2010 (6) TMI 688 - HC - Service Tax

Whether in the facts and circumstances of the case, the respondent-authority was justified in holding that ammonia in aqueous solution is chargeable at 12.5% although ammonia in aqueous solution is nothing but ammonia anhydrous mixed with water? Held that - There is a conscious exclusure of ammonia aqueous solution from the list of industrial inputs as per the notification dated 30-4-2005. As such, the same is not to be taxed at 4%, but under the general category at 12.5%. Therefore, the reference made to Circular No. 236/70/96-CX. dated 1-8-1996 issued by the Ministry of Defence, Department of Revenue, Central Board of Excise and Customs with regard to conversion of anhydrous ammonia into liquor ammonia and as to whether it amounts to manufacture has no relevance. Therefore, reference is made by the counsel for the appellant to the circular. Hence, the Authority of Advance Ruling was justified in holding that the product, ammonia, anhydrous is different from ammonia in aqueous solution and thereby the rate of tax would be different i.e., 12.5% for the latter and 4% for the former product. Accordingly, the said order does not call for any interference in this appeal. Hence, the substantial question of law is answered in favour of the revenue and against the assessee.

Summary

Issues:
Interpretation of tax rate applicability on Ammonia Anhydrous and Ammonia Aqueous Solution under the KVAT Act, 2003.

Analysis:
1. The appellant, a registered dealer under the KVAT Act, challenged an order by the Authority for Clarification and Advance Ruling regarding the tax rate applicability on Ammonia Anhydrous and Ammonia Aqueous Solution. The appellant sought clarification on whether both products are the same and should be taxed identically.

2. The Authority for Advance Ruling held that the products are different in nature and, therefore, fall under different tax categories. The appellant contended that despite a subsequent notification excluding "aqueous solution," the products are the same, and only a 4% tax should apply. The appellant argued that the Authority did not consider the notification properly and misunderstood the purpose of adding water to convert Ammonia Anhydrous into Aqueous Solution.

3. The respondent, supported by the Assistant Commissioner of Commercial Taxes, argued that the products serve different purposes and are distinct. The subsequent notification clearly intended to differentiate between the two products for tax purposes, justifying the varied tax rates.

4. The Court examined the notifications issued by the State Government and noted the exclusion of "aqueous solution" in the later notification. It emphasized that the deletion of this term indicated a conscious decision to tax Ammonia Aqueous Solution differently at 12.5% instead of the previous 4%. The Court highlighted that the Central Excise Tariff Act references supported this distinction, reinforcing the tax variance based on the products' categorization.

5. The Court dismissed the appeal, upholding the Authority's ruling that Ammonia Anhydrous and Ammonia Aqueous Solution are distinct products subject to different tax rates. The judgment favored the revenue authority, concluding that the tax rate for Ammonia Aqueous Solution should be 12.5%, while Ammonia Anhydrous remains taxed at 4%.