1969 (2) TMI 171 - HC - VAT and Sales Tax

Summary

Issues:
1. Classification of Tinopal as a chemical for sales tax assessment under the U.P. Sales Tax Act for the years 1958-59 and 1959-60.

Detailed Analysis:
The case involved a dispute regarding the classification of Tinopal for sales tax assessment purposes under the U.P. Sales Tax Act for the assessment years 1958-59 and 1959-60. The Sales Tax Officer initially treated Tinopal as a chemical and taxed its turnover at one anna per rupee. The assessee contended that Tinopal should be taxed at three pies per rupee, not as a chemical. The Judge (Appeals) Sales Tax accepted the assessee's plea, but the Additional Judge (Revisions) Sales Tax overturned this decision and restored the assessment orders. The main question was whether Tinopal fell under the category of "chemicals of all kinds" in a specific notification issued by the State Government, which imposed a tax rate of one anna per rupee on such goods.

The State Government, through Notification No. ST-905/X dated 31st March 1956, had declared that the turnover of "chemicals of all kinds" would be taxed at one anna per rupee. The Additional Judge (Revisions) referred to a booklet issued by the manufacturer of Tinopal, which described Tinopal as an optical whitening agent used to improve the whiteness of textiles. The booklet highlighted the chemical properties and uses of Tinopal, indicating that it was indeed used as a chemical agent. The court emphasized that the commercial understanding and consumer perception of a product are crucial in determining its classification for tax purposes.

The court applied the principle that words in a taxing provision should be interpreted based on their meaning in commercial circles. It concluded that Tinopal, based on its chemical properties and common usage as a whitening agent in textiles, fell under the category of "chemicals of all kinds" in the notification. Therefore, for the assessment years 1958-59 and 1959-60, Tinopal was deemed a chemical subject to tax at the rate of one anna per rupee. The court also assessed the costs of the Commissioner of Sales Tax and counsel's fee at a specific amount.

In a separate judgment, another judge concurred with the decision but limited the answer to the question to the assessment years in question only. The judge acknowledged that while Tinopal was commonly used as a washing material, its classification as a chemical was appropriate under the prevailing tax regulations. The absence of a separate classification for washing materials during the relevant assessment years led to Tinopal being considered a chemical for tax purposes.

Ultimately, the court unanimously held that for the assessment years 1958-59 and 1959-60, Tinopal was classified as a chemical liable to tax at the rate of one anna per rupee, based on its chemical properties and usage as an optical whitening agent in textiles.