2001 (9) TMI 1115 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of the product under the Tamil Nadu General Sales Tax Act.
2. Historical taxation and classification of the product.
3. Legitimacy of the Commissioner's reclassification of the product.
4. Applicability of the residuary entry for taxation.
5. Interpretation of the term "detergent" in the context of the tax entry.

Issue-wise Detailed Analysis:

1. Classification of the product under the Tamil Nadu General Sales Tax Act:
The petitioners manufacture and market a powder under the brand name "Sabena," which contains detergent Alkyl Benzene sulphonic Acid, moisture, and volatile matters, with the majority being water-insoluble abrasives. This product, used primarily for cleansing utensils, was historically classified under entry 37 of the Tamil Nadu General Sales Tax Act, which included various descriptions of soaps and detergents over the years.

2. Historical taxation and classification of the product:
Scientific Compounds and Process Private Limited started manufacturing the product before 1965, and it was taxed under entry 37, initially described as "soaps." The entry evolved to include "detergent powders and liquids" and other cleaning agents. From 1965 to 1993, the product was consistently taxed under this entry. The tax rates varied over the years, with specific rates for machine-made and hand-made products.

3. Legitimacy of the Commissioner's reclassification of the product:
In 1993, the Commissioner reclassified the product, claiming it was neither a soap nor a detergent, thus subject to taxation under the residuary entry. This reclassification was a significant departure from the previous 25 years of consistent classification and treatment by the State, which had always regarded the product as falling within the scope of "soap" or "detergent powder."

4. Applicability of the residuary entry for taxation:
The Supreme Court's precedent in Bharat Forge and Press Industries (P) Ltd. v. Collector of Central Excise dictates that the residuary entry should only be used if the product cannot be classified under any specific entry. The Court found that the cleansing powder could reasonably be classified under entry 37 due to its detergent properties, even though it contained abrasives.

5. Interpretation of the term "detergent" in the context of the tax entry:
The term "detergent" was interpreted broadly by the State for over 25 years, including products with cleansing properties, even if they contained abrasives. The Court noted that the State did not rely on the technical definition of "detergent" but rather on the product's function as a cleansing agent. The historical and consistent view of the State supported the inclusion of the product under the term "detergent" in entry 37.

Conclusion:
The Court concluded that the cleansing powder manufactured by the petitioners should be classified under entry 37, which includes soaps and detergents, until March 12, 1993, and thereafter under entry 18 of Part B. The Commissioner's reclassification and the application of the residuary entry were deemed legally impermissible. The consistent historical classification by the State and the broad interpretation of the term "detergent" supported the petitioners' position. The writ petitions were allowed, and the product was to be taxed under the specified entries rather than the residuary entry.