M/s. Assam Silicate, Glass and Chemical Works, Having its Head Office at A.K. Deb Road Vs. The State of Assam, Represented By The Secretary, Ministry of Finance (Taxation), Assam and Others - Court Judgment

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assam value added tax act, 2003 section 105(2) central excise tariff act, 1985 assam value added tax rules, 2005 rule 57 liability of tax opportunity of hearing commissioner of taxes held that sodium silicate is unspecified item and as residuary item, is covered by the vth schedule of the act and product is liable to be taxed @12.5% court held section 105(2) of the 2003 act permits commissioner of taxes to determine any disputed questions on rate of payable tax for particular item but decision under sub-section (2) of section 105 of the 2003 act must be preceded by reasonable opportunity of hearing to applicant, who apply for determination of such question commissioner gave ruling at instance of exempted party without affording any hearing to existing manufacturers who are impacted by decision it direct commissioner of taxes to re-determine classification and rate of tax for sodium silicate, by providing reasonable opportunity of hearing to association, who made representation petition allowed. (paras 14, 20, 21) judgment and order (oral) hrishikesh roy, j. 1. heard mr. jc gaur, the learned counsel appearing for the petitioner. also heard mr. s. saikia, the learned standing counsel for the finance (taxation) department, appearing for the respondent nos.1 4. but none appears for the m/s. nilachal chemical (p) ltd. (respondent no.5), who were impleaded on 7.1.2015. 2. the petitioner produces sodium silicate which is used as an ingredient in manufacture of soap, detergent, cement and other such products. they claim that sodium silicate should be subjected to tax @4% under the assam value added tax act, 2003 (hereinafter referred to as the the vat act ), by treating it as industrial input under part- c of iind schedule of the vat act. with such contention, the petitioner challenges the order dated 5.1.2006 (annexure-c), whereby the commissioner of taxes, on the application of the nilachal chemical (p) ltd. (respondent no.5) noted that sodium silicate is an unspecified item, which is not covered by any of the 168 entries of the iind schedule and hence as a residuary item, is covered by the vth schedule of the vat act and therefore the product is liable to be taxed @12.5%. 3. when the vat act was introduced w.e.f. 1st may, 2005, the sodium silicate manufacturers found that their product is not included amongst the numerous items of the industrial inputs category, specified in part- c of iind schedule of the vat act. therefore under the umbrella of the all assam sodium silicate manufacturer s association, the representation was made on 6.6.2005 (annexure-a), to the commissioner of taxes for inclusion of the product, to make it taxable at the lower rate. the associatioin contended that sodium silicate is covered by sub entry 2839.10, under the entry 28.05 of the central excise tariff act, 1985 (hereinafter referred to as the the c.e. tariff act ) and since the entries under the central act is made the basis for inclusion of the items in the iind schedule of the state act, the manufacturers requested for inclusion of sodium silicate as an industrial input, under the part- c of iind schedule of the vat act. the ingredients of sodium silicate were mentioned and reference was also made that this product used mainly as an ingredient by the soap manufacturers, is charged to tax @4% in the neighbouring states of west bengal and bihar. therefore the commissioner was requested to clarify under which entry, the product sodium silicate is to be taxed, under the vat act. 4. but no decision on the representation filed by the manufacturer association was given or conveyed and instead, on the application made by the new entrant into the field i.e. m/s. nilachal chemical (p) ltd. (respondent no.5), an order was passed on 5.1.2006 (annexure-c), whereby by the commissioner declared that as sodium silicate is not a specified item, under any of the entries of part- c of iind schedule, the said item should be taxed as a residuary item @12.5%, under the vat act. we may note that this order of the commissioner of taxes was passed under section 105 of the vat act. 5. assailing the legality of the determination made by the commissioner, mr. jc gaur, the learned counsel submits that sodium silicate is an alkaline product manufactured from silica sand, soda ash and water and admittedly silica sand is the earth metal and soda ash is an alkaline product. therefore it is argued that this item should have been included in entry 35 of the schedule to the vat act, which fits in with entry 28.05 of the c.e. tariff act, as it relates to alkaline and the earth metals. 6. alternately the petitioner contends that the product sodium silicate can be included in entry 71 of the part- c of iind schedule of the vat act, as it is a compound of rare earth metal of yttrium or of scandium or a mixture of both these metals. referring to the common parlance description of the item as glass frit and other glass, the petitioner contends that the product can also be included in entry 118 of the schedule. 7. referring to the possible entry points of sodium silicate against entries 35, 71 or 118 respectively of part- c of iind schedule of the vat act, mr. gaur argues that the commissioner s decision on the application of m/s. nilachal chemical (p) ltd. was an erroneous one, where there was no application of mind to the relevant parameters, for determination of taxability of sodium silicate. 8. moreover since m/s. nilachal chemical (p) ltd. (respondent no.5) was a new manufacturer, who were exempted from taxation, the petitioners contend that the determination of the taxability of the item at the instance of a party, which is not liable to tax, was an unjust decision, without taking into account the implication of the said decision on the existing manufacturers, who are subjected to tax. 9. it is further contended that the existing manufacturers who had submitted their representation under the banner of the all assam sodium silicate manufacturer s association, can t be equated with a new entrant who are exempted from payment of any tax under the vat act and therefore mr. gaur submits that the commissioner s decision of 5.1.2006 will confer unfair price advantage to the respondent no.5 vis- -vis the existing manufacturer, of the same product. 10. the learned counsel refers to section 105(2) of the vat act to contend that an advance ruling on the application of the manufacturer association should have been given after affording a reasonable opportunity to the applicants and since no such opportunity was afforded to the existing manufacturers, the logic of the applicability of the advance ruling given on the application of the new entrant, which is made applicable for the existing manufacturers, is questioned by the petitioners. 11. on the other hand, mr. s. saikia, the learned standing counsel for the finance (taxation) department submits that the item sodium silicate is not enlisted against any of the entries in part- c of iind schedule of the vat act and therefore it is argued that tax on such unlisted item has to be charged under the vth schedule, at the higher rate of 12.5%. 12. the further contention of the learned lawyer for the revenue is that the headings and entries for different items under the c.e. tariff act may not ipso facto be applied for determination of tax, under the vat act. 13. mr. saikia submits that when an advance ruling was given on the application of a manufacturer of sodium silicate after affording hearing to the concerned applicant m/s. nilachal chemical (p) ltd. (respondent no.5) the said decision of the commissioner will also be binding on the other manufacturers of sodium silicate. 14. section 105(2) of the vat act permits the commissioner of taxes to determine any disputed questions on the rate of payable tax for a particular item but a decision under sub-section (2) of section 105 of the vat act must be preceded by a reasonable opportunity of hearing to the applicant, who apply for determination of such question. moreover the commissioner is also empowered under sub-section (6) to review an order passed by him under section 105 and/or pass any such other order, as may be considered just and proper. 15. when we examine the order passed by the commissioner of taxes on the application of m/s. nilachal chemical (p) ltd., we find that the order of 5.1.2006 was not passed after due consideration of the applicable parameters, to determine the rate of tax to be charged for sodium silicate. at best the commissioner s order can be described as a ministerial order, where the authority after taking into account that the item is not covered by any of the listed entries under part- c of iind schedule of the vat act, has simply declared that the item is taxable at a higher rate as a residuary item, under the vth schedule of the vat act. 16. the items that are listed as industrial inputs in part- c of iind schedule of the vat act do not stand independently but refers to the corresponding entries in the c.e. tariff act. therefore the determination of any question under section 105(2) of the vat act, can t in our view be made, without due application of mind, to the implication of the entries of the c.e. tariff act. 17. moreover the item sodium silicate as is understood in common parlance (glass frit or compounds of rare earth metals) is also required to be considered in determination on the taxability of the product, as was represented by the manufacturer association. of course we are mindful of the fact that the association s representation dated 6.6.2005 may not be construed as an application under sub-section (2) of section 105 of the vat act, as the same is not in the prescribed format (form no.76) of rule 57 of the assam value added tax rules, 2005 (hereinafter referred to as the the vat rules ). 18. however we notice that the commissioner has ample power to decide the issue under sub-section (6) of section 105 of the vat act, as the earlier decision rendered on 5.1.2006 (annexure-c), at the instance of m/s. nilachal chemical (p) ltd. (respondent no.5) was without affording any hearing to the existing manufacturers of sodium silicate, who are the ones who will be adversely impacted by the said ruling of the commissioner. 19. we feel that deciding the higher rate of tax at the instance of a new manufacturer, who is exempted from tax to make the ruling applicable to those who are not exempted from tax was not a correct approach. it is significant that the respondent no.5 was impleaded in this case on 7.1.2015, but although they have secured a major price advantage by not having to pay the 12.5% tax on the same product, they have kept away from the court proceeding although notices were dispatched to them on 24.2.2015, under regd. post with a/d. 20. as earlier noted, the commissioner gave the ruling on 5.1.2006 (annexure-c), at the instance of an exempted party without affording any hearing to the existing manufacturers who are impacted by the said decision. therefore we direct the commissioner of taxes to re-determine the classification and the rate of tax for sodium silicate, by providing a reasonable opportunity of hearing to the association, who made the representation on 6.6.2005. but it is made clear that while determining the rate of tax, all relevant parameters such as the implication of classification of the product under the c.e. tariff act, the chemical composition of the item and its use as an industrial input which are included under part- c of iind schedule of the vat act, how the product is understood in the market and such other factors should also be taken into account. to facilitate this exercise, the petitioners should furnish a copy of this order along with an application in form no.76 of the vat rules and this application should be made the basis for determination of the question posed on the rate of taxability of sodium silicate used as an ingredient to manufacturer other products. it is ordered accordingly. 21. with the above order, the petition stands allowed, without any order as to cost.