2005 (10) TMI 509 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Determination of the correct rate of tax on the sale of stainless steel water filters.
2. Classification of stainless steel water filters as either "stainless steel utensils" or "stainless steel articles."
3. Applicability of the exemption notification under section 41 of the Bombay Sales Tax Act, 1959.

Issue-wise Detailed Analysis:

1. Determination of the Correct Rate of Tax:

The respondent, a manufacturer of stainless steel articles, sought determination of the correct rate of tax on the sale of stainless steel water filters. The respondent contended that the water filter was a stainless steel utensil covered by Schedule entry C-II-46 and notification entry No. 145(1), attracting a tax rate of 1%. The Commissioner of Sales Tax, however, classified the water filter under the residual entry C-II-102, attracting a tax rate of 10%. The Tribunal later upheld the respondent's contention, classifying the water filter as a utensil under entry C-II-46, thus attracting a 1% tax rate. The Revenue sought the High Court's opinion on whether the Tribunal's classification was justified.

2. Classification of Stainless Steel Water Filters:

The main issue was whether the stainless steel water filter should be classified as a "stainless steel utensil" or a "stainless steel article." The Revenue argued that the water filter, used in various places beyond the kitchen, could not be equated with stainless steel utensils. They contended that the water filter's primary function was filtration, not storage, and thus it should be classified as a stainless steel article, attracting a higher tax rate. The respondent, on the other hand, argued that the water filter was marketed and used as a kitchen utensil, primarily for storing drinking water, and should be classified as such, attracting a lower tax rate.

3. Applicability of Exemption Notification:

The High Court examined the scope of entry C-II-46 and notification entry No. 145(1). Entry C-II-46 covered "stainless steel articles and utensils other than those specified elsewhere." Notification entry 145(1) provided a reduced tax rate for "stainless steel utensils used for household purposes" for a specific period. The Court noted that the exemption notification was narrower and intended to reduce the tax burden on items frequently used in household kitchens. The Court emphasized that exemption notifications should be strictly construed, and any benefit of doubt should favor the Revenue. The Court concluded that the stainless steel water filter, used beyond household purposes and primarily for filtration, did not fall under the exemption notification and should be classified as a stainless steel article, attracting a higher tax rate.

Conclusion:

The High Court ruled in favor of the Revenue, stating that the stainless steel water filter did not qualify as a utensil under the exemption notification. The Court held that the water filter should be classified as a stainless steel article, attracting a 10% tax rate, and answered the reference in favor of the Revenue.