2016 (10) TMI 15 - HC - VAT and Sales Tax

Classification of goods - Enzymes - classified under the entry of the chemical under Notification No.1084 dated 25.02.2003 taxable @ 4% - to be treated as an unclassified item liable to tax @ 10% - enzyme treated as chemical or protein? - Held that - An enzyme is in the nature of chemical substance which acts upon a protein and helps in the process of absorption of food by converting the sugars and starch into energy for the body. In common parlance also an enzyme is understood to be a catalyst agent which helps in the break-up of food in the intestines and leads to better digestion. It is well settled in law that while interpreting a classification it is the word an item as is understood in common parlance which is to be taken into account. The decision in the case of State of Madhya Pradesh vs. Marico Industries Ltd. 2016 (7) TMI 1057 - SUPREME COURT is relied upon. Enzyme a chemical under Notification no.1084 dated 25.02.2003 to be chargeable to tax as chemical @ 4% - revision dismissed - decided against Revenue.

Summary

Issues:
Classification of "Enzymes" under the entry of chemicals for tax purposes.

Analysis:
The revision filed by the State challenges the Tribunal's decision confirming the classification of "Enzymes" under the entry of chemicals for tax purposes at 4%, instead of as an unclassified item taxed at 10%. The key question is whether enzymes fall under the category of chemicals as per Notification No.1084 dated 25.02.2003. The State argues that enzymes are proteins and should be taxed at 10%, not as a chemical. However, the assessee relies on the Mauri Yeast India Pvt. Ltd. case where the Apex Court classified yeast (similar to enzymes) as a chemical based on expert opinions and dictionary meanings.

The State contends that enzymes are proteins, but the definitions of enzymes and proteins suggest that enzymes are catalysts that initiate chemical reactions. The State fails to provide evidence supporting the exclusion of enzymes from the classification of chemicals. The burden of proof lies with the department to establish why enzymes should not be considered chemicals, which they failed to do. The expert opinion presented by the assessee was not rebutted by the State, further supporting the classification of enzymes as chemicals.

The Court examines various definitions of enzymes, proteins, amino acids, and catalysts to conclude that enzymes are chemical substances that act upon proteins for food absorption. Common parlance understanding of enzymes as catalyst agents aiding digestion is crucial in determining their classification. Referring to the State of Madhya Pradesh vs. Marico Industries Ltd. case, the Court emphasizes the common parlance test in classification. Consequently, the Tribunal's decision to tax enzymes as chemicals at 4% is upheld, dismissing the revision with no costs.

In summary, the judgment affirms the classification of "Enzymes" as chemicals for tax purposes at 4%, based on expert opinions, definitions, and common understanding, rejecting the State's argument that enzymes should be considered proteins and taxed at 10%. The Court's decision aligns with established legal principles and precedents, emphasizing the importance of common understanding in interpreting classifications.