India Ltd. v. CCE classified a product relying, inter alia, on the report of the clerical (sic chemical) examiner as under: (SCC p. 563, para 7) "7. .. The Tribunal has completely ignored the report of the Chemical Examiner dated 6-10-1981 and the final opinion of the Chief Chemist dated 2-4-1992 coupled with the classification issued by the Department regarding use of wetting agents in the textile industries falling under Sub-Heading 3402.90. Test reports of the Chemical Examiner and Chief Chemist of the Revenue unless demonstrated to be erroneous, cannot be lightly brushed aside. The Revenue has not made any attempt to discredit or to rebut the genuineness and correctness of the report of the Government, Chemical Examiner and Chief Chemist. Thus, the reports are to be accepted along with other documentary evidence in the form of classification issued by the Department regarding use of wetting agents in the textile industries to hold that the product Penetrator 4893 possessed surface active properties and, therefore, is covered by Exemption Notification No. 101/66 dated 17-6-1966 as amended from time to time."
73. In this case also, the report of the chemical examiner is in favour of the assessee. Furthermore, in a case of this nature, where the Revenue itself has been holding the assessee to be a producer of a pharmaceutical product, the burden would be on the Revenue to establish that the goods cease to fall under a given entry. For the said purpose, no material was placed by the Revenue which was imperative."
In support the learned counsel for the assessee-dealer placed the Dictionary meaning.
Dictionary meaning including technical dictionaries are a relevant factor, as held in Ponds India by the Hon'ble Supreme Court and disinfectant is defined as:
Webster Comprehensive Dictionary:
"as a substance used to disinfect or to destroy the germs of infectious and contagious diseases".
In the Concise Oxford Dictionary of Current English, "disinfectant" is defined as:
"a commercially produced chemical liquid that destroys germs".
In Encyclopedia Britannica, Volume 4, it is explained to mean:
"any substance, such as creosote or alcohol, applied to inanimate objects to kill micro-organisms. Disinfectants and antiseptics are alike in that both are germicidal, but antiseptics are applied primarily to living tissue. The ideal disinfectant would rapidly destroy bacteria, fungi, viruses, and protozoans, would not be corrosive to surgical instruments, and would not destroy or discolour materials on which it is used". It thus cannot be disputed that a disinfectant is also a killing agent."
Technical dictionaries:
Under Indian Pharmacopoeia, 1996 issued by the Government of India, Ministry of Health & Family Welfare, the active ingredients of Harpic and Lizol are said to contain antiseptic/disinfectant qualities. Similarly, the internationally authoritative Encyclopedia on Chemicals, Drugs and Biologicals - The Merck Index states that the active ingredients of Harpic and Lizol have disinfectant properties.
He has also pointed out that the Tax authorities recognize Harpic and Lizol as Disinfectants.
Harpic and Lizol being disinfectants fall under Chapter 3808.91 of Central Excise Classification and the Entry reads as under:
"Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products, put up in forms or packagings for retail sale or as preparations or articles (for example, sulphur-treated bands, wicks and candles, and fly-papers)"
Accordingly, the Respondent / assessee had paid excise duty on the said Products, treating them as ''disinfectants' and the Returns are being accepted by the Central Excise authorities. In fact, even under GST, the Respondent has been paying GST treating Harpic and Lizol as disinfectants. The classification of tax entries worldwide are based on Harmonized System of Nomenclature, Brussels and even India has adopted the same for Customs and Central Excise Entries. The Sales Tax/VAT Entries are based on Customs/Central Excise Entries. Therefore, the HSN Entries and Explanatory Notes have relevance for understanding entries under Sales Tax/ VAT Acts. As per the HSN Explanatory Notes 2002, based on which Central Excise & Customs Entries are made in India. HSN Explanatory Notes 2002 provides as:
"Disinfectants are agents which destroy or irreversibly inactivate undesirable bacteria viruses or other micro-organisms generally on inanimate objects.
Disinfectants are used for example in hospitals for cleaning walls etc. or sterilizing instruments. They are also used in agriculture for disinfecting seeds.
The group includes sanitisers bacteriostats and sterilisers."
Further, even as per the HSN Explanatory Notes it is provided that "Disinfectants are used in hospitals for cleaning walls". Thus, such disinfectants may also be used for cleaning and merely because they are also used for cleaning, it cannot be said that it is not a disinfectant.
Common parlance evidence:
The primary function of Harpic and Lizol is to act as a disinfectant and in addition to disinfecting/killing bacteria and germs, they also clean. Consumers purchase Harpic and Lizol for their disinfectant properties and expect it to, also clean; therefore as a secondary use, ingredients for cleaning has been added to Harpic Lizol. To extend the logic of the Revisionist, products which have multiple attributes cannot be classified under the specific entry and has to be classified under the residual entry - tablet for cold and fever, cannot be classified as a drug, since it has multiple attributes and has to be classified under the residual entry only. There would be thousands of goods which have multiple attributes in which case, all of them have to be classified under the residual entry only. Such an interpretation militates and does violence to principles of classification.
In common/commercial parlance also, Harpic and Lizol are understood as ''disinfectants' and consumers purchase Harpic and Lizol for its disinfectant properties. This fact is clear from the letters written to the Respondent by some of the consumers and Hospitals, which clearly state that they purchase Harpic and Lizol for its disinfectant properties as well as the advertisement and label of Harpic and Lizol.
Legal Submissions in support of classification adopted by the Respondent / dealer:
Re: Bombay Chemicals holds that disinfectants are pesticides:
The Hon'ble Supreme Court in Bombay Chemicals (para 8) had held that disinfectants are in the nature of pesticides. It was held by the Supreme Court that a disinfectant which, therefore, is used for killing may broadly be covered in the word "pesticide". Disinfectants may be of two types; one to disinfect and other to destroy the germs, the former, i.e., those products which are used as disinfectant for instance lavender, etc., may not be covered in the expression "pesticide". But those products which are used for killing insects by use of substances such as high boiling tar acid have the same characteristic as "pesticide". The above judgment of the Hon'ble Supreme Court squarely applies to Harpic and demonstrates that they are disinfectants and have very high capability to kill bacteria and germs (99.999999%) as is clear from the Test Reports. The Hon'ble Supreme Court dealt in detail with disinfectant, pesticides etc. in Bombay Chemicals and rejected the stand of the Department (as approved by the Tribunal) in paras 5 to 8 and in para 9 of its Judgment, it held that insecticide, pesticide etc. have broad meaning in common parlance also, which reads as:
"Each of the words insecticides, pesticides, fungicides or weedicides are understood both in the technical and common parlance as having broad meaning. Therefore, if any goods or items satisfy the test of being covered in either of the expression, then it is entitled to exemption. The broad and basic characteristic for exemption under the notification is that the goods must have the property of killing germs and bacteria, insects or pests and it should be understood in the common parlance as well as being covered in one of the broad categories mentioned in the notification. Since the goods produced by the appellant are capable of killing bacteria and fungi which too, is covered in the expressions ''pesticide' and ''fungicide' there appears no reason to exclude the goods from the aforesaid notification."
Hence, it is clear that the Hon'ble Supreme Court itself held that pesticide/insecticide are understood in common parlance to include disinfectants.
Re: Judgment of Andhra Pradesh High Court holds Harpic and Lizol as insecticide/ pesticide:
The Hon'ble Andhra Pradesh High Court (in the Respondents' own case ) relying on the Judgment of the Supreme Court in Bombay Chemicals and the test reports of IICT, Hyderabad has held that Harpic and Lizol are to be classified as insecticide/pesticide.
The relevant paragraph of the AP High Court judgment is set out below for ease of reference:
"We have referred to the test report for SGS Laboratory, Calcutta and IICT, Hyderabad. Both these reports support the view that Harpic and Lizol are disinfectants. Applying the ratio in Bombay Chemical Pvt. Ltd the conclusion is irresistible that Harpic and Lizol are covered in "pesticides" liable to tax at 4%."
Re: Judgment of Gauhati High Court holds Harpic and Lizol as insecticide/pesticide:
The Gauhati High Court has also accepted the contention of the Respondent that Harpic and Lizol are pesticides. The relevant Entry, viz. Entry 19 of Part A of Schedule II to the Assam VAT Act, reads as under:
"Chemical fertilizers, pesticides, weedicides and insecticides excluding mosquito repellants including electric or electronic mosquito repellants, gadgets and insect repellants, devices and parts and accessories thereof."
The Division Bench of Gauhati High Court in its Judgment had discussed the contention of the Department in the impugned Assessment Order, in para 11 of the Judgment:
"It was held that in common parlance test and the package describing the product. It was held that in common parlance of the consumers as well as traders, the items Harpic and Lizol are not understood as pesticides but FMCG products of daily use. Referring to the Chamber's 21st Century Dictionary, it was held that ''pest' means a living organism such as insect, fungus or weed, that has a damaging effect on animal livestock, crop plant or stored produce and ''pesticide' means any of the various chemical compounds, insecticides, herbicides and fungicides that are used to kill ''pests'. The products, ''Harpic' and ''Lizol' are meant to be used as toilet cleaner by the manufacturers as well as the consumers, and cannot be regarded in common parlance as ''pesticide', which term covers chemical compounds exclusively used to kill living organisms such as insects, fungus or weed affecting livestock, crop, plant or stored produce. It was also held at even if it is accepted that the products ''Harpik' and ''Lizol' posses some additional attributes of killing microorganisms mainly bacteria or viruses (the main use being of toilet cleaner or surface cleaner), the latter are definitely not ''pests' and the products are also not to be regarded as pesticides.
Referring to the package, it was also held that the brochure of the product clearly points to the use for removal of tough stains, killing germs and fighting odours. It was also observed that the brochure also contains an assurance that ''Harpic' is suitable for all types of toilet bowls and does not affect the septic tank. Accordingly, the Revenue held that all these clearly prove that the usage of the product is sought to be presented or advertised primarily as a toilet cleaner and the killing of germs is only an incidental or added attribute of the product. Therefore, it was held that the products ''Harpic' and ''Lizol' cannot be set to be covered by Entry 19 of the Second Schedule-Part A."
After considering the above stand of the Department, the Gauhati High Court in para 17 of its Judgment held that there are sufficient material to show that Harpic and Lizol are disinfectants and in para 18 of its Judgment, the Court held that:
"What is to be noted is that these products are used for cleaning toilets/floors etc. because of the disinfectant properties. Without the disinfectant qualities, these products would be reduced to mere cleaning agents and not different from any other cleaning solutions. It may be also noted that stain caused on the toilet or floor is because of dirt which carry germs and bacteria. Therefore, removing the stain and cleaning of floor or toilet is also for the purpose of sanitizing the same which is most effective with the disinfectant component of these liquids. Therefore, in any event, whether used for removing stains or cleaning, the sanitising aspect cannot be ignored. Thus, what stands out in respect of these products is the disinfectant quality these products possess. Therefore, the most distinguishable attribute of these products is the disinfectant quality.
The compositions of the products show that these are meant to be disinfectants, to kill germs and bacteria, which has not been seriously contested. The expert opinions by way of certificates from various individuals, organization, relied upon by the petitioner have not been refuted or contradicted by the Respondents.
In the Ponds India Limited case (supra), the Hon'ble Supreme Court held that while deciding the issue whether any particular item would be covered under any relevant entry or classification, the opinion of the expert in the field can be taken into consideration."
Finally, the Hon'ble Gauhati High Court held that:
"In the light of the above discussions, we are of the view that these petitions should be allowed and the products Harpic and Lizol having been declared to be pesticides as discussed above, would be liable to tax under Entry No. 19 of the Part A of the Second Schedule of the Assam VAT Act and Dettol would be liable to be assessed as an item under Entry 21 of the Fourth Schedule of the Assam VAT Act and will not fall within the excluded category under the Explanation."
Re: Judgment of Rajasthan High Court holds Harpic and Lizol as insecticide/ pesticide:
Similarly the Rajasthan High Court has also held Harpic and Lizol to be a pesticide. The Supreme Court of India has dismissed the Special Leave Petition filed by the State of Rajasthan.
This Court while disposing of Writ Tax No. 635 of 2013 and Writ Tax No. 636 of 2013 (in proceedings arising out of interlocutory Orders passed by the UP Tax Tribunal in Appeal relating to classification of Harpic and Lizol) took note of the Judgments passed by other Hon'ble High Courts and observed as under:
"Learned Standing Counsel is not in a position to dispute the correctness and the applicability of the two judgments of the Gauhati and the Andhra Pradesh High Courts and that the above products in which the Petitioner is dealing are taxable as pesticides and further that the Order of the Commissioner would not come in way for assessing the taxability of the Petitioner on the above products.
....
The Court is conscious that the Orders impugned are primarily interlocutory Orders and that the rights of the Petitioner are yet to be considered in Appeal but nonetheless under the facts and circumstances of the case, the said Order appears to be cryptic for non-consideration of the two decisions of the High Courts which clearly covers the field leaving hardly any scope for upholding the assessment of tax on the above items as unclassified items unless decisions to the contrary of the High Courts or of the superior Courts are produced."
Re: Principles applied with respect to classification under a taxing statute:
Also, the following principles relating to classification ought to be taken into consideration in any matter relating to classification under a taxing statute:
(a) plain meaning to be given to the taxing provision;
(b) burden to prove classification in a particular entry is always on the Revenue;
(c) any ambiguity has to be resolved in favour of the assesse; and
(d) resort to residuary entry is to be taken as a last measure.
Going by the aforesaid principles and applying the same to the present case, it is amply clear that Harpic and Lizol fall under Entry 20 of Part A of Schedule II to the UP VAT Act and not under Schedule V to the UP VAT Act.
Re: Resort to a residuary entry only as a last measure:
The principles governing inclusion of any goods under the residuary entry is well settled. The resort to residuary entry is to be taken as a last measure when an article cannot by any means be classified under any other entry. The Supreme Court in Dunlop India Ltd. Vs. Union of India & Ors (1976 (2) SCC 241) has held that when an article has, by all standards, a reasonable claim to be classified under an enumerated item in the Tariff Schedule, it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause. The question of competition between two rival classifications will, however, stand on a different footing. Further, the Supreme Court held that the Department-Revenue cannot resort to arbitrary classification and in this regard it observed that where the very basis of the reason for including the article under a residuary head in order to charge higher duty is foreign to a proper determination of this kind, the Court will be loath to say that it will not interfere.
Re: Burden to prove classification in a particular entry is always on the Revenue:
The burden to prove that a particular item falls under a specific entry is on the Revenue and not the assesse. The Hon'ble Supreme Court in Union of India Vs. Garware Nylons Ltd. 91996 (10) SCC 413); HPL Chemicals Vs. Commissioner of Central Excise) 2006 (5) SCC 208) and Voltas Ltd. Vs. State of Gujarat (2015 (7) SCC 527) has held that the burden of proof is on the taxing authority to demonstrate that a particular class of goods or item in question is taxable in the manner claimed by the Revenue and that a mere assertion in that regard is of no avail. The said principle has been so stated by the Hon'ble Supreme Court in para 26 of Voltas Ltd. which is extracted herein below for ease of reference:
"Qua the issue of classification of goods to determine the chargeability thereof and the rates of levy applicable, it is no longer res integra that the burden of proof is on the taxing authority to demonstrate that a particular class of goods or item in question is taxable in the manner claimed by them and that mere assertion in that regard is of no avail as has been enunciated by this Court in Union of India v. Garware Nylons Ltd. and relied upon with approved in HPL Chemicals Ltd. v. CCE."
In the present case, the Department-Revenue has failed to discharge the burden as to how Harpic and Lizol fall under the residuary entry and not under Entry 20 of Part A of Schedule II to the UPVAT Act. The Department-Revenue except for making a bald allegation that Harpic and Lizol have failed to substantiate the said allegation with any documentary proof and justify that Harpic and Lizol are unclassified items under the UPVAT Act and thus exigible to tax at a higher rate.
Re: If two views are possible, the view in favour of assesse to be adopted:
It is a settled principle of law that any ambiguity with respect to classification of a product has to be resolved in favour of the assesse and not the Department. The well settled view was reiterated in Voltas Ltd. vs. State of Gujarat (2015 (7) SCC 527) by the Hon'ble Supreme Court in para 24 has held that in case of a reasonable doubt, the construction most beneficial to the assesse has to be adopted. Applying the aforesaid principles to the facts and circumstances of the present case assuming though not in any manner admitting that there are two plausible views about the classification of Harpic and Lizol then the view favouring the assessee has to be adopted and not the Revenue, especially when the contention of the Revenue is that the items in question fall under the residuary category. Therefore even by the aforesaid principle Harpic and Lizol are liable to be classified under Entry 20 of Part A of Schedule II to the UPVAT Act.
The classification adopted by the Respondent / dealer is based on classification adopted under Uttar Pradesh Trade Tax Act as well as other Sales Tax Act, CST and Excise, supported by a large number of Judgments, test reports from Central Government laboratories certifying Harpic and Lizol as a disinfectant; hence a pesticide/insecticide (as held by the Supreme Court in Bombay Chemicals vs. Collector of Central Excise (1995) Supp 2 SCC 646), definition under Drugs and Cosmetics Act & Rules in respect of Harpic and Lizol, licenses obtained from the Drug Controller, Government of India (treating them as a disinfectant) for Harpic and Lizol, HSN Classification, technical and dictionary meaning, common/commercial parlance, etc. The Counsel appeared before the High Court contended that Harpic and Lizol are manufactured under license under the Drugs Act. The Special Counsel nextly submits that Harpic and Lizol are manufactured under licence under the Drugs Act; and they are therefore drugs falling under entry 88 but being toilet preparations stand excluded therefrom. A careful reading of entry 88(b) would show that Harpic and Lizol would be "odd men out" among the goods mentioned in the entry. The said entry speaks of only the products capable of being used as cosmetics and toilet preparations. Illustratively it mentions tooth pastes, tooth powders, cosmetics, toilet articles and soaps. It does not deal with toilet cleaner or floor cleaner used as disinfectants to kill bacteria and germs. When the language of the taxing entry is plain, it is not for the Courts, to introduce words to uphold the assessment.
The High Court, however, has observed as follows :-
"We cannot read Harpic and Lizol as being included in toilet preparations to bring them under the excluded category under entry 88(b) of IV Schedule to the VAT Act. Even if the manufacturer obtained drug licence, for manufacturing disinfectants they do not cease to be pesticides and hence fall under in entry 20.
The view that disinfectants do not fall under excluded category of goods under entry 88(b) and are broadly covered in the term "pesticides" also derive support from HSN Code based classification of items in IV Schedule as ordered by the Government in G.O.Ms.No.1615, dated 31.8.2005. As seen from the said G.O. extracted hereinabove, all the goods in entry 20 of IV Schedule are covered under the HSN Code (heading) 3808 except three products, namely, repellents for mosquitoes, Gibberillic acid and plant growth regulators. The product "disinfectants" are in sub-heading 3808.40.00 and they are not excluded from the main "heading". Thus all the disinfectants would fall within HSN Code 3808 which deals with most of the goods mentioned in entry 20. That being the position, in our considered opinion, any reference to entry 88 may not be called for. Even if the manufacturer obtained drug licence for producing Harpic and Lizol the same cannot be a conclusive that these goods within the ambit of entry 88."
The High Court has also considered the provisions of Section 18 of Drugs Act, which mandates a licence for manufacture, sale or distribution of any drug, cosmetic or medicine. The word "drug" is defined in Section 3(b) of the Drugs Act. It is inclusive definition. A plain reading of Section 3(b)(iv) thereof shows that not only medicines for internal or external use of human beings or animals but substances that affect structure or function of human body or used for destruction of vermin or insects which cause disease in the human beings and animals are also drugs. Further all substances intended for use as components of a drug and such devices intended for internal or external use among others, in the "mitigation or prevention of disease" would be drugs. When a manufacturer produces any disinfectant fluids, they are basically intended for prevention of disease by destroying and/or controlling bacteria and microorganisms that are unusually present. That may be one reason why even under the Drugs and Cosmetics Rules, 1945 (the Drugs Rules) the disinfectants are placed in Schedule-K in respect of which they were exempted from the provisions of Chapter IV and the Rules made thereunder. Harpic and Lizol are the products/goods sold even in general stores and on the counters of departmental stores. We therefore reject the submission of the State that Harpic and Lizol fall under entry 88 merely because they are manufactured under drug licence.
In view of the aforesaid, the High Court reached at a conclusion and held that Harpic and Lizol are disinfectants capable of destroying germs and microorganisms like Escheriachia coli, Staphylocococcus aureus, Enterococcus hirae, Pseudomonas aeruginosa and Candida albicans etc. Being disinfectants they fall within the category of pesticides covered by entry 20 of IV Schedule.
Against the aforesaid judgment of the Andhra Pradesh High Court dated 13 June 2012, a Special Leave Petition was filed by the department which was dimissed on the ground of delay.
Similar issue was also considered by the Division Bench of the Guwahati High Court in case bearing Writ Petition No. 1377 of 2010, Reckitt Benckiser India Pvt. Ltd. v. The State of Assam and Others, vide judgment and order dated 18.9.2012. A Division Bench of Guwahati High Court has held that harpic and Lizol having been declared to be pesticide, would be liable to Tax under Entry No. 19 of the Part A of the Second Schedule of the Assam VAT Act being as pesticides while allowing the writ petition.
It is, however, submitted by the learned counsel for the parties that no SLP has been filed against the said judgment of the Guwahati High Court as such, the State Government has accepted the verdic of the High Court.
Learned counsel for the Assessee has also brough to the notice of this Court a judgment of the Rajasthan High Court in the case of Reckitt Binckiser (India) Ltd. v. Assistant Commercial Taxes Officer Anti Evasion, Commercial Taxes Department Ward-III, Jaipur and Another and the Rajasthan High Court has also considered above mentioned judgments and has held that the products being sold by the assessee would fall in Entry 21 or 29 of the Act, which provides that the products namely Harpic and Lizol classifiable under the aforesaid entry of Schedule IV of Rajasthan VAT Act and the same being used as insecticides or pesticides and further that the entry being specific and clear as such has held that the departmental authorities were wrong in holding that the items harpic and Lizol fall under the residuary entry namely Schedule (V). The relevant extract of the judgment, which are mentioned in paragraph 29, which is quoted herein below :-
Taking into aforesaid, in my view, the claim of the assessee that the products being sold by the assessee would fall in Entry 21 or 29 of the Act as the case made be is well taking it under the residuary Schedule (V). The claim of the assessee is just and proper.
Learned counsel for the appellant has placed reliance of an order passed by the Apex Court in Special Leave Petition (Civil) Diary No (s). 42434/2017 arising out of the judgment of the Rajasthan High Court dated 7.4.2017. The following order has been passed by the Supreme Court by dismissing the SLP, which is quoted herein below :-
"Heard the learned counsel for the petitioners and perused the relevant material.
Application for exemption from filing official translation is allowed.
Special Leave Petition (c) No.3876 of 2017 arising out of the same impugned judgment has been dismissed by order of this Court dated 02.02.2018. Consequently, the present special leave petitions are also dismissed."
In view of the aforesaid decisions of Apex Court and the High Courts the issue, which is involved in the instant revision is decided in favour of the Assessee by all the High Courts and Supreme Court. Respectfully following the said decisions, the revision petition filed by the department is dismissed as no question of law is involved and it is hereby held that Harpic and Lizol are covered under Schedule-II, Part A, Entry No.20 of UP VAT Act as such the same are classified items. I find no error in the impugned judgment and order of the Tribunal.
The Revision Petition is, accordingly, dismissed.
Order Date :- 09.10.2018 Akram