Supreme Court of India
M/S. M.P. AGENCIESversusSTATE OF KERALA
- Citation
- 2015 INSC 974
- Decided
- 18 March 2015
- Disposal
- Appeal(s) allowed
- Bench
- DIPAK MISRA
Holding
Where a commodity is assigned an HSN number, that classification prevails; the goods in question fall under the specific entries of the Third Schedule and are not subject to the residuary entry 103, so the tax rate applicable is that of the specific entries.
Summary
M/s M.P. Agencies, a distributor of the fabric whitener "Ujala Supreme" and the fabric stiffener "Ujala Stiff and Shine", appealed against the State of Kerala challenging the classification and tax rate under the Kerala Value Added Tax Act, 2003. The products are manufactured by Jyothy Laboratories by diluting acid violet paste (AVP) and polyvinyl acetate (PVA) respectively. The Commissioner had classified them under the residuary entry 103 of SRO 82/2006, attracting a 12.5% VAT rate, relying on common‑parlance classification. The High Court upheld that view. The Supreme Court held that where HSN numbers are assigned, they have primacy over common parlance; the goods fall under HSN codes 3204.12.94 and 3905 and therefore under specific entries 155(8)(d) and 118(5) of List A of the Third Schedule, not the residuary entry. Consequently, the tax rate applicable is that prescribed for those entries, and the High Court’s order was set aside. No refund of VAT paid was permitted.
Issues considered
- The correct classification of "Ujala Supreme" and "Ujala Stiff and Shine" under the Kerala VAT Act – whether they fall under specific entries of the Third Schedule or the residuary entry 103 of SRO 82/2006.
- The relevance of HSN numbers versus common/commercial parlance in determining classification.
- The applicability of the 12.5% VAT rate versus the rate prescribed for the specific schedule entries.
- Whether the process of diluting AVP and PVA constitutes manufacture for tax purposes.
Legislation cited
Subjects
VATtax classificationHSN codeKerala Value Added Tax Actresiduary entrySection 6Third Schedulecommon parlancemanufacturedilutionacid violet pastepolyvinyl acetatetax rate
Judgment
[2015] 2 S.C.R. 1061
M/S. M.P. AGENCIES A
v.
STATE OF KERALA
(Civil-Appeal No.1440 of 2010 etc.) B
MARCH 18, 2015
[DIPAK MISRA AND ABHAY MANOHAR SAPRE, JJ.]
c
Kerela Value Added Tax Act, 2003 - s. 6 - Levy of tax
- Classification of goods - "Ujala Supreme" and Ujala Stiff
and Shine - Appellant distributor for "Ujala Supreme, fabric
whitener" and Ujala Stiff and Shine, liquid fabric stiffener
which are manufactured by an industrial unit- Levy of tax D
- Held: Manufacturer-industrial unit purchases central
excise duty paid acid violet paste-AVP classifiable under the
heading 3204.12.94 and thereafter, the AVP is diluted in
water and filled in plastic contqiner and then sold under the
brand name of 'Ujala' - Chemical examiner's report is to E
the effect that it is a physical mixture of the ingredients in
boiling water which has been given after study of the
manufacturing process - It was in accordance with the Tariff
Ruling of the Board - It is found from the test reports that
there is only dilution in water and the same does amount F
to or result in manufacture and hence, no new product
emerges - Thus, the common parlance would come into
play - Two goods/products are covered under the HSN
Code 3905, and HSN Code 3204.12.94 and thus, the said
entries fall under entry numbers 155(8)(d) and 118(5) of the G
list 'J!\" of Third Schedule of the 2003 Act covering industrial
inputs and packaging materials - As such entry 103, which
1061 H
1062 SUPREME COURT REPORTS [2015] 2 S.C.R.
A is residuary in nature, would not get attracted - Tax rate
as stipulated in the Schedule, applicable to the Entries
would be applicable.
Hannonised System of Nomenclature (HSN) - Primacy
B of - Held: 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
C parlance - In case of inconsistency between 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 - Thus, primacy is given to
D HSN number classification and adoption/interpretation of
HSN classification under the Customs Tariff Act, 1975 and
any inconsistency or debate would be decided with the
commodity being categorized against the HSN number.
E Allowing the appeals, the Court
HELD: 1.1 Section 6 of the Kerela Value Added Tax
Act, 2003 deals with the levy of tax on sale and
purchase of goods and provides various facets. It
F applies to an importer, casual trader, agent of a non-
resident dealer, dealer in jewellery or gold, silver &
platinum group metals or silver articles or contractor
of State Government or the Central Government, etc.
regardless of the turnover. Under Clause (a), in respect
G of the goods specified in the second and Third
Schedule, tax is payable at the rate specified in the said
schedule. Tax is payable at the point of sale. Under
Clause (d), goods not falling under Clauses (a) or (c),
tax is payable at the rate of 12.5% at the point of sale
H within the State. The legislature has conferred the
M/S. M.P. AGENCIES v. STATE OF KERALA 1063
power on the Government to notify a list of goods A
taxable at the rate of 12.5%. Harmonious construction
of Clause (a) and (d) clearly demonstrates that in case
of notified goods, the rate of tax would be 12.5%.
Similarly, in case of goods not falling under Clause (a),
that is Second and Third Schedule, the rate of tax would B
be 12.5%. This does not necessarily mean that
exempted goods would be taxable by virtue of Clause
(d). [Para 17] (1080-A-F]
1.2 From the Rules of Interpretation of Schedules, c
it is luculent that the commodities mentioned in the
schedules have been allotted code numbers developed
by International Customs Organisation, which is known
as Harmonised System of Nomenclature (HSN). The
same has been adopted in the Customs Tariff Act, 1975. o
Where the commodities have been given HSN numbers,
the same meaning would be given for classification
under the Customs Tariff Act, 1975. The rules accept
.that for certain entries, HSN numbers are not given.
Where commodities are not ascribed any HSN number, E
they would be interpreted as understood in common or
commercial parlance. In case of inconsistency between
meaning of a commodity without HSN number and a
commodity with HSN number, the commodity without
HSN number should be interpreted by including the F
commodity in that entry, which has been given HSN
number. Thus, 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 decided with the G
commodity being categorized against the HSN number.
[Para 19) (1082-F-H] (1083-A-C]
1.4 It is an admitted fact that the industrial unit
purchases central excise duty paid AVP classifiable H
1064 SUPREME COURT REPORTS [2015) 2 S.C.R.
A under the Heading 3204.12.94 and thereafter, the AVP
is diluted in water and filled in plastic container and
then sold under the brand name of 'Ujala'. As far as
"Ujala Supreme" is concerned, it is urged that it is
nothing but a diluted form of AVP. The AVP is merely
B diluted to create Ujala Supreme in the form of
mathematical equation. The counsel for the appellant
has referred this Court to report dated 30.8.2006 of the
Institute of Chemical Technology, Matunga, Mumbai
which stated that the chemical composition of AVP and
C Ujala are the same except for the dilution in Ujala. [Para
28] [1089-C-E]
1.5 The Rules of Interpretation of the schedules
have stipulated that the commodities which are given
D four digit HSN number shall include all those
commodities under that Heading of the HSN which
would mean that all the items listed under Chapter
Heading 3905 of the Tariff are covered by the said Entry.
[Para 33] [1093-C]
E 1.6 The Chemical Examiner stated that Ujala is
_ made simply by mixing acid violet, Ranipal and
ultramarine blue in water heating them to a particular
temperature and filtering this solution and bottling in
F small packing and packing them in paper cartons for
marketing. Only three colouring matters mixed together
in a particular proportion for colouring the fabric. The
chemical examiner's report is to the effect that it is a
physical mixture of the ingredients in boiling water
G which report has been given after study of the
manufacturing process. The majority opined that the
Chemical Examiner's opinion is in accordance with the
Tariff Ruling of the Board. These authorities
fundamentally relate to the issue that there has been
H really no manufacture process for the purpose of
M/S. M.P. AGENCIES v. STATE OF KERALA 1065
classification. That apart it is found from the test reports A
that there is only dilution in water and needless to
emphasize the same does amount to or result in
manufacture and hence, no new product emerges.
Therefore the common parlance would come into play.
[Para 37] [1096-A, B, E, F-H] B
1.7 Two goods/products have been held to be
covered under the HSN Code 3905, and HSN Code
3204.12.94 and thus, there can be no shadow of doubt
that the said entries fall under entry numbers 155(8)(d) C
and 118(5) of the list "A" of Third Schedule of the 2003
Act covering industrial inputs and packaging materials,
but that would not be material and relevant regard being
had to the rules of interpretation which are applicable.
The subject matter of the list will not fall under D
residuary entry 103 in SRO 82/2006 dated 21.01.2006,
if the goods in question fall in any entry of any of the
schedule. That is what is conveyed by the language
employed in Entry No. 103. The said Entry does not
stipulate or carves out any exception in respect of list E
"A" to the Third Schedule. That being the position, once
goods fall under any of the HSN classification, that is,
the goods/commodities that are included in list "A" to
the Third Schedule, entry 103, which is residuary in
nature, would not get attracted. In such cases, the tax F
rate as stipulated in the Schedule, applicable to the
Entries would be applicable. [Para 25, 38] [1087-G]
[1097-A-D]
1.8 The High Court elaborately dwelled upon the G
issue of manufacture. The question of manufacture is
not relevant for the purposes of 2003 Act. What is really
relevant is the classification based upon the HSN
number. The decisions rendered by the CESTAT have
decided on the classification which is founded upon the H
1066 SUPREME COURT REPORTS [2015] 2 S.C.R.
A HSN number that after devolution with water the goods
continue to remain classified under the same HSN
number. This means that the goods remain in list "A"
of the Third Schedule. The position would have been
totally different had the goods in question been
B separately and specifically itemized in SRO number 82/
2006 dated 21•1 January 2006. The goods which are
specifically mentioned in any of the entries of the said
SRO, would be chargeable to tax@ 12.5%. But that is
not the lis here, for the Revenue has included the goods
C in the residuary Entry 103 and the said entry, by no
stretch of reasoning, can be made applicable. [Para 39]
[1097-F-H] [1098-A-B]
1.9 The High Court missed the issue in entirety and,
D therefore, the impugned judgment and orders is set
aside. However, if any assessee-appellant has paid the
amount of VAT to the State Government, they would not
be entitled to get any refund of the said amount. [Para
40] [1098-C, D]
E Reckitt Benckiser (India) Ltd. v. Commissioner,
Commercial Taxes and others (2008) 15 VST 10 (SC);
Collector of Central Excise, Shillong v. Wood Craft Products
Ltd. 1995 (2) SCR 797: (1995) 3 sec 454; O.K. Play (India)
F Ltd. v. Commissioner of Central Excise, Delhi Ill, Gurgaon
2005 (1) SCR 1069: (2005) 2 SCC 460; Jyoti Laboratories
v. CCE, Cochin 1994 (72) ELT 669; Jyothy Laboratoires &
Anr. v. CCE, Calicut (2007) (78) RLT 276, CESTAT
Bangalore; Commissioner of C.Ex., Cochin v.
G Mannampalakkal Rubber Latex Works 2007 (217) ELT 161
(SC) - referred to.
Case Law Reference
(2008) 15 VST 10 (SC) Referred to. Para 20
H
MIS. M.P. AGENCIES v. STATE OF KERALA 1067
1995 (2) SCR 797 Referred to. Para A
22
2005 (1) SCR 1069 Referred to. Para 24
1994 (72) ELT 669 Referred to. Para 27
B
(2007) (78) RLT 276 Referred to. Para 27
2007 (217) ELT 161 (SC) Referred to. Para 34
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
1440 of 2010. c
From the Judgment and Order dated 06.04.2009 of the
High Court of Kerala at Ernakulam in 0. T. Appeal No. 9 of
2007.
D
with
C. A Nos. 4565, 4815-4818, 2869-2873, 4610, 4616,
4397-4409 of 2012,
2869-2873 of 2015, C. A No. 3015 of 2015. E
V. Giri, V. Lakshmi Kumaran, Alok Yadav, M. P.
Devanath, Ritin Rai, Sadhvi Mohindru, V. K. Monga, M. T.
George, Kavitha T. for the appearing parties.
F
The Judgment of the Court was delivered by
DIPAK MISRA, J. 1. The appellant, M/s. M.P. Agencies,
is a registered dealer under the Kerala Value Added Tax
Act, 2003 (for brevity, 'the 2003 Act') and is a wholesale
distributor for "Ujala Supreme" and "Ujala Stiff and Shine", G
which are manufactured by Mis. Jyothy Laboratories Ltd.
"Ujala Supreme" is a fabric whitener and "Ujala Stiff and
Shine" is a liquid fabric stiffener. The product "Ujala
Supreme" is described as fabric whitener for supreme H
1068 SUPREME COURT REPORTS [2015] 2 S.C.R.
A whiteness of clothes, and "Ujala Stiff and Shine" is given
the description, liquid fabric whitener for crisp and shining
1clothes.
2. As there was an issue relating to rate of tax
B applicable to the two products, the appellant filed an
application for clarification before the Commissioner of
Commercial Taxes, Thiruvananthapuram. The
.Commissioner vide order no. C7.34151/06/CT dated
25.10.2006 clarified the position which is in the nature of
C advance ruling by opining that the items "Ujala Supreme"
and "Ujala Stiff and Shine" are commercially known as
instant whiteners and the consumers who are purchasing
the manufactured goods which are subjected to certain
processes and are marketed as a commercially different
D commodity, "instant whitener", in the brand name "Ujala"',
which is used as a "laundry whitener'' at the end point. After
so observing, the Commissioner referred to SRO 82/06
wherein the Government has notified list of commodities
coming under 12.5% category and laundry whiteners have
E been brought under this category vide Entry No. 27. On that
basis, the Commissioner held that as there is a specific
Entry for the commodities, it would fall under the said Entry
and the taxable rate would be 12.5%.
F 3. Being aggrieved by the aforesaid clarificatory order,
the appellant filed an appeal being O.TA No. 13 of 2006
which was disposed of on 7.6.2007. The High Court
remitted the matter by holding, inter alia,:-
G "In the instant case, the Commissioner without even
adverting to any one of the evidence produced by the
assessee, by merely relying upon how the q>mmodity
is understood in the commercial circles, has proceeded
to observe that the sale of the products by the assessee
H requires to be taxed at 12.5%. This view of the
•.
MIS. M.P. AGENCIES v. STATE OF KERALA 1069
[DIPAK MISRA, J.]
Commissioner is contrary to sub-section (2) of Section A
94 of the Act.
The orders passed by the Commissioner under Section
94 of the Act is not only binding on the assessee, but
also binding on the assesses who are similarly placed. B
Further, it is binding on the assessing authority. In cases
of this nature, it is expected of the Commissioner to
deal with the subject which is before him for clarification
in detail and then offer his opinion by way of an order.
In the instant case, the Commissioner has not done that c
exercise. This action of the Commissioner, in our
opinion, is arbitrary, illegal and improper. Therefore, the
order passed by the Commissioner requires to be set
aside and the matter requires to be remitted back to
the Commissioner for a fresh decision, keeping in view o
the observations made by us in the course of the order."
4. After the matter was remitted, the Commissioner
considered all the materials furnished by the appellant and
heard the matter at length. It was contended by the E
appellant that the scheme of VAT is materially different from
that of KGST principally with respect to classification of
goods for the purpose of levy of sales tax based on
Harmonized System of Nomenclature (HSN), rate of tax
applicable to different goods, etc. and resort to common F
parlance/commercial parlance test could be made only in
respect of those goods, which have no reference to HSN.
It was further urged that once a commodity is listed in Third ·
Schedule along with its HSN under List A, it has to be
included in that entry only. G
5. The crucial question, as the Commissioner
perceived, was that the determination of classification of a
particular commodity would be whether the same is listed
H
1070 SUPREME COURT REPORTS [2015] 2 S.C.R.
A in the Third Schedule with reference to HSN or not and if
so listed there would be no scope to interpret the commodity
differently relying on common parlance or commercial
parlance. The Commissioner took note of the fact that the
appellant had purchased the product in question from
B Jyothy Laboratory that was charging tax at 4% on the
products. Thereafter the Commissioner took note of all the
contentions of the appellant and referred to the HSN Codes
allotted to the commodities, Clause 43 of the Rules of
Interpretation, referred to the test reports filed by the
C appellant and addressed to the commodity, namely, Acid
Violet Paste (AVP), and at one point observed thus:-
"Admittedly the product in question are manufactured
and supplied by M/s. Jyothy Laboratories, an industrial
D unit. There is no dispute on the status of the unit as a
'manufacturing unit'. The unit for the production of the
products in question purchases the AVP and PVA.
There is no dispute on the fact that 'the unit is not
merely repacking' the materials purchased by them and
E marketing it under their brand name. Admittedly some
process, as per the SSI certificate of the unit "a
manufacturing process", is carried out before marketing
their product, which brings an obvious change in the
content and character and use of the products. AVP
F
is basically an organic dye used in textile industry. By
virtue of the process undertaken in the unit on the
material it undergoes a basic change both in its content
and character as well as in its application and use. It
the new product evolved out of the process, admittedly
G
there is only about 0.98% of AVP. According to the
opinion furnished by the Institute of Chemical
Techonlogy, University of Mumbai, the new product
cannot any longer be used for any purpose for which
H AVP could have been used. These positions make it
M/S. M.P. AGENCIES v. STATE OF KERALA 1071
[DIPAK MISRA, J.]
clear that the emergence of a new character for the A
AVP is obviously due to change in content. Thus the
content character and use of the commodity has been
changed and as far as the market is concerned this is
a commodity holding distinct identity as a 'fabric
whitener'. B
It may be true that on account of the term 'manufacture'
as defined in the CET Act for the purpose of levying
'excise duty' the activities leading to the emergence of
the product may not amount to manufacture on c
microanalysis of the term for the purpose of levying
'excise duty'. But the basic fact remains that the product
marketed by the unit is not AVP in its original form as
classified in tlie CET Act. The AVP with the changed
character has not been assigned any separate HSN for D
the purpose of CET Act. Under no stretch of
interpretation can it be said that for the mere reason
that a product has not been assigned any separate
HSN it should be treated as a commodity holding HSN
by virtue of its mere presence. In this case Ujala E
whitener admittedly contains .only a negligible portion
(about 0.98%) of AVP. As stated above definitions and
classifications in CET Act are exclusively for the
purpose of levying excise duty. If a commodity comes
outside the ambit of a classification made under CET F
Act, then the interpretation that could be given under
KVAT Act would be based on the preamble and
definitions under the statue."
Thereafter, the Commissioner proceeded to state G
thus:
"The commodity covered under HSN 3204.12.94 is
specifically for Acid violets. In view of the above
findings 'Ujala Whitener' can no longer be treated as H
1072 SUPREME COURT REPORTS (2015] 2 S.C.R.
A an AVP in the original form for which the HSN has been
assigned and so the specific entry 155(8) for Acid
violets holding HSN 3204.12.94 will not encompass the
product "Ujala Whitener". In the result the test to be
applied is the 'common parlance' or 'commercial
B parlance' theory. If a consumer asks for AVP no dealer
would give "Ujala Whitener", so also when "Ujala
Whitener" is asked for no dealer would give the
commodity 'AVP'. Instead, when a laundry brightener
is asked for obviously the dealer would give "Ujala
c Whitener" as a similar product. So in common parlance
and commercial parlance "Ujala Whitener" is known
and treated as a 'laundry brightener'. In the Third
Schedule there is no other entry for such products and
so it cannot be classifiable under the 3rd Schedule.
D
In the case of 'Ujala Stiff & Shine' the raw material used
is Poly Vinyl Acetate (PVA) coming under the specific
HSN 3905 12 90 and admittedly the product marketed
as 'Ujala Stiff & Shine' fabric stiffener is in other form
E and the formulation arrived at in pre paras in the case
of 'Ujala Whitener' is squarely applicable in this case
also."
xxxxx xxxxx xxxxx
F
"It is a settled position that so long as the trade
recognizes it as different commodity and its uses are
different, the item has to be recognized as different.
goods. Here the products in question produced are by
G itself a commercial commodity capable of being sold
or supplied with distinct identities when compared to the
raw materials used. In the instant case these
requirements are satisfied and so the products in
question can no longer be treated as the same product
H as 'imputed' by virtue of its mere presence in a
MIS. M.P. AGENCIES v. STATE OF KERALA 1073
[DIPAK MISRA, J.]
negligible proportion. A
As per Section 6(1)(d) goods not covered under clause
(a) or (c) are taxable at 12.5% and Government is
empowered to notify list of such goods. Accordingly
Government had notified the list of such goods as per B
SRO 82/2006. Vide entry 27 interalia 'laundry
brighteners' have been specifically picked out and
placed in the 12.5% category making the intention
clear."
And again c
"The next question to be considered is in what sub entry
the product in question is to be placed. The applicant
had pointed out that in entry 27 of SRO 82/2006, the
product 'laundry whitener' is mentioned only in the. D
heading and not mentioned in the sub entries. By
picking out the product 'laundry whitener' and including
it specifically in the heading of the said entry, the
intention is made specially clear. But since no specific
. HSN has been assigned to the products in question and E
the products are not specifically mentioned else where,
it has necessarily to go under entry 103 i.e., the residual
entry of SRO 82/2007 taxable at 12.5%."
F
6. In view of the aforesaid analysis, the Commissioner
opined the products "Ujala Supreme" and "Ujala Stiff and
Shine" are classifiable under Entry 103 of SRO 82/2006 and
would attract tax at the rate of 12.5%.
7. The dissatisfaction with the aforesaid order led the G
assessee-appellant to file OTA No. 9 of 2007 before the
High Court. The principal contention of the assessee-
appellant before the High Court was that the notification i.e.
SRO 82/06 which has been issued under Section 6(1)(d) H
1074 SUPREME COURT REPORTS [2015] 2 S.C.R.
A of the 2003 Act cannot cover any good specifically covered
by Second or Third Schedule of the 2003 Act which attracts
tax at the rate provided therein by virtue of Section 6(1 ){a)
of the 2003 Act.
B 8. As a proposition of law, the High Court opined, it
deserved acceptation, but proceeded to consider whether
the two items are covered by the specific entries of the Third
Schedule, as contended by the appellant. Be it stated, the
High Court proceeded to consider both the items separately,
C despite their use being similar.
9. Dealing with the "Ujala Supreme", the High Court
took note of the stand of the appellant that the said item
falls under Entry 155{8){d) of the Third Schedule of HSN
D Code No. 3204.12.94, which covers "Acid Violets" {for short,
'AV'). The High Court posed the question whether "Ujala
Supreme" sold by the appellant is an "Acid Violet" falling
under the said Entry and if so, then it cannot be treated as
covered by Notification issued under Section 6{1){d) of the
E 2003 Act. It was urged that the manufacturer, namely, M/
s. Jyothy Laboratories Ltd., was manufacturing the said item
by just diluting the acid violet paste with water. Two test
reports, one from SGS India Private Ltd. and the other from
Institute of Chemical Technology, Matunga, Mumbai were
F filed before the High Court. The first report shows 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% is water. The second report
which has been reproduced by the High Court is as follows:-
·G
"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
H presence of acid. "AVP'! is uniform and having standard
MIS. M.P. AGENCIES v. STATE OF KERALA 1075
[DIPAK MISRA, J.]
strength which is formulated and prepared as ready for A
use. The "AVP" as well as "Ujala" purchased from the
market are subjected to instrumental analysis HPTLC
(High Performance Thin Layer Chromatography) and
the results are observed as below:
B
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. c
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 D
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."
E
10. After reproducing the said report, the High Court
referred to Entry 155, which falls under List A of the Third
Schedule of the 2003 Act covering industrial inputs and
packing materials. The High Court took note of the fact that
the AV falls under Entry 155(8)(d) and is essentially an F
industrial input. The High Court referred to the order of
Commissioner, wherein he has held that the acid violet
paste is purchased by M/s. Jyothy Laboratories Ltd., a SSI
unit, engaged in the manufacture of various products,
including "Ujala Supreme". While concurring with the view G
expressed by the Commissioner on the foundation that the
finding recorded by him is consistent with the case put forth
by the assessee, the High Court observed:
H
1076 SUPREME COURT REPORTS [2015] 2 S.C.R.
A "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 the final product, namely, "Ujala
Supreme" for use as a fabric whitener. Appellant has
8 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
c 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
D
of acid only. However, the further 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 the appellant contends that there
E 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 virtu.e of the extreme dilution to below one
per cent, AVP lost its identity and therefore Ujala
F 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 its
property as a dyeing agent, once it is subjected to
conversion process by Jyothy Laboratories to Ujala
G 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
H
M/S. M.P. AGENCIES v. STATE OF KERALA 1077
[DIPAK MISRA, J.]
Supreme can no longer be identified with the raw A
material, namely, AVP, from which it is made."
11. The High Court, after so stating, opined that an acid
base industrial raw material cannot be used as a laundry
whitener and it has to be necessarily subjected to B
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 and
since in the process, the original item lost its identity and a
new commodity with distinct composition, identity and use C
emerged, and accordingly rejected the appellant's
contention that the item should be treated as the original
commodity for classification and, therefore, the view
expressed by the Commissioner deserved to be accepted.
D
12. The High Court, as we find, has also separately
discussed with regard to "Ujala Stiff and Shine" and opined
that it is a laundry item used to impart crispness and shining
of clothes and in common parlance is an agent which is a
substitute for starch used for giving stiffness to clothes after E
washing the clothes. The High Court also referred to the
test report obtained by the appellant from Shriram Institute
for Industrial Research. The test result which has been
referred to by the High Court in respect of Ujala Stiff and
Shine is as follows: F
"S.No. Tests Results
01. Polymerized vinyl acetate content, % wt 42.98
02. Water content, % w/w 55.80 G
03. Solid content, % w/w 43.80
04. Fragrance (Rose) Present"
H
1078 SUPREME COURT REPORTS [2015] 2 S.C.R.
A 13. Taking note of the stand and stance of the appellant
that no manufacturing activity is involved, the High Court
observed:
"However, appellant does not deny the contents of the
B 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 the appellant
can contend that an industrial raw material, namely,
polymerised vinyl acetate retains its character even
c after subjecting it to the process, whether it be
manufacture or not, leading to production of a different
item with different use and purpose."
14. The High Court, as we notice, repelled the
D contention that the common parlance or commercial
parlance test cannot be applied and identification of the
products should be in accord with HSN Code No., for the
said two products cannot be regarded as original items from
which they are made, more so, for the purpose of payment
E of VAT under the 2003 Act. The High Court opined that even
though the classification of items under VAT regime is also
based on HSN numbers, it does not mean that the products
made out of items with HSN numbers should be classified
F as the original items with same HSN number; and 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. On the said
foundation it ruled that the two items can be classified under
G the residuary Entry 103 of SRO 82/2006. Being of this V[l'JW,
the High Court dismissed the appeal.
15. We have heard Mr. V. Giri, learned senior counsel,
Mr. V. Lakshmi Kumaran and Mr. Alok Yadav, learned
H counsel for the appellants and Mr. M.T. George, learned
M/S. M.P. AGENCIES v. STATE OF KERALA 1079
[DIPAK MISRA, J.]
counsel for the respondent-State. A
16. To appreciate the controversy at hand, it is
appropriate to refer to Section 6 of the 2003 Act. It occurs
in Chapter 3 that deals with instance of levy of tax. The
relevant part requisite for the present purpose reads as B
follows:
"6. Levy of tax on sale or purchase of goods.- (1)
Every dealer whose total turnover for a year is [not less
than ten lakhs) rupees and every importer or casual. c
trader or agent of a non-resident dealer, or dealer in
jewellery of gold, silver· and platinum group metals or
silver articles or contractor or any State Government,
Central Government or Government of any Union
Territory or any department thereof or any local o
authority or any autonomous body whatever be his total
turnover for the year, shall be liable to pay tax on his
sales or purchases of goods as provided in this Act.
The liability to pay tax shall be on the taxable turnover,-
E
(a) in the case of goods specified in the Second and
Third Schedules at the rates specified therein and at
all points of sale of such goods within the State;
(b) [xxxx]
F
(c) [xxxx]
(d) in the case of goods not falling under clauses
(a) or (c) at the rate of 12.5% at all points of sale of
such goods within the State. Government may notify G
a list of goods taxable at the rate of 12.5%.
xxxx xx xx xxxx
(8) The Rules of Interpretation of the Schedules of H
1080 SUPREME COURT REPORTS [2015] 2 S.C.R.
A this Act shall be as set out in the Appendix."
17. From the aforesaid, it is quite clear that the
provision deals with the levy of tax on sale and purchase
of goods and provides various facets. It applies to an
B importer, casual trader, agent of a non-resident dealer,
dealer in jewellery or gold, silver & platinum group metals
or silver articles or contractor of State Government or the .
Central Government. etc. regardless of the turnover. Under
Clause (a). in respect of the goods specified in the second
C and Third Schedule, tax is payable at the rate specified in
the said schedule. Tax is payable at the point of sale. As
is seen, clause (b) stands deleted. Under Clause (d), goods
not falling under Clauses (a) or (c), tax is payable at the
rate of 12.5% at the point of sale within the State. The
D legislature has conferred the power on the Government to
notify a list of goods taxable at the rate of 12.5%.
Harmonious construction of Clause (a) and (d) clearly
demonstrates that in case of notified goods, the rate of tax
would be 12.5%. Similarly, in case of goods not falling
E under Clause (a), that is Second and Third Schedule, the
rate of tax would be 12.5%. It requires to be clarified here
that this does not necessarily mean that exempted goods
would be taxable by virtue of Clause (d):
F 18. Sub-Section 8 of 2003 Act provides the Rule of
Interpretation of Schedules under the Act. The relevant part
of the Rules of Interpretation of the Schedules is reproduced
below:-
G "The commodities in the schedules are allotted with
Code Numbers, which are developed by the
International Customs Organisation as Harmonised
System of Nomenclature (HSN) and adopted by the
Customs Tariff Act, 1975. However, there are certain
H
M/S. M.P. AGENCIES v. STATE OF KERALA 1081
[DIPAK MISRA, J.]
entries in the schedules for which HSN Numbers are A
not given. Those commodities which are given with
HSN Number should be given the same meaning as
given in the Customs Tariff Act, 1975. Those
commodities, which are not given with HSN Number,
should be interpreted, as the case may be, in common B
parlance or commercial parlance. While interpreting a
commodity, if any inconsistency is observed between
the meaning of a commodity without HSN Number and
the meaning of a commodity with HSN Number, the
commodity should be interpreted by including it in that C
entry which is having the HSN Number.
HSN Numbers are allotted in the Schedules either in
four digits or in six digits or in eight digits. The four
digit numbers indicate the heading in the HSN o
classification, six digit numbers indicate the sub-
heading and the eight digit numbers indicate the
specific commodity number. While interpreting the
commodities in the Schedules, the following guidelines
may be followed: E
i. The Commodities which are given four digit HSN
Number shall include all those commodities coming
under the heading of the HSN.
F
ii. The commodities which are given six digit HSN
Number shall include all those commodities coming
under that sub-heading of the HSN.
iii. The commodities which are given eight digit HSN G
Number shall mean that commodity which bears that
HSN Number.
iv. As an exception to the above rules, there are certain
entries in .the Schedules, which bear the eight digit
H
1082 SUPREME COURT REPORTS (2015] 2 S.C.R.
A numbers but the four digit heading numbers of such
commodities are given for some other commodities
mentioned elsewhere. In such cases, the four digit
heading shall include only those commodities under
that heading excluding that commodity for which the
B eight digit numbers are given. Similar cases are
available in the case of six digit numbers also. In
such cases the above principles shall apply mutatis
mutandis.
c v. Where the term 'other' is used in subentries or in
sub-sub-entries, it should be construed by using the
doctrine of ejusdem generis. (When specific words
are followed by general words, the general words
should be interpreted as having the meaning identical
D to the meaning attributed to the specific words).
xxx xxx xxx xxx
43. The goods given in List A to Third Schedule as
E 'Industrial inputs and Packing Materials' shall attract
the rate of tax applicable to Third Schedule regardless
to the purpose for which such goods have been
purchased."
F 19. From the aforesaid rule position, it is luculent that
the commodities mentioned in the schedules have been
allotted code numbers developed by International Customs
Organisation, which is known as Harmonised System of
• Nomenclature (HSN). The same has been adopted in the
G 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.
The rules accept that for certain entries, HSN numbers are
not given. Where commodities are not ascribed any HSN
H number, they would be interpreted as understood in
M/S. M.P. AGENCIES v. STATE OF KERALA 1083
[DIPAK MISRA, J.]
common or commercial parlance. In case of inconsistency A
between 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. Thus,
primacy is given to HSN number classification and adoption/ B
interpretation of HSN classification under the Customs Tariff
Act, 1975 and any inconsistency or debate would be
decided with the commodity being categorized against the
HSN number. As is seen, general guidelines have been
given on interpretation of four digit, six digit and eight digit C
HSN numbers. The rules also provided for resolution and
conflict between the commodities with four digit, six digit and
eight digit HSN number, when they overlap. It can be
emphatically stated that the word "other" used in sub-entries
0
or sub-sub-entries have to be construed by adopting the
doctrine of ejusdem generis.
20. A two-Judge Bench of this Court has addressed to
a dispute pertaining to the interpretation of Rules of
Interpretation as provided under the 2003 Act and HSN E
Code. In Reckitt Benckiser (India) Ltd. v. Commissioner,
Commercial Taxes and others', the question arose
whether mos_g.yito repellants and other items fall under Entry
44(5) of Schedule Ill of the 2003 Act. The Court referred
to the items by enlisting the trade name, name of active F
ingredient, entry in relevant statutes i.e. Insecticides Act,
1968 and Drugs and Cosmetics Act, 1940 and the Licensing
Authority in respect of the products, namely, Mortein coil,
Mortein mats, Mortein vaporizers, Mortein Instant Cockroach
Killer, Mortein Instant Flying Insect Killer, Mortein Instant All G
Insect Killer, Lizol disinfectant surface cleaner, Harpic toilet
cleaner and Dettol. After enlisting the same, the Court
1 (2008) 15 VST 10 (SC) H
1084 SUPREME COURT REPORTS (2015) 2 S.C.R.
A referred to Section 6 of the 2003 Act, goods specified in
Second and Third Schedule that are charged to duty at the
rate specified therein. The two-Judge Bench also referred
to the provisions in the Act about chargeability of duty when
the goods do not fall within the said two schedules as per
B notification issued by the State Government. The
controversy that arose before the Court was whether the
enlisted items falls under Entry 44(5) read with Section
6(1 )(a) of the 2003 Act. It was contended by the appellant
C that the items fell under Entry 44(5) which, at the relevant
time, attracted duty at the rate of 4% whereas the stand of
the Department was that the said items came under Section
6(1)(d) read with Notification No. 82/2006, Entry No. 66,
which attracted the rate of duty at 12.5%. After recording
the stand of the parties, the Court held:
0
"We have examined the impugned judgment. In this
case, we find that the High Court in the impugned
judgment has failed to notice the Rules of Interpretation
E which require that in cases where HSN code number
is indicated against the tariff item mentioned in the Third
Schedule, then one has to go by the provisions of the
HSN as adopted by the Customs Tariff Act, 1975. If
that is the case, then, one needs to interpret the entries
F in the Third Schedule not only in the light of the entries
in the Customs Tariff Act, 1975 but also the judgments
applicable to the corresponding entries in the Customs
Tariff Act."
G 21. Expressing the aforesaid view, the Court set aside
the judgment of the High Court and remitted the matter to
the High Court for fresh consideration in accordance with
law. The said decision, as we understand, makes it clear
that Rules of Interpretation has its own signification and one
H is required to go by the provision of HSN, as adopted by
M/S. M.P. AGENCIES v. STATE OF KERALA 1085
[DIPAK MISRA, J.]
the Customs Tariff Act, 1975 and one has to interpret the A
Third Schedule not only in the light of entries in the Customs
Tariff Act, 1975 but also the judgments applicable to the
corresponding entries in the Customs Tariff Act.
22. In this regard, it is appropriate to refer to a B
pronouncement by a three-Judge Bench in Collector of
·central Excise, Shillong v. Wood Craft Products Ltd. 2
In the said case, .the Court referred to the Statement of
Object and Reasons of the Central Excise Tariff Bill, 1985
which led to the enactment of the Central Excise Tariff Act, C
1985, which indicates the pattern of the structure of the
Central Excise Tariff indicated therein. The Court
reproduced the Objects and Reasons of the 1985 Act. We
think it apt to reproduce the relevant part of the same as
follows: D
"The Technical Study Group on Central Excise Tariff,
which was set up by the Government in 1984 to
conduct a comprehensive inquiry into the structure of
the central excise tariff has suggested the adoption of E
a detailed central excise tariff based broadly on the
system of classification derived from the International
Convention on the Harmonised Commodity Description
and Coding System (Harmonised system) with such
contractions or modifications thereto as are necessary F
to fall within the scope of the levy of central excise duty.
The Group has also suggested that the new tariff
should be provided for by a separate Act to be called
the Central Excise Tariff Act.
G
The Tariff suggested by the Study Group is based on
an internationally accepted nomenclature, in the
formulation of which all considerations, technical and '
2 (1995) 3 sec 454
H
1086 SUPREME COURT REPORTS [2015] 2 S.C.R.
A legal, have been taken into account. It should,
therefore, reduce disputes on account of tariff
classification. Besides, since the tariff would be on the
lines of the Harmonised System, it would bring about
considerable alignment between the customs and
B central excise tariffs and thus facilitate charging of
additional customs duty on imports equivalent to excise
duty. Accordingly, it is proposed to specify the Central
Excise Tariff suggested by the Study Group by a
separate Tariff Act instead of the present system of the
c tariff being governed by the First Schedule to the
Central Excises and Salt Act, 1944."
23. After referring to the Objects and Reasons, the
Court laid down thus:
D
"It is significant, as expressly stated, in the Statement
of Objects and Reasons, that the Central Excise Tariffs
are based on the HSN and the internationally accepted
nomenclature was taken into account to "reduce
E disputes on account of tariff classification". Accordingly,
for resolving any dispute relating to tariff classification,
a safe guide is the internationally accepted
nomenclature emerging from the HSN. This being the
expressly acknowledged basis of the structure of
F
Central Excise Tariff in the Act and the tariff
classification made therein, in case of any doubt the
HSN is a safe guide for ascertaining the true meaning
of any expression used in the Act. The ISi Glossary
G of Terms has a different purpose and, therefore, the
specific purpose of tariff classification for which Central
Excise Tariff Act, 1985, must be preferred, in case of
any difference between the meaning of the expression
given in the HSN and the meaning of that term given
H
MIS. M.P. AGENCIES v. STATE OF KERALA 1087
[DIPAK MISRA, J.]
in the Glossary of Terms of the ISi." A
From the aforesaid, it is vivid that while examining
the controversy with regard to classification or entries, the
aforesaid principles do form the touchstone and edifice for
any determination. B
24. In this context, it is worth reproducing what has
been stated by a three-Judge Bench in O.K. Play (India)
Ltd. v. Commissioner of Central Excise, Delhi Ill,
Gurgaon3 : c
"Further, the scheme of the Central Excise Tariff is
based on Harmonised System of Nomenclature (for
short "HSN") and the explanatory notes thereto.
Therefore, HSN along with the explanatory notes
0
provides a safe guide for interpretation of an entry."
25. In the instant case, the respondents have not
invoked and there is no lis as regards the applicability in
Entry 27. As per the respondent and the impugned
judgment, the residuary Entry, that is, Entry No. 103, is E
attracted. Needles to say, the res!duary entry would apply
only when the goods are not covered under any other Entry
of the List or any other Entry in the Schedules. To elaborate,
the case of the respondent is that two goods under F
consideration are not covered by any specified Entry in the
Schedules as well as in SRO 82/2006 dated 21.01.2006.
If the goods in question are covered under any of the
Entries in the Schedule, Entry 103, which is the residuary
Entry, would not get attracted. In such cases, the tax rate G
as stipulated in the Schedule, applicable to the Entries
would be applicable.
3 (2oosi 2 sec 460 H
. .
1088 SUPREME COURT REPORTS [2015) 2 S.C.R.
A 26. Keeping the aforesaid principles in view, we are
required to understand the Schedule and the relevant
Entries therein. Prior to that we would like to refer to the
findings recorded with regard to the category or
classification under HSN Code in respect of two goods
B under the Central Excise Act.
27. Learned counsel for the appellant submits that no
new product comes into existence upon the mixture of water
and AVP and the product remains as AVP only, and hence,
C no manufacturing process is involved. It is put forth that
whether the product "Ujala Supreme" which constitute dye
and water, can be considered as a preparation based on
synthetic organic colouring matter classifiable under
Heading 3204.90, has been examined by the Central Excise
D Authorities who have been administering the classification
based on HSN for the few decades. It has been brought
to our notice that the Excise Department has raised a
demand of central excise duty in respect of the goods of
the appellant by proposing to classify the product as a
E preparation based on synthetic organic colouring matter and
the said issue was decided by the Central Excise, Customs
& Gold (Control) Appellate Tribunal in Jyoti Laboratories
v. CCE, Cochin4, wherein it has been held that in the
F process of diluting AV dye with water, no new product
classifiable under the Chapter Heading 3204.90 as
preparation based on synthetic organic colouring matter
emerges. the said decision rendered by the Tribunal, as
contended by the assessee-appellant, has not been
G challenged by the Central Excise Department. We have also
been apprised that the matter was again raised by the
Department of Excise and travelled to the Tribunal in Jyothy
4 '1994 (72) ELT 669
H 5 (2007) (78) RLT 276, CESTAT Bangalore
M/S. M.P. AGENCIES v. STATE OF KERALA 1089
[DIPAK MISRA, J.]
Laboratoires & Anr. v. CCE, Calicuf', wherein it has been A
ruled that the dilution undertaken by the company does not
result in the emergence of new product and that the diluted
product in question would continue to be classifiable under
Chapter Heading 3204.12.S4. The said decision of the
Tribunal has also gone unassailed and has been accepted B
by the authorities all over the country.
28. It is an admitted fact that Jyothy Laboratories
purchases central excise duty paid AVP classifiable under
the Heading 3204.12.94 and thereafter, the AVP is diluted C
in water and filled in plastic container and then sold under
the brand name of 'Ujala'. As far as "Ujala Supreme" is
concerned, it is urged that it is nothing but a diluted form
of AVP. The AVP is merely diluted to create Ujala Supreme
in the form of mathematical equation. Learned counsel for D
the appellant has referred us to report dated 30.8.2006 of
the Institute of Chemical Technology, Matunga, Mumbai
which has stated that the chemical composition of AVP and
Ujala are the same except for the dilution in Ujala. The
relevant part of the said report reads as follows: E
"The Acid Violet Paste (referred as "AVP" hereafter)
supplied to us confirms to Acid Violet 49, a synthetic
organic dye classified into acid dye class which is used
for the colouration of silk I wool at elevated F
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 (High Performance Thin Layer G
Chromatography) and the results are observed as
below.
1. The Chemical composition of "AVP" and "Ujala" are
H
1090 SUPREME COURT REPORTS [2015] 2 S.C.R.
A the same except for the dilution in "Ujala".
2 . It can be observed from the chromatogram that
"Ujala" is a heavily diluted form of AVP with water.
3. As such "Ujala" cannot be used as a dye or a
B
colouring matter as it is.
4. From the technical literature it can be understood
that diluted acid violet 49 is used in the fabric finishing
industries for imparting brightness to white fabrics.
c
(The mechanism being the fabric absorbs all the
colours in the visible light and transmits the bluish I
purplish tint)
D As per technical report and the HPTLC report, it can
be conclusively said that Ujala is nothing but a diluted
form of Acid Violet Dye.
The observations of the HPTLC analysis are as follows:
E d. All the components present in diluted sample of AVP
are also present in Ujala sample.
e. No additional components are present in Ujala
sample.
F f. The diluted AVP samples and the Ujala sample's
spectral scans are super imposable and match exactly,
which confirms that Ujala is a diluted form of AVP and
chemically they both are identical.
G From the above analytical and technical data, it can be
concluded that "Ujala" is only a diluted form of Acid
Violet 49 with water, which has the inherent
characteristics of brightening clothes and does not
contain any other additives or optical brightening
H
M/S. M.P. AGENCIES v. STATE OF KERALA 1091
[DIPAK MISRA, J.]
agents. The brightness of the fabric is increased A
because it absorbs all the colours in the visible light and
transmits the bluish I purplish tint, thus hiding the
yellowing of the fabrics."
29. Referring to the said report, it is submitted that when B
the 2003 Act has classified AVP under Entry 155(8)(d) and
has classified it as equivalent to HSN Code No. 3204.12.94,
it has to be put under that classification. As far as "Ujala
Stiff and Shine" is concerned, it is the stand of the assessee
that it is only a diluted PVA and Jyothy Laboratories . C
purchases PVA, which is an aqueous dispersion, from M/
s. Somnath Chemicals which sells it under the brand name
PA3339, classifying the product under Chapter Heading
3905.12.90 of Central Excise Tariff Act, 1985 (for short, "the
0
1985 Act"). To bolster the said stand reliance has been
placed on a Test Certificate of GEO CHEM Laboratories P.
Ltd .• Mumbai which states that "Ujala Stiff and Shine" is
PVA. A similar test certificate from Shriram Institute for
Industrial Research has also been brought on record. The E
said Institute has tested samples collected from open
market in Kerala and from the Kerala sales depot of Jyothy
Laboratories Ltd. and the test report has certified that the
product to be containing solid and water content of 43.87%
and 55.78% respectively in the former and 43.80% and F
55.80% in the latter case. It is further stated that the solid
content in both the cases have been tested and certified
to contain PVA in the ratio of 42.94 out of 43.87 and 42.98
out of 43,80 respectively. In other words, the percentage
of PVA in the solid content is more than 98%. It is also G
noticeable from the report that there is presence of rose
fragrance. It is further the stand of the appellant that Jyothy
Laboratories Ltd. does not add any ingredient to the PVA
and, therefore, the rose fragrance is inherent in the PVA
purchased by it. H
1092 SUPREME COURT REPORTS [2015] 2 S.C.R.
A 30. At this stage, it is pertinent to note that Chapter
Heading 3905 of HSN reads "Polymers of Vinyl acetate or
of other vinyl esters, in primary forms; other vinyl polymers
in primary forms". Chapter Note 6 of Chapter 39 of HSN/
Customs Tariff/Excise Tariff states that "the expression
B 'primary forms' applies only to:
"(a) Liquids and pastes, including dispersions
(emulsions and suspension) and solutions,
C (b) Blocks of irregular shape, lumps, powders (including
moulding powders), granules, flakes and similar bulk
forms."
31. On the aforesaid basis, it is claimed that "Ujala stiff
D and Shine" is a liquid form and is covered under primary
form. Reference has been made to Heading 3905 of the
Tariff that reads as follows:
"3905 Polymers of vinyl acetate or of other vinyl
E esters, in primary forms; other vinyl
polymers in primary forms.- Poly (vinyl
acetate):
3905 12 - In aqueous dispersion:
F 3905 12 10 - Poly (vinyl acetate) (PVA), moulding
material
3905 12 20 - Poly (vinyl acetate) resins
3905 12 90 - Other"
G
32. A comparison has been made between the said
tariff and Entry 118(5) of List A of the Third Schedule of the
2003 Act which is as follows:
H
M/S. M.P. AGENCIES v. STATE OF KERALA 1093
[DIPAK MISRA, J.]
"Polymers of vinyl acetate or of other vinyl esters, in A
primary forms, other vinyl polymers in primary forms
and gives the HSN code as 3905."
33. We have referred to the same as the learned
counsel for the appellant has strenuously urged that HSN B
code has to be given necessitous acceptation as it is the
intendment of the legislature. The Rules of Interpretation
of the schedules have stipulated that the commodities which
are given four digit HSN number shall include all those
commodities under that Heading of the HSN which would C
mean that all the items listed under Chapter Heading 3905
of the Tariff are covered by the said Entry. It is contended
that once it has been held by the CESTAT that there is no
chemical change brought about in a process and if the
product at the starting and the terminal points of the process D
remains the same, the activity would not amount to
manufacture, as the essential character of product remains
constant.
34. In this regard, we may refer with profit to a two- E
Judge Bench decision in CommissionerofC.Ex., Cochin
v. Mannampalakka/ Rubber Latex Works 6 In the said
case, the assessee was engaged in the manufacture of
Latex (Rubber) based Adhesive with brand names Superset
(LC) and Superset (LB). The claim of the Department was F
that Latex based Adhesive manufactured by the assessee
falls under tariff heading '35.06' as it is being sold as an
adhesive to the leather footwear manufacturers. Reliance
was placed on the process of manufacturing for coming to
the conclusion that tariff heading 35.06 is applicable. In the G
said case, the Court referred to the tariff heading 35.06
which falls under Chapter 35 with reference to enzymes,
6 2007 (217) ELT 161 (SC) H
1094 SUPREME COURT REPORTS (2015] 2 S.C.R.
A modified starches: glue and albuminoidal substances,
whereas tariff heading 40.01 falls under Chapter 40 which
refers to 'rubber and articles thereof. The tribunal referred
to Note 5(b) of Chapter 40 and eventually held thus:
B "Reading Note 5(b), it becomes clear that the test to
distinguish rubber based adhesives and non-rubber
based adhesives or other adhesives is the test of
composition and not the test of end-user. Generally,
in matters of classification "composition test" is an
C important test and "end-user test" would apply only if
the entry say so. Applying Note 5(b) and keeping in
mind the distinction between rubber adhesive and other
adhesives, we are of the view that tariff heading 40.01
is applicable to the facts of the present case. Applying
D the composition test, we also find that the rubber
content in the product in question is above 90 per cent.
For the aforestated reasons, we are of the view that
Latex and Adhesives manufactured by the assessee
E falls under heading 40.01 and not under heading
35.06."
35. Learned counsel for the appellant has drawn
inspiration from the said decision to show that the case at
F hand, the composition test is the important one and not the
end-user test. Be it stated, Note 5(b) provided about rubber
or mixture of rubber retaining its essential character as a
raw material. Learned counsel for the appellant has placed
reliance on Jyoti Laboratories (supra), wherein the issue
G was that the product manufactured under the brand name
Ujala was classified differently by the assessee and the
revenue. The Tribunal posed two relevant questions,
namely, (i) whether there is a process of manufacture and
a new excisable goods had arisen in the preparation of the
H
MIS. M.P. AGENCIES v. STATE OF KERALA 1095
[DIPAK MISRA, J.]
product Ujala and (ii) if so, what is the correct classification? A
Thereafter, the Court referred to the opinion of the Chemical
Examiner, wherein it has been stated thus:
"The entire method of manufacturing was also verified.
The factory is getting the Acid Violet and Fluorescent B
Whitening agent from Bombay. The fluorescent
whitening agent is nothing but Ranipal as per the
packing list on the tin.
Factory is making the Ujala by simply mixing these c
three items, Acid violet, ultra marine blue, fluorescent
whitening agent in water heating them to a particular
temperature and then filter this solution and bottling
them in small packings and packing them in paper
cartons for marketing, as such, there is no machinery o
is used for the production. All the process is done by
manual labour only.
Hence, in my opinion, no new product is emerged by
this process, only three colouring matters mixed
together in a particular proportion for colouring the E
fabric."
On the aforesaid basis, it held thus:
"Therefore, on the basis of the technical opinion and F
the case law cited above, we have to uphold the
contention of the assessee that there is no manufacture
on the addition, and mixing of Ranipal, Ultramarine blue
in the liquid Acid violet dye and there is no new product
emerging from such a process." G
36. Be it noted, this view expressed by one of the
member was differed with another member, but the third
member, relying on the report of the Chemical Examiner,
H
1096 SUPREME COURT REPORTS [2015] 2 S.C.R.
A who has stated that Ujala is made simply by mixing acid
violet, Ranipal and ultramarine blue in water heating them
to a particular temperature and filtering this solution and
bottling in small packing and packing them in paper cartons
for marketing. The chemical examiner observed that only
B three colouring matters mixed together in a particular
proportion for colouring the fabric. The learned Member
thereafter stated thus:
"It is seen that even according to the subsequent
C memorandum for changing the classification issued by
the Collector on 31.5. 1991, the admitted position is acid
violet received by the appellants is standardized.
Therefore, it is very clear that there is no conversion
in this case of unformulated. unstandardised or
D unprepared form into their formulated. standardized or
prepared forms ready for use in the process of dyeing.
When this is so, it cannot be held that there is a process
of manufacture in the production of 'Ujala'. The
chemical examiner's report is to the effect that it is a
E physical mixture of the ingredients in boiling water which
report has been given after study of the manufacturing
process." [Emphasis added]
F
37. It is apt to note here that the majority opined that
the Chemical Examiner's opinion is in accordance with the
Tariff Ruling of the Board. These authorities fundamentally
relate to the issue that there has been really no manufacture
G process for the purpose of classification. That apart we find
from the test reports that there is only dilution in water and
needless to emphasize the same does amount to or result
in manufacture and hence, no new product emerges.
Therefore the common parlance would come into play.
H
MIS. M.P. AGENCIES v. STATE OF KERALA 1097
[DIPAK MISRA, J.)
38. From the aforesaid discussion, it is clear as crystal A
that two goods/products have been held to be covered
under the HSN Code 3905, and HSN Code 3204.12.94 and
hence, there can be no shadow of doubt that the said
entries fall under entry numbers 155(8)(d) and 118(5) of the
list "A" of Third Schedule of the 2003 Act covering industrial B
inputs and packaging materials, but that would not be
material and relevant regard being had to the rules of
interpretation which are applicable. The subject matter of
the list will not fall under residuary entry 103 in SRO 82/
2006 dated 21.01.2006, if the goods in question fall in any C
entry of any of the schedule. That is what is conveyed by
the language employed in Entry No. 103. The said Entry,
as we find, does not stipulate or carves out any exception
in respect of list "A" to the Third Schedule. That being the
0
position, once goods fall under any of the HSN
classification, that is, the goods/commodities that are
inC:;luded in list "A" to the Third Schedule, entry 103, which
is fesiduary in nature, would not get attracted.
39. The submissions of learned counsel for the State E
that the decisions under the Excise Act would have no play,
for they deal with the issue of the manufacture, does not
commend
I
acceptance. The High Court has elaborately
dwelled upon the issue of manufacture. We have noticed
the judgments rendered by the CESTAT there is no F
manufacturing. It is pertinent to state here that the question
of manufacture is not relevant for the purposes of 2003 Act.
What is really relevant is the classification based upon the
HSN number. The decisions rendered by the CESTAT have
decided on the classification which is founded upon the G
HSN number. It has been laid down that after devolution
with water the goods continue to remain classified under
the same HSN number. This means that the goods remain
in list "A" of the Third Schedule ..It may be noted that the H
1098 SUPREME COURT REPORTS (2015] 2 S.C.R.
A position would have been totally different had the goods in
question been separately and specifically itemized in SRO
number 8212006 dated 21 51 January 2006. The goods which
are specifically mentioned in any of the entries of the said
SRO, would be chargeable to tax@ 12.5%. But that is not
B the lis here, for the Revenue has included the goods in the
residuary Entry 103 and the said entry, by no stretch of
reasoning, can be made applicable.
40. The High Co.urt, we are disposed to think, has
C missed the issue in entirety and, therefore, we are obliged
to dislodge the impugned judgment and orders. However,
if any assessee-appellant has paid the amount of VAT to
the State Government, they will not be entitled to get any
refund of the said amount.
D
41. Consequently, the appeals are allowed and the
- judgment and orders are set aside with the stipulation that
none of the assessee-appellant would be entitled to refund.
However, in the facts and circumstances of the case, there
E shall be no order as to costs.
Nidhi Jain Appeal allowed.
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