2014 (11) TMI 204 - HC - VAT and Sales Tax

Classification of goods - whether the item polystik compound or the rain guard compound can be classified as an adhesive or a rain guard coat or a chemical for the protection of plants - Held that - The very process of rain guarding, as mentioned above, shows that a thin coating of a bitumen-based adhesive is smeared on the scraped portion of the trunk of the rubber tree. Then a frilled polythene skirt like material is put, which is covered with a kora cloth and then both kora cloth and polythene cover are stapled to keep it in the proper place and again another coating of adhesive is applied so as to keep the rain guard leak proof. As we understand from this literature, bitumen based compound is mainly used for the rain guarding of rubber trees, because of its high quality of adhesive nature. No doubt, water proofing quality is also one of the properties of the product, but, the fact that, it is used below the polythene sheet and again above the polythene sheet would only indicate that to safeguard the placement of the polythene sheet and kora cloth over the scrapped portion of the trunk of the rubber tree, this product is used. If it is used for the main purpose of coating on scrapped portion of the rubber plant, there was no reason why the second coating is applied on the polythene and kora cloth, as the protection is intended to the rubber plant because a leak proof material is put above the scrapped portion. Therefore, the very exercise how this compound is used during rain guarding process indicates only as a double proof to see that no water enters the scrapped bark of the rubber tree, they make the polythene guard as the skirt affixed to the trunk with double layers of rain guarding compound. The literature in local language (Malayalam) published by the Rubber Board, refers to the rain guarding compound as an adhesive product for the purpose of rain guarding during the rainy season. By no stretch of imagination, the entire process of rain guarding refers to the user of rain guard compound as a chemical or a water proof. If this has to be used as a water proof, then there is no use of polythene and kora cl to affix the polythene material to the rubber plant as such. Therefore, the entire process, what we understand from the literature and also how the product is marketed, would only indicate, that it is marketed as a strong adhesive compound rather than anything else. Therefore, the predominant use of the product would come into play and one has to go by the predominant use of the product rather than other incidental uses of the product in question. In none of the literature, it refers the user of the product as a plant protector, though, at some places, it says, the bitumen can be used as a water proof material. So far as the predominant use of the material and how it has to be dealt with is concerned, we refer to Appplico v. State of Kerala 1999 (12) TMI 844 - KERALA HIGH COURT - the product in question is to be classified as an adhesive and it is neither a plant protection chemical nor a water proof material - decided in favour of Revenue.

Summary

Issues Involved:
1. Classification of the item "polystik compound" as an adhesive, rain guard coat, or plant protection chemical.

Detailed Analysis:

Issue 1: Classification of Polystik Compound

Background and Reference:
The case involves two revision petitions concerning the classification of "polystik compound" or "rain guard compound." The primary issue is whether this item should be classified as an adhesive, rain guard coat, or a chemical for plant protection. The matter was referred to a Full Bench due to conflicting judgments by two Division Benches.

Arguments by Government Pleader:
The Government Pleader argued that the predominant use of the rain guard compound is as an adhesive. The Rubber Board's literature on rain guarding indicates that the compound is used primarily to affix polythene material and kora cloth to the rubber tree trunk to prevent water from entering the tapping area during the rainy season. The process involves applying the compound both below and above the polythene cover, emphasizing its adhesive properties.

Arguments by Respondents:
The respondents contended that despite the adhesive qualities of the product, its primary function is to act as a water-proof material to prevent water seepage, thereby protecting the rubber tree from decay and fungus during the rainy season. They relied on certificates from authorities and argued that the product should be classified based on its usage as understood in common parlance.

Previous Judgments:
1. State of Kerala v. Shaji Joseph (2003): The court held that the polystik compound is essentially an adhesive used to fix rain guards on rubber trees. The prevention of water leakage was considered an incidental purpose.
2. Unreported Decision (2004): This judgment classified the rain guard compound as a plant protection chemical based on certificates from experts, which was later found to be lacking in substantial evidence and not referring to the earlier judgment.

Tribunal's Findings:
The Tribunal, after being directed to provide a fact-finding report, concluded that the polystik compound is used primarily as a sealant to prevent water leakage through the plastic rain guard into the tapping panel. However, it did not definitively categorize the compound as either a chemical or an adhesive.

Full Bench Analysis:
The Full Bench examined the literature from the Rubber Board, which described the rain guarding process and the properties of the rain guard compound. The compound, mainly derived from bitumen, was found to possess strong adhesive qualities. The process of applying the compound both below and above the polythene cover reinforced its role as an adhesive rather than a chemical or water-proof material.

Conclusion:
The Full Bench concluded that the polystik compound should be classified as an adhesive. The predominant use of the product is to affix rain guards to rubber trees, ensuring they remain in place during the rainy season. The incidental water-proofing property does not alter its primary function as an adhesive.

Final Judgment:
The Full Bench upheld the decision in State of Kerala v. Shaji Joseph (2003), classifying the polystik compound as an adhesive. The conflicting view in the unreported decision of 2004 was overruled. Consequently, the review petitions were allowed, and the orders of the Tribunal dated January 4, 2002, and November 30, 2002, were set aside.

Summary:
The polystik compound is classified as an adhesive based on its predominant use in the rain guarding process of rubber trees. This classification aligns with the decision in State of Kerala v. Shaji Joseph (2003) and overrules the contrary view in the unreported decision of 2004.