IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 13TH JULY 2010 / 22ND ASHADHA 1932 OT.Appeal.No. 5 of 2010() ------------------------- AGAINST THE ORDER NO. C3.23036/2008 of COMMR. OF COMMERCIAL TAXES, TRIVANDRUM .................... APPELLANT ----------------------------- M/S.HDFC BANK LIMITED,ELMAR SQUARE, M.G.ROAD,RAVIPURAM,ERNAKULAM,KOCH-682016, REPRESENTED BY MR.MANOJ KUMAR.P.M, SENIOR MANAGER. BY ADV. SRI.JOSEPH JERARD SAMSON RODRIGUES SRI.ROVIN RODRIGUES RESPONDENTS: --------------- 1. THE ASSISTANT COMMISSIONER(ASSMT.), SPECIAL CIRCLE-I,DEPT.OF COMMERCIAL TAXES, ERNAKULAM-682015. 2. THE COMMISSIONER OF COMMERCIAL TAXES, PUBLIC OFFICE BUILDING,MUSEUM ROAD, THIRUVANANTHAPURAM-695 033. BY G.P. SRI.MOHAMMED RAFIQ THIS OTHER TAX APPEAL HAVING BEEN FINALLY HEARD ON 13/07/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... O.T.A. No.5 of 2010 .................................................................... Dated this the 13th day of July, 2010. JUDGMENT Ramachandran Nair, J. This is an appeal filed under Section 62(1) of the Kerala Value Added Tax Act, 2003 (hereinafter called “the Act”) challenging the clarification issued by the Commissioner of Commercial Taxes under Section 94 of the Act, on application filed by another Bank namely, State Bank of India, clarifying that “10 gram gold rectangular bars" marketed by that Bank and classifiable under HSN Code 7108.13.00 falls under entry 4(4) of the Third Schedule to the Act and is taxable at 4%. State Bank of India which applied for clarification has accepted the order of clarification issued by the Commissioner and Government Pleader has produced copy of the return filed by them offering tax at 4% on the turnover of 10 gm. rectangular gold bars sold in the market. However, the appellant which is a Bank in the private sector, has challenged the order of clarification issued by the Commissioner in the O.T.A. NO.5/2010 2 case of SBI contending that the clarification is incorrect because according to the appellant, item is classifiable under HSN 7108.12.00 falling under entry 1(2) of the Second Schedule to the Act attracting tax at 1% under the head “bullion”. We have heard counsel appearing for the petitioner, Government Pleader for the respondent and have seen samples of the product marketed both by the SBI on whose application the impugned clarification was issued and by the appellant which is contesting the clarification issued by the Commissioner on SBI's application, which is produced as Annexure-C in the appeal filed by them. 2. In the first place, we have to refer to the Rules of Interpretation of the Schedules contained in Appendix to the Act. What is stated in the Rules of Interpretation is as follows: "The commodities in the schedules are allotted with Code Numbers, which are developed by the International Customs Organization as harmonised System of Nomenclature (HSN) and adopted by the Customs Tariff Act, 1975. However, there are certain entries in the schedules for which HSN Numbers are 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 O.T.A. NO.5/2010 3 Number, should be interpreted, as the case may be, in common parlance or commercial parlance. ...... III. The commodities which are given eight digit HSN Number shall mean that commodity which bears that HSN Number." The disputed entries for classification are the following: SECOND SCHEDULE Rate 1% ------------------------------------------------------------------------------------- Sl.No. Description of goods HSN Code ------------------------------------------------------------------------------------- 1 Bullions (1) Silver 7106.91.00 (2) Gold 7108.12.00 ------------------------------------------------------------------------------------- THIRD SCHEDULE-4% TAX ------------------------------------------------------------------------------------- Sl.No. Description of goods HSN Code ------------------------------------------------------------------------------------- 4. Articles of gold, silver and platinum group of metals other than jewellery falling under Second Schedule ....... (4) Gold, semi-manufactured 7108.13.00 ------------------------------------------------------------------------------------- The dispute is as to which of the above entries the 10 gm. rectangular O.T.A. NO.5/2010 4 gold bar of the purity 999.9 marketed by the appellant-Bank falls. The sample of the product sold by SBI, the Bank which sought the clarification and the sample of the product marketed by the appellant are produced in court. It is clear from the packing that both items are manufactured by the very same company namely, PAMP Switzerland in terms of the orders of the parties in as much as the manufacturing company's logo and name along with the appellant-Bank's logo and name are inscribed in the gold piece besides the weight and purity of the gold. The only distinction in the physical appearance of the 10 gm. gold bar marketed by the appellant and the SBI is that while in the case of appellant's product, the name of the foreign company namely, PAMP is also shown along with the logo, while in SBI's product only the logo of the manufacturing company is shown. Admittedly, both are polished, minted products, equally attractive and is packed in a transparent cover in card form containing all the details of the manufacturer and the Bank. 3. What is clear from the Rules of Interpretation of the entries in the Schedule is that a product with 8 digit HSN Code covers only the O.T.A. NO.5/2010 5 item described under the entry. Since the classification of various items under the Act are based on entries in the Customs Tariff Act which is based on the HSN classification, we have to necessarily refer to the entries in the Customs Tariff Act with HSN Code numbers. On going through the Customs Tariff Act, we find the description of the items with HSN Code numbers are the following: ------------------------------------------------------------------------------------- Tariff Item Description of goods Unit Rate of duty ---------------------- Standard Preferential Areas ------------------------------------------------------------------------------------- 7108 GOLD (including gold plated with platinum)unwrought or in semi- manufactured forms, or in powder form) Non-monetary: 7108 11 00 Powder kg. 10% -- 7108 12 00 Other unwrought forms kg. 10% -- 7108 13 00 Other semi-manufactured kg. 10% -- forms 7108 20 00 Monetary kg. 10% -- ------------------------------------------------------------------------------------ Since the Rules of Interpretation of the Schedules have to be in consonance with the meanings assigned to the items as described in the O.T.A. NO.5/2010 6 HSN Codes, we have to only consider whether the rectangular gold bars of 10 gm. size sold by the appellant is "gold in other unwrought forms" covered by HSN Code 7108 12 00 or "gold in other semi- manufactured forms" falling under HSN Code 7108 13 00. In this context we fee instead of referring to dictionary meaning, it would be desirable to refer to the information furnished in the website "GOLD BARS WORLDWIDE www.goldbarsworldwide.com" which describes manufacture, minting and sale of gold by world's leading manufacturers including PAMP of Switzerland which is making gold for the appellant as well as for SBI which obtained the clarification impugned in this appeal. Photographs of minted products given in the website show various forms and designs of the minted gold pieces sold in round, oval and rectangular shapes. In fact the pictures of either side of the gold bars marketed by various Indian Banks are separately given. Some of the Banks have in their coins the picture of Goddess Mahalakshmi engraved, while others have only the emblem of the Bank with the trademark of the manufacturer and the purity of the gold. In all cases it is seen that cast gold bars are minted to produce polished O.T.A. NO.5/2010 7 gold slabs in decorative forms. We extract hereunder the description and definition of the items as given in the website, the veracity or correctness of which is accepted by both parties in court as it is a publication by the Association including the manufacturer in Switzerland. "GOLD BAR A gold bar is broadly defined as a cast or minted gold item, regardless of shape, which is made by a recognized bar manufacturer. It is normally issued at a low premium above the prevailing value of its fine gold content. ...... MINTED BARS Minted bars are normally cut from a cast bar that has been rolled to a uniform thickness. The cutting is usually done with a die to create blanks that have the required dimensions and weight. All the surfaces (top, base and sides) are smooth and even. Markings are normally applied by a minting press. Although most minted bars are rectangular, they are also manufactured in a variety of other shapes (eg. round, square, oval). Minted "pendant" bars, which incorporate a hook or hanger so they can be worn, are also manufactured. O.T.A. NO.5/2010 8 Terminology: minted bars are also referred to as ingots, and in some countries as wafers, minted products or "coins", when the shape is round. Unwrought bars The Industry Collection classifies low purity cast gold bars (i.e.newly-mined dore bars and bars made from melted down scrap), and refined cast gold bars used for fabrication or investment purposes, as unwrought bars. It also classifies minted gold bars as unwrought bars for fabrication or investment purposes, when they are manufactured by a recognized bar manufacturer, include official markings, and are known to have been issued at a low premium above the prevailing value of their fine gold content. However, it can be noted that, while some countries classify minted gold bars as "unwrought", others classify them under some other category, notably as "other semi-manufactured forms" or as "other articles of precious metal." Counsel for the appellant contended that appellant is marketing rectangular gold bars in small pieces of 5 gm., 8 gm., 10 gm. and even large dimensions of 50 gm., 500 gm. and 1 kg. are also sold. However, in the impugned order the Commissioner has clarified only the rate of tax of 10 gm. rectangular piece of gold which is produced by the very O.T.A. NO.5/2010 9 same manufacturer in Switzerland and marked by them in the State. After seeing the samples, we have already found that the product is similar to the item sold by the appellant. WE make it clear that our decision is only on 10 gm. rectangular gold bar and we are not considering the rate of tax applicable in respect of gold slabs of the weight 50 gms., 500 gms. or 1 kg. as the case may be, which may be used as raw material by the manufacturers for use in manufacture of gold ornaments and so much so, it may fall under the category "unwrought forms of gold" falling under HSN Code 7108 12 00. However, we find that the smaller sizes of minted gold cannot be treated as gold in unwrought form because in the website itself the process of manufacture describes making minted bars by further processing from gold obtained in unwrought form after manufacturing through casting. It is specifically mentioned in the website of the manufacturers and it is common knowledge that minted pendant bars attached with hook or hanger are worn by ladies. The practice in some countries that minted forms of gold are treated as "semi-manufactured forms" or as "articles of precious metal" are also stated in the website. O.T.A. NO.5/2010 10 4. Counsel for the appellant, however, relied on the Bill of Entry presented to the Customs and accepted by them wherein the item is classified as gold in unwrought form falling under 7108 12 00 of the Customs Tariff ACc. However, Government Pleader submitted that rate of duty for import is same for articles covered by HSN Code 7108 12 00 and 7108 13 00. We find force in this contention because the import duty is same for gold falling under all sub-items under the four digit Code 7108. However, so far as the KVAT Act is concerned, upto 31.3.2009 gold came under three descriptions, one as bullion in Schedule II,other as semi-finished forms of gold and the third category under gold jewellery, the latter two falling under two separate entries in the Third Schedule taxable at 4% as against 1% tax payable for bullion, which alone was covered by Second Schedule entry. However, from 1.4.2009 the semi-manufactured gold items covered by entry 4 of Third Schedule were brought along with bullion in the Second Schedule. Therefore, until the amendment made effective from 1.4.2009, we find that only bullion, which is gold in unwrought form used as a raw material for manufacture of other products, is covered by entry 1 of the O.T.A. NO.5/2010 11 Second Schedule to the Act. In our view, minted rectangular forms of gold made with fine finish and markings with size of 5 gm., 8 gm., 10 gm. etc. are purchased only to be worn or to be gifted or purchased and retained for the finish and beauty and not for use as a raw material in the manufacture of gold ornaments which alone is covered by Second Schedule Entry (1) until the amendment made effective from 1.4.2009. Counsel for the appellant has relied on several decisions, particularly of the Supreme Court in ORIENT TRADERS VS. COMMERCIAL TAX OFFICER, TIRUPATI (2008) 13 VST 530. We find that the said decision is not based on the description of the entries with reference to the HSN Code contained in the Customs Tariff Act, but with reference to the entries in the Sales Tax Act. Moreover, the entries interpreted are not similar to the provisions under the KVAT Act involved herein. A Single Bench decision of one of us (Ramachandran Nair, J.) in BHIMA JEWELS VS. ASSISTANT COMMISSIONER (ASSMT.) reported in (2008) 12 VST 280 is also relied on by the counsel and contended that bullion is a raw material used in the manufacture of gold ornaments. We do not think there can be any controversy on this O.T.A. NO.5/2010 12 because larger dimensions of pure gold, whether it be in slab or ingot form, are used only in the manufacture of ornaments and are not worn or as such used for any other purpose. However, the items involved in this case are finished small sizes of gold pieces made in ornamental form for use as such, which are items obtained after minting process where markings, engravings and printing are given for the look and shape of the product. It is pertinent to note that the SBI on whose application the impugned clarification was issued, has not even contested the clarification at 4% but has accepted the same by remitting the tax. We are of the view that the impugned clarification by the Commissioner under Section 94 clarifying that 10 gm. gold rectangular bar marketed by SBI falls under HSN Code 7108 13 00 applies to the appellant's case also in respect of gold coins of similar size i.e. 5 gm., 8 gm., 10 gm. etc. marketed by them. 5. Even though counsel has relied on decision of the Supreme Court in RECKITT BENCKISER (INDIA) LTD. VS. COMMISSIONER reported in (2008) 15 VST 10 and contended that clarification applies only prospectively, we do not think we should O.T.A. NO.5/2010 13 consider this issue in this appeal where the order under challenge is only a clarification issued by the Commissioner of Commercial Taxes in respect of another dealer, namely, SBI. Government Pleader pointed out that proviso to Section 94 which provides for prospective effect of determination by the Commissioner on issues raised in the application for clarification was deleted by Finance Act, 2008 with effect from 1.4.2008. The question that arises for consideration is whether assessment of a dealer for any year is affected by reason of clarification issued by the Commissioner on an application filed by another dealer. If the appellant's contention is accepted, then certainly liability under the assessment can be got over by asking for clarification later which will have the effect of neutralising every assessment, if clarification is issued against assessment after relevant year and after completion of assessment. In this appeal, we are not considering the assessment or demand raised against the appellant, and all what we have considered is the correctness of the clarification which we found to be applicable to appellant's products, no matter whether the assessment could have been completed without any clarification at all. The appellant also did not seek any clarification and therefore we do not think we can in this appeal consider appellant's claim for prospective operation of the O.T.A. NO.5/2010 14 clarification issued on application by SBI. We do not therefore propose to decide this issue which does not arise from the order under appeal. Appeal is consequently dismissed. C.N.RAMACHANDRAN NAIR Judge P.S.GOPINATHAN Judge pms