*THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE G.KRISHNA MOHAN REDDY + TAX REVISION CASE No.10 of 2007 W.P.Nos.2652, 4033, 11272, 11301, 11613, 11703, 18288, 23875 of 2009; W.P.Nos.2408, 2443, 7202 of 2010; W.P.Nos.143, 145, 14521, 14522, 14523, 14525, 14526, 14530, 27457, 27470, 27519, 31010 and 31012 of 2011 % Dated: 13.6. 2012 Between: M/s.Reckitt Benckiser (India) Ltd., Old Bowenpally, Secunderabad represented by Mr.R.A.Ramasubramanian ... Petitioner and State of Andhra Pradesh, represented by its State Representative, Before the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad ... Respondents ! Counsel for the Petitioners: Mr.K.Priyadarshan Reddy ^Counsel for the Respondents: M/s.A.V.Krishna Kaundinya, P.Balaji Varma, Government Pleader for Revenue and Government Pleader for Commercial Taxes <Gist: >Head Note: ? Citations: 1) 1995 Supp. (2) SCC 646 : AIR 1995 SC 1469 2) (2011) 45 VST 47 (AP) 3) (2008) 12 VST 112 (AP) 4) (2011) 42 VST 273 (AP) 5) (2008) 3 SCC 582 6) (2008) 8 SCC 369 7) (2005) 2 SCC 460 8) (1994) Supp (3) SCC 122 9) (1981) 2 SCC 528 10) (1992) Supp (1) SCC 298 11) (1971) 3 SCC 550 12) (1988) 2 SCC 470 13) (1986) 1 SCC 23 14) (1979) 1 SCC 82 15) (1986) 3 SCC 480 16) (1985) 22 ELT 3 17) (1996) 2 SCC 449 THE HON'BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE G.KRISHNAMOHAN REDDY TAX REVISION CASE No.10 of 2007 W.P.Nos.2652, 4033, 11272, 11301, 11613, 11703, 18288, 23875 of 2009; W.P.Nos.2408, 2443, 7202 of 2010; W.P.Nos.143, 145, 14521, 14522, 14523, 14525, 14526, 14530, 27457, 27470, 27519, 31010 and 31012 of 2011 Dated: 13.6.2012 Between: M/s.Reckitt Benckiser (India) Ltd., Old Bowenpally, Secunderabad represented by Mr.R.A.Ramasubramanian ..... PETITIONER AND State of Andhra Pradesh, represented by its State Representative, Before the Sales Tax Appellate Tribunal, Andhra Pradesh, Hyderabad .....RESPONDENT THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE G.KRISHNA MOHAN REDDY TAX REVISION CASE No.10 of 2007 W.P.Nos.2652, 4033, 11272, 11301, 11613, 11703, 18288, 23875 of 2009; W.P.Nos.2408, 2443, 7202 of 2010; W.P.Nos.143, 145, 14521, 14522, 14523, 14525, 14526, 14530, 27457, 27470, 27519, 31010 and 31012 of 2011 COMMON ORDER: (Per the Hon’ble Sri Justice V.V.S.Rao) M/s. Reckitt Benckiser (India) Limited (hereafter, the manufacturer) is engaged in the manufacture and sale of Lizol (floor cleaner), Harpic (toilet cleaner) and Mortein mosquito repellents. Whether these goods are exigible to value added tax @ 4% under entry 20 of Schedule IV to the Andhra Pradesh Value Added Tax, 2005 (the VAT Act)? This question falls for consideration in the tax revision case filed under Section 34 of the VAT Act and in all the Writ Petitions filed under Article 226 of the Constitution of India. The essential fact of the matter for proper appreciation of the issue is as follows. Mortein mosquito repellents, Lizol and Harpic are statedly household products manufactured by M/s. Reckitt Benckiser (India) Limited having registered office at Okla Industrial Estate, New Delhi and branches all over India. After introduction of the VAT, they made an application under Section 67 of the VAT Act to the Advance Ruling Authority (ARA) seeking clarification as to the rate of tax applicable to household insecticides and disinfectants. Along with their application, they submitted copies of insecticides licence, CIB Registration Certificates, Write up published by WHO covering mosquito coil mat vapouriser and liquid vapouriser, the test report from Haffkine Institute for training, research and testing, Mumbai, covering mosquito coil, the test report from National chemical Laboratory, Pune, covering mosquito coil, test report from International Institute of Bio-technology and Toxicology, Kanchipuram, Tamilnadu, the Drug manufacturing license covering Harpic and Lizol and a copy of the decision of the Supreme Court in Bombay Chemical Pvt. Ltd v. Collector of Central Excise [1]. By their order dated 18.03.2006, the ARA came to the conclusion that though Mortein is an insecticide, it is exigible to tax under Schedule V to VAT Act @ 12.5% as it is excluded by HSN (Harmonised System of Nomenclature) Code 3808.10.91. The taxability of Harpic and Lizol were considered with reference to entries 20 and 88 of Schedule IV to VAT Act as well as the Government Order in G.O.Ms.No.1615, Revenue (CT.II) Department dated 31.08.2005 requiring the use of HSN Code for the purpose of classification of goods. Even with regard to these two products, the manufacturer could not get a favourable clarification and the ARA came to the conclusion that both of them are liable to tax @ 12.5%. The plea of the manufacturer that Lizol and Harpic are disinfectants did not favour with the said authority. After the clarification by ARA, the respective jurisdictional assessing officers passed assessment orders computing the VAT @ 12.5%. The distributors, therefore, filed separate Writ Petitions seeking declaration and invalidation of the assessment orders or appellate orders or orders imposing penalty wherever such orders were passed. In the meanwhile, the manufacturer carried the matter to Sales Tax Appellate Tribunal (STAT) assailing the order of the ARA. The said appeal being T.A.No.572 of 2006 was rejected affirming the decision of ARA holding that Mortein mosquito repellent cannot be given the benefit of tax @ 4% as it contains only small amount of insecticide and that it is excluded from reduced rate of tax as it falls under HSN sub-heading 3808.10.91. In so far as Harpic and Lizol are concerned, the STAT held that though these products are household disinfectants they would not be covered by entry 20 of Schedule IV of the VAT Act. The Tax Revision Case, in the circumstances, against the order of the STAT, would not lie. The manufacturer, therefore, filed two Writ Petitions being W.P.Nos.143 and 145 of 2011 assailing the order of the STAT and also seeking declaration that Harpic and Lizol are exigible to VAT @ 4%. Thus, TREVC.No.10 of 2007 and W.P.Nos.143 and 145 of 2011 are filed by the manufacturer assailing the order of the STAT confirming the decision of ARA. W.P.Nos.2652, 18288 and 23875 of 2009, W.P.Nos.2443, 7202 and 2408 of 2010 are filed assailing the order of the ARA for declaration as above. W.P.No.11613 of 2009, W.P.Nos.31010, 31012, 14521, 14522, 14523, 14525, 14526, 14530, 27457, 27519, 27470 of 2011 are filed seeking a declaration that the goods are liable to tax @ 4% under entry 20 to Schedule IV to the VAT Act. The Writ Petitions being W.P.Nos.4033, 11272, 11301 and 11703 of 2009 are filed by the manufacturer or the distributors/dealers challenging assessment orders as well as orders imposing penalty, where the officials applied rate of tax at 12.5% under Schedule V. While doing so, needless to mention, the assessing officers relied on the ruling of ARA. In W.P.No.27470 of 2011, M/s. Raghu Agencies, a dealer seeks a declaration that Mortein spray and Mortein Rat Kill are goods exigible to tax @ 4% under entry 20 of Schedule IV of the VAT Act. The core controversy circles round entries 20 and 88 to Schedule IV, which read as below. 20. Pesticides, Insecticides, fungicides, herbicides, weedicides and other plant protection equipment and accessories thereof (including drip and sprinkle irrigation systems but excluding mosquito repellents in any form). 88. Drugs and medicines whether patent or proprietary, as defined in clauses (i), (ii) and (iii) of Section 3(b) of Drugs and Cosmetics Act, 1940 (Central Act 23 of 1940), and hypodermic syringes, hypodermic needles, perfusion sets, urine bags, catguts, sutures, surgical cotton, dressings, plasters, catheters, cannulae, bandages and similar articles, but not including:- (a) Medicated goods; (b) Products capable of being used as cosmetics and toilet preparations including Tooth Pastes, Tooth powders, cosmetics, Toilet articles and soaps; (c) Mosquito Repellants in any form; (d) (xxx) Plain reading of entry 20 would show that (a) pesticides, (b) insecticides, (c) fungicides, (d) herbicides, (e) weedicides, (f) other plant protection equipment and accessories, and (g) drip and sprinkle irrigation system are included in the entry. The entry specifically excludes mosquito repellents in any form. Entry 88 includes specific named genus of goods manufactured under licence and excludes in its second part a few goods. The included goods are all the drugs and medicines as defined under Section 3(b)(i), (ii) and (iii) of the Drugs and Cosmetics Act, 1940 (the Drugs Act), hypodermic syringes, hypodermic needles, catguts, sutures, surgical cotton, dressings, plasters, catherters cannulae, bandages and similar articles. The goods which are excluded from the entry 88 are medicated goods and products which can be on being used as cosmetics and toilet preparations including Tooth Paste, Tooth Powder, cosmetics, toilet articles and soaps as well as mosquito repellents in any form. Before the ARA, the manufacturer contended that Harpic and Lizol are disinfectants and therefore, they are pesticides falling under entry 20. They also contended that they attract HSN Code 3808.40.00 but the ARA referred to entry 88 and came to the conclusion that Harpic and Lizol are capable of being used as cosmetics and in toilet preparation and, therefore, stand excluded from entry 88. For this reason these products were classified under entry 88(b) attracting tax @ 12.5% under residuary schedule. HSN Code an Interpretation tool After commencement of the VAT Act, with a view to remove difficulties and clarify the scope and application of thirteen (13) entries under Schedule-I and 54 entries under Schedule IV of the VAT Act, the Government of Andhra Pradesh GoAP) issued clarification about the applicability of HSN Code followed and applied under the Central Excise Tariff Act, 1985. Initially the Government issued two orders in G.O.Ms.No.398, dated 31.3.2005 followed by G.O.Ms.No.490, dated 15.4.2005. A few months thereafter the Government issued G.O.Ms.No.1615, dated 31.8.2005 in supercession of two earlier orders directing to apply HSN Code in respect of Schedule-I and Schedule-IV as specified in Annexures-I and II to the said G.O. The relevant portion in Annexure-II of the said order reads as under. Sl. No. Entry No. in Schedule Description of Goods HSN Code 1 to 13 are omitted here as not relevant 14 20 P e s t i c i d e s , Insecticides, fungicides, herbicides, weedicides and other plant protection equipment and accessories thereof but including drip and sprinkle i r r i g a t i o n system but excluding mosquito repellents in any form 1. Insectifides, fungicides etc 2. Other appliances – Agricultural or horticultural (including drip/sprinkler irrigation system) 3 8 0 8 (except 3808.10.91, 3808.30.30 & 3808.30.40 8424.81.00 The Chapter-38 of the Central Excise Tariff Act, 1985 (the Tariff Act) deals with the classification of miscellaneous chemical products and HSN Codes assigned to these products. As per Section 2 of the Tariff Act the duties of excise shall be the rates specified in First and Second Schedules. First Schedule contains excise tariff and general rules for the interpretation of the schedule whereas the Second Schedule contains special excise duty rates. The general rules of interpretation of the Schedules as mentioned in tariff are as below. In this Schedule,-- (1)(a) (heading), in respect of goods, means a description in list of tariff provisions accompanied by a four-digit number and includes all sub-headings of tariff items the first four-digits of which correspond to that number; (b) (sub-heading”, in respect of goods, means a description in the list of tariff provisions accompanied by a six-digit number and includes all tariff items the first six- digits of which correspond to that number; (c) “tariff item” means a description of goods in the list of tariff provisions accompanying either eight-digit number and the rate of the duty of excise or eight-digit number with blank in the column of the rate of duty; (2) the list of tariff provisions is divided into Sections, Chapters and Sub-Chapters; (3) in column (3), the standard unit of quantity is specified for each tariff item to facilitate the collection, comparison and analysis of trade statistics. G.O.Ms.No.1615 does not specifically give any indication as to the interpretation of main HSN Code or sub-codes. The rules of interpretation in the First Schedule to the Tariff Act make it clear that “heading” in respect of goods includes all sub-headings of tariff items the first four-digits of which correspond to that number; and “sub-heading” in respect of goods means and includes the tariff provisions accompanied by a six-digit number and includes all tariff items the first six-digits of which correspond to that number. Here we may quote the classification of tariff item (HSN Code 3808 with all its sub-headings). 3808 Insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant-growth regulators, disinfectants and similar products, put up in forms or packings for retail sale or as preparations or articles (for example, sulphur-treated bands, wicks and candles, and fly-papers) 3808 10 Insecticides: --- Aldrin, aluminimum phosphate, calcium cyanide, chlordane, 3808 10 11 Aldrin Kg. 16% 3808 10 12 Aluminium phosphate (for example phostoxin Kg. 16% 3808 10 13 Calcium Cyanide Kg. 16% 3808 10 14 Chlordane Kg. 16% 3808 10 15 Chlorobenzilate Kg. 16% 3808 10 16 D . D . V . P . (Dimethyl-cichloro-vinyl- phosphate) Kg. 16% 3808 10 17 D.D.T. (excluding D.D.T. of heading 2903 62) -- Diaginal, heptachlor, lindane, methyl bromide, parathion methyl, dimethoate technical, malathion: Kg. 16% 3808 10 21 Diaginal Kg. 16% 3808 10 22 Heptachlor Kg. 16% 3808 10 23 Lindane Kg. 16% 3808 10 24 Methyl bromide Kg. 16% 3808 10 25 Parathion, methyl Kg. 16% 3808 10 26 Dimethoate, technical grade Kg. 16% 3808 10 27 Malathion - - Endosulphan technical, quinal p h o s , isoproturon, fenthion, cipermethrin technical, allethrin, synthetic pyrethrum: Kg. 16% 3808 10 31 Endosulphan, technical grade Kg. 16% 3808 10 32 Quinal phos Kg. 16% 3808 10 33 Isoproturon Kg. 16% 3808 10 34 Fenthion Kg. 16% 3808 10 35 Cipermethrin, technical grade Kg. 16% 3808 10 36 Allethrin Kg. 16% 3808 10 37 Synthetic pyrethrum -- Other Kg. 16% 3808 10 91 Repellants for insects such as flies, mosquito Kg. 16% 3808 10 92 Paper impregnated or coated with insecticide such as D.D.T. coated paper Kg. 16% 3808 10 99 Other Kg. 16% 3808 20 Fungicides: 3808 20 10 Maneb Kg. 16% 3808 20 20 S o d i u m penta chlorophenate (santobrite) Kg. 16% 3808 20 30 T h i r a m (tetramethyl thiuram disulphide) Kg. 16% 3808 20 40 Zineb Kg. 16% 3808 20 50 Copper oxychloride Kg. 16% 3808 20 90 Other Kg. 16% 3808 30 Herbicides, anti-sprouting products and plant-growth regulators 3808 30 10 Chloromethyl phenozy acetic acid (M.C.P.A) Kg. 16% 3808 30 20 2 : 4 Dichlorophenozy acetic acid and its esters Kg. 16% 3808 30 30 Gibberellic acid Kg. 16% 3808 30 40 Plant-growth regulators Kg. 16% 3808 30 50 Weedicides and weed killing agents Kg. 16% 3808 30 90 Other Kg. 16% 3808 40 00 Disinfectants Kg. 16% 3808 90 Other: 3808 90 10 Pesticides, not elsewhere specified or included Kg. 16% 3808 90 90 Other Kg. 16% The heading 3808 includes insecticides, rodenticides, fungicides, herbicides, anti-sprouting products and plant growth regulators, disinfectants and similar products put up in forms or packings for retail sale or as preparations or articles. This heading has four sub-headings, namely, 3808.10 insecticides; 3808.20 fungicides; 3808.30 herbicides, anti-sprouting products and plant growth regulators; and 3808.90 other products i.e., pesticides, not elsewhere mentioned. Again these sub-headings have different products. We need to make a reference to 3808.10.91 whereunder the product ‘Repellants for insects such as flies, mosquito’ is included. Similarly HSN Code 3808.30.30 the product included is Gibberellic acid and the plant growth regulators is included in 3808.30.40. It is significant to note that the “disinfectants” which are included in sub-heading 3808.40.00 is conspicuous by its absence in the relevant HSN Code in G.O.Ms. No.1615 referred to herein above. This Court has referred to the classification of goods under the Tariff Act and to the extent relevant to the classification of goods based on HSN Code in G.O.Ms.No.1615 to show that all the goods in entry 20 fall under HSN Code 3808 except “repellents for insects such as flies, mosquitoes” (HSN Code 3808.10.91), Gibberillic acid (HSN Code 3808.30.30) and plant growth regulators (HSN Code 3808.30.40) and taxable at 4%. The Division Bench decision in MGRM Medicare Ltd v CTO[2] to which one of us (VVSR,J) is a member following the decision of another Division Bench in Espi Industries & Chemicals Pvt. Ltd v Commercial Tax Officer[3] held that wherever any HSN Code restricts the scope of any entry in the Scheduled to the VAT Act, it would be ultra vires and that any instructions issued under Section 76(2) of the VAT Act would not override the Schedules unless they are amended validly. The relevant observations are as follows. A Schedule to an enactment forms an integral part of the said Act. It is only if the Schedule is amended following the procedure stipulated in section 79 of the VAT Act, or by way of a legislative exercise, would it be valid and not by mere issuance of a notification under section 76(2) of the VAT Act. It is not even the case of the respondents that the notification in G.O.Ms.No.1615 is a legislative exercise. The power to remove difficulties under section 76(2) of the VAT Act, by issuance of an executive/administrative order, can neither nullify nor circumscribe entries in the Schedules to the VAT Act. Reliance placed by the respondent-assessing authority on the HSN Codes to restrict the scope of entry 2 of the First Schedule to the VAT Act is, therefore, illegal… The Special Counsel made an attempt to impress upon us to ignore HSN Codes especially 3808 as per G.O. Ms. No.1615. We are not able to accept the submission. We do not find any inconsistency between entry 20 of IV Schedule and HSN Codes for the pesticides and insecticides included in tariff item 3808 and of its sub-headings. From this, we may conclude that all “pesticides” and “insecticides” among others mentioned in entry 20 including all other products falling within the classification “pesticides” attract tax at 4%. Next question, therefore, is whether Lizol and Harpic fall within the category of “pesticides” or “insecticides”? The manufacturer obtained licence under the Insecticides Act for producing Mortein products. Similarly they obtained licence under the Drugs Act for manufacturing Harpic and Lizol. A submission is made that from the factum of manufacturer obtaining licence under the Drugs Act it should be inferred that they are ex facie classified as drugs falling under entry 88. We are afraid, the submission cannot be accepted. All along, the case of the manufacturer has been that Harpic and Lizol are toilet cleaner and floor cleaner respectively with germ killing capabilities and that they are pesticides. They contended that the disinfectants capable of destroying the germs come within the HSN Code “Pesticides”. If this argument of the manufacturer is accepted, their products under consideration are exigible @ 4% VAT. It is too well settled that while interpreting the entries in a Sales Tax Act one should not resort to the scientific and technical meaning of the terms or expressions used. Usual method for an assessment officer or a dealer would be to provide the popular meaning or the meaning attached to the products by those who deal in them. Functional utility and predominant use play an important role in determining the classification of the taxable goods. The dictionary meaning, the technical meaning and the meaning from users’ point of view or popular meaning would all furnish a clue to understand the classification of a product. I n Nuclear Fuel Complex v State of Andhra Pradesh[4] a Division Bench of this Court to which one of us (VVSR,J) is a member summarised the principles of interpretation of entries in tax laws. It would be relevant to extract the same hereunder. Interpretation of an entry, under the Tax Laws, is a quasi-judicial function (State of Kerala v Kurian Abraham (P) Ltd.[5]). While interpreting an entry, the Court’s role is to consider its effect after examining it from different angles (Ponds India Ltd v CIT [6] ). Neither can one single universal test be applied nor can there be a static parameter for proper classification. Functional utility, design, shape and predominant usage have also to be taken into account while determining the classification of an item (O.K. Play (India) Ltd v CCE[7]; A.Nagaraju Bros v State of A.P[8]). Different tests are laid down for interpretation of an entry in a taxing statute namely, dictionary meaning, technical meaning, user’s point of view, popular meaning, etc (Ponds India Ltd). In interpreting entries in a Sales Tax Act, resort should be not to the scientific and technical meaning of the terms or expressions used, but to their popular meaning i.e., the meaning attached to them by those dealing in them (Indo International Industries v CST[9]; Shri Bharuch Coconut Trading Co. v Municipal Corpn., Ahmedabad[10]; Ponds India Ltd). Where the definition of a word has not been given, it must be constructed in its popular sense, that sense which people conversant with the subject-matter, with which the statute is dealing, would attribute to it (CIT v Taj Mahal Hotel [11] ; Asian Painds India Ltd v CCE [12] ; Ponds India Ltd). The test commonly applied to such cases is: How is the product identified by the class or section of people dealing with or using the product? That is a test which is attracted whenever the statute does not contain any definition. It is, generally, by its functional character that a product is so identified (CST, U.P. v Macneill & Barry Ltd [13] ; Porritts and Spencer (Asia) Ltd v State of Haryana[14]; Atul Glass Industries (P) Ltd v CCE[15]). In determining the meaning or connotation of words and expressions describing an article or commodity, the turnover of which is taxed in a sales tax enactment, if there is one principle fairly well settled it is that the words or expressions must be construed in the sense in which they are understood in the trade, by the dealer and the consumer. It is they who are concerned with it, and it is the sense in which they understand it that constitutes the definitive index of the legislative intention when the statute was enacted (Geep Flashlight Industries Ltd v Union of India[16]; Atus Glass Industries (P) Ltd; Delhi Cloth and General Mills Co. Ltd v State of Rajasthan[17]). The verb “infect” means, “to introduce pathogenic microorganisms into; to corrupt; to spread to; to affect successively; to inflict with a virus”. The word “disinfect” means “to rid of disease-causing bacteria, etc., by cleaning, especially with a chemical”. The word “disinfectant” as a noun means “a chemical that destroys bacteria” (see The Chambers Dictionary, 10th Edition, 2007). The “disinfectant” thus is a chemical substance that destroys bacteria and pathogenic microorganisms when it is used for cleaning. I n Bombay Chemical Pvt. Ltd the Supreme Court was concerned with item 18 of the First Schedule to the Central Excise and Salt Act, 1944. The said item included insecticides, pesticides, weedicides and fungicides. As per Notification No.5575-CE issued under Rule 8(1) of the Central Excise Rules, 1944 these products were exempted from the whole of the duty of excise. Therein appellant – a manufacturer of disinfectant fluids, unsuccessfully claimed exemption under item-18 before Central Excise authorities as well as the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi. Before the apex Court, it was contended that the disinfectant fluid produced by the appellant had the capability of killing any insects or pests. The test for classifying a tariff was reiterated in the following terms. … … when a question arises whether a particular goods is covered in any category or not, it has to be examined if it satisfies the characteristic which go to make it a goods of that category. And whether in trade circle it is understood as such and if it is a goods of technical nature then whether technically it falls in the one or the other category. Once it is found that a particular goods satisfies the test then the issue which arises for consideration is