WP(C) 5428/2010 BEFORE HON’BLE MR JUSTICE AMITAVA ROY JUDGMENT AND ORDER(CAV) The petitioner by this impeachment not only seeks the annulment of the order dated 11.8.2010 of the Commissioner of Taxes, Assam whereby its pr oduct Ujala Supreme has been adjudged to be included in Sl No.1 of the Fifth Schedule of the Assam Value Added Tax Act, 2005 ( for short, hereafter referred to as the ’Act’) and taxable @ 13.5%,but also pleads for a direction that the s ame is leviable @ 4% being classified under Sl No.114 of Pt-C of the Second Sc hedule of the enactment. 2. I have heard Mr M.P.Deb Nath, learned counsel for the petitioner assis ted by Mr Bikash Sharma, Advocate and Mr D.Saikia, learned Standing Counsel, Fin ance Department. Assam for the respondents. 3. The factual prologue in a sketch can be gleaned from the rival pleading s. The petitioner has introduced itself to be a dealer registered under the Act and engaged inter alia in making and selling of ’Ujala Supreme’ ( for convenienc e, also hereafter referred to as the ’product’ or ’Ujala’) which, according to i t, is a brand name for diluted Acid Violate Paste ( for short, also hereafter r eferred to AVP’). It claims to have been filing its returns for the above prod uct in accordance with the Act and the Rules framed thereunder by classifying i t under HSN Code 3204 12 94 and paying VAT @ 4% in terms of Pt-B of the Seco nd Schedule of the Act of the legislation and in turn, collecting the said amoun t from its consumers. 4. On receipt of the audit assessment notice dated 21.5.2007 under S ection 36 of the Act asking it to produce documentary evidence in support of the returns filed by it for the period 1-5-05 to 31-3-2006, it submitted the same and also furnished the details as sought for. A show cause notice being No.CTVA- 8/2007/2 dated 25.6.07 was issued by the Superintendent of Taxes (Department) al leging that it had short paid the VAT @ 4% instead of 12.5% due for the sale of the product. The petitioner in response to this notice, caused its appearance before the concerned departmental authority and asserted the exigibility of Uj ala to VAT @ 4%. Its claim, however, was rejected by the order dated 2.8.07, w hereupon it preferred an appeal with the Deputy Commissioner of Taxes(Appeals), Guwahati. By order dated 27.11.2007 the said revenue authority in the appeal int erfered with the order of assessment and remitted the matter with a direction t o the Assessing Officer to assess the petitioner afresh by determining the tax payable by it for Ujala @ 4%. The revenue filed a revision petition against thi s order before the Commissioner of Taxes, Assam. The revisional authority by h is order dated 27.6.08 sustained the findings of the appellate authority i.e. D eputy Commissioner of Commercial Taxes (Appeals), Guwahati concluding that Ujala occasioned by adding of water with AVP did not amount to manufacture and that the product retained its original characteristics. 5 The Additional Deputy Commissioner of Taxes, Assam subsequent the reto, by his letter dated 26.5.2010 required the petitioner to appear before th e Commissioner of Taxes, Assam, for clarification regarding rate of tax on Ujala Supreme. The petitioner arranged for its representation through its authorized representative and furnished all materials relevant to the issue and also reinfo rced the same with written submission. The impugned order dated 11.8.2010 follow ed. 6. This order inter alia discloses that the exercise had been undertak en afresh pursuant to a petition structured on the decision rendered on 6.4.200 9 by the Kerala High Court in M.P. Agencies vs. State of Kerala, (2010) 28 VST 4 4 (KER) and filed by the Superintendent of Taxes, Unit-B, Guwahati. 7. While elaborating its challenge on various counts vis a vis this orde r, the petitioner with reference to the decision in M.P.Agencies (Supra) invol ving Kerala Value Added Tax Act, 2003 and the Rules framed thereunder has mentio ned about significant changes introduced under the Kerala VAT regime with effec t from 1‘.4.2005 in the matter of classification of goods for the purpose of ta xation or exemption, with reference to the code numbers developed by Internat ional Customs Organization as Harmonized System of Nomenclature (HSN) and adopte d by Customs Tariff Act,1975. It has underlined that unlike the earlier sales tax regime wherein the classification of goods was by and large determined by the commercial parlance/common parlance test, classification under the Kerala Value Added Tax Act,2003 (for short, hereafter referred to as ’KVAT Act’) was wi th reference to specific Code numbers under HSN to obviate uncertainties and dis putes on this count. The petitioner has maintained as well that the adoption of HSN Code was also to guarantee uniform classification of the items transcendin g various taxing statues, Central or State irrespective of the nature of the dut y/levy i.e. Customs Duty, Central Excise Duty or State VAT. Though at the enactm ent of KVAT Act, no norm for elucidation of the entries in the Schedule with t he reference to the HSN Codes did exist, in the face of problems encountered, th e Government introduced Rules of Interpretation vide Kerela VAT (Amendment) Ac t,2005 with retrospective effect from 1.4.2005.The preamble of the Rules of Inte rpretation of Schedules as well as Rule 43 thereof in particular as would occup y the center stage of the competing pleas, apt it would be to extract the same a t this stage for ready reference :- RULES OF INTERPRETATION OF SCHEDULES The commodities in the schedules are allotted with Code Numbers, which a re developed by the International Customs Organization as Harmonized System of N omenclature( HSN) and adopted by the Customs Tariff Act,1975. However, there are certain entries in the schedules for which HSN Numbers are not given. These com modities which are given with HSN Number should be given the same meaning as giv en in the Customs Tariff Act,1975. Those commodities, which are not given with H SN Number, should be interpreted, as the case may be, inn common parlance or com mercial parlance. While interpreting a commodity, if any inconsistency is observ ed between the meaning of a commodity without HSN Number and the meaning of a co mmodity with HSN Number, the commodity should be interpreted by including it in that entry which is having the HSN Number. &. &. &. &. .... &.. &. &. 43. The goods given in List A to third Schedule as ’Industrial inputs a nd Packing Materials’ shall attract the rate of tax applicable to third schedule regardless to the purpose for which such goods have been purchased. 8. According to the petitioner, its product ’Ujala Supreme’ is the dil uted form of Acid Violate Paste and is classifiable under HSN Code 3204 12 94 o f the Central Excise Tariff Act,1985 ( for short, hereafter referred to as the ’ Tariff Act ) as well as the Customs Tariff Act,1975. As the product has no othe r ingredient, it remains a dye as Acid Violate Paste though in a much diluted form. Referring to various test reports and experiments the petitioner while co ntending that its product is not a fabric whitener ,has controverted as well, the findings of the Kerala High Court in M.P.Agencies(Supra) on which the impug ned order dated 11.8.2010 is founded. 9. The respondents in their affidavit affirmed by the Commissioner of Tax es, Assam, the Respondent No.2, while endorsing the validity of the order impugn ed, have sought to bring home the contradictory and inconsistent dispositions o f the petitioner to repudiate the bonafide as well as the substance of its chal lenge. The answering respondents have averred that the petitioner though had ava iled sales tax concession under the Industrial Concession Schemes by contendin g that it had been manufacturing Ujala by applying raw materials of Acid Violate Paste, HDPE granules Masterbatch colour by mentioning these in its Form to obta in the Certificate of Entitlement, it has turned a volte face to assert that t he said product does not involve any manufacturing process and is a yield of dil ution of Acid Violate Paste alone. According to the respondents, on the basis of the Entitlement Certificate issued to the petitioner, the Assistant Commission er of Taxes, Guwahati Unit-B had issued the Certificate of Entitlement on 29.9. 2008 granting it the tax exemption to the extent of Rs.355.49 lakhs for the per iod 25.12.06 to 24.12.13 in respect of Ujala Supreme, its finished product. The respondents have maintained that the product marketed by the petitioner is ac cepted in common parlance as ’fabric whitener’ distinctly different from Acid V iolate Paste which is acknowledged as synthetic organic dye and is used for dy eing fabrics of silk wool at elevated temperature in presence of acid only. Whi le dismissing the petitioner’s classification of its product in Entry No.114 of Pt-C of the Second Schedule of the Act as patently erroneous, the respondents endorsed the impugned decision with profuse reference to various observations and findings recorded in the M.P. Agencies (Supra). According to them, Ujala Sup reme was a product commercially different from Acid Violate Paste with distinct use and purpose and that its claim to the contrary was clearly untenable. They h ave insisted that even assuming that Ujala Supreme is diluted Acid Violate Paste , as the product contains 99.02 % of water it is completely transformed in identity, use and marketability compared to the original raw material and thus cease to be a dye and thus the rate of tax applicable on synthetic organic dye used for dyeing fabrics of silk wool was not applicable to it (Ujala). The re spondents maintained that the findings of the Kerala High Court in M.P. Agenci es (Supra) were of decisive significance and that no different approach in the i nstant proceeding is warranted. 10. Mr Debnath, in his pursuit to invalidate the impugned order of the revenue authority has emphatically questioned the tenability of the findings rec orded in the decision of the Kerala High Court in M.P.Agencies(Supra). Accordi ng to him, the conclusion that Ujala Supreme was in the nature of laundry white ner and thus was not classifiable under the third Schedule of the Kerala VAT Ac t against the HSN Code No.3204 12 94 ( i.e. Acid Violate Paste)was contrary to Rule 43 of the Rules of Interpretation and in absence of any stipulation in the said enactment or its Schedule and Rules framed thereunder that the class ification of the goods with reference to HSN Code would be available only for t he original product, the observation to the contrary made in the judgment was no t sustainable. Mr Debnath urged that as the AVP and the Ujala Supreme are produc ts which are clearly classifiable in the third Schedule to the Kerala VAT Act, the latter could not have been brought under the residuary entry. The observati on of the Kerala High Court that the findings of the Central Excise Tribunal an d the Commissioner of Central Excise that Joyti Laboratories was not involved in any manufacture was not worth considering for the purpose of the classificat ion ’Ujala Supreme’, was clearly in confrontation with the decision of the Apex Court in M/s Reckitt Beneckiser India Ltd. vs. Commissioner of Commercial Tax es, [2008]15 VST 10(SC), he pleaded. Referring to the various test reports and e xperiments conducted by several agencies to discern the inalienable traits of AVP and Ujala Supreme, the learned counsel insistently maintained that the pro duct was unmistakably classified under HSN Code 3204 12 94 and was thus ta xable @ 4%. He assiduously urged that the consistent findings of the tests condu cted unambiguously demonstrate that Ujala Supreme is nothing but a diluted form of AVP and does remain a dye and the character and use of both the components remain the same even after dilution. Mr Debnath therefore sought to impress up on this Court that AVP when diluted retains its characteristic and does not unde rgo a change to be converted to a different manufactured commodity. The learn ed counsel drew the attention of this court to the preamble of the Rules for Int erpretation to sustain this plea. As commercial parlance or common parlance tes t is relevant vis a vis those commodities which are not referable to HSN Code for their classification as is otherwise irrefutably attested by the Rules o f Interpretation, the sale thereof (AVP) with a different commercial name per se would not make any difference and attract a different rate of tax, he insisted . Mr Debnath argued that judged by the consistent experimental analysis ,Ujala Supreme is an alter ego of AVP in a diluted form and thus being distinctly ident ified by HSN Code No. 3204 12 94 ,the finding to the contrary as recorded i n M.P.Agencies (Supra) is untenable and is of no persuasive worth in the instant proceeding. While maintaining that the Kerala High Court had left out of consi deration the relevant subsequent reports to the effect that Ujala was possessed of dyeing attributes rendering its findings to the contrary flawed, the learne d counsel also dismissed the remonstrance of the respondents based on the petit ioner’s claim for sales tax exemption contending that the notion of manufacture under the Assam Industrial Policy, Assam General Sales Tax Act, 1993 and the A ct is not identical in all essential constituents to render the challenge herei n frivolous. Mr Debnath placed reliance on the following decisions of the Apex C ourt : 1) (1976) 2 SCC 241,Dunlop India Ltd. vs. Union of India and Others. 2) 1994(72) ELT 669, Jyoti Laboratories Vs. CCE, Cochin. 3) 2002 (142) ELT 18, Collector of Customs, Bomday vs. Business Forces Ltd THR.OL. 4) 2007(78) RLT 276(T), Jyothi Laboratories Ltd. & Nnr. Vs. CCE, Calicut. 5) 2007(82) RLT 927(S.C), CCE, Mumbai vs. Laijee Goodhoo & Co. 6) 2007(210) ELT 171(S.C), Crane Betel Nut Powder Works vs. Commissioner o f Customs & Central Excixe, Tirupathi. 7) 2007(217) ELT 161(SC), CCE, Cochin vs. Mannampalakkal Rubber Latex Work s . ‘ 8) [2008 15 VST 10(SC)]Reckitt Benckiser (India) Ltd. vs. Commissioner of Commercial Taxes and Others. 11. The learned Standing Counsel for the Revenue has responded at the o ut-set by questioning the bonafide of the challenge contending that the petitio ners having availed sales tax concession under the Industrial Concession Scheme by representing the product to be one manufactured by applying raw materials o f Acid Violate Paste, HDPE Granules etc.,its turn around for securing classifica tion of ’Ujala’ under Tariff Item 3204 of the Central Excise Tariff Act,1985 is visibly contradictory to this orientation and on that count alone, the present assailment ought to be negated. Referring to the application submitted by the p etitioner for obtaining the Certificate of Entitlement for exemption of tax for ’Ujala’ showing it to be a commercial product under the Assam Industries (Tax Ex emption for Pipe Line Unit) Order, 2005, in particular, the learned Standing Cou nsel has urged that product has been described there tobe a fabric whitener manu factured from the raw materials namely, Acid Violate Paste, HDPE granules ,Maste rbatch colours. The petitioner, thus having enjoyed the tax exemption as above, it is estopped from projecting the same product otherwise, he pleaded. The learned Standing Counsel with allusion to the certificates and repor ts based on empirical findings as contained therein (annexed to the writ petitio n) has maintained that ’Ujala’s use as a dye or coloring matter having been rule d out thereby, it by no means can be identified in absolute terms with Acid Viol ate Paste and thus the petitioner’s claim is misconceived. He has ,therefore ur ged that its endeavour to certify ’Ujala’ under Entry 114 of Schedule II -C of t he Act is apparently flawed. Relying heavily on the decision rendered by Kerala High Court in M.P. Agencies(Supra), Mr Saikia has insisted that the petitioner’ s product is commercially different from Acid Violate Paste with distinct charac teristics and utility and therefore, its plea to the contrary is mis-placed. As admittedly, ’Ujala’ is claimed to be a diluted Acid Violate Paste containing 99. 02 percent of water, it is even otherwise a commodity totally transmuted from Acid Violate Paste and having ceased to be a dye, it has been rightly taxed as a residuary item under Fifth Schedule of the Act, he contended. Endorsing the fin dings recorded in M.P. Agencies (Supra), the learned Standing Counsel argued th at the decisive criteria to identify the product for the purpose of classificati on has been rightly held to be the common parlance and/or a commercial parlance test. In the alternative, he urged that even assuming that ’Ujala’ is being sold as a dye, it being put up in form or packing for retail sale, it is beyond the tariff item 3204 and instead traceable to tariff item 3212 of Chapter 32 of t he Tariff Act an thus liable to be taxed @ 13.2 % under Schedule-V of the Act. Ujala being essentially a laundry whitener or a fabric whitener, it is not a cl assified item under the Tarrif Act with an allotted HSN No. and is thus exigib le to tax as a residuary item under Schedule-V of the Act, he insisted. He emp hatically rebutted the shortcomings in the determination in M.P.Agencies(Supra) as provided by the petitioner. Mr Saikia, to bolster his contentions placed rel iance on the following decisions of the Apex Court- i) (2005) 2 SCC 460 ; OK Play India Ltd vs. Commissioner of Central Excise Delhi III. ii) (2005) 12 SCC 731; Western India Plywood Ltd vs. Collector of Customs. iii) (2007) 7 SCC 490; Commissioner of Central Excise Mumbai vs. Damnet Che micals Pvt. Ltd. iv) (2007) 12 SCC 602; Mercantile Company vs. Commissioner of Central Excise , Calcutta. v) (2008) 9 SCC 82 ; Camlin Limited vs. Commissioner of Central Excise, Mum bai. 12. Mr Debnath, in his short reply maintained that in the facts of the c ase, Item 3212 of Chapter 32 of the Tariff Act had no application and that as the notion of manufacture under the Assam Industrial Policy,2003 is relevant onl y in the context of establishment of new and existing units for commercial pro duction, the plea of incompatibility qua the petitioner is misconceived. 13. Due attention has been lent to the competing pleadings and the arg uments based thereon. Before embarking upon the contentious issues surfacing th erefrom, appropriate it would be to notice the relevant legal provisions involve d. ENTRY 114 OF SCHEDULE II-C OF THE ACT Serial No. Heading No. of the Central Excise Tariff Act,1985(5 of 1986) Sub-heading N.of the Central Excise Tariff Act,1985(5 of 1986) Description 114. 32.04 Synthetic organic colouring matter, whether or not chemi cally defined; preparations based on synthetic organic colouring matter as speci fied in Note 3 or Chapter 32 of the First Schedule of the Central Excise Tariff Act,1985; synthetic organic products of a kind used as fluorescent brightening a gents or as luminophores, whether or not chemically denied excluding eatechu or gambiar. Notes appearing beneath the entries in Schedule II-C Note 1. Micronutrients and plant growth promoter or regulators are Not covered by the scope of this Part. Note 2. The Rules for the interpretation of the Central Excise Tariff Act,1985, read with the Explanatory Notes as updated from Time to time published by the Customs Co-operation Council, Brussels, shall apply for the interpretation of this Part. Note 3. Where any commodities are described against any heading or, as the case may be, sub-heading, and the aforesaid description is different in any manner than the correspond- ding description in the Central Excise Tariff Act,1985, then only those commodities described as aforesaid will be covered by the scope of this Part and other commodities, though covered by the corresponding description in the Central Excise Tariff, will not be covered by the scope of this Part. Note 4. Subject to Note 3, for the purpose of any entry contained in this Part, where the description against any heading or, as the case may be, sub-heading, matches fully with the corresponding description in the Central Excise Tariff Act, 1985, then all the commodities covered for the purpose of the tariff under that heading or sub-heading will be Covered by the scope of this Part. Note 5. Where the description against any heading or sub- Heading is shown as other then the interpretation as Provided in Note 2 shall apply. Central Excise Tariff of India Chapter 32 ‘ Tanning or Dyeing Extracts; tannins and their Derivatives; Dyes , Pigments and other colouring matter; paints and varnishes’ putty and other mas tics; inks . 3204 Synthetic organic colouring matter, whether or not chemically defined; preparations as speci fied in note 3 to this Chapter based on synthetic organic colouring matter; synthetic organic products of a kind used as fluorescent brightening agents or luminophores, whether or not chemically defined. 3204 12 94 Acid Violates, & & & & 14. A global body/entity nomenclatured as World Customs Organization (earl ier named Customs Co-operation Council) was established by a Convention signed i n Brusseels on 15h December,1950 delineating its functions amongst others to mak e recommendations to ensure an uniform interpretation and application of the Conventions concerning the Nomenclature for the Classification of Goods in Custo ms Tariffs and the Valuation of Goods for Customs Purposes. In order to secure a n uniform classification of commodities across the various taxing enactments be it parliamentary or legislative, enjoining prescription and realization of duty /levy, the World/International Customs Organization developed a System of Code n umbers for commodities catalogued in the Schedules of such legislations based o n Harmonized System of Nomenclature (for short, ’HSN’) since adopted by the Cus toms Tariff Act,1975. The Organization also formulated rules for the interpretat ion of the Harmonized System. The norms for classification of goods in the N omenclature have also been evolved. Rule 3 thereof relevant for the present purpose is extracted hereinbelow :- WHEN BY APPLICATION OF RULE-2(b) OR FOR ANY OTHER REASON, GOODS ARE, PRI MA FACIE, CLASSIFIABLE UNDER TWO OR MORE HEADINGS,CLASSIFICATION SHALL BE EFFECT ED AS FOLLOWS : (a)THE HEADING WHICH PROVIDES THE MOST SPECIFIC DESCRIPTION SHALL BE PREFERRED T O HEADINGS PROVIDING A MORE GENERAL DESCRIPTION. HOWEVER, WHEN TWRO OR MORE HEAD NGS EACH REFER TO PART ONLY OF THE MATERIALS OR SUBSTANCES CONTAINED IN MIXED OR COMPOSITE GOODS OR TO PART ONLY OF THE ITEMS IN A SET PUT UP FOR RETAIL SALE, T HOSE HEAIDNGS ARE TO BE REGARDED AS EQUALLY SPECIFIC IN RELATION TO THOSE GOODS, EVEN IF ONE OF THEM GIVES A MORE COMPLETE OR PRECISE DESCRIPTION OF THE GOODS. (b) MIXTURES, COMPOSITE, GOODS CONSISTING OF MATERIALS OR MADE UP OF D IFFERENT COMPONENTS, AND GOODS PUT UP IN SETS FOR RETAIL SALE, WHICH CANNOT BE C LASSIFIED BY REFERENCE TO 3(a) ,SHALL, BE CLASSIFIED AS IF THEY CONSISTED OF THE MATERIAL OR COMPONENT WHICH GIVES THEM THEIR ESSENTIAL CHARACTER, INSOFAR AS TH IS CRITERION IS APPLICABLE. (c) WHEN GOODS CANNOT BE CLASSIFIED BY REFERENCE TO 3(a) OR 3(b), THEY S HALL BE CLASSIFIED UNDER THE HEADING WHICH OCCURS LAST IN NUMERICAL ORDER AMONG THOSE WHICH EQUALLY MERIT CONSIDERATION. 15. The parties are not in issue that the Tariff Model of the Tariff Act is patterned on the categorization and the rationalized norms of nomenclatur e labelled as HSN for specifying the rate(s) of duty payable thereunder. That th e underlying purpose of this enterprise is to introduce a rationalized mechanis m of cataloguing the various categories of goods exigible to duty thus minimizin g the scope of ambivalence or dissonance in the matter