2015 (11) TMI 1077 - HC - VAT and Sales Tax

Classification - Levy of tax on turnover of bitumen emulsion - Levy of penalty when there was confusion about its taxability - Held that - The Supreme Court in the case of Commissioner of Sales Tax U.P. -vs- Lal Kunwa Stone Crusher (P) Ltd. reported in 2000 (3) TMI 58 - SUPREME COURT OF INDIA and Divisional Deputy Commissioner of Sales Tax -vs- Bherhaghat Mineral Industries reported in 1998 (8) TMI 87 - SUPREME Court was of the opinion that entry stone is wide enough to include its various forms such as boulders small stones chips etc. It was of the opinion that stone even after it is crushed or broken would continue to be stone though it may be named as boulder small stone chips gitti etc. Therefore even bitumen after it is transformed into bitumen emulsion is used in the construction of roads for the qualities it has as bitumen. The characteristics of bitumen in its original form continues even after it is converted into bitumen emulsion by firing upon the raw bitumen. Both the products are used for road and construction and maintenance water proofing soil stabilization etc. The bitumen asphalt and bitumen emulsion are used as binder in road construction and maintenance. In that view of the matter the orders passed by the revisional authorities holding that bitumen emulsion is also liable to tax at 5% is just and proper and do not call for interference. First appellate authority was also of the view as bitumen emulsion is not specifically mentioned in the Notification and bitumen emulsion is different from bitumen there is no tax liability. In other words the authorities within the Department are also not clear about the taxability of bitumen emulsion. Under these circumstances if the tax was not paid believing it to be not taxable question of imposing penalty would not arise. Now that the authorities have taken a consistent stand which is now approved by us the tax is payable. If tax is not paid the assessee is not liable to pay penalty. Hence it is open to the authorities to invoke Section 8 of the Act if they choose to recover any interest for delayed payment. - Decided partly in favour of assessee.

Summary

Issues:
1. Classification of Bitumen Emulsion for entry tax levy.

Analysis:

Issue 1: Classification of Bitumen Emulsion for entry tax levy

The case involved a dispute regarding the classification of Bitumen Emulsion for entry tax levy. The appellant, a works contractor, challenged the order passed by the Additional Commissioner of Commercial Taxes, which held that Bitumen Emulsion falls under the broader category of Bitumen and is liable for entry tax at 5%. The appellant argued that Bitumen and Bitumen Emulsion are distinct goods, citing a Madhya Pradesh High Court judgment. However, the first appellate authority quashed the tax levy, stating that Bitumen Emulsion was not specifically mentioned in the relevant notification. The Additional Commissioner initiated suo motu revision proceedings and upheld the tax levy, emphasizing that all petroleum products, including Bitumen Emulsion, are subject to entry tax except for specified exclusions like LPG and aviation fuel. The authority relied on the interpretation of the term "tar and others" in the notification and the usage of Bitumen Emulsion for road construction purposes similar to Bitumen.

The appellant contended that Bitumen and Bitumen Emulsion are commercially different goods and as the latter was not notified, no tax should be levied. Conversely, the State argued, supported by previous judgments, that Bitumen and Bitumen Emulsion serve the same purpose in road construction and are essentially the same material. The State highlighted technical reports showing the similarity in identity, commercial character, and use between Bitumen and Bitumen Emulsion. The court observed that Bitumen Emulsion has the quality of mixing with water, distinguishing it from Bitumen in its original form.

Considering previous judgments on the broad interpretation of entry terms like "stone," the court upheld the tax levy on Bitumen Emulsion at 5%, as it retained the characteristics of Bitumen even after processing. The court also clarified that penalty imposition was not automatic, given the ambiguity surrounding the taxability of Bitumen Emulsion. Ultimately, the court partly allowed the appeal, affirming the tax levy while setting aside the penalty, with the option for authorities to impose interest under Section 8 of the Act if necessary.

In conclusion, the court's judgment clarified the classification of Bitumen Emulsion for entry tax purposes, emphasizing its similarity to Bitumen and justifying the tax levy based on usage and characteristics, while addressing penalty considerations based on the evolving understanding of tax liability in the case.