2010 (4) TMI 688 - HC - VAT and Sales Tax

Steam Classification - Assessing Authority held that the steam was covered by Entry No. 102 of Schedule-C Part-II, as such, not classifiable as chemical - steam was chemical, but there was nothing to indicate that the term steam in common parlance or commercial parlance is considered or treated as chemical - Tribunal rightly held that the steam cannot be classified under the Notification Entry No. 233 as the same was not chemical

Summary

Issues Involved:

1. Classification of steam under the Bombay Sales Tax Act, 1959.
2. Burden of proof regarding the classification of steam as a chemical.
3. Applicability of common parlance test versus scientific definitions.

Issue-wise Detailed Analysis:

1. Classification of Steam:

The primary issue was whether steam should be classified under Notification Entry No. 233, which would subject it to a 4% sales tax, or under Schedule Entry No. C-II-102, which would subject it to a 10% sales tax. The applicant, a manufacturer of Sulpheric Acid and other chemicals, argued that steam, a by-product of their manufacturing process, should be considered a chemical and taxed at 4%. The Assessing Authority, however, classified steam under Schedule Entry No. C-II-102, leading to a 10% tax rate. The Tribunal upheld this classification, stating that steam is not a chemical for the purpose of Notification Entry No. 233.

2. Burden of Proof:

The Tribunal placed the burden on the applicant to prove that steam is a chemical as understood in common parlance. The applicant's contention that steam is a chemical based on scientific definitions and expert opinions was rejected by the Tribunal, which emphasized the need for common parlance evidence. The Tribunal's decision was based on the principle that sales tax laws should be interpreted in a manner consistent with how terms are commonly understood, not necessarily their scientific definitions.

3. Common Parlance Test vs. Scientific Definitions:

The applicant's counsel argued that steam should be classified as a chemical based on scientific definitions and expert opinions. They cited various judgments to support their argument that scientific meaning should be considered in classification. However, the Tribunal and the High Court emphasized the common parlance test, which considers how a term is understood by the general public and in commercial transactions. The Court noted that sales tax laws touch upon everyday life and should be interpreted in a manner that aligns with common understanding. The Court cited multiple precedents, including the Supreme Court's rulings, to support the application of the common parlance test over scientific definitions.

Conclusion:

The Court concluded that steam, in common parlance, is not considered a chemical. It upheld the Tribunal's decision that steam should be classified under Schedule Entry No. C-II-102, subjecting it to a 10% sales tax. The Court emphasized that in the absence of a specific definition in the statute, terms should be interpreted based on their common and commercial understanding. The applicant's reliance on scientific definitions and expert opinions was insufficient to override the common parlance test. Consequently, both questions of law referred to the Court were answered in favor of the Revenue and against the Applicant/Assessee.