IN THE HIGH COURT AT CALCUTTA CONSTITUTIONAL WRIT JURISDICTION APPELLATE SIDE WP2905(W) of 2016 INDIAN OIL CORPORATION LIMITED -VERSUSSENIOR JOINT COMMISSIONER, COMMERCIAL TAXES AND OTHERS For the Petitioner: Mr R. N. Bajoria, Sr Adv., Mr Avra Majumder, Adv., Mr Akhilesh Gupta, Adv., Ms Sudeshna Mazumder, Adv. AND IN THE HIGH COURT AT CALCUTTA CONSTITUTIONAL WRIT JURISDICTION ORIGINAL SIDE WP324of 2016 With WP1163of 2015 With WP325of 2016 SHELL INDIA MARKETS PRIVATE LIMITED -VERSUSSENIOR JOINT COMMISSIONER, COMMERCIAL TAXES, CORPORATE DIVISION AND OTHERS AND WP403of 2016 SHELL INDIA MARKETS PRIVATE LIMITED -VERSUSSENIOR JOINT COMMISSIONER, COMMERCIAL TAXES, LARGE TAX PAYER UNIT AND OTHERS AND WP404of 2016 SHELL INDIA MARKETS PRIVATE LIMITED -VERSUSSENIOR JOINT COMMISSIONER, COMMERCIAL TAXES, LARGE TAX PAYER UNIT AND OTHERS For the Petitioner Mr Sumit Kumar Chakraborty, Adv., in WP324of 2016: Mr Piyal Gupta, Adv., Ms Payel Verma, Adv. For the Petitioners Mr Sumit Kumar Chakraborty, Adv., in WP324of 2016, Ms Payel Verma, Adv. WP403of 2016 & WP404of 2016: For the State: Mr Abhratosh Majumdar, Sr Adv., Mr Prithu Dudharia, Adv., Mr Soumitra Mukherjee, Adv., Ms P. Bandhopadhyay, Adv. Hearing concluded on: May 17, 2016. BEFORE SANJIB BANERJEE, Judge Date: May 20, 2016. SANJIB BANERJEE, J.
: – The issue involved in all the matters is the same: whether bitumen emulsion should be regarded as bitumen and covered by Entry 14 of the list of goods taxable at five per cent in Part-I of Schedule C to the West Bengal Valued Added Tax Act, 2003.
2. Bitumen is mainly used for road construction, road repair, roofing and similar purposes. There are several variants of bitumen in use for a considerable period, viz, polymer modified bitumen (PMB), crumb rubber modified bitumen (CRMB) and bitumen emulsion. Bitumen it its original form is a solid and it melts at a high temperature. Traditionally, bitumen has been used for road construction for long and the sight and smell of bitumen is one of the everlasting memories of long-distance road travel in India.
3. For its convenient use, bitumen is now increasingly marketed in an emulsified form so that solid bitumen is not required to be brought to its molten state at high temperatures at the time of its application. Emulsifiers are added to bitumen and certain other chemicals are mixed therewith for bitumen emulsion to be produced as a fine dispersion of minute droplets of one liquid in another in which it is not soluble or miscible. There is undoubtedly a chemical change that is brought about in bitumen being treated with emulsifiers and other chemicals, but the end product of bitumen emulsion has similar use as bitumen; except that solid bitumen no longer needs to be brought to a molten state for its application and bitumen emulsion can be used as a substitute for molten bitumen.
4. The Indian Oil Corporation Limited, the petitioner in the lead matter, markets bitumen emulsion. Such petitioner claims that bitumen emulsion facilitates the use thereof, it is non-hazardous and saves time and cost at the stage of application. The petitioners are all registered dealers under the said Act of 2013.
5. It appears from the trend of the submission made on behalf of the parties that there are, at present, four variants of bitumen products used for the same or similar purposes with very little commercial difference: bitumen in its original form, PMB, CRMB and bitumen emulsion. There is a bit of a history to the matter that requires to be noticed. A legal issue has raged for sometime as to whether PMB, CRMB and bitumen emulsion are distinct from bitumen and should be regarded as products of different manufacture and separate commercial commodities excigable to further excise duty upon bitumen being refined to obtain such products. As far as PMB and CRMB are concerned, the matter has been laid to rest by a judgment reported at (2012) 2 SCC282(Commissioner of Central Excise, Bangalore-II v. Osnar Chemical Private Limited). In the context of PMB and CRMB, the Supreme Court held that “the process of mixing polymers and additives with bitumen does not amount to manufacture”.. The Supreme Court observed that the process involved “merely resulted in the improvement of quality of bitumen”. and there was “no change in the characteristics or identity of bitumen”. resulting in the “transformation of bitumen into a new product having a different identity, characteristics and use.”
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6. Some time prior to that judgment, a dealer in this State applied under Section 102 of the said Act of 2003 before the Commissioner of Sales Tax for determining the rate of tax applicable on the various varieties of bitumen. By an order of January 6, 2012, the Commissioner held that the other varieties of bitumen were assessable at the higher rate applicable under the residuary item and not at the lower rate under the specific head of bitumen. Another dealer applied under Section 102 of the said Act for determining the rate of tax applicable on CRMB. Such matter culminated in a decision of June 6, 2012, upon the Commissioner noticing the Supreme Court judgment in Osnar Chemical and holding that CRMB would be treated as bitumen for the purpose of imposition of tax under the said Act of 2003. A further reference was made under Section 102 of the Act for the determination of the status of bitumen emulsion and the rate of tax payable thereon. Such matter was disposed of by an order of May 7, 2013 with the observation that “Bitumen emulsion is not bitumen but is an unspecified goods covered under Schedule CA as was decided earlier”.. Such order of May 7, 2013 was challenged before the West Bengal Taxation Tribunal which agreed with the view expressed by the Commissioner that bitumen emulsion would attract tax at the rate of 13.5 per cent under Section 16(2)(b)(a) of the said Act of 2003. The Tribunal’s judgment of August 21, 2015 has been challenged in a petition under Article 226 of the Constitution. WPTT No.101 of 2015 is pending before a Division Bench of this court.
7. The petitioner in the lead matter and the other petitioners apprehend that in view of the opinion expressed by the Commissioner in the order dated May 7, 2013 as upheld by the Tribunal’s judgment dated August 21, 2015, assessment orders would be passed involving the petitioners on the basis of bitumen emulsion carrying tax at the higher rate. The petitioners also fear that concluded assessments may be revisited and enhanced demands slapped on them. The petitioners say that in view of the order of the Tribunal, they cannot expect that the department would take a different view and also point out that the Tribunal has not been functioning for more than four months now.
8. The petitioners have carried substantial literature to explain the process of making the other varieties of bitumen, particularly bitumen emulsion. The petitioners claim that though the process of preparing the product can be loosely called as manufacture, unless the product is commercially and otherwise substantially different from the product which is identified by name in the relevant schedule, the related product should be regarded as the product named in the schedule and not treated as an unspecified product not relatable to the product specified in the relevant entry. The petitioners also refer to the views expressed, whether in the context of entry tax or VAT by Tribunals and courts in other States.
9. The petitioners submit that the classification of goods for the purpose of determining the tax chargeable thereon has to be based on the relatability of the product to the named entry and if the department intends to classify the goods under a different heading or sub-heading from that claimed by the assessee, it is for the department to adduce evidence and discharge the burden of proof. In such context, the petitioners first refer to a Supreme Court judgment reported at (1960) 11 STC827(Tungabhadra Industries Limited v. CTO), which was noticed in some detail in Osnar Chemical.
10. In Tungabhadra Industries, the matter pertained to hydrogenated groundnut oil, otherwise known as vanaspati. The appellant before the Supreme Court was registered as a manufacturer of groundnut oil and it sold groundnut oil in its raw, refined and hydrogenated forms. The State Commercial Tax authorities permitted a deduction in respect of the purchase price of groundnut attributable to the raw oil sold by the appellant, but disallowed the deduction in respect of refined and hydrogenated groundnut oil. The Supreme Court noticed that the process of refinement involved removal of non-oleic matter and retaining the oily content of groundnut oil. In the process of hydrogenation, the Supreme Court noticed that by the absorption of hydrogen atoms the groundnut oil assumed a semi-solid state. The process of refinement was found not to upset the essential characteristics of the original product, though the colour, odour and taste changed considerably. As for the hydrogenation, the Supreme Court accepted that it was a chemical change that the original groundnut oil underwent, but observed that “it continues to be the same edible fat … and its nutritional properties continue to be the same”.. Both the refined and hydrogenated forms of groundnut oil were held to be groundnut oil for the purpose of the deduction claimed under the then local Sales Tax Act as applicable.
11. The petitioners also refer to the judgments reported at 2006 (197) (ELT) 324 (H. P. L. Chemicals Limited v. Commissioner of Central Excise) and (1990) 1 SCC532(Bharat Forge and Press Industries Private Limited v. Collector of Central Excise) for the proposition that when an article has reasonable resemblance with an enumerated item in a tariff schedule, “it will be against the very principle of classification to deny it the parentage and consign it to an orphanage of the residuary clause.”
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12. The petitioners emphasise that if a commodity retains its character after processing such that the predominant use thereof is unchanged, the resultant commodity has to be regarded as the same as the original commodity. They maintain that it is not the department’s case that bitumen emulsion has a different market than bitumen or it is used for any different purpose.
13. The petitioners contend that when a tariff item is expressed in general terms or without any limitation or restriction, its scope should be regarded as wide enough to include all varieties and variants. They rely on a Supreme Court judgment reported at 2005 (140) STC17(State of Maharashtra v. Bradma of India Limited) where it was observed that “resort has to be had to the residuary heading only when a liberal construction by the specific heading cannot cover the goods in question.”
. The petitioners also refer to the principle that when there is a conflict between two entries, one leading to the opinion that it comes within the purview of the tariff entry should be preferred over the other opinion that brings it under the residuary entry. Another Supreme Court judgment reported at 2008 (225) ELT321(Mauri Yeast India Private Limited v. State of UP) has also been pressed into service in support of such proposition.
14. The petitioners exhort that in a taxing statute words of everyday use must be construed as in common parlance, and not from any technical or scientific point of view. They insist that when a word has a scientific or technical meaning, and also an ordinary meaning as per common parlance, it is the latter sense that the taxing statute must be seen to convey as the legislature does not suppose merchants to be naturalists or geologists or botanists. For such purpose, the petitioners refer to a judgment reported at (1979) I SCR545(Porritts & Spencer (Asia) Limited v. State of Haryana) where the word “textiles”. was seen in its wider context as embracing new varieties of fabric that may have been developed by new methods and techniques.
15. The petitioners submit that every commodity, when subjected to a process of refinement or improvement, experiences a change; sometimes even a chemical change. They suggest that it is only when a change or a series of changes takes the commodity to the point where it can no longer be commercially regarded as the original commodity but has to be seen as a distinct article, can a process of manufacture of one commodity to another be said to have taken place. If the process is to enhance the use of the original product, notwithstanding a chemical change, the finished product must be seen to retain its original identity for it being relatable to the relevant tariff item. The petitioners say that unless an express intention is evident in a taxing statute, the legislature must not be seen to have provided for different rates of tax for similar products having the same use. Finally, the petitioners refer to the oft-quoted dictum in 1997 (93) ELT641(Sun Export Corporation v. Collector of Customs) where the Supreme Court held that if there were two views possible, the one favourable to the assessee in matters of taxation has to be preferred.
16. The petitioners have also referred to the judgments of the Karnataka High Court, Madhya Pradesh High Court and Allahabad High Court on bitumen and its related products and commend the same view to be taken by treating bitumen emulsion as relatable to Entry 14 in Part – I of Schedule C to the Act of 2003 in this State.
17. The petitioners emphasise that a distinction must be made between the exigible basis under the excise laws and the incidence of sales tax or valued added tax. The petitioners submit that while duties of excise are imposed on goods manufactured or produced, the activity that is taxed under the sales tax and valued added tax regime is the sale of any goods. As a consequence, the petitioners contend, that merely because a product has been refined by a process which can be loosely seen as manufacture, will not change the nature of the product under the sales tax or value added tax laws, though it could be regarded as an entirely different product after undergoing a process of manufacture under excise laws. The petitioners maintain that when any product is relatable to any entry in a schedule under a sales tax or valued added tax statute, merely because the product is in a refined form than the product reflected in the entry, such refined product cannot be regarded as unrelatable to the entry as long as, even after its refinement, the product is commercially similar to the product named in the entry and is substantially used for like purposes as the original product.
18. The petitioners have placed several entries from the schedules to the Act of 2003, including tea. The petitioners suggest that since the many variants of tea have not been differently classified in the schedules to the said Act, all forms of tea will be covered by the single entry, irrespective whether such tea is green tea or organic tea or herbal tea or the like. Similarly, the petitioners seek to demonstrate that in several cases a distinction has been made in the schedules to the said Act between similar products having similar use but commercially known by different names. The entries covering vanaspati and vegetable oil are placed in such context. The petitioners also refer to several entries in the schedules containing the words “in primary form”. following the description of the goods. They also refer to the various specifications pertaining to timber that have been included in one of the schedules and to the generic products torch and salt, though there are many variants of such goods available in the market.
19. The petitioners say that the entire exercise may be fruitless since it is possible for the State, by an executive fiat, to introduce a separate entry by the name of ‘bitumen emulsion’ and provide for a different rate of tax therefor. But, the petitioners assert, as long as the State does not make such a distinction, bitumen emulsion has to be regarded as being relatable to Entry 14 in Part – I of Schedule C to the said Act covering bitumen and bitumen emulsion cannot be seen to fall under the residuary entry in a different schedule.
20. The State seeks to rely on the voluminous literature on bitumen emulsion that the petitioner in the lead matter has submitted in court without such petitioner placing much reliance thereon. The State refers to the divers uses of bitumen emulsion indicated in the compilation submitted by IOC. A diagram at page 9 of the compilation indicates the application of bitumen emulsion for slurry seal, penetration macadam, soil stabilization, cold mix, tack coat, prime coat, fog seal, dust binding, crack filler, patching filler, recycling and surface dressing. The State relies on the wide definition of the word “manufacture”. in Section 2(22) of the Act and says that the complex process of converting bitumen to bitumen emulsion as evident from the literature on the subject submitted by IOC should prompt the court to hold that bitumen emulsion cannot be regarded as bitumen merely because the word bitumen is used as a part of the name of the product.
21. The State says that if bitumen cannot be used at room temperature because it melts at a high temperature and bitumen emulsion is available for use at room temperature, the two products cannot be treated at par notwithstanding bitumen emulsion being used as a substitute for bitumen in some cases.
22. The State has relied on paragraph 2.3 of a document intituled “Use of cold mix technology in construction and maintenance of road using bitumen emulsion”., which is included in the compilation submitted by IOC on bitumen emulsion. The State says that it is evident from the literature and the structure of bitumen emulsion described therein that products bitumen and bitumen emulsion are quite distinct. Paragraph 2.3 of the document records as follows: “2.3 Production of Bitumen Emulsion Most of the bitumen emulsions are manufactured by continuous process using a colloid mill, which consists of a high-speed rotor revolving at 1000 to 6000 revolutions/minute in a stator. Hot bitumen and emulsifier solutions are fed separately but simultaneously into the colloid mill. The temperature of two components is critical to the emulsification process. The viscosity of bitumen entering into colloid mill should not exceed 0.2 Pa-s (2 Poise). If a harder grade bitumen or modified bitumen is used, the emulsification process becomes more difficult. Higher temperature is needed to allow bitumen to be pumped into and disperse in the colloidal mill; dispersion of bitumen requires more power input to the mill, which further increases the production temperature. Pressurized mills are used for bitumen having high viscosity at normal emulsification temperature and to allow higher output with normal bitumen. Emulsions with temperature up to 130°C are produced under high pressure and emulsion output must be cooled down to below 100°C before being discharged into storage tanks. A batch process can also be used for production of emulsion wherein the type of mixer used is chosen to suit the consistency of end product. It may either be a high-speed propeller for low viscosity emulsion or a slow Z-blade mixer for paste-like industrial emulsion. … Bitumen emulsion can be prepared using a on-site mobile plant or off-site stationary plant. The mobile plant may save cost of transportation of water.”
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23. It may also be profitable, in the context, to notice how CRMB and PMB are produced, particularly since such variants of bitumen have been held in Osnar Chemical to be taxable as bitumen. In IOC’s compilation on bitumen emulsion, there is a section on CRMB and there is a Bureau of India Standards (BIS) publication on polymer and rubber modified bitumen which, respectively, record as follows: “To produce CRMB, Crumb Rubber powder retrieved form (sic, from) the used tyres is added to normal Bitumen along with additives. For homogeneous mixing of the Crumb Rubber powder and additives, electrically operated stirrers are used to achieve optimum results.”
. “Polymer and rubber modified bitumen, often abbreviated as polymer modified bitumen is obtained by the incorporation of thermoplastics, crumb rubber powder (ordinary) or chemically treated crumb rubber and elastomers or a blend of polymeric and other additives compatible with bitumen or a short residue obtained after refining of crude oil. The modified bitumen is prepared at refineries or at suitable centrally located or mobile plants with high shear mixing facility ... . “Over the years, different types of modifiers have been used to make modified bitumen. The most commonly used type of modifiers are rubbers and polymers. These are macro-molecules in which the same group of atoms is repeated very large number of times. These repeated groups can be formed from one or several different molecules (monomers). Agents other than synthetic polymers can also be sued to modify bitumen, which are crumb rubber powder and natural rubber powder or in latex form …”.
24. The State has placed paragraph 5(viii) from its affidavit in WP1163of 2015 to suggest that the distinction between bitumen and bitumen emulsion requires a more profound understanding of science and chemistry than available in course of an adjudication under Article 226 of the Constitution. The underlying submission is that matters of such kind are best left to experts and an expert opinion should scarcely be tinkered with in this extraordinary jurisdiction unless found to be patently absurd. Paragraph 5(viii) from the said affidavit reads as follows: “In any view of the matter the question whether Bitumen Emulsion is a separate commercial commodity if and when compared to Bitumen and whether the process of conversion from Bitumen to Bitumen Emulsion amounts to manufacture, requires a fact finding enquiry.”
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25. The State first relies on a judgment reported at (1977) 39 STC378(State of West Bengal v. Washi Ahmed) where a view taken by this court was affirmed by the Supreme Court on the ground that the description of an entry in a schedule to a Sales Tax Act must be construed and understood as in common parlance and its popular sense meaning. Green ginger in that case was regarded as covered by the entry pertaining to vegetables as green ginger had to be seen to be a vegetable in common parlance. The State submits that it is such a product for which there is no exclusive entry but which is covered by a generic entry that it will be taxed at the rate applicable to the generic entry; but the analogy will not hold good for products as disparate as bitumen and bitumen emulsion. The State next refers to a judgment reported at (1980) 46 STC63(DCST v. Pio Food Packers) where the matter involved canned pineapple and the question framed was whether the pineapple fruit was consumed in the manufacture of canned pineapple slices sold with sugar as a preservative. The Supreme Court referred to the provision in the Kerala General Sales Tax Act, 1963 which envisaged the consumption of a commodity in the manufacture of another commodity and observed that the test was whether “the article produced is regarded in the trade, by those who deal in it, as distinct in identity from the commodity involved in its manufacture.”
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26. The State relies on the judgment in Mauri Yeast where an entry in the U. P. Trade Tax Act, 1948 was considered. At paragraph 30 of the report it was observed that “in interpreting different entries, attempts shall be made to find out as to whether the same answers the description of the contents of the basic entry and only in the event it is not possible to do so, recourse to the residuary entry should be taken by way of last resort.”
. The product in question was yeast and the issue was whether yeast would fall under the head of chemicals or had to be treated as an unclassified item. The State emphasises on the observation at paragraph 44 of the report that classification of goods under a particular entry is, essentially, a question of fact. The State says that the facts relevant to assess whether bitumen emulsion can be regarded as bitumen are not before the court for such exercise to be completed. The State contends that the common parlance test borrowed from American law in Porritts & Spencer is subject to the fundamental conditions as to the nature of a product and its relatability, on the basis of its nature and use, to a particular entry.
27. In the judgment reported at (1997) 90 ELT374(Allied Bitumen Complex (India) Private Limited v. Collector of Central Excise), pertaining to a matter under the Central Excise Act, 1944, the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) held that the conversion of bitumen into bitumen emulsion was a process of manufacture. In the same vein, the State refers to a judgment of the Madhya Pradesh High Court reported at (2010) 27 VST67(Tiki Enterprises v. Commissioner of Commercial Tax) where it was held that upon bitumen being treated with emulsifiers, a new product comes into existence.
28. A judgment reported at (1981) 1 SCC653(Chowgule and Company Private Limited v. Union of India) has been placed by the State where the issue was whether the blending of ores resulted in a different product being produced. The Supreme Court laid down certain principles as to what would amount to “processing”.. The State relies more on the judgment for it disagreeing with a view of the Bombay High Court that the blending of different brands of tea could not be regarded as processing of tea. However, the issue in the present case is whether the nature of the product bitumen has been so changed in its conversion to bitumen emulsion that the resultant product would not be relatable to the entry covered by bitumen.
29. The next case cited by the State is reported at (1974) 3 SCC620(Ganesh Trading Company v. State of Haryana) where the Supreme Court held that rice and paddy could not be seen to be the same product as they “are two different things in ordinary parlance”.. For similar reasons, coconut husk was seen to be distinct from coconut fibre in the judgment reported at (1992) Supp (1) SCC290(Deputy Commissioner of Sales Tax v. Coco Fibres) with the observation that “No one in the market would sell or supply husk when fibre is asked for.”
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30. A judgment pertaining to the M. P. General Sales Tax Act, 1958, reported at (1999) 9 SCC162(Indian Poultry v. Sales Tax Officer) has been placed by the State where the question was whether developing chicks into broilers brought about any change so as to produce a commodity with a new commercial identity. It is very obvious why the Supreme Court held that chicks and broilers were not the same since chicks would scarcely be sought after in markets for their meat, but broilers would. The decision, though it recognises that the process of rearing chicks to broilers would fall within the definition of manufacture, is not apposite in the present context of two products having bitumen as its core content and being put to similar use.
31. The next decision brought by the State pertained to the distinction between spices and masala powder. In the judgment reported at (2007) 6 SCC365(A. P. Products v. State of Andhra Pradesh) it was observed that spices lose their original identity in masala powder being made out of them and masala powder had to be seen as a different commercial commodity. On the principle recognised in Osnar Chemical, the judgment in A. P. Products is distinguishable since the original spices used for producing masala powder lose their identity and character. Paragraph 27 of the report, however, noticed that sales tax law is intended to tax sales of different commercial commodities and not to tax the production or manufacture of particular substances out of which these commodities might have been made.
32. The next judgment carried by the State dealt with coal briquettes or “coal tickli”.. The process was noticed in the judgment reported at (2006) 7 SCC322(Sonebhadra Fuels v. Commissioner, Trade Tax) as requiring coal to be ground to a particular size and thereafter treated in a briquetting press for shape and carbonisation. It was observed that coal briquettes and coal dust were different commodities in substance and in their characteristics and the finding of fact rendered by the tribunal could not be interfered with. There is no finding of fact rendered by the Commissioner of Sales Tax in the opinion of January 6, 2012 except that bitumen emulsion may be used in special circumstances where cold application of bitumen is desirable. The Commissioner also referred to the Central Excise tariff schedules were bitumen and bituminous mixtures were differently classified. Though the Commissioner emphasised that bitumen emulsion was a separate commercial product and distinct from bitumen, such opinion was not based on any scientific study or fact-finding exercise.
33. The State has relied on a judgment reported at (1990) 4 SCC51(Laminated Packings (P) Limited v. Collector of Central Excise) where laminated kraft paper was found to be distinct from kraft paper. However, that judgment pertained to an excise issue and may not be relevant in the present context. Similarly, the judgment reported at (1991) Supp (2) SCC348(Union of India v. Babubhai Nylchand Mehta) dealing with coated or waterproof kraft paper and ordinary kraft paper also pertained to an excise issue. Again, in the judgment reported at (1996) 10 SCC46(Decorative Laminates (India) Private Limited v. Collector of Central Excise), the court considered the exigibility to excise duty of non-slip plywood that was produced by applying a chemical to the plywood and coating the same with a wire mesh. The process adopted was found to throw up a new commercial commodity and the Supreme Court did not interfere with the CEGAT’s acceptance of the department’s contention that the process led to the emergence of a new commercial product.
34. The State cites a judgment reported at (1981) 3 SCC578(Hindustan Aluminium Corporation Limited v. State of Uttar Pradesh) for the proposition that the test of common parlance may not hold good when the government’s intention was evident from the expressions used in the schedules regarding the rates of tax. However, in this case, since the only relatable entry is bitumen, there is scarcely any scope to ascertain any intention from the expressions used in the relevant schedules to arrive at the conclusion that bitumen emulsion is not relatable to bitumen despite it being used for substantially the same purpose.
35. The State has also placed an extract from paragraph 2.2 of “A white Paper on State-level Value Added Tax”. presented by an empowered committee of State finance ministers in 2005. The concept of value added tax and the setting off of input tax credit referred to in the extract, does not throw any light on the issue that has arisen here.
36. There is certainly a distinction between the end products of a process that can be regarded as manufacture under excise laws and under sales tax or VAT laws. In excise law the tax is on the manufacture; in sales tax and VAT law, it is the sale or transfer of the property in the goods by one to another which is taxed. What is relevant for the present assessment is not so much as to whether bitumen undergoes a change in it being processed to manufacture bitumen emulsion. There can be no denial that there may be an irreversible chemical change brought about by the manufacturing process such that it would require a further complex process to extract bitumen from bitumen emulsion.
37. It must also be said that the only test here is not to see how different bitumen emulsion is from bitumen since there are no clearly identifiable and distinct entries for the two products. The limited question, in the context of a separate entry for bitumen emulsion or other bituminous products not being created by the State, is whether bitumen emulsion is relatable to bitumen in the existing scheme apparent from the schedules to the Act of 2003. For such limited purpose, which may not hold if a distinct classification were to be introduced, the relevant considerations pertain to the commercial natures of the two goods and their uses. It may also be pertinent in the context to appreciate that the judgment in Osnar Chemical was rendered in the context of the Excise Act. CRMB and PMB were found relatable to petroleum bitumen under the relevant tariff item and the mixing of polymer and additives with bitumen was not found to be a process of manufacture that changed the identity or characteristics of bitumen. The process was found to only improve the grade or quality of bitumen. The same analogy may not apply to bitumen emulsion, but bitumen emulsion would, nonetheless, for its use and commercial identity, be relatable to bitumen.
38. The principle, while matching goods against the entries in schedules under the sales tax and VAT laws, ought to be the test of a product’s relatability to a particular entry based on its commercial identity, use and the common parlance test. If any commodity is capable of being covered by several specified entries – as distinct from the residuary entry – the best fit would be on a combined assessment based on the commercial identity, common parlance and user tests. The positive co-relation between the concerned goods and the specified entry, based on such three broad tests, ought to provide the answer. But when the choice is between a particular specified entry and the non-descript residuary entry, the assessment should be founded on a negative test: whether the goods are more non-relatable than relatable to the entry on a reasonable application of the three criteria, before they are parked under the residuary entry. There can be no mathematical formula for such an exercise, but there must be a pronounced doubtful co-relation between the goods in question and the specified entry on all three counts before such goods can be banished to the residuary entry, irrespective of whether the residuary entry carries a higher or lower rate of tax. A further consideration would be that since an indirect tax as sales tax is passed on to the consumers, whether a dealer should be penalised and made to pay the tax by upsetting an interpretation that has been accepted for a few years.
39. If such are the tests, bitumen emulsion would pass muster to find itself in the company of bitumen in Entry 14 in Part-I of Schedule C to the Act of 2003. The common issue raised in these matters is answered accordingly by holding that bitumen emulsion is more relatable to the entry covered by bitumen rather than the residuary entry in Schedule CA to the Act.
40. WP2905(W) of 2016, WP324of 2016 with WP1163of 2015 with WP325of 2016, WP403of 2016 and WP404of 2016 are disposed of accordingly on such limited aspect with liberty to the respective petitioners to pursue appropriate proceedings in accordance with law in respect of the other matters complained of.
41. There will be no order as to costs.
42. Urgent certified website copies of this judgment, if applied for, be supplied to the parties subject to compliance with all requisite formalities. (Sanjib Banerjee, J.)