2015 (1) TMI 413 - HC - VAT and Sales Tax

Interpretation of term and their compounds - Additive flavour compounds only and synthetic essential oils, fragrances, etc. Held that - Assessee rightly submitted that a composite expression must be construed as a whole and in the words of Bennion, it is incorrect to assume that the whole is necessarily the sum of its parts, because a certain meaning can be collected by taking each word in turn and then combining their several meanings - aromatic chemicals and their compounds are not intended to be treated separately from natural and synthetic essential oils - the use of the conjunction and with the word and their compounds is intended to apply to the compounds of natural synthetic oil and also compounds of aromatic chemicals and natural and synthetic oils - wherever it was intended that the product or derivative chemicals were to be grouped to create a distinct category, specific language has been used. Although in the case of Raw materials it is seen that the expression and their compounds is applicable only to the natural and synthetic essential oils but not applicable to fragrance and flavour chemicals or industrial flavours and fragrance in concentrated form - a perusal of the definition of Aromatic Chemicals, Essential Oil and Essential Oil, Synthetic reveals that they can be combined with each other - Essential Oil Synthetic is shown as a composition of natural essential oils and aromatic chemicals etc. - The Tribunal was justified in negating the revenue s interpretation of the word and their compounds in schedule entry C-I-19 covers only the compounds of natural and synthetic oil and essential oils, to the exclusion of aromatic chemicals thus, the perfumery compounds are compounds of aromatic chemicals within the meaning of entry C-I-19 and in view thereof, the perfume is covered under C-II-86 Decided against petitioner revenue.

Summary

Issues Involved:
1. Interpretation of the words "and their compounds" in Schedule Entry C-I-19.
2. Tax liability of flavouring compounds under Schedule Entry C-I-19.
3. Tax liability of perfumery compounds under Schedule Entry C-I-19 versus C-II-86.

Detailed Analysis:

Issue 1: Interpretation of "and their compounds" in Schedule Entry C-I-19
The primary issue was whether the Tribunal was justified in interpreting the words "and their compounds" in Schedule Entry C-I-19 to include compounds of aromatic chemicals as well as natural and synthetic essential oils. The Tribunal concluded that the entry should be read to cover compounds of both aromatic chemicals and essential oils. The Tribunal's interpretation was based on the principle that if synthetic and natural oils themselves were covered by C-I-19, there was no need to specify that compounds of such oils would also be covered. Thus, the term "their compounds" was intended to include compounds of aromatic chemicals and essential oils.

Issue 2: Tax liability of flavouring compounds under Schedule Entry C-I-19
The Tribunal held that flavouring compounds were taxable at 4% under Schedule Entry C-I-19 for the periods from 1-1-1988 to 11-8-1988 and during 1994-95. The Tribunal rejected the revenue's argument that Entry C-I-19 only covered compounds sold as single entities in almost pure form. The Tribunal applied the principle of noscitur a sociis, interpreting the terms "culinary and flavouring" as a composite expression, meaning that flavouring compounds not used directly in cooking but as raw materials in industries like pharmaceuticals and confectionery should fall under C-I-19.

Issue 3: Tax liability of perfumery compounds under Schedule Entry C-I-19 versus C-II-86
The Tribunal determined that perfumery compounds are compounds of aromatic chemicals within the meaning of Schedule Entry C-I-19 and thus taxable at 4% for the period from 1-1-1988 to 31-3-1995. The Tribunal applied the test of common commercial/trade parlance and referred to the Indian Standard Glossary, which defines "perfumery compound" as a concentrated base further diluted for various end uses, distinct from "perfume," which is for personal use. The Tribunal concluded that perfumery compounds used in industries for making soaps, cosmetics, etc., do not fall under Entry C-II-86, which covers perfumes used directly on the human body.

Conclusion:
The Tribunal's interpretation of Schedule Entry C-I-19 to include compounds of aromatic chemicals and essential oils was upheld. Flavouring compounds and perfumery compounds were found to be taxable at 4% under C-I-19 for specified periods. The Tribunal's decision was in favor of the assessee and against the revenue, and the writ petitions were disposed of accordingly. The bank guarantees furnished by the Petitioners were discharged following the judgment.