1991 (6) TMI 230 - HC - VAT and Sales Tax

Summary

Issues:
Interpretation of sales tax entry for linear alkyl benzene (LAB) under Gujarat Sales Tax Act, 1969.

Analysis:
The case involved a sales tax reference by the Revenue concerning the classification of linear alkyl benzene (LAB) for tax purposes under the Gujarat Sales Tax Act, 1969. The opponent-assessee, a government corporation, sold LAB to a company, prompting a dispute over the applicable tax entry. The Deputy Commissioner initially classified LAB under Entry 9 of Schedule II, Part A as a chemical. However, the Tribunal reversed this decision, categorizing LAB as a petroleum product falling under Entry 32 of Schedule II, Part A.

The core issue revolved around whether LAB constituted a petroleum product under the relevant tax entry. The High Court analyzed the composition of LAB, consisting of kerosene and benzene, both acknowledged as petroleum products. The court emphasized that the mere combination of two petroleum products to create a new product does not negate its classification as a petroleum product. Drawing a parallel from a Supreme Court decision, the court highlighted that the origin of the raw materials, in this case, petroleum products, determines the classification of the end product.

Furthermore, the court addressed the argument that kerosene's exclusion from the definition of petroleum products in Entry 32 should disqualify LAB from being classified as a petroleum product. However, the court clarified that this exclusion was related to tax treatment rather than the product's fundamental classification. The court emphasized industry understanding and historical tax treatment, noting that excise authorities had previously classified LAB as a petroleum product for taxation purposes.

Ultimately, the court concluded that LAB, being derived from petroleum products and recognized as a petrochemical, should be classified as a petroleum product under the relevant tax entry. The judgment highlighted that the manufacturing process involving petroleum products does not alter the fundamental nature of the end product. As a result, the reference was answered in favor of the assessee, affirming LAB's classification as a petroleum product for tax purposes.