2011 (3) TMI 1396 - HC - VAT and Sales Tax

Whether cutting oil is classifiable under entry 34 of Schedule II, Part A or under entry 15 of Schedule E, Part A of the Gujarat Sales Tax Act, 1969 or under any other entry thereof - Held that - product of the assessee is commonly known as coolant in the commercial as well as common parlance. The invoices produced by the assessee evidencing sale of the product in question indicate that the same has been sold as coolant and not as a lubricant, merely because the product also has a lubricating effect, cannot be classified as lubricant under entry 15 of Schedule II, Part A to the Act, sale of cutting oil is classifiable under entry 34 of Schedule II, Part A of the Gujarat Sales Tax Act, 1969, reference stands disposed of accordingly

Summary

Issues Involved:
1. Classification of "cutting oil" under the Gujarat Sales Tax Act, 1969.
2. Application of the common parlance test in tax classification.
3. Determination of the correct rate of tax for "cutting oil."

Issue-wise Detailed Analysis:

1. Classification of "cutting oil" under the Gujarat Sales Tax Act, 1969:
The central issue was whether "cutting oil" should be classified under entry 34 of Schedule II, Part A of the Gujarat Sales Tax Act, 1969, as "petroleum products" or under entry 15 as "lubricants." The respondent, a government company, argued that "cutting oils" such as "Koolkut" and "Trimofin" are primarily coolants used in metal cutting and machining operations and not intended for lubrication. The Deputy Commissioner of Sales Tax initially classified the product as a "lubricant," but the Tribunal later reclassified it as a "petroleum product."

2. Application of the common parlance test in tax classification:
The Tribunal applied the common parlance test, supported by Supreme Court rulings in cases such as *Indo International Industries v. Commissioner of Sales Tax, Uttar Pradesh* and *Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan*. The test dictates that terms in tax statutes should be understood as they are in common or commercial parlance, not by their scientific or technical meanings. The Tribunal found that "cutting oils" are commonly known and used as coolants, not lubricants.

3. Determination of the correct rate of tax for "cutting oil":
The Tribunal's decision was influenced by the primary function of "cutting oils" as coolants. The evidence showed that the oils were marketed and used primarily for cooling and rust prevention in industrial processes, with any lubricating effect being secondary. Therefore, the Tribunal concluded that "cutting oils" should be taxed under entry 34 of Schedule II, Part A as "petroleum products" at the rate of 5% ad valorem, rather than under entry 15 as "lubricants."

Conclusion:
The High Court affirmed the Tribunal's decision, highlighting that the predominant function of "cutting oils" is as coolants, and thus they should be classified and taxed accordingly under entry 34 of Schedule II, Part A of the Gujarat Sales Tax Act, 1969. The reference was answered in the affirmative, validating the Tribunal's classification and tax determination.